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https://www.courtlistener.com/api/rest/v3/opinions/1495818/ | 869 F. Supp. 35 (1994)
BARNSTEAD BROADCASTING CORPORATION, Plaintiff,
v.
OFFSHORE BROADCASTING CORPORATION, Defendant.
Civ. A. No. 94-2167 PLF.
United States District Court, District of Columbia.
December 1, 1994.
*36 *37 Lewis J. Paper, Charles B. Molster, III and Carol A. Joffe, Washington, DC, for plaintiff.
Mary A. McReynolds, Washington, DC, for defendant.
Vincent J. Curtis, Jr., Rossly, VA, for intervenors.
MEMORANDUM OPINION AND ORDER
FRIEDMAN, District Judge.
Barnstead Broadcasting Corporation and Offshore Broadcasting Corporation each held permits issued by the Federal Communications Commission to construct and operate television stations. In November 1990, they entered into a written contract by which they agreed to withdraw the Objections each had filed against construction permit extension applications that the other had filed with the FCC. The parties also agreed in the November 1990 contract to refrain from filing further objections concerning the construction of their respective stations and not to interfere "in any way" with the construction and operation of the other's station.
On June 17, 1994, Barnstead and BAF Enterprises, Inc., executed an assignment agreement pursuant to which Barnstead agreed to assign its construction permit to BAF. The agreement between Barnstead and BAF and an assignment application were filed with the FCC on June 28, 1994. The assignment application was placed on the FCC's public notice on July 11, 1994. On or about August 18, 1994, Offshore filed an Informal Objection to the Barnstead assignment application. Barnstead filed this action on October 10, 1994, and sought a temporary restraining order and preliminary injunction to require Offshore to withdraw its Informal Objection. Plaintiff alleged that Offshore's Objection constituted a breach of a November 1990 contract and effected a delay in FCC action on the assignment application that was likely to cause Barnstead to lose the contract with BAF.[1] The Court, by Opinion and Order dated October 21, 1994, found that a preliminary injunction was warranted and, inter alia, ordered Offshore to withdraw its Informal Objection by the close of business on October 24, 1994.
Offshore withdrew its Objection on October 24, 1994. On October 28, 1994, the Federal Communications Commission approved Barnstead's application to assign its construction permit to BAF. The FCC published a notice of the approval on November 9, 1994, triggering a thirty-day period within which a party may appeal or seek reconsideration of the approval. That period closes on December 9, 1994.
On October 28, 1994, Offshore filed a Motion To Dismiss Barnstead's Complaint for lack of personal jurisdiction and improper venue. On November 3, 1994, Offshore filed a Motion For Clarification Of Preliminary Injunction. On November 7, 1994, Offshore filed a Motion To Dissolve The Preliminary Injunction Or, In The Alternative, For Stay Of Preliminary Injunction Pending Appeal and a Motion To Continue The Rule 26(f)/206 Conference And Report To The Court. On November 21, 1994, Offshore filed a Notice Of Appeal from the Court's October 21, 1994 Order granting the preliminary injunction.
Before addressing any of the four motions filed by Defendant, the Court must first consider the effect of Defendant's Notice of Appeal on the Court's authority to consider the pending motions. The filing of a notice of appeal confers jurisdiction on the court of appeals and divests the district court of its control over those aspects of the case involved in the appeal. United States v. El-O-Pathic Pharmacy, 192 F.2d 62, 79-80 (9th *38 Cir.1951) (per curiam); Common Cause v. Judicial Ethics Comm., 473 F. Supp. 1251, 1254 (D.D.C.1979). When an appeal is taken from an interlocutory order, such as the grant or denial of an injunction, however, the district court retains jurisdiction to act with respect to matters not related to the issues involved in the appeal or when a district court's action would aid in the appeal. Taylor v. Sterrett, 640 F.2d 663, 667-68 (5th Cir.1981); Burns v. County of Cambria, Pa., 788 F. Supp. 868 (W.D.Pa.1991); see generally 9 Moore's Federal Practice, ¶ 203.11 at 3-45 to 3-55 (2d ed. 1992). Transfer of jurisdiction upon appeal is a discretionary rule designed to avoid the confusion and waste of time that would arise if two courts were considering the same issues simultaneously. In the Matter of Thorp, 655 F.2d 997 (9th Cir.1981). With these principles in mind, the Court concludes that it has jurisdiction to decide the pending motions.
In Defendant's Motion To Dismiss the complaint, Offshore argues that the Court lacks personal jurisdiction and that venue is improper in this Court. These arguments were not presented to the Court during the earlier stages of this litigation. Because jurisdiction over the parties is an issue not directly involved in the matters on appeal, the Court retains jurisdiction to address Defendant's motion to dismiss even though a notice of appeal has been filed.
Prior to filing its Motion To Dismiss Defendant filed an opposition to Plaintiff's motion for preliminary injunctive relief and appeared in court to argue against the request for a preliminary injunction. Objections on the basis of personal jurisdiction and venue were not raised either in Defendant's papers or at argument. The purpose of requiring all jurisdictional defenses to be raised promptly is to eliminate unnecessary delays in the early pleading stages of a suit so that all available Rule 12 defenses are advanced before consideration of the merits. Rule 12, Fed.R.Civ.P. While normally raised in a party's answer or by motion, defendants wishing to raise lack of personal jurisdiction or improper venue must do so "in their first defensive move," which may or may not be the filing of an answer or a motion to dismiss. Manchester Knitted Fashions, Inc. v. Amalgamated Cotton Garment Fund, 967 F.2d 688, 691-92 (1st Cir.1992); See also Wyrough & Loser, Inc. v. Pelmor Laboratories, Inc., 376 F.2d 543 (3d Cir.1967); Backo v. Local 281, United Brotherhood of Carpenters and Joiners, 308 F. Supp. 172, 176 (N.D.N.Y.1969), aff'd, 438 F.2d 176 (2d Cir. 1970).
An objection to personal jurisdiction and venue may be waived "by submission [in a cause] through conduct." Manchester Knitted Fashions v. Amalgamated Cotton Garment Fund, 967 F.2d at 692 (citation omitted). "If a party enters a case, makes no objection to [personal] jurisdiction, and asks the court to act on its behalf in some substantive way, it will be held to have waived further objection." Trans World Airlines, Inc. v. Mattox, 897 F.2d 773 (5th Cir.), cert. denied, 498 U.S. 926, 111 S. Ct. 307, 112 L. Ed. 2d 261 (1990) (citation omitted); see also Securities Industry Ass'n v. Board of Gov. of Federal Reserve System, 628 F. Supp. 1438, 1440 (D.D.C.1986) (intervenor cannot participate in lawsuit to protect its interest without submitting to the court's jurisdiction). In Wyrough & Loser, Inc. v. Pelmor Laboratories, Inc., the court explained:
[I]f a defendant appears he may assert lack of jurisdiction over his person either by timely motion or answer. If he appears and fails to file a timely motion or answer, he will be deemed to have waived the defense. But this is not the only manner in which the defense can be waived; ... the defendant may waive the defense by action or conduct other than his voluntary appearance. It is precisely this second ground, i.e., the defendant's conduct or action, on which the district court based its conclusion that there had been a waiver.
376 F.2d at 546. Mattox involved non-parties who filed an opposition to plaintiff's request for a temporary restraining order and participated in the TRO hearing. The court of appeals concluded that they had come voluntarily into court and thus waived any objection to personal jurisdiction. Similarly, in this case, Defendant failed to object to jurisdiction and venue during the preliminary *39 injunction proceedings. It therefore has waived its right to do so now. Defendant's Motion to Dismiss is denied.[2]
Defendant's second motion requests the Court to clarify its preliminary injunction order. The Court retains jurisdiction to decide Defendant's Motion for Clarification because to do so might aid in the appeal. By its motion, Offshore seeks to ascertain whether it would be in violation of the Court's injunction if it provided the FCC and members of the general public and the press with copies of the formal papers filed with the Court in connection with this case. Plaintiff opposes Defendant's request, arguing that Offshore should not be permitted to do indirectly what it may not do directly. Plainly, Offshore seeks to inform the FCC and the public of the reasons for its objections to Barnstead's assignment application. The papers filed in this case are matters of public record, however, and no argument has been made to the Court that would justify any restraint on dissemination of such public filings. Defendant's Motion For Clarification therefore is granted with the proviso that Offshore is not permitted to alter or present the formal filings in this case in a manner that suggests that it is filing an objection to the grant of Barnstead's assignment application or to otherwise violate the letter or spirit of the preliminary injunction.
The Court also retains jurisdiction to address Defendant's third motion, its Motion To Dissolve The Preliminary Injunction Or, In The Alternative, For Stay Of Preliminary Injunction because resolution of the motion will not interfere with the status of the case before the Court of Appeals. A district court plainly has jurisdiction to consider a motion for stay pending appeal. Indeed, Rule 8(a), Fed.R.App.P., requires that a stay pending appeal be brought in the first instance in the district court before such a request is made to the court of appeals. Defendant's motion reasserts the personal jurisdiction and venue arguments disposed of above, as well as arguing that the preliminary injunction was improvidently granted. For the reasons stated in the Court's October 21, 1994 Opinion and Order, and because Defendant has waived its personal jurisdiction and venue objections, the Court denies Defendant's Motion To Dissolve The Preliminary Injunction.
In considering Defendant's request for a stay pending appeal, the Court must weigh: (1) the likelihood that the party seeking the stay will prevail on the merits of the appeal; (2) the likelihood that the moving party will be irreparably harmed absent a stay; (3) the prospect that others will be harmed if the Court grants the stay; and (4) the public interest in granting the stay. Hilton v. Braunskill, 481 U.S. 770, 776, 107 S. Ct. 2113, 2119, 95 L. Ed. 2d 724 (1987); Cuomo v. United States Nuclear Regulatory Comm'n, 772 F.2d 972, 974 (D.C.Cir.1985). In order to obtain a stay, Respondent must demonstrate "either a high probability of success and some injury, or vice versa." Cuomo v. United States Nuclear Regulatory Comm'n, 772 F.2d at 974. Even should Respondent show that irreparable harm would result without the imposition of a stay, if Respondent has not provided a sufficient showing of likelihood of success on the merits of the appeal, the stay will not be granted. Blankenship v. Boyle, 447 F.2d 1280 (D.C.Cir.1971). For the reasons stated in the Court's October 21, 1994 Opinion and Order, and because Defendant has waived its personal jurisdiction and venue objections, Defendant has not demonstrated irreparable harm or a high probability of success on the merits of its appeal.
*40 By this motion, Defendant belatedly requests the Court to restore the status quo as it existed prior to the grant of the preliminary injunction. Since the Court issued the injunction, however, the status quo has changed dramatically. Offshore has withdrawn its Informal Objection and the FCC administrative process has advanced. The FCC granted Plaintiff's assignment application and published a public notice of its approval. The Court cannot return this case to its original condition. It is significant that the Court issued its Order on Friday October 21, 1994, giving Defendant until the close of business on the following Monday, October 24, 1994, so that it might seek a stay before the status quo changed. It did not do so. Indeed, Defendant waited a full 17 days from the date the Court granted the injunction until it sought a stay pending appeal. To stay the injunction pending appeal at this stage would lead to the very delay in the administrative process, and cause the irreparable harm, that the Court sought to prevent by granting Plaintiff's Motion for a Preliminary Injunction. The Court therefore denies Defendant's Motion For Stay Pending Appeal.
Finally, Defendant's Motion To Continue The Rule 26(f)/206 Conference And Report To The Court falls within that category of matters that are unrelated to the appeal. Plaintiff does not oppose a continuance. The Court, therefore, will grant a continuance of the Rule 206 Conference and Report to the Court.
Accordingly, for the reasons stated above, it is hereby
ORDERED that Defendant's Motion to Dismiss Barnstead's Complaint for lack of personal jurisdiction and improper venue is DENIED; it is
FURTHER ORDERED that Defendant's Motion for Clarification of Preliminary Injunction is GRANTED. Defendant may provide the Federal Communications Commission, members of the public and the press with copies of the formal papers filed in this case, all of which are a matter of public record; it is
FURTHER ORDERED that Defendant's Motion To Dissolve The Preliminary Injunction Or, In The Alternative, For Stay Of Preliminary Injunction Pending Appeal and Defendant's request for oral argument on the motion are DENIED; and it is
FURTHER ORDERED that Defendant's Motion To Continue The Rule 26(f)/206 Conference And Report To The Court is GRANTED and the Rule 206 Conference is continued until further order of the Court.
SO ORDERED.
NOTES
[1] The Complaint also contains claims for breach of a 1994 oral agreement, fraudulent misrepresentation and intentional interference with business relations.
[2] Defendant suggests that it had insufficient time to adequately prepare and set forth its jurisdictional defense. Def. Reply to Motion to Dismiss at 9-10. The Court notes that service by hand of the Complaint and preliminary injunction papers was accepted on behalf of Defendant on October 7, 1994. See Pl. Certificate of Service. Defendant was permitted 10 days, until October 17, 1994, rather than the five days specified by Local Rule 205(c), to file its opposition to the motion for preliminary injunction. The hearing was held on October 19, 1994, within 20 days of the filing of the motion for preliminary injunction as required by Local Rule 205(d). No continuance was requested prior to the filing of Defendant's opposition or the hearing on the preliminary injunction. Defendant had sufficient time to apprise itself of the jurisdictional questions so as to raise preliminary matters such as defective service, personal jurisdiction and venue by a motion to dismiss or otherwise. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1742782/ | 848 F. Supp. 340 (1994)
David A. FRERKS, by his Guardian and Father, August FRERKS, SS#: XXX-XX-XXXX, Plaintiff,
v.
Donna SHALALA, Secretary of the Department of Health & Human Services, and Gregory Kaladjian, Commissioner of the New York State Department of Social Services, Defendants.
No. CV 91-1928.
United States District Court, E.D. New York.
March 28, 1994.
*341 *342 *343 Robert, Lerner & Bigler, Rockville Centre, NY, for plaintiff; Charles Robert, of counsel.
Zachary W. Carter, U.S. Atty. E.D.N.Y., Brooklyn, NY, for defendant Donna Shalala; Elliot M. Schachner, Asst. U.S. Atty., of counsel.
G. Oliver Koppell, Atty. Gen., Mineola, NY, for defendant Gregory Kaladjian; Michele M. Woodard, Deputy Atty. Gen., of counsel.
OPINION AND ORDER
SPATT, District Judge:
The plaintiff, David Frerks ("Frerks"), is a mentally handicapped twenty-four year old whose parents have been appointed as his guardians by the Nassau County Surrogate's Court. In 1988 and 1990 respectively, Frerks was denied eligibility for Supplemental Security Income ("SSI") by the United States Secretary of Health and Human Services ("Secretary"), and Medicaid by the New York State Commissioner of Social Services ("Commissioner"). The ground for the eligibility denials was that a medical malpractice settlement received by the plaintiff and held in a guardianship account ordered by the Surrogate's Court was determined by the agencies to be a "resource" available to the plaintiff. By counting the value of the settlement as a resource available to him, the plaintiff exceeded the resource limit for eligibility in these programs set by federal and state statutes. Accordingly, he was disqualified from receiving benefits.
As a result of these eligibility denials, the plaintiff initiated this action for judicial review of the Secretary's actions pursuant to 42 U.S.C. § 405(g). The plaintiff also seeks relief against the Commissioner, based on the allegation that the New York State Department of Social Services ("NYDSS") failed to follow federal and state laws when it denied the plaintiff Medicaid eligibility and additional state funds that supplement SSI payments.
The Secretary and Commissioner move to dismiss the Complaint. The defendant Secretary moves pursuant to Fed.R.Civ.P. 12(c) for a judgment on the pleadings, on the ground that the Secretary's decision to deny the plaintiff SSI is supported by substantial evidence in the record. The defendant Commissioner moves to dismiss the complaint against him pursuant to Fed.R.Civ.P. 12(b), on the grounds of lack of subject matter jurisdiction, failure to state a claim, and failure to join a necessary party to the action, or in the alternative, for summary judgment.
STATUTORY AND REGULATORY FRAMEWORK
The federal Supplemental Security Income program, 42 U.S.C. § 1381 et seq., provides non-medical cash assistance to aged, blind or disabled persons. Under the statute, an aged, blind or disabled person is eligible for SSI if either their monthly income or overall available resources do not exceed certain *344 maximum amounts set forth in the statute and regulations. See 42 U.S.C. § 1382, and 20 C.F.R. § 416 subparts D and K (setting forth criteria for income limits) and 20 C.F.R. § 416.1205 (resource limits). In 1988, the year Frerks was denied eligibility, the maximum amount of resources a disabled individual not residing with a spouse could have available was $1,900. See 42 U.S.C. § 1382(a)(1)(B)(ii), and 20 C.F.R. § 416.1205. If the Department of Health and Human Services ("HHS") determines that either of an individual's available resources or monthly income exceed the prescribed limits, he or she is ineligible for SSI.
The statute does not define the terms "income" or "resource." Instead, the definition of these terms is provided in the regulations promulgated under the statute. With respect to the definition of a "resource," 42 C.F.R. § 410.1201 discusses resources generally, and gives the following definition:
(a) Resources; defined. [R]esources means cash or other liquid assets ... that an individual ... owns and could convert to cash to be used for his or her support and maintenance.
(1) If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource.
The regulation goes on to specifically define liquid and nonliquid resources that an individual owns or could convert to cash in order to use for his or her support and maintenance:
(b) Liquid Resources. Liquid resources are cash or other property which can be converted to cash within 20 days.... Examples of resources that are ordinarily liquid are stocks, bonds, mutual funds shares, promissory notes, mortgages, life insurance policies, bank accounts (savings and checking), certificates of deposit and similar items.
(c) Nonliquid Resources. (1) Nonliquid resources are property which is not converted to cash within 20 days.... Examples of resources that are ordinarily nonliquid are loan agreements, household goods, automobiles, trucks, tractors, boats, machinery, livestock, building and land.
42 C.F.R. § 410.1201(b) and (c).
The NYDSS provides Optional State Supplement ("OSS") payments to SSI recipients as well. Through OSS, also known as "supplemental assistance" and "additional state payments," a state provides additional aid to SSI recipients and to those who do not meet the eligibility standards for SSI. See 42 U.S.C. § 1382e, and New York State Social Services Law § 207 et seq. Although OSS assistance comes almost exclusively from state funds, the federal statute provides that, at a state's request, the federal government will administer the OSS assistance. See generally Oklahoma v. Schweiker, 655 F.2d 401, 404 (D.C.Cir.1981).
New York State has entered into an agreement with the HHS, whereby HHS administers the OSS payments and determines the eligibility of individuals for such payments. See New York State Social Services Law § 211(1); Casey v. New York State Department of Social Services, 56 A.D.2d 72, 391 N.Y.S.2d 173, 176 (2d Dept.1977).
In addition to SSI, the federal Medicaid program, 42 U.S.C. § 1396 et seq., provides medical assistance to those who lack sufficient income and resources to pay for health care. Medicaid is also a joint federal-state program. In order for a state to participate in the Medicaid program, it must create a state plan that complies with the requirements of the federal statute and regulations. See Himes v. Sullivan, 779 F. Supp. 258, 259 (W.D.N.Y.1991), aff'd without opinion 956 F.2d 1159 (2d Cir.1992).
New York State's Medicaid program is entitled the Medical Assistance Program, and is set forth in New York State Social Services Law § 366 et seq., and at 18 New York Code Rules and Regulations ("NYCRR") part 360. Similar to SSI, an applicant whose income or resources are in excess of the standards prescribed in the regulations will be ineligible for Medical Assistance. Specifically with respect to resources, an applicant whose net available resources are in excess of the resource standards will be ineligible for Medical Assistance until they incur medical expenses equal to or greater than the *345 excess resources. 18 NYCRR 360-4.1 and 360-4.8(b). In 1990, the resource limit standard for Medical Assistance eligibility was $3,350 for a single individual.
PROCEDURAL BACKGROUND
1. Background With Respect to Secretary's Denial of SSI Benefits.
According to the pleadings, which include the Administrative Transcript of the SSI benefits eligibility determination, the following chronology summarizes the events that transpired with respect to the Secretary's denial of the plaintiff's SSI eligibility.
The plaintiff's parents applied for SSI benefits on their son's behalf on June 1, 1988. On June 29, 1988 the plaintiff was approved for SSI benefits, and began receiving SSI and Medicaid benefits.
Surrogate Raymond Radigan of the Nassau County Surrogate's Court appointed the plaintiff's parents as his co-guardians on June 8, 1988. The order appointing them as guardians stated that they could not collect or dispose of their son's property "without further order" of the Surrogate's Court.
On September 15, 1988 Frerks received a settlement in a medical malpractice case, and received $333,333 net of the contingent attorney's fee. Pursuant to the Compromise Order approving the settlement dated September 15, 1988 and filed in Nassau County Supreme Court, no withdrawals could be made from the settlement amount without further order of the Surrogate's Court. Frerks's parents notified the HHS and NYDSS of the tort settlement on October 3, 1988.
Frerks's settlement amount was placed into four court-approved bank accounts ("guardianship accounts"). A letter explaining the policy with respect to withdrawals from these accounts was sent to HHS by the Surrogate's Court in April, 1990. The letter stated in part:
The guardian must apply to the court for an order to withdraw funds. All funds are held in joint control and cannot be withdrawn without a court order. The court will only release funds held in guardianship accounts that the court deems necessary for the support, education and medical needs of the respondent.
Frerks's parents were allowed a $700 disbursement per month from one of the guardianship accounts to pay for the support and education of their son.
On March 16, 1990 HHS notified the plaintiff that his SSI benefits were being terminated because of excess resources as of October 1988, and HHS would seek retroactive recovery of benefit payments made since October 1988. Frerks's parents appealed for a reconsideration of the decision to the local Social Security office on March 29, 1990. The ground for the appeal was that Frerks's parents did not have access to the guardianship accounts, as all withdrawals had to be court approved.
On reconsideration, the local Social Security office affirmed the decision to terminate the benefits, stating that the bank accounts could be accessed, and thus were considered a resource available to the plaintiff.
On May 6, 1990, Frerks's parents appealed the reconsideration determination, and requested a hearing before an administrative law judge ("ALJ"). ALJ L. Charles Leonard affirmed the termination of Frerks's SSI benefits on August 23, 1990. In his decision, the ALJ stated:
The record shows that the settlement funds ... cannot be withdrawn without a court order. While the court does not always approve every request for withdrawal, it will release funds held in guardianship accounts that it deems necessary for the support, education and medical needs of [Frerks's].
Under the foregoing facts, I am constrained to find that the settlement funds were available to the claimant for his support and maintenance[.]
The ALJ decided, however, that retroactive recovery by HHS of benefit payments paid to Frerks was not warranted.
The ALJ's decision was appealed to the Secretary's Appeals Council on September 13, 1990. On March 27, 1991 the Appeals Council affirmed the decision of the ALJ, holding that the evidentiary record supported the ALJ's decision that the guardianship *346 accounts were resources available to the plaintiff.
2. Background With Respect to Commissioner's Denial of Medicaid Benefits.
On October 25, 1990, the Nassau County Department of Social Services ("NCDSS") discontinued Medicaid payments to the plaintiff. The reason for the discontinuance was that the plaintiff's non-exempt resources exceeded the medical exemption allowance prescribed for a family of one under the state Medical Assistance program. A fair hearing was held on November 8, 1991 before the Commissioner's designee with respect to the NCDSS's denial of Medicaid benefits to Frerks.
The Commissioner's designee affirmed the decision denying eligibility on December 20, 1991. The designee found that the plaintiff's non-exempt resources exceeded the $3,350 Medical Assistance resource exemption for a household of one, because the funds from Frerks's medical malpractice settlement were available to Frerks, albeit upon application to the Surrogate's Court.
While an appeal of the fair hearing decision to the Commissioner was pending, the plaintiff also petitioned the Surrogate's Court for leave to transfer the assets in the guardianship accounts to a Supplement Needs Trust Fund ("SNT"), thereby making the funds unavailable for purposes of Medicaid eligibility. Surrogate Radigan denied the petition on August 7, 1992, on the ground that such a trust would contravene the spirit and intent of the Medicaid laws by shielding resources that are above the eligibility limits. See In the Matter of Frerks, No. 254649 (Surrogate's Ct. Nassau Cty, Aug. 7, 1992). The Surrogate also denied the plaintiff's motion for a rehearing.
3. The Plaintiff's Complaint.
After the final decision by the Secretary, and during the pendency of his appeal to the Commissioner regarding the denial of Medicaid benefits by the NCDSS, the plaintiff initiated this action on May 29, 1991 pursuant to the judicial review provisions of the Social Security Act, 42 U.S.C. § 405(g). That section allows for federal court review of a final action taken by the Secretary.
Except for two paragraphs directed at the then Commissioner Cesar Perales, all of the allegations in the Complaint are directed at the Secretary's actions. With respect to the Commissioner, the Complaint alleges the following:
19. On October 25, 1990, defendant PERALES denied Medical Assistance to plaintiff because defendant PERALES concluded that the tort assets were an "available resource."
. . . .
26. Defendant PERALES has a policy and practice of ignoring State Court orders by delegating the administration of Optional State Supplement funds to the Secretary and thereby abdicating his State Constitutional duty to comply with both State and Federal Court decisions.
The gravamen of the Complaint is that the Secretary and Commissioner erred in deciding that the guardianship accounts were an available resource to the plaintiff for purposes of SSI and Medicaid eligibility. Instead, the plaintiff contends that the Surrogate's Order restricts the use of the guardianship account funds so that those funds are not available to the plaintiff. Moreover, the plaintiff alleges that the defendants should have followed the rule espoused in Navarro by Navarro v. Sullivan, 751 F. Supp. 349 (E.D.N.Y.1990). In Navarro, the court held that a tort settlement, which could not be used for medical costs or maintenance needs for which public funds were available, did not constitute a "resource" available to a mentally handicapped plaintiff for purposes of SSI eligibility.
The plaintiff requests that the Secretary's and Commissioner's determinations of ineligibility be vacated. The plaintiff also seeks retroactive payment of benefits from the time of plaintiff's initial application for SSI and Medicaid benefits. Furthermore, the plaintiff requests that the Court order the defendants to acquiesce to (i) the Surrogate's Order with respect to the non-availability of the plaintiff's guardianship accounts, and (ii) the holding of Navarro. Finally, the plaintiff *347 requests that the Court order the Secretary to rescind an HHS interpretive guideline regarding how local Social Security officials are to determine whether a certain asset is a "resource."
MOTIONS BEFORE THE COURT
There are two motions before the Court. In the first, the Secretary moves for a judgment on the pleadings affirming the Secretary's decision, pursuant to Rule 12(c). In the second motion, the Commissioner moves to dismiss the Complaint (i) pursuant to Rule 12(b)(1) on the ground of lack of subject matter jurisdiction, (ii) pursuant to Rule 12(b)(6) for failure to state a claim, and (iii) pursuant to Rule 12(b)(7) and Rule 19(a) for failure to name the NCDSS as a party in this action. In the alternative, the Commissioner moves for summary judgment in his favor pursuant to Rule 56.
The Secretary contends that this Court is limited to inquiring whether the Secretary's determination is supported by substantial evidence in the record. According to the Secretary, the decision to deny SSI eligibility to Frerks should be affirmed, because the ALJ applied the proper legal standard in determining that the guardianship accounts were a resource available to the plaintiff, and there was substantial evidence in the record to support the determination.
The Secretary also contends that the ALJ's decision is supported by the HHS's interpretive guidelines to local Social Security officials for use in determining whether a particular asset is a "resource", which are set forth in the July, 1990 Social Security Program Operation Manual System ("POMS").
Finally, the Secretary argues that Navarro is inapposite to the facts of this case, because the provisions of the tort settlement order in that case proscribed the use of the settlement funds for the support and maintenance of the plaintiff.
Alternatively, the Secretary argues that her decision must be affirmed because the plaintiff is ineligible for SSI on the grounds that his "income" exceeds the statutory maximum of $386 a month.
The Commissioner contends that it is not apparent from the Complaint exactly what action by the Commissioner the plaintiff is challenging in this case. With respect to the allegation concerning the denial of Medicaid benefits, the Commissioner contends that the plaintiff initiated this action without exhausting his state judicial remedies pursuant to Article 78 of the New York CPLR. As a result, the Commissioner alleges that the plaintiff is precluded from bringing this action in the federal court.
Second, with respect to the allegation that the Commissioner has abdicated his duty to administer the Optional State Supplemental funds program in accordance with the federal regulations, the Commissioner contends that the plaintiff has failed to state a claim against him. Pursuant to section 211(1) Of the State Social Service Law, the Commissioner has, by agreement, delegated all questions of SSI eligibility to the HHS.
Third, the Commissioner argues that the Complaint should be dismissed because the NCDSS has not been named as a party defendant. According to the Commissioner, the NCDSS is a necessary party and complete relief cannot be given in this case unless it is joined pursuant to Rule 19(a).
DISCUSSION
The Court will separately discuss the issues raised in this case with respect to each of the defendants, after stating the standard of review applicable to a motion for judgment on the pleadings and for summary judgment.
Judgment on the Pleadings
Judgment on the pleadings is appropriate where material facts are undisputed and a judgment on the merits is possible merely by considering the contents of the pleadings. Sellers v. M.C. Floor Crafters, Inc., 842 F.2d 639, 642 (2d Cir.1988). In considering a motion for judgment on the pleadings, the court must accept as true all of the non-movant's well pleaded factual allegations, and draw all reasonable inferences therefrom in favor of the non-movant. DeSantis v. United States, 783 F. Supp. 165, 168 (S.D.N.Y.1992). Unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his or her claim which would entitle the plaintiff to relief, the court can not grant a defendant's motion for judgment *348 on the pleadings. George C. Frey Ready-Mixed Concrete, Inc. v. Pine Hill Concrete Mix Corp., 554 F.2d 551, 553 (2d Cir.1977).
In its discretion and upon notice to the parties, a court may consider materials outside the pleadings. If it does so, the motion for judgment on the pleadings is treated as one for summary judgment. Sellers, 842 F.2d at 642.
In considering the Secretary's motion, the Court has considered the Complaint, Answer and Administrative Transcript, and has not looked beyond the pleadings.
Summary Judgment Standard
A court may grant summary judgment "only if the evidence, viewed in the light most favorable to the party opposing the motion, presents no genuine issue of material fact," Cable Science Corp. v. Rochdale Village, Inc., 920 F.2d 147, 151 (2d Cir.1990), and the movant is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986); see also Fed.R.Civ.P. 56(c).
Once a party moves for summary judgment, in order to avoid the granting of the motion, the non-movant must come forward with specific facts showing that a genuine issue for trial exists. Western World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir.1990) (quoting Fed.R.Civ.P. 56(e); National Union Fire Ins. Co. v. Turtur, 892 F.2d 199, 203 (2d Cir.1989). A genuine issue of material fact exists if "a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S.Ct. at 2510; Converse v. General Motors Corp., 893 F.2d 513, 514 (2d Cir.1990). The Court must resolve all ambiguities and draw all reasonable inferences in the light most favorable to the party opposing the motion. See Twin Laboratories, Inc. v. Weider Health & Fitness, 900 F.2d 566, 568 (2d Cir.1990). If there is evidence in the record as to any material fact from which an inference could be drawn in favor of the non-movant, summary judgment is unavailable. Rattner v. Netburn, 930 F.2d 204 (2d Cir.1991).
In the Court's view, there are no genuine issues of material fact in dispute. Rather, the parties' dispute concerns whether the Secretary and Commissioner applied the correct legal standard set forth in the applicable federal statute and regulations, when they determined that the plaintiff was not eligible for SSI and Medicaid benefits because his tort settlement funds were a "resource" available to him for support and maintenance.
A. Claims Against The Secretary.
1. The Secretary's Decision is Supported by Substantial Evidence.
The Court may set aside the Secretary's determination only if it is based upon legal error, or is not supported by substantial evidence in the record as a whole. Cruz v. Sullivan, 912 F.2d 8, 11 (2d Cir. 1990); Berry v. Schweiker, 675 F.2d 464, 467 (2d Cir.1982). Substantial evidence is defined as what a reasonable mind might accept as adequate to support a conclusion. Such evidence is more than a scintilla, but less than a preponderance of the evidence. Richardson v. Perales, 402 U.S. 389, 401, 91 S. Ct. 1420, 1427, 28 L. Ed. 2d 842 (1971).
Moreover, as long as the Secretary's view is supported by substantial evidence, this Court cannot substitute its judgment for that of the Secretary's. Parker v. Harris, 626 F.2d 225, 232 (2d Cir.1980).
In determining that the plaintiff's trust fund was a "resource" available to the plaintiff, the ALJ decided that the funds, while "blocked," were still available to the plaintiff:
The record shows that the settlement funds ... cannot be withdrawn without a court order. While the court does not always approve every request for withdrawal, it will release funds held in guardianship accounts that it deems necessary for the support, education and medical needs of [Frerk's].
Under the foregoing facts, I am constrained to find that the settlement funds were available to the claimant for his support and maintenance[.]
*349 In this Court's view, the ALJ's determination is supported by substantial evidence in the record as a whole. For example, the Surrogate has allowed disbursements of $700 per month from one of the accounts to be applied towards Frerks' support and education, and has ordered disbursements from the accounts to reimburse Frerks's parents for previously incurred support and maintenance expenditures.
The plaintiff cites one instance where the Surrogate denied the use of funds from the guardianship accounts to the guardians, to support his contention that these accounts are not available "resources." The plaintiff's example of this denial, however, does not support his contentions. On March 12, 1990 the Surrogate denied an application by the plaintiff to permit disbursement from the accounts in order to pay attorney's, accounting and guardianship fees. Such expenditures are not support and maintenance costs.
Furthermore, the ALJ's determination is not based on the application of an erroneous legal standard. The regulations define a "resource" in relevant part as an asset that can be converted or liquidated into cash to be used for support and maintenance. See 20 C.F.R. § 416.1201. "Liquid Resources" are further defined as property which can be converted to cash within twenty days. Some of the examples of resources given by the regulation are life insurance policies, bank accounts (savings and checking), certificates of deposit and similar items. See 20 C.F.R. § 416.1201(b).
The underlying purpose behind the statutory and regulatory scheme is to ensure that, when determining an individual's SSI eligibility, any assets and other funds readily available to that person for support and maintenance should be applied towards those purposes before the state must intervene to provide minimal financial support to that person. See e.g., Whaley v. Schweiker, 663 F.2d 871 (9th Cir.1981) (the purpose of SSI is to assure recipient's income is maintained at the minimum level necessary for the recipient to subsist); Singer v. Secretary of Health and Human Services, 566 F. Supp. 204 (S.D.N.Y. 1983) (the purpose of SSI is not to provide financial security to recipient but income that is actually needed, and the resource limitation bears a rational relationship to that purpose); H.R.Rep. No. 231, 92d Cong., 2d Sess. (1972), reprinted in 1972 U.S.C.C.A.N. 4989, 5132-5133 (purposes of providing SSI assistance is to complement other sources of income where other sources fail to keep individual from falling below poverty line).
Contrary to the plaintiff's contentions, the Secretary's decision applied the correct legal standard embodied in the statute and regulation. As stated by the ALJ, the primary issue before the Secretary was "whether the claimant has excess resources" that rendered him ineligible for SSI. After reviewing the regulations defining a resource and the examples given therein, the ALJ considered whether the guardianship accounts met the regulatory definition of resource. Based on the record before the ALJ, he applied the facts to the law and concluded that the accounts could be converted and made available to the plaintiff for his support and maintenance. In the view of this Court, the ALJ applied the correct methodology and legal standard in arriving at his decision. See State of New York ex rel. Holland v. Sullivan, 927 F.2d 57, 59 (2d Cir.1991) ("When a rule sets forth specific criteria ... the Secretary's determination must contain an application of the criteria to the particular facts of the case.").
Moreover, the ALJ's determination is consistent with the interpretation given to the term "resource" by HHS in its interpretative guidelines to local Social Security offices. In conformance with the regulations and the purposes they serve, the Secretary has further construed the meaning of "resource," by issuing interpretive guidelines in the POMS. The POMS section at issue here provides that:
[F]unds in a conservatorship account are considered available if state law permits such funds to be used for an individual's support and maintenance....
If State law specifically requires that funds be made available for the care and maintenance of an individual, e.g., "blocked accounts", assume, absent evidence to the contrary, that they are that individuals *350 resource. This is true despite the fact that the individual or his/her agent is required to petition the court to withdraw funds for the individual's care.
POMS at SSI 01120.010.
Although the POMS is not published in the Federal Register, and does not have the force of law, it is entitled to persuasive authority. St. Mary's Hospital v. Blue Cross & Blue Shield, 788 F.2d 888, 890 (2d Cir. 1986) (discussing the pre-POMS manual); Davis v. Secretary of Health and Human Services, 867 F.2d 336, 340 (6th Cir.1989); Ruppert v. Secretary of Health and Human Services, 671 F. Supp. 151, 158 n. 3 (E.D.N.Y. 1987), aff'd in part and reversed in part, 871 F.2d 1172 (2d Cir.1989).
2. The Plaintiff's Contentions in Opposition to the Secretary's Decision Are Unavailing.
The plaintiff raises several arguments to support his contention that the ALJ applied an erroneous legal standard in making the determination that the guardianship accounts were a "resource" available to the plaintiff. Each of these arguments is without merit.
The plaintiff first contends that the ALJ "deemed" the guardianship accounts to be a liquid resource in contravention of the regulations which only allow "deeming" resources for married individuals or children. This argument, however, misconstrues the use of the word "deemed" by the ALJ.
In the context of discussing the Surrogate's Court's ability to release funds to the plaintiff, the ALJ stated that "[w]hile the court does not always approve every request for withdrawal, it will release funds held in guardianship accounts that it deems necessary for the support, education and medical needs of [Frerks's]." The "it" refers to the Surrogate's Court. That court's "deeming" of what is necessary for the plaintiff's support and maintenance e.g., whether a particular treatment is medically necessary and requires the release of funds is not the same as "deeming" certain resources of a married individual or child as "resources" for the purposes of 20 C.F.R. § 416.1202 e.g., whether a joint account or joint tenancy is a "resource."
Contrary to the plaintiff's contention, the ALJ did not "deem" anything in his decision. Rather, ALJ Leonard followed the legal standard in the regulations to determine whether the guardianship accounts were available to the plaintiff. In this Court's view, the ALJ's conclusion that funds from such accounts were available was based on substantial evidence in the record, and was not erroneous as a matter of law.
The plaintiff's next argument is that, rather than applying the standard found in the federal regulations in arriving at the decision that the guardianship accounts were available to Frerks, the Secretary applied the July, 1990 SS POMS "blocked account" presumption. In doing so, the plaintiff alleges that the Secretary violated the Administrative Procedure Act, because she based her decision on an interpretive guideline that was not promulgated as a rule by notice and comment. See Bowen v. Georgetown University Hospital, 488 U.S. 204, 109 S. Ct. 468, 102 L. Ed. 2d 493 (1988).
The Court finds this argument unconvincing. The ALJ's decision was based on applying the regulatory standard embodied in 20 C.F.R. § 416.1201 to the facts of this case. As described above, ALJ Leonard considered whether the guardianship accounts were available to the plaintiff for support and maintenance, and decided they were available based on the Surrogate's Order, not on the analysis set forth in the POMS. Indeed, the plaintiff admits that the ALJ and Appeal's Council did not even cite the POMS standard in their decisions. Moreover, the POMS is entitled to persuasive authority, and in this Court's view lends support to the defendants' contention that the Secretary's decision was correct.
The plaintiff's third argument is that the Secretary should have followed the standard enunciated in Navarro, supra, for determining whether a tort settlement is a "resource" for purposes of SSI eligibility. This argument is also unpersuasive. Navarro is inapposite to the facts of this case.
*351 The Navarro court held that the monies from a medical malpractice settlement maintained in an account for a disabled child did not constitute a "resource" available to the plaintiff pursuant to 20 C.F.R. § 416.1201, because the specific language of the settlement order precluded the availability of the funds for the plaintiff's support and maintenance. The relevant language in that case read as follows:
[The funds awarded the plaintiff] shall be available only for limited use which ... specifically shall not include the cost of home or residence upkeep, medical costs or maintenance needs for which public funds are available ... but said funds may be [used] subject to special Court approval, for such personal items [for plaintiff] as a purchase or capital investment in or lease of a physical facility for mentally handicapped adults; non-medical transportation; and personal non-public funded items such as clothing, T.V. computer, or a vacation, or such similar non-covered items.
Navarro, 751 F.Supp. at 350.
Unlike the language of the settlement order in Navarro, the Surrogate's Order in this case allows the guardianship accounts to be available to the plaintiff solely for his support and maintenance. According to the Surrogate's April, 1990 letter explaining the policy in regard to withdrawals from these accounts, "[t]he court will only release funds held in guardianship accounts that the court deems necessary for the support, education and medical needs of the respondent." Indeed, whereas the settlement order in Navarro stated that the funds were to be used for items that can not be "fairly denominated [as] support and maintenance," id. at 350, the guardianship accounts in this case are limited to uses that can only be denominated as support and maintenance. Accordingly, Navarro is distinguishable from the facts of the present case and does not support the plaintiff's contentions.
Finally, the plaintiff contends that the Secretary's decision should be vacated because the defendants had an affirmative statutory duty to advise the plaintiff's guardians that they could transfer the tort settlement to a Special Needs Trust ("SNT"), and thereby meet the eligibility requirements for SSI. The Court rejects this argument because it is not grounded on any statutory basis.
The words of the statute alleged by the plaintiff as expressing such a duty state:
[T]he Secretary shall prescribe the period of time within which ... various kinds of property must be disposed of in order not to be included in determining an individual's eligibility for benefits.
42 U.S.C. § 1382b(b)(1). The language of section 1382b(b) does not mention anything about notice by the Secretary to SSI recipients regarding the transfer of assets to a SNT. The legislative history of this section also does not evince a purpose or intent by Congress to enact an affirmative duty on the Secretary's part with respect to notifying SSI recipients of the ability to transfer their assets to a SNT. See H.R. 231, 92nd Cong., 2d Sess. (1972), reprinted in 1972 U.S.C.A.A.N. 4989, 5322. Finally, neither the regulations promulgated under section 1382b(b), see 20 C.F.R. § 416.1240, nor any of the other regulations cited by the plaintiff, see e.g., 20 C.F.R. § 416.1336, § 416.1246, mention any such affirmative duty on behalf of the Secretary.
The Court must apply the plain language of the statute, unless the language is at odds with its legislative purpose. United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 242, 109 S. Ct. 1026, 1031, 103 L. Ed. 2d 290 (1989); Samuels, Kramer & Co. v. Commissioner of Internal Revenue, 930 F.2d 975, 979 (2d Cir.1991), cert. denied, ___ U.S. ___, 112 S. Ct. 416, 116 L. Ed. 2d 436 (1991). Since the language of the statute is clear, and there is no legislative purpose to the contrary, the Court finds that, as a matter of law, the defendants were not required to notify Frerks's parents under the statute or regulations as to the transfer of the assets to a SNT.
The Secretary's decision in this matter to deny SSI eligibility to the plaintiff on the grounds that the guardianship accounts are a resource available to the plaintiff, was arrived at by a proper application of the legal standard embodied in 42 U.S.C. § 1382 and *352 20 C.F.R. § 416.1201. Moreover, the Secretary's decision is supported by substantial evidence in the record. Accordingly, the Court affirms that decision, and grants the Secretary's motion for a judgment on the pleadings in her favor. The Court need not reach the issue of whether the Secretary's decision should also be affirmed on the alternative grounds that the plaintiff has exceeded the income limits specified in the statute and regulations.
B. Claims Against The Commissioner.
The Court reiterates that with respect to the Commissioner, the Complaint alleges two claims. The first is a challenge to the Commissioner's October 25, 1990 ruling denying Medicaid to the plaintiff, on the grounds that the settlement monies were an available resource. The second claim is the allegation that the Commissioner has unlawfully delegated his duty to administer the OSS program to the Secretary, and abdicated his duty to comply with both state and federal court decisions.
The defendant raises the argument that Frerks is precluded from bringing his suit in this Court because he has not exhausted judicial or administrative remedies. The Court disagrees with the defendant Commissioner that the doctrine of exhaustion of administrative remedies is applicable in this case.
The plaintiff raises issues involving the Commissioner's compliance with federal statutory and regulatory SSI and Medicaid guidelines. In this Court's view, the claims asserted improper delegation, abdication of federal statutory duties, and failure to follow federal guidelines do not involve the kinds of issues that can be remedied by the agency's administrative appeals process. Compare Kennedy v. Empire Blue Cross and Blue Shield, 989 F.2d 588, 592-93 (2d Cir. 1993) (ERISA claimants cannot bring suit in federal court until they have exhausted their administrative appeals before the ERISA plan administrators) and Wrenn v. Secretary, Department of Veterans Affairs, 918 F.2d 1073, 1078 (2d Cir.1990) (ADEA suit against Veterans Administration must first exhaust administrative remedies offered by that agency).
The cases cited by the Commissioner in support of his contention that the Court does not have jurisdiction until the plaintiff exhausts his administrative remedies are inapposite. Alfara Motors Inc. v. Ward, 814 F.2d 883 (2d Cir.1987), Oberlander v. Perales, 740 F.2d 116 (2d Cir.1984) and Giglio v. Dunn, 732 F.2d 1133 (2d Cir.1984) deal with judicial and administrative remedies to arbitrary agency action in the context of the state providing an adequate pre or post-deprivation hearing for due process purposes in section 1983 cases. The plaintiff in this case has raised different claims. Accordingly, the plaintiff need not pursue an Article 78 proceeding or exhaust any administrative remedies before bringing his claims against the Commissioner to this Court.
With respect to the plaintiff's claim that the Commissioner delegated the administration of the Optional State Supplement funds to the Secretary, and thereby abdicated his state constitutional duty to comply with state and federal laws, the Court views this claim as untenable.
A state's delegation to the federal government of the administration of supplementary assistance to SSI recipients is permissible pursuant to 42 U.S.C. § 1382e. In turn, New York Social Services Law § 211(1), authorizes the NYDSS to enter into an agreement with the HHS, whereby HHS would "administer the state program of additional payments including the eligibility of individuals and couples for such payments." On July 12, 1974, DSS and HHS entered into such an agreement. See Casey v. New York State Department of Social Services, supra, 391 N.Y.S.2d at 176-177 (setting forth text of the agreement, an upholding its validity). Given the statutory authorizations by Congress and the state legislature, the Commissioner's delegation of administrating the OSS funds to the Secretary is not violative of any statute.
The Court also views as equally untenable the plaintiff's claim that by delegating to HHS the administration of OSS payments, the Commissioner has failed to comply with state and federal case law. The plaintiff's contention is another attempt at arguing that *353 the Commissioner's decision to terminate OSS payments to the plaintiff was erroneous, because the holding in Navarro was not followed. The Court rejects any such argument.
Similarly, the Court rejects the contention that, in terminating the plaintiff's Medicaid benefits, the Commissioner failed to follow federal case law and, therefore, abdicated his constitutional responsibilities. As explained above, Navarro is distinguishable from the facts of this case, and is inapposite here. Moreover, the Commissioner's conclusion that the Surrogate's Order provided for the availability of the guardianship accounts to the plaintiff, is supported by evidence in the record.
In his opposition papers to the defendants' motions, the plaintiff raises a third claim against the Commissioner that is not set forth in the pleadings. The plaintiff alleges that, with respect to his allegations concerning the denial of Medicaid payments, the Commissioner's employees and delegates violated the Medicare Catastrophic Coverage Act of 1988 ("MCCA"), Pub.L. No. 100-360, 100 U.S.C.C.A.N. (102 Stat.) 683 (codified as amended primarily at 42 U.S.C. § 1395), and the State Medicaid Plan.
According to the plaintiff, the MCCA repealed a prior law that had assessed a period of ineligibility for SSI and community based Medicaid recipients who had transferred their assets into a trust at less than market value. Under the prior statute, the uncompensated value of the transferred asset counted towards the SSI and Medicaid eligibility limits for a certain period of time. Under the new statute, 42 U.S.C. § 1382b(c), and the implementing regulation, 20 C.F.R. § 416.1246(f), the uncompensated value of such transfers occurring after July 1, 1988 would no longer count towards eligibility.
According to the plaintiff, these changes to the SSI and Medicaid statutes allow the guardians to transfer Frerks's settlement funds to a SNT without losing his eligibility for Medicaid. The plaintiff alleges that in the proceedings before the Surrogate requesting a transfer of Frerks's accounts to a SNT, counsel for the Commissioner never informed the Surrogate of this change in law. By not doing so, the plaintiff contends that the Commissioner followed a policy of violating the provisions in the MCCA and State Medicaid Plan allowing such transfers to a SNT.
In the first place, the Court believes it was the plaintiff's duty, as the applicant before the Surrogate, to adequately inform the Surrogate of the changes in the Medicaid law. Secondly, in the Court's view, the plaintiff's new claim against the Commissioner is irrelevant to the relief the plaintiff seeks in the Complaint: vacating the Commissioner's decision to terminate Frerks's Medicaid benefits. Whether or not the Surrogate was misinformed about the changes in the Medicaid law with respect to the transfer of Frerks's assets to a SNT does not in any way implicate the Commissioner's decision to terminate Frerks's Medicaid eligibility. They are two separate issues.
In effect, this new claim by the plaintiff is an attack on the Surrogate's decision denying the plaintiffs' application to transfer the guardianship accounts to a SNT, and a pretense for this Court to directly review the Surrogate's decision. This Court, however, does not have the jurisdiction to review the Surrogate's decision. See, e.g., District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 463, 103 S. Ct. 1303, 1305, 75 L. Ed. 2d 206 (1983) (state court judgments are directly reviewable only to the United States Supreme Court); Atlantic Coast Line R. Co. v. Brotherhood of Locomotive Engineers, 398 U.S. 281, 284-86, 90 S. Ct. 1739, 1742-43, 26 L. Ed. 2d 234 (1970) (lower federal courts do not have the power to review directly cases from state courts); Rooker v. Fidelity Trust Co., 263 U.S. 413, 415-16, 44 S. Ct. 149, 150, 68 L. Ed. 362 (1923) (the district court does not possess appellate jurisdiction over decisions of the state courts).
Moreover, even if the Court had jurisdiction over this new claim, it would abstain under the doctrine of Burford v. Sun Oil Co., 319 U.S. 315, 63 S. Ct. 1098, 87 L. Ed. 1424 (1943), because a decision rendered by this Court with respect to the transfer of Frerks's assets to a SNT for the purposes of *354 Medicaid eligibility would be "disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern." Colorado River Water Conservation District v. United States, 424 U.S. 800, 814-15, 96 S. Ct. 1236, 1245, 47 L. Ed. 2d 483 (1976); Bethpage Lutheran Service, Inc. v. Weicker, 965 F.2d 1239, 1243, 1247 (2 Cir. 1992). This Court notes that very recently, a decision denying the transfer of a tort settlement to an SNT for purposes of Medicaid eligibility was reconsidered and reversed by the New York State Supreme Court, based on changes in the federal and state laws governing the Medicaid program. See In the Matter of Moretti, 606 N.Y.S.2d 543 (Sup.Ct. Kings Cty.1993).
The proper avenue of relief for the plaintiff with respect to the Surrogate's decision, is to appeal the Surrogate's decision to the Appellate Division of the New York State Supreme Court.
Accordingly, the Court rejects all the claims asserted against the Commissioner, and grants the Commissioner's motion in the alternative for summary judgment dismissing the Complaint as a matter of law. The Court need not reach the Commissioner's argument with respect to the plaintiff's failure to name the NCDSS as a party to this case.
CONCLUSION
The Secretary's Motion for a judgment on the pleadings in favor of the Secretary is granted. The Secretary applied the correct legal standard in determining that the plaintiff's guardianship accounts are a "resource" available to the plaintiff within the meaning of 42 U.S.C. § 1382 and 42 C.F.R. § 410.1201. Moreover, there is substantial evidence in the record to support the Secretary's determination.
The Commissioner's alternative motion for summary judgment in his favor is granted. The Commissioner has not violated any of the applicable constitutional, statutory, or regulatory provisions with respect to the administration of the OSS and Medicaid programs as they apply to the plaintiff, or with respect to the denial of the plaintiff's OSS and Medicaid benefits. To the extent the plaintiff seeks review in this Court of the Surrogate's decision denying the transfer of the plaintiff's assets to a supplemental need trust, the court must dismiss that claim for lack of subject matter jurisdiction.
The plaintiff's Complaint is dismissed in its entirety as a matter of law. The Clerk of the Court is advised that this action closes the case.
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2091281/ | 672 F. Supp. 2d 119 (2009)
Carrie GRAFFIUS, Plaintiff,
v.
Eric K. SHINSEKI, Secretary, Department of Veterans Affairs, Defendant.
Civil Action No. 07-01875 (HHK).
United States District Court, District of Columbia.
December 11, 2009.
*121 Keith William Diener, Ackerman Legal, PLLC, Washington, DC, Frank Demelfi, Melville Johnson P.C., Atlanta, GA, for Plaintiff.
Christian Alexander Natiello, United States Attorney's Office, Washington, DC, for Defendant.
MEMORANDUM OPINION AND ORDER
HENRY H. KENNEDY, JR., District Judge.
Carrie Graffius, an individual with disabilities, was working as a program specialist in the Office of Facilities Management ("OFM") in the Department of Veterans Affairs ("VA") when her employment *122 was terminated on November 1, 2005. She brings this action against Eric K. Shinseki,[1] in his official capacity as the Secretary of the Agency, alleging that the VA violated the Rehabilitation Act of 1973 ("Rehabilitation Act" or "Act"), 29 U.S.C. §§ 791 et seq, by failing to provide reasonable accommodations for her disabilities and retaliating against her by terminating her because she sought the accommodations.
Before the Court is the VA's Motion for Summary Judgment ("Def.'s Mot.") [# 20]. Upon consideration of the motion, the opposition thereto, and the record of this case, the Court concludes that the VA's motion for summary judgment should be granted as to Graffius's retaliation claim and granted in part and denied in part as to her failure to accommodate claim.
I. BACKGROUND
Graffius was hired by the VA to "reconstruct and develop OFM's overall construction management information system and tracking databases" and adapt an off-the-shelf software product called Paragon 4 for the Agency's construction projects. Def.'s Statement of Material Facts Not in Genuine Dispute ("Def.'s Facts") ¶ 6, Def.'s Ex. 3. Her immediate supervisor was William Webb ("Webb"), director of OFM's Technology Support Service.
Initially, Graffius worked full time at the VA's primary location in Washington, D.C. In September 2001, however, she moved to East Freedom, Pennsylvania, a town approximately 160 miles away from her office. According to Graffius, while working at the VA she "suffered from multiple disabilities, including diabetes, carpal tunnel syndrome, trigger finger, skeletal issues related to neuropathy and compacted bowel syndrome," Compl. ¶ 14, conditions that "substantially limit[ed] her major life activities, including walking, normal excretory functions, performing some manual tasks, and the ability to care for herself." Pl.'s Opp'n at 11.[2] Because of her medical conditions, Graffius used a wheelchair.
In late 2001, Graffius reported that she was experiencing health problems related to her diabetes and required frequent medical care. In an effort to accommodate Graffius's health problems, Webb approved an agreement that allowed her to work from home, or "telecommute." During the time when Graffius was allowed to telecommute, she received a Performance Appraisal from Webb indicating that her performance was successful in all areas.
In May 2003, the VA decided that it was no longer feasible to have Graffius telecommute fulltime; therefore, Webb asked Graffius to develop a plan and schedule for her return to work at the office on at least a part-time basis. Because she would have to depend on her husband to drive her, Graffius indicated that she could come to work in D.C. only one day a week. Webb agreed to Graffius's proposed schedule and she began commuting to work in June 2003.
Before returning to her D.C. office, however, Graffius, in an email sent to Webb, requested several workplace accommodations, *123 including an ice machine, a walker, and a cane. The building in which she worked, however, did not have an ice machine and only temporary employees were allowed to use any available walkers or canes. Nevertheless, Graffius reported to work in June 2003 as agreed.
In October of 2003, Graffius reported to management that she suffered a broken leg and could no longer report to the Washington, D.C. office one day a week.[3] Believing that her injury resulted from the VA's failure to accommodate her as she had requested, Graffius informed the VA that she would not be able to return to work at the D.C. office until her requested accommodations were provided.
In a letter dated April 28, 2004, Webb informed Graffius of the VA's decision to terminate her telecommuting arrangement, effective June 1, 2004. Webb stated that "[t]echnology changes and work priorities demand your presence in the office on a regular basis," and advised Graffius to report to work in Washington, D.C. beginning June 1, 2004. Def.'s Ex. 17.[4] Graffius did not return to work as directed. After depleting her sick and annual leave, Graffius applied for additional leave under the Family and Medical Leave Act ("FMLA") to recover from a surgery she had on her hand.
On November 4, 2004, Webb sent Graffius a memorandum that summarized the events surrounding her FMLA leave request and informed her that she was allowed to use 12 administrative workweeks of unpaid leave under FMLA. Webb also requested that she contact him immediately to discuss her current status and the report date for her return to the office.
In a letter dated December 6, 2004, Webb notified Graffius that she had exhausted her FMLA leave as of November 29, 2004.[5] Moreover, because she did not have leave to cover her absence from work, Graffius was placed on Absent Without Leave (AWOL) status. Webb warned Graffius that AWOL could lead to her removal from employment with the agency and from the Federal Service.
On January 24, 2005, Webb again wrote to Graffius regarding her AWOL status and ordered her to report to work no later than February 7, 2005, and urged her to contact him or Carolyn Gill,[6] the agency's Human Resources Liaison, immediately to discuss her return to the office. On February *124 4 and February 7, 2005, Graffius called Gill and discussed her need for various accommodations at the office. Graffius made several requests, including a handicapped-accessible restroom on the floor on which she worked, wrist bands, a special keyboard, and a mouse. Gill informed her that the VA could most likely meet her needs for an office located on the same floor as handicapped bathroom facilities, but that it "could not purchase the other items... until [it] had the specific technical requirements and specification," and that Gill had received "no medical documentation whatsoever." Def.'s Ex. 27. Graffius never provided the VA with the documentation that it requested, and did not return to work on February 7, 2005, or anytime thereafter.
On March 23, 2005, Webb wrote Graffius a letter addressing her long distance commuting situation and responding to her request for accommodations. Webb stated that (1) the building in which Graffius's office was located met all applicable handicapped-accessible requirements; (2) Graffius had elevator access to a wheelchair-accessible bathroom on the floors above and below her floor and her office was only 20 feet from the elevators; and (3) "keyboards, mouse(s), wrist pads, etcetera, are routine purchases for employees upon request." Def.'s Ex. 28. There is no indication in the record that Graffius responded to Webb's letter.
Graffius received the VA's Notice of Proposed Removal based on a charge of excessive absence on April 21, 2005. The VA charged Graffius with ten specifications of AWOL totaling 760 hours between November 29, 2004, and April 15, 2005, and terminated her employment effective November 1, 2005.
After unsuccessfully pursuing administrative proceedings, Graffius filed the instant suit.
II. LEGAL STANDARD
Summary judgment may be granted only where the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); Burke v. Gould, 286 F.3d 513, 517 (D.C.Cir.2002). A material fact is one that is capable of affecting the outcome of the litigation. Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). A genuine issue is one where the "evidence is such that a reasonable jury could return a verdict for the nonmoving party," as opposed to evidence that "is so one-sided that one party must prevail as a matter of law." Id. at 248, 252, 106 S. Ct. 2505.
A court considering a motion for summary judgment must draw all "justifiable inferences" from the evidence in favor of the nonmovant. Id. at 255, 106 S. Ct. 2505. But the non-moving party's opposition must consist of more than mere unsupported allegations or denials; it must be supported by affidavits or other competent evidence setting forth specific facts showing that there is a genuine issue for trial. Fed.R.Civ.P.56(e); Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). By pointing to the absence of evidence proffered by the nonmoving party, a moving party may succeed on summary judgment. Celotex, 477 U.S. at 322, 106 S. Ct. 2548. 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 (internal citations omitted).
III. ANALYSIS
Graffius asserts two causes of action. She alleges that the VA failed to accommodate *125 her disability under Section 501 of the Rehabilitation Act and that it retaliated against her for engaging in protected EEO activityrequesting accommodations for her disabilitiesby terminating her employment. The VA rejoins that it is entitled to prevail because (1) Graffius is unable to establish a prima facie case with respect to her failure to accommodate claim and (2) it did not retaliate against her, but terminated her for a legitimate nondiscriminatory reason. Graffius's claims and the VA's responses to them will be addressed in turn.
A. Failure to Accommodate Claim
1. Legal Standard
Section 504 of the Rehabilitation Act provides that "[n]o otherwise qualified individual with a disability ... shall, solely by reason of her or his disability, be excluded from the participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance or conducted by any Executive agency ...." 29 U.S.C. § 794(a). Section 501 of the Rehabilitation Act, codified at 29 U.S.C. § 791, is the exclusive remedy for federal employees alleging that federal agencies engaged in disability discrimination. See Taylor v. Small, 350 F.3d 1286, 1291 (D.C.Cir.2003) (holding Section 504 of the Rehabilitation Act, codified at 29 U.S.C. § 794, "does not provide federal employees an alternative route for relief under the Rehabilitation Act") (internal quotation marks and citation omitted). "Its basic tenet is that the Government must take reasonable affirmative steps to accommodate the handicapped, except where undue hardship would result." Barth v. Gelb, 2 F.3d 1180, 1183 (D.C.Cir.1993); see Woodruff v. Peters, 482 F.3d 521, 526 (D.C.Cir.2007).[7] The affirmative requirement to accommodate under Section 501 is an obligation beyond the general non-discrimination requirement in Section 504. See Southeastern Community College v. Davis, 442 U.S. 397, 410-11, 99 S. Ct. 2361, 60 L. Ed. 2d 980 (1979).
To establish a prima facie case of discrimination under the Rehabilitation Act for failure to accommodate, a plaintiff must show "(1) that [she] was an individual who had a disability within the meaning of the statute; (2) that the employer had notice of [her] disability; (3) that with reasonable accommodation [she] could perform the essential functions of the position; and (4) that the employer refused to make the accommodation." Scarborough v. Natsios, 190 F. Supp. 2d 5, 19 (D.D.C.2002) (quoting Rhoads v. FDIC, 257 F.3d 373, 387 n. 11 (4th Cir.2001)).[8] The VA does not dispute that Graffius is an individual with a disability and that it had notice of her disability. Thus, the VA does not contest that she has established the first *126 two elements of her prima facie case for her failure to accommodate claim. The VA contends, however, that Graffius does not present evidence sufficient to establish the third and fourth elements of her prima facie case. It contends that Graffius was not a qualified individual who with or without accommodations could perform the functions of her job and that the VA did not improperly fail to satisfy her accommodation requests.
To make out the third element of her prima facie case under the Rehabilitation Act, Graffius must show that she is a "qualified individual." Under the Act, a "qualified individual" is "an individual with a disability who, with or without reasonable accommodation, can perform the essential functions of the employment position that such individual holds or desires." 42 U.S.C. § 12111(8); 29 C.F.R. § 1630.2(m); Breen v. Dep't of Transp., 282 F.3d 839, 841 (D.C.Cir.2002). Therefore, an individual with a disability is "qualified" if she can perform the essential functions of her position with reasonable accommodation. See Carr v. Reno, 23 F.3d 525 (D.C.Cir.1994). An accommodation is "reasonable" if it allows the employee to fulfill all essential functions of her job without imposing an undue hardship on the employer. See 29 C.F.R. § 1614.203(c)(1); Woodruff v. Peters, 482 F.3d at 526; Carr, 23 F.3d at 529.
The VA argues that (1) Graffius was not a qualified individual with a disability because she could not perform the essential functions of her position even with reasonable accommodations, and (2) the VA's failure to accommodate Graffius was not a result of the Agency's improper refusal to accommodate her but instead was due to Graffius's failure to present proper documentation of her needed accommodations and the undue hardship her requests would have caused.
Because Graffius's status as a qualified individual with a disability depends on what tasks she could perform given reasonable accommodation, these two claims are interconnected. See Carr, 23 F.3d at 529 (stating that the district court erred in analyzing the two interrelated claims separately); see also Woodruff, 482 F.3d at 527 (same). Therefore, the Court must "ask simply whether any reasonable accommodation would have allowed [Graffius] to perform all the essential functions of her job without creating an undue hardship for the agency." Carr, 23 F.3d at 529. The employee has the burden of identifying reasonable accommodations, and the agency has the burden of showing undue hardship. Chinchillo v. Powell, 236 F. Supp. 2d 18, 23-24 (D.D.C.2003).
2. Graffius's Accommodation Requests
In order to survive summary judgment on her reasonable accommodation claim, Graffius must show that she requested reasonable accommodations that would have allowed her to perform the essential functions of her job and that the VA failed to provide them. Graffius asserts that she requested the following accommodations: (1) a renewed telecommute agreement that would allow her to work from home; (2) an office on the same floor as a handicapped-accessible restroom; and (3) "handicap friendly office products," including wrist bands, a special keyboard, and a mouse.[9]*127 Because Graffius's Rehabilitation claim is based on three separate requests for reasonable accommodation which raise distinct legal and factual issues, the Court will analyze each contested request separately.
(a) Telecommute Agreement
Graffius claims that she requested to telecommute as an accommodation for her disabilities and that with this reasonable accommodation she could perform all the essential functions of her job.[10] Graffius asserts that when she was permitted to telecommute she had access to a computer and was able to actively participate in weekly team meetings, which she attended via conference call. Moreover, she cites a favorable Performance Appraisal of her work while telecommuting from home as evidence that she could perform the functions of her job with such an accommodation. In the Performance Appraisal, Webb commented that Graffius's "contributions continue to be valuable" and that she has "demonstrated a strong desire to complete projects and works through adverse issues to ensure that the work product meets the need of the organization." Pl.'s Opp'n, Ex. A. Graffius claims that after her original telecommute agreement was terminated and she was ordered to report to the VA's office in Washington D.C., her duties had not changed; "[s]he was not required to attend additional meetings, meet with clients, and was not required to move from her desk." Pl.'s Opp'n at 4 (citing Def.'s Ex. 26 at 126).
The VA disputes Graffius's assertions. The VA argues that Graffius's job "required her to interact with coworkers and customers in person and to be present to learn programs and otherwise receive training." Def.'s Mot. at 10. According to the VA, Graffius was allowed to telecommute only as a temporary measure because of her health problems. By 2003, however, such an arrangement was "no longer feasible or reasonable" because "management wanted to move forward with plans to develop construction management tracking systems and initiate software updates for the Paragon product, which Plaintiff needed to learn." Def.'s Facts ¶ 3. Because Graffius would not be able to perform the essential functions of her position from home, the VA contends that Graffius is not "a qualified individual with a disability,"[11] and even if she were, *128 allowing her to telecommute full-time would impose an undue hardship on the organization. Def.'s Mot. at 10.
In Carr, the D.C. Circuit Court stated that "section 501 demands a great deal from federal employers in the way of accommodation. Indeed, in appropriate cases, that section requires an agency to consider work at home, as well as reassignment in another position, as potential forms of accommodation." Carr, 23 F.3d at 530 (citing Langon v. Dep't of Health and Human Services, 959 F.2d 1053, 1060 (D.C.Cir.1992)). Graffius and the VA disagree about the need for her to be physically present at the office during the time in question. As mentioned previously, the burden of showing undue hardship is on the VA, yet Graffius's description of her job, together with her statements regarding the unchanged nature of her position from when she was first allowed to telecommute, and her high performance appraisal, cast doubt on the suggestion that the accommodation would impose undue hardship on the VA, or that even with such accommodations Graffius would be unable to perform all the essential functions of her job. This is a matter for a jury to decide. See Woodruff, 482 F.3d at 528 (holding that the district court improperly granted defendant's motion for summary judgment on plaintiff's failure to accommodate claim based on defendant's termination of telecommute agreement when evidence "suggest[ed] [plaintiff] did not have to be physically present in the office"); see also Langon, 959 F.2d at 1060 (holding that a genuine dispute of material fact existed where plaintiff had disagreed with employer regarding her position's "length of the deadlines and the need for frequent face-to-face contacts"). Thus, the VA's motion for summary judgment is denied as to Graffius's failure to accommodate claim to the extent the claim is based on the VA's denial of her request to telecommute.
(b) Handicapped-Accessible Restroom
Graffius also requested an office on a floor with a handicapped-accessible restroom. According to Graffius, she broke her leg in October 2003 due to severe constipation from not being able to get to the bathroom. Graffius testified in front of the MSPB that when she requested to be relocated to a floor where there was a handicapped-accessible restroom, she told Webb that "because I couldn't get to the bathroom, I filled with bowel, and I didn't want another broken bone." Def.'s Ex. 26 at 148. She further stated that "[t]he doctors had warned me that the next time, if I didn't get to the bathroom, I could even cause kidney damage and require a kidney transplant." Id. The VA does not *129 mention Graffius's relocation request or the Agency's reason for refusing to accommodate her request in any of its moving papers.
As previously mentioned, "accommodations are reasonable if they allow the employee to perform the essential functions of the job without imposing undue hardship on the employer." Norden v. Samper, 503 F. Supp. 2d 130, 145 (D.D.C.2007). In U.S. Airways, Inc. v. Barnett, the Supreme Court stated that when confronting a defendant's motion for summary judgment on the grounds that a plaintiff's requested accommodation is not reasonable, the plaintiff's burden is only to show that the requested accommodation is "reasonable on its face, i.e., ordinarily or in the run of cases." 535 U.S. 391, 401, 122 S. Ct. 1516, 152 L. Ed. 2d 589 (2002). Upon such a showing, the employer is left to "show special (typically case-specific) circumstances that demonstrate undue hardship in the particular circumstances." Id. at 402, 122 S. Ct. 1516.
The Court finds that Graffius has met her burden of showing that being provided an office on the same floor with a handicapped-accessible restroom is "reasonable on its face." On the other hand, the VA has failed to show that making such an accommodation would be an undue hardship. Indeed, the VA makes no attempt to explain why it could not move Graffius to a floor where there was a handicapped-accessible restroom. To the contrary both Webb and Gill testified that such an accommodation was possible.[12] On February 7, 2005, Gill told Graffius that "[the VA] could most likely meet her needs for office locate [sic] on on a floor with a handicapped bathroom facilities." Def.'s Ex. 27 (Report of Contact with Carrie Graffius). Nevertheless, the VA later denied Graffius's request, stating that "the building meets all applicable handicapped accessible requirements." Def.'s Ex. 26 at 45. The fact that the building meets all applicable handicapped-accessible requirements, however, would not preclude a reasonable jury from finding that the VA failed to provide Graffius with the reasonable accommodation of relocating her to a floor with a handicapped-accessible restroom.[13]
*130 (c) Office Supplies
Finally, Graffius argues that the VA did not provide her reasonable accommodations when it failed to provide her with "handicap friendly office products," including wrist bands, a special keyboard, and a low mouse. See Compl. ¶ 29. The VA vigorously rejoins that Graffius failed to provide adequate documentation for the accommodation. The VA states that "[w]hile Defendant requested information concerning Plaintiff's specific needs for handicap friendly office products, Plaintiff failed to provide Defendant with documentation that delineated her medical requirements." Def.'s Mot. at 8. The VA asserts that "[f]ollowing a request for reasonable accommodation, an employer is permitted to seek documentation where it is necessary to determine that the individual has a covered disability for which the requested accommodation is needed." Id. at 7. Since Graffius failed to provide the required documentation, the VA claims that it "could not provide her with some of the accommodations she requested." Id. at 8. Without support, Graffius simply responds that she provided the VA with "sufficient evidence" to warrant the accommodations.
The VA's position with respect to Graffius's request for office products has merit.[14] As this Court stated in Carroll v. England, 321 F. Supp. 2d 58 (2004), "when the duty to reasonably accommodate arises, both employee and employer must `exchange essential information and neither side can delay or obstruct the process.'" Id. at 69 (quoting Barnett, 228 F.3d at 1114-15). "An employer is not required to provide an accommodation prior to receiving medical documentation that substantiates the employee's need for accommodation." Bramwell v. Blakey, 2006 WL 1442655 at *6 (D.D.C. May 24, 2006) (citing Flemmings v. Howard Univ., 198 F.3d 857, 861 (D.C.Cir.1999)). Furthermore, employers may gather sufficient information from the employee requesting the reasonable accommodation and from qualified experts "as needed to determine what accommodations are necessary." Carroll, 321 F.Supp.2d at 69.
On numerous occasions, the VA informed Graffius that it would be able to provide the office products needed if she would give the Agency more specific technical requirements and specifications regarding the specific equipment she needed. The VA also repeatedly informed Graffius that she would need to provide medical documentation to support her requests for accommodation. Graffius provides no evidence that she provided the VA with any *131 medical documentation of her condition in support of her accommodation requests.[15] Nor does Graffius present any evidence that she provided the VA with the specific requirements of her requested accommodations that were needed in order for the VA to fulfill her requests. Moreover, Graffius never suggests that the VA's requests for documentation were unreasonable, and never explains why she could not provide the requested documents. She merely provides a conclusory statement maintaining that "she did provide sufficient information for Defendant to provide the requested accommodations." Pl.'s Opp'n at 20.
To survive summary judgment, Graffius may not rely solely on allegations or conclusory statements. Greene v. Dalton, 164 F.3d 671, 675 (D.C.Cir.1999); Harding v. Gray, 9 F.3d 150, 154 (D.C.Cir.1993). Graffius points to no evidence in the record from which a reasonable jury could have inferred that the VA denied, by inaction or otherwise, her request for "handicap friendly" office products. Rather, the evidence presented indicates that Graffius and the VA were in mid-discussion of her request, awaiting her submission of requested medical documentation, when she was terminated. See Stewart v. St. Elizabeths Hosp., 593 F. Supp. 2d 111, 115 (D.D.C.2009) (holding that defendant did not refuse employee's request for reasonable accommodation of her claimed mental disability because they had been engaged in ongoing discussions regarding her request but she had failed to provide her employer with the requested medical documentation of her illness). Accordingly, the VA is entitled to summary judgment with respect to Graffius's failure to accommodate claim premised upon the VA's alleged failure to provide requested office supplies.
B. Retaliation Claim
Graffius asserts that the VA terminated her employment in retaliation for her requesting reasonable accommodations. Claims of retaliation under the Rehabilitation Act are governed by the burden-shifting framework laid out in McDonnell Douglas, 411 U.S. 792, 93 S. Ct. 1817. Norden v. Samper, 503 F. Supp. 2d 130, 156-57 (D.D.C.2007). Under this framework, the plaintiff must first establish a prima facie case of retaliation. See McDonnell Douglas, 411 U.S. at 802, 93 S. Ct. 1817.[16] Once plaintiff has established a prima facie case, the defendant must "`produc[e] evidence' that the adverse employment actions were taken `for a legitimate, non-discriminatory reason.'" Aka, 156 F.3d at 1289 (quoting St. Mary's Honor Ctr. v. Hicks, 509 U.S. 502, 507, 113 S. Ct. 2742, 125 L. Ed. 2d 407 (1993)). Once the defendant meets its burden, "the presumption ... raised by the prima facie case is rebutted" and "drops from the case." Id. (quoting Hicks, 509 U.S. at 507, 113 S. Ct. 2742). Then to survive summary judgment, the plaintiff must show that a reasonable jury could infer that the proffered legitimate reason was false and that defendant's actions were intended as retaliation from a "combination of (1) the plaintiff's prima facie case; *132 (2) any evidence the plaintiff presents to attack the employer's proffered explanation for its actions; and (3) any further evidence of [retaliation] that may be available to the plaintiff." Aka, 156 F.3d at 1289.
The D.C. Circuit recently clarified the McDonnell Douglas framework where an employer asserts a legitimate, non-discriminatory or non-retaliatory reason for the adverse employment decision. Brady v. Office of the Sergeant at Arms, 520 F.3d 490, 494 (D.C.Cir.2008) (establishing this rule of abandoning the burden-shifting analysis for a discrimination claim); Jones v. Bernanke, 557 F.3d 670, 678 (D.C.Cir.2009) (same, for a retaliation claim). When considering a motion for summary judgment in an employment discrimination case, a district court does not need to determine whether a plaintiff has set out the elements of a prima facie case. Id. Rather, "`the district court must resolve one central question: Has the employee produced sufficient evidence for a reasonable jury to find that the employer's asserted non-discriminatory reason was not the actual reason' for the adverse employment action, and that the employer's action was intended as retaliation." Bergman v. Paulson, 555 F. Supp. 2d 25, 35 (D.D.C. 2008) (quoting Brady, 520 F.3d at 494).
The VA asserts that it removed Graffius for a legitimate non-retaliatory reason, her excessive absences. After Graffius exhausted her sick and annual leave and the 12 weeks of leave under the FMLA, the VA placed her on AWOL. According to the VA, Graffius accumulated a total of 760 hours of AWOL between November 29, 2004, the date when she was first placed on AWOL, and April 15, 2005, the date the proposed removal letter was crafted. Def.'s Ex. 30. The VA has stated a legitimate reason for terminating Graffius.
Since the VA has articulated a legitimate non-retaliatory reason for terminating her, Graffius, must show that the proffered explanation is merely a pretext. Graffius fails to make such a showing. Graffius admits that she was absent on the days charged by the Agency, but contends that the VA's asserted reasons for her termination "are clearly a pretext for the Agency's ... retaliation against her," and that the real reason she was terminated was because the VA did not want to provide her with her requested accommodations. Pl.'s Opp'n at 15, 18. Graffius's assertions are conclusory and are an insufficient basis for denying the VA summary judgment on Graffius's retaliation claim.
The Court may not "`second-guess an employer's business judgment,' and ... a plaintiff's mere speculations as to pretext are `insufficient to create a genuine issue of fact regarding [an employer's] articulated reasons for [its decisions] and avoid summary judgment.'" Woodruff v. Mineta, No. 01-1964, slip op. at 16 (D.D.C. Jan. 3, 2005) (quoting Branson v. Price River Coal Co., 853 F.2d 768, 772 (10th Cir.1988)). The only evidence of pretext presented by Graffius is a letter from Webb, in which he states that the VA "ha[d] gone out of its way to accommodate [Graffius] and [her] needs over the past 2-1/2 years," and that he believed that her "failure to return to work is based on [her] excessively long distant commute." Def.'s Ex. 28.[17] Webb's letter in no way suggests pretext or that the real reason Graffius was fired was because she requested accommodations. It simply illustrates the *133 VA's frustration with Graffius's continued failure to report to work after an extended period of time and provides Webb's opinionan objectively reasonable onethat her difficulty with reporting to work was due to her excessively long commute. Accordingly, the VA is entitled to summary judgment on Graffius's retaliation claim.
IV. CONCLUSION
For the foregoing reasons, it is this 11th day of December 2009, hereby
ORDERED that as to Graffius' failure to accommodate claim, the VA's motion for summary judgment is DENIED to the extent the claim is based on the VA's alleged failure to permit Graffius to telecommute and to provided her an office on the same floor with a handicapped-accessible restroom and GRANTED in all other respects; and it is further
ORDERED that the VA's motion for summary judgment is GRANTED with respect to Graffius's retaliation claim.
NOTES
[1] When this suit was filed, the named defendant was Gordon H. Mansfield, who was then Acting Secretary of the Department of Veterans Affairs. Pursuant to Federal Rule of Civil Procedure 25(d), Eric K. Shinseki, the current Secretary of the Department of Veterans Affairs, is substituted as the defendant in this lawsuit.
[2] Graffius titles two of her filings as "Plaintiff's Response." For clarity, the Court will refer to "Plaintiff's Response to Motion for Summary Judgment" as Plaintiff's Opposition and will refer to "Plaintiff's Response to Defendants Statement of Material Facts Not in Genuine Dispute" as Plaintiff's Response.
[3] The VA's Statement of Material Facts Not in Genuine Dispute states that Graffius stopped coming into work in August of 2003, but Graffius asserts she stopped coming into work in October 2003. Pl.'s Resp. ¶ 16. Graffius's assertion appears to be correct: Exhibit 9, the Exhibit that the VA cites to support its assertion, clearly states that Graffius reported that she could not come to work on October 1, 2003. Def.'s Ex. 9 ¶ 13
[4] Graffius does not dispute the quoted language, however, she does dispute the truthfulness of Webb's statements. She claims that her duties were "precisely the same as they had been while she worked from home and did not include new databases or increased interaction with OFM staff," as the letter indicated. Pl.'s Resp. ¶ 17. The Court addresses this dispute infra.
[5] The Court notes that the VA cites to a "Letter dated 12/6/04, p. 1, attached as Exhibit 24." Def.'s Facts ¶ 23. But Exhibit 24 is a letter from Webb to Graffius dated January 24, 2005. Nevertheless, Graffius does not dispute the existence or contents of a December 6, 2004 letter, Pl.'s Resp. ¶ 23, so for the purposes of this opinion, the Court will assume the VA's characterization of the letter is accurate.
[6] During the period in question, Gill went by her maiden name Carolyn Kasterko. Both parties, however, now refer to her as Carolyn Gill. For the sake of clarity, this Court will also refer to her as Carolyn Gill ("Gill").
[7] The standards applied when analyzing claims brought under the Americans with Disabilities Act ("ADA"), 42 U.S.C. § 12111 et seq., are also employed when evaluating claims that allege employment discrimination on the basis of a disability under Section 501. See Woodruff v. Peters, 482 F.3d at 527; Taylor v. Rice, 451 F.3d 898, 905 (D.C.Cir.2006).
[8] In her opposition to the VA's motion for summary judgment, Graffius incorrectly applies the burden-shifting framework laid out in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S. Ct. 1817, 36 L. Ed. 2d 668 (1973), to her failure to accommodate claim. While the District of Columbia Circuit has held that it is appropriate to apply the traditional McDonnell Douglas framework in an ADA or Rehabilitation Act case to claims that an employer acted with discriminatory intent, the D.C. Circuit has stated that it is not appropriate to do so when the claim is that the employer failed to provide a reasonable accommodation, as is Graffius's claim here. See Aka v. Wash. Hosp. Ctr., 156 F.3d 1284, 1288 (D.C.Cir.1998) (en banc).
[9] These three requests are the only ones that are still in dispute. In her complaint, Graffius also alleges that the VA failed to reasonably accommodate her by denying her various other requests. She asked to be allowed to take her sugar readings, utilize the restrooms frequently, and wear the clothing and shoes recommended by her medical provider; she also asked that the VA provide her with a smaller chair, a wheelchair accessible desk, and access to a wheelchair accessible water fountain. Compl. ¶ 25-29. But Graffius does not respond to the VA's assertion that these requests were accommodated. It is well established in the D.C. Circuit that when a party does not address arguments advanced by her opponent, the court may treat those arguments as conceded. Hopkins v. Women's Div. Gen. Bd. of Global Ministries, 238 F. Supp. 2d 174, 178 (D.D.C.2002) (citing FDIC v. Bender, 127 F.3d 58, 67-68 (D.C.Cir.1997)). Thus, the Court will treat the VA's argument with respect to Graffius's other accommodation requests as conceded and grant summary judgment as to those requests.
[10] The administrative record contains conflicting evidence as to whether, after the original telecommute agreement was terminated, Graffius specifically requested to telecommute as an accommodation for her disability. In its brief, however, the VA does not argue that it did not provide Graffius with a telecommute arrangement because she failed to request such an accommodation. Instead, it argues that "[p]laintiff's request to telework 100% of the time ... would have caused [the VA] undue hardship." Def.'s Mot. at 9. Therefore, for the purposes of the instant motion, the Court assumes that Graffius made such a request.
[11] The VA also asserts that Graffius is not a qualified individual with a disability because she previously "admitted that she is totally disabled and cannot perform her job with or without any reasonable accommodation." Def.'s Mot. at 11 (citing Def.'s Ex. 4, Plaintiff's Responses to First Set of Interrogatories, at 3-4; Def.'s Ex. 6, Transcript of Plaintiff's EEO Affidavit, at 3-4). The Court finds this argument unpersuasive. Although the D.C. Circuit has adopted the "`sham affidavit rule' which precludes a party from creating an issue of material fact by contradicting prior sworn testimony," it also stated that a shifting party can overcome this rule by "`offer[ing] persuasive reasons for believing the supposed correction' is more accurate than the prior testimony." Galvin v. Eli Lilly & Co., 488 F.3d 1026, 1030 (D.C.Cir.2007) (quoting Pyramid Sec. Ltd. v. IB Resolution, Inc., 924 F.2d 1114, 1123 (D.C.Cir.1991)). Although the Court recognizes that in her responses to the Agency's first set of interrogatories Graffius answered "No" when asked whether she "could, with reasonable accommodation, perform the essential functions of your position," Def.'s Ex. 4 at 4, Graffius seems to argue that the wording of the questions was either confusing or misleading. See Pl.'s Facts ¶ 29. Graffius's argument is supported by her testimony in the administrative hearing. When asked to elaborate about her responses to the interrogatory in question, she stated that she could perform the essential functions of her position with reasonable accommodations. Def.'s Ex. 26 at 140-43. For the reasons elaborated infra, the Court finds that a reasonable jury could determine that Graffius's current contention, that she is a "qualified" individual, is more accurate than the answers she provided in her first set of interrogatories.
[12] When asked if she would have been able to offer Graffius an office on the same floor as a handicapped-accessible bathroom, Gill stated "[w]e have office space on the fifth floor. So it would have been possible to make some arrangement to have some office space up there." Def.'s Ex. 26 at 46. When asked the same question, Webb stated Graffius's office placement was "outside of my control," but he admitted that a relocation "may have been possible." Id. at 68.
[13] Even if the VA believed that Graffius's requests for office relocation and a renewed telecommute agreement were an undue hardship, the Agency was still required to engage in an interactive process with Graffius to design an accommodation that was reasonable. See Barnett v. U.S. Air, Inc., 228 F.3d 1105, 1111-12 (9th Cir.2000), vacated and remanded on other grounds, 532 U.S. 970, 121 S. Ct. 1600, 149 L. Ed. 2d 467 (2001). "`The interactive process is typically an essential component of the process by which a reasonable accommodation can be determined.'" Alston v. Washington Metro. Area Transit Auth., 571 F. Supp. 2d 77, 86 (D.D.C.2008) (quoting Smith v. Midland Brake, Inc., 180 F.3d 1154, 1172 (10th Cir.1999) (en banc)).
The VA claims that "it acted in good faith and tried to engage in the interactive process," Def.'s Mem. at 7, however, as discussed infra, such efforts were only shown in regards to Graffius's requests for office products. The VA points to no evidence in the record that would indicate that it engaged in an interactive process with Graffius to find a reasonable accommodation after it determined that relocating her office or allowing her to telecommute would impose an undue burden. Instead, the VA simply sent a letter to Graffius stating that the "building meets all applicable handicapped accessible requirements." Def.'s Ex. 28. The VA's actions are not comparable to those of other employers held to have properly engaged in the interactive process. See e.g., Scarborough, 190 F.Supp.2d at 26 (holding that employer engaged in interactive dialogue when it explained why it rejected plaintiff's leave without pay ("LWOP") request and noted that it would reconsider the request after plaintiff provided beginning and end dates for the proposed LWOP period).
[14] In its motion for summary judgment, the VA seems to generally assert that Graffius's failure to provide adequate documentation is fatal to her failure to accommodate claim. While the Court finds that the VA's argument has merit with respect to Graffius's request for office supplies, the argument fails with respect to her other requests that did not require medical documentation, specifically her requests to telecommute and to relocate her office to a floor with a handicapped-accessible restroom. See Norden, 503 F.Supp.2d at 145 ("The duty to accommodate is a continuing duty that is not exhausted by one effort.") (citing Humphrey v. Mem'l Hosps. Ass'n, 239 F.3d 1128, 1138 (9th Cir.2001)). Because there is no evidence in the record, and because the VA does not assert, that the VA asked for, or expected, medical documentation for any other requested accommodation, the Court does not find that Graffius's lack of documentation precludes her other accommodation claims.
[15] Graffius did submit medical documentation to support her application for leave under the FMLA. See Def. Ex. 22. This documentation, however, was only to excuse her absence from August 5, 2004 to October 6, 2004. Graffius fails to point to any other medical documentation to support her accommodation requests.
[16] In order to establish a prima facie case of retaliation, a plaintiff must show "(1) that she engaged in a statutorily protected activity; (2) that the employer took an adverse personnel action; and (3) that a causal connection existed between the two." McKenna v. Weinberger, 729 F.2d 783, 790 (D.C.Cir.1984).
[17] As presented, the other evidence that Graffius cites is relevant only to her failure to accommodate claim, not to her retaliation claim. It is important to note the difference between the allegation that the VA failed, or even refused, to accommodate Graffius and the allegation that the VA terminated Graffius because she requested accommodations. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2387515/ | 9 F. Supp. 2d 1119 (1998)
Terry L. JONES, et al., Plaintiffs,
v.
UNITED STATES of America, Defendant.
No. 4:92CV3029.
United States District Court, D. Nebraska.
June 19, 1998.
*1120 *1121 *1122 Robert B. Creager, Anderson, Creager & Wittstruck, P.C., Lincoln, NE, Sandra L. Dougherty, Lieben, Dahlk, Whitted, Houghton, Slowiaczek & Jahn, P.C., Omaha, NE, for plaintiffs.
Thomas J. Monaghan, United States Attorney, Sally R. Johnson, Assistant United States Attorney, Lincoln, NE, Michael J. Salem, Gerald A. Role, Trial Attorneys, Tax Division, U.S. Department of Justice, Washington, D.C., for defendant.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
KOPF, District Judge.
Terry and Pat Jones, and the companies they own, seek damages pursuant to 26 U.S.C. § 7431(c) in their suit against the United States based on an Internal Revenue Agent's disclosure of tax return information to a confidential informant which allegedly resulted in damage to the Joneses and their companies. Following a bench trial and subsequent briefing by the parties on the issue of damages, I now issue my findings of fact and conclusions of law[1] in accordance with Federal Rule of Civil Procedure 52(a). For the reasons set forth below, I find and conclude that judgment should be entered against the United States and in favor of Terry and Pat Jones for much, but not all, of the damages they seek.
I. BACKGROUND
During the liability phase of this litigation, I concluded that (1) IRS Special Agent Angelo Stennis violated the provisions of 26 U.S.C. § 6103(a) when he disclosed to a confidential informant on January 31, 1990, that "a search warrant [is] going to be executed. Be cautious over the next several days, and if there [are] any problems that occur[] or anything that [you] perceive[] as a threat from anyone at Jones Oil, ... let [me] know"; (2) the disclosure was not exempted by the provisions of 26 U.S.C. § 6103(k)(6); and (3) because the taxpayers failed to prove Agent Stennis' disclosure was based on a bad-faith misinterpretation of section 6103(k)(6), the United States had no liability to the plaintiffs pursuant to 26 U.S.C. § 7431(b). Jones v. United States, 898 F. Supp. 1360, 1387-88 (D.Neb.1995) (Jones I).
The Eighth Circuit Court of Appeals agreed with my conclusions regarding section 6103, but reversed on the "bad-faith" issue, holding that the United States bears the burden of proving good faith under 26 U.S.C. § 7431(b), as opposed to the plaintiff bearing the burden to prove bad faith. Jones v. United States, 97 F.3d 1121, 1124-25 (8th Cir.1996) (Jones II). Thus, the case was remanded for a determination of whether the United States had met the burden of demonstrating that Agent Stennis' actions met the objective standard of "good faith." Id. at 1125.
On remand, I found that the United States failed to prove that Agent Stennis' actions met the objective standard of "good faith," revoked the previous judgment in favor of the United States, found in favor of the plaintiffs and against the United States on the issue of liability, and referred this matter to Magistrate Judge Piester for expedited progression regarding trial on damages. Jones v. United States, 954 F. Supp. 191, 195 (D.Neb.1997) (Jones III).
After a three-day bench trial on damages and subsequent briefing by the parties, this matter is now ripe for decision.
II. FINDINGS OF FACT
Because the facts of this case on the issue of liability are set out in detail in my prior opinions, I shall not repeat them here. Jones I, 898 F.Supp. at 1365-72 (part I.B., findings 1-82); Jones III, 954 F.Supp. at 192 (amending previous factual findings to conform *1123 to stipulation that Agent Stennis never had any direct contact or run-ins with Terry Jones). I simply incorporate those findings herein as if I had set them forth verbatim. I will focus on the evidence presented to me during the damages trial.
However, a brief summary of my previous decision is helpful to put the damage issues in context. I previously found that the government is liable to the plaintiffs because an IRS criminal investigator unlawfully told a confidential informant that the government intended to execute a search warrant at the plaintiffs' place of business. Jones III, 954 F.Supp. at 193-95. Specifically, the agent told the informant the day before the warrant was executed that: "a search warrant [is] going to be executed. Be cautious over the next several days, and if there [are] any problems that occur[] or anything that [you] perceive[] as a threat from anyone at Jones Oil, ... let [me] know." Jones I, 898 F.Supp. at 1379. In context, this "disclosure amounted to notification that the tax returns of Terry Jones and Jones Oil were `subject to other investigation or processing,' as defined by 26 U.S.C. § 6103(b)(2)." Id. at 1379-80.
Jones Oil Company
1. Terry Jones graduated from the business college at the University of Nebraska at Lincoln in 1958, after which he became employed as credit manager with the Television Service Company, a manufacturer and distributor of television antennas, radios, and citizen band radios. He remained with that company which ultimately became HyGain Electronics for 15 years, during which he was promoted to controller and operations vice-president. Terry Jones also operated residential and commercial real estate businesses in Lincoln, Nebraska; owned thousands of acres of farmland in Nebraska, Kansas, and Texas; and published television repair and amateur radio operator manuals. Terry and Patricia (Pat) Jones have purchased, built, and operated apartments since 1965; operated NCB, a service to recover insufficient-fund checks; and owned a publishing company. (Tr. 20:12-26:11; 63:1-20; 87:21-22.)
2. In the time frame relevant to this lawsuit, Terry and Pat Jones owned a partnership called Jones Petroleum, with Terry owning 49 percent of the interest and Pat owning 51 percent. Jones Petroleum owned a holding company called J.O. Holding, Inc., which in turn owned several other entities, including Jones Oil Company, Inc., a Nebraska corporation, and Jones Publishing. (Tr. 31:5-20; 47:5-14; 109:11-110:4; Ex. 72.) Terry and Pat Jones controlled all of the Jones' entities through their holding company. (Tr. 153:6-7.) During the relevant time frame, J.O. Holding, Inc., filed a consolidated tax return which included Jones Oil Company as a subsidiary. (Tr. 444:6-23; Ex. 61.)
3. Pat Jones was a board member, officer, and owner of Jones Oil Company and served as Terry Jones' "administrative assistant" with that company. In fact, she owned a controlling interest in Jones Oil by virtue of her 51-percent interest in the holding company. (Tr. 172:5-20; Ex. 61 at Statement 18 (disclosing in Consolidated Corporate Income Tax Return that Pat Jones owned 51 percent of the holding company for tax year ending October 31, 1990).) However, her focus was overseeing the Jones' apartments and a check recovery company. (Tr. 63:10-20; 172:25-173:5; 410:3-22.) Pat Jones was also a joint taxpayer with her husband, Terry. (Tr. 190:15-22; Ex. 68.)
4. In 1975, Terry Jones purchased an oil jobber or distributorship which owned five or six gasoline stations and had four to six customers that used gasoline in large quantities. At that time, Jones also purchased property at the corner of 33rd and Cornhusker Streets in Lincoln, Nebraska, to be used as the office for Jones Oil Company. (Tr. 27:2-29:5.)
5. Jones continued to purchase gasoline stations eventually acquiring 20 at one point and gained additional customers for Jones Oil's petroleum products through a telemarketing sales staff. These petroleum products included gasoline, diesel fuel, aviation fuel, and heating oil. From 1975 to February 1990, Jones Oil Company increased its annual sales from 1.5 million to approximately 15 million dollars. (Tr. 27:2-30:18; 32:10-14.)
6. Jones Oil operated by having credit arrangements with various Gulf Coast refineries that allowed common carriers working for Jones Oil to obtain petroleum products on *1124 preapproved credit from the "common carrier pipeline" a pipeline into which all refineries place the same product and which is accessible by terminals placed approximately every 50 miles throughout the United States. Each refinery places the same product into this pipeline, but puts additives in the product upon its withdrawal from the terminal so as to create its own product or brand. Jones Oil typically would determine the lowest-priced product each day via daily faxes from the 20 to 30 refineries with which it did business and would then dispatch common carrier trucks to withdraw fuel from approximately 200 terminals throughout the United States for delivery to the customers who were paying the highest prices in the geographic region. (Tr. 32:15-36:12.)
7. Jones Oil had credit arrangements with "all the refineries" which were obtained through the refineries' area representatives after the refineries reviewed Jones Oil's financial statements and "morals ... character ... [and] integrity." Terry Jones testified that the latter three factors were important because the terminals described above were not attended during nights and weekends, and common carriers were authorized to enter the terminals with a key and were trusted to withdraw the proper amount of fuel on Jones Oil's behalf. These credit arrangements were memorialized with letters of credit containing a certain credit limit and discount factor of "[o]ne percent, 10 days" that is, Jones Oil got a one-percent discount if it paid for the product within 10 days. (Tr. 36:16-40:20, 55:14-56:19; Exs. 21, 25, 26, 28-30.)
8. Jones Oil required the customers to whom it delivered petroleum products to pay for the products within 30 days. In order to bridge the gap between the time Jones Oil was required to pay the refineries and the time Jones Oil's customers paid it, Jones Oil had a line of credit of 1.5 million dollars with FirsTier Bank in Lincoln. In order to obtain that line of credit, Jones Oil pledged its accounts receivable to FirsTier. (Tr. 40:21-42:8.) Specifically, FirsTier would extend Jones Oil an 80-percent line of credit on the value of each day's invoices. Jones Oil would use that 80 percent to pay the refineries within 10 days in order to receive a discount, and Jones Oil would pay off the FirsTier loan at the end of the customers' 30-day period and would retain the remainder as profit, from which the fixed expenses of Jones Oil's operation were deducted.
9. This method of operation was successfully in place at Jones Oil from the late 1970's to February 1990, and at no time during that period was Jones Oil in default with FirsTier or behind on refinery payments such that Jones Oil could not get the 10-day discount. (Tr. 42:9-44:4; 57:16-20.) At no time prior to February 1990 did any refinery terminate its credit arrangement with Jones Oil, nor or did anything happen in Terry Jones' business or personal life that would have called into question his reputation, character, or integrity with respect to his business dealings with the refineries. (Tr. 56:20-57:20.)
10. In 1989 Jones Oil had 2,200 to 3,300 customers who regularly purchased petroleum products from Jones Oil; had a sales staff of 15 to 20; and sold its products in 23 states. (Tr. 48:18-53:25.) In the same year, Dun & Bradstreet, Inc., rated Jones Petroleum Company "3A1," which meant that Jones Oil had an estimated financial strength of $1,000,000 to $9,999,999 with a "high" composite credit appraisal. (Tr. 57:24-60:25; Ex. 9.)
Events Prior to and During Execution of Search Warrant
11. IRS Special Agent Angelo Stennis disclosed to a confidential informant on January 31, 1990, that "a search warrant [is] going to be executed. Be cautious over the next several days, and if there [are] any problems that occur[] or anything that [you] perceive[] as a threat from anyone at Jones Oil, ... let [me] know." Jones I, 898 F.Supp. at 1387. R. Lucchino worked for Jones Oil at one time and Plaintiffs suspect he is one of the two confidential informants. Id. at 1370 (finding 51).
12. Agent Stennis made this disclosure to one confidential informant because Stennis had a long-term professional relationship with the informant; Stennis viewed the informant as trustworthy, accurate, articulate, businesslike, and as someone who could be helpful in the future regarding any motor fuel excise tax problem; the informant had *1125 relayed to Stennis on "several occasions" that he felt threatened by "people from Jones Oil; i.e., lawsuits that had been filed or drive-bys of his office"; and the informant had previously suffered an anxiety attack[2] while operating in an undercover capacity for Stennis. While the confidential informant did not indicate a desire for revenge against Jones Oil while Stennis worked with the informant, "[h]e[3] was obviously not happy with Jones Oil or Terry Jones." (Tr. 593:3-594:23; 595:12-19; 596:1-11; 597:2-20; 597:2-8.) Stennis testified that the informant never mentioned contacting the media, and if he had, Stennis would have ended their relationship. (Tr. 598:1-19.) Agent Stennis does not recall talking to the confidential informant on February 1, 1990, the day of the IRS seizure at Jones Oil. (Tr. 599:1-5.)
13. As previously found in Jones I, 898 F.Supp. at 1370-72, John Sims (a car dealer who operated his business from an office adjacent to the offices of Jones Oil) taped part of a telephone call he received from Ricardo A. Lucchino in the afternoon of February 1, 1990, during which "R. Lucchino `just basically took credit for the actions that had happened that morning ... talking about how he or his people ... notified the media to come down with their cameras....'" Jones I, 898 F.Supp. at 1371 (finding 67). Terry Jones, who also listened to the tape, "remembered that R. Lucchino `was divulging the fact that the IRS was there, and that he took full credit for them being there and the investigation.'" Id. at 1372 (finding 69). "According to Jones, R. Lucchino also `took full credit for the press being there, [he] was elated.'" Id. at 1372 (finding 70).[4]
14. During the day-long execution of the IRS search warrant on Jones Oil Company on February 1, 1990, Terry and Patricia Jones told the agents that taking the company's computers would destroy their business. As a result, the Joneses were authorized to purchase a new computer that day and copy the company's files, including customer lists, onto the new computer in order to keep Jones Oil "in business." The files they were allowed to copy onto the new computer "contained the critical information necessary to conduct sales" and to allow Jones Oil to continue to operate. (Tr. 71:25-74:12.) Of the 300 boxes of documents taken from Jones Oil by the IRS agents, "none of them" were critical to the continuing operation of Jones Oil Company. (Tr. 73:10-74:12.) Before the IRS began to transport the documents it had seized to Indiana, Pat Jones and various Jones Oil staff members were allowed to retrieve approximately half of the company's 1990 sales order forms, check registers, correspondence, and invoices from the filing cabinets the IRS agents had seized because the scope of the search warrant did not include 1990 records. (Tr. 182:2-183:23.) Between February 1990 and October 1991, Pat Jones and Jones Oil staff traveled three times to Indiana, where the IRS allowed them to retrieve records that exceeded the scope of the warrant and that were necessary for Jones Oil to continue operating. (Tr. 186:17-188:20.)
15. As previously established in this litigation, a television station that employed Michael McKnight, an investigative reporter, broadcast McKnight's videotaped news story of the IRS activity at Jones Oil during the evening news on February 1, 1990. Jones I, 898 F.Supp. at 1371.
16. The IRS does not try to attract media attention when it coordinates and performs searches; rather, the IRS attempts to be "inconspicuous." (Tr. 574:16-575:8.) When the media "appears during [a] search ... they are a disruption and a distraction, and *1126 ... we don't encourage them to come." (Tr. 574:18-21.)
17. In 1990, the average daily traffic volume at the intersection nearest to the Jones Oil offices at 33rd and Cornhusker streets was 1,600 on the northern leg of the intersection; 28,800 on the eastern leg; 10,300 on the southern leg; and 35,000 on the western leg. The "peak" morning hour for traffic is from 7: 10 a.m. to 8:15 a.m. (Tr. 531:10-533: 10; Ex. 540.) One passerby who had performed pest-control services for Jones Oil in the past testified that, on the morning of the IRS seizure at Jones Oil, "people were just moving stuff out. It looked like they were moving. Looked like it was moving day." It was not until he saw the media account that night that the passerby realized something other than "moving day" had occurred at Jones Oil. (Tr. 581:13-582:17.)
18. Most of the refineries with which Jones Oil conducted business had representatives in Nebraska who worked out of their homes and served as area representatives. (Tr. 517:1-15.)
Jones Oil After February 1, 1990
19. Jones Oil opened for business at 8:00 a.m. on February 2, 1990, and all but one of the Jones Oil Company sales staff reported for duty. Jones Oil had everything necessary to conduct business as usual the day after the IRS search i.e., the computer database, working telephones, the business premises, and personnel. (Tr. 74:13-76:6.) Because Terry and Pat Jones had sent their employees home the previous day due to the IRS search and because the Joneses had seen a news account of the search and seizure on television the night of February 1, 1990, the Joneses held a sales staff "rah-rah-rah" meeting first thing on February 2, 1990, in an effort to convey to their employees that "we are going forward, we don't do anything wrong, and get in there and work hard, and we'll solve this problem." The news broadcast of the IRS raid on Jones Oil was a topic of discussion at the meeting, and one employee asked Terry Jones at that time why he did not tell the employees this was going to happen. (Tr. 75:14-20; 80:7-81:12; 426:12-17.)
20. Within "an hour or two" after opening its doors, Jones Oil received a multi-page fax from Triangle Refinery in Houston, Texas, canceling sales from terminals in five states. Triangle Refinery was one of the refineries with which Jones Oil previously had a credit arrangement that allowed Jones Oil to pull product from the common carrier pipeline on Triangle's behalf. Jones Oil previously had sales acknowledgments from Triangle promising that Triangle would sell Jones Oil a certain amount of product over a certain period of time at nine different terminals. The fax sent by Triangle to Jones Oil on February 2, 1990, consisted of copies of those acknowledgments, with the words "CANCELLED FEBRUARY 2, 1990" typed across each of them. (Tr. 76:7-77:20, 79:14-80:6; Exs. 44A-I.)
21. "[S]tarting almost immediately" after Jones Oil opened for business on February 2, 1990, the daily faxes the company always received quoting prices at various terminals "tended to thin out and not be available" and "[e]ventually disappeared." (Tr. 81:17-82:14.) Terry Jones testified that "starting almost immediately, there [were] telephone calls from various refineries to me or to my vice-president" stating "that when the IRS would write me a letter and say that I did nothing wrong, that they would be glad to get back in bed with me, but until such time, I was out of business so far as they were concerned." (Tr. 81:17-25; 125:2-8.)
22. Newspapers in Lincoln, Omaha, Grand Island, Beatrice, Norfolk, Kearney, and Nebraska City, Nebraska, carried news stories generated by the Associated Press about the IRS activity at Jones Oil on February 3, 4, and 8, 1990. (Tr. 86:19-87:13; Exs. 36-43.) After the initial television news account of the Jones Oil story, WOWT (the television station that broadcast the news account) repeatedly used file footage of the Jones Oil seizure on its advertisements. (Tr. 359:8-360:2.)
23. Whereas Pat Jones was not involved in the day-to-day management of Jones Oil prior to February 1, 1990, she spent 80 percent of her time performing "crisis management" at Jones Oil after that date, causing the Jones' apartment and check-collection business to "suffer[]." (Tr. 189:12-190:4.)
*1127 24. Although FirsTier did not cancel its credit arrangement with Jones Oil after the IRS search and seizure on February 1, 1990, sales at Jones Oil in February 1990 dropped approximately 80 percent from the previous month due to Jones Oil's inability to find "significant" customers after that date. (Tr. 82:21-83:15, 85:5-6; Ex. 58 & 58A.) According to analysis of Jones Oil's monthly gross sales compiled from monthly internally-prepared financial statements, Jones Oil's monthly gross sales in January, 1990, were $1,854,301, and February, 1990, sales were $356,316. (Tr. 208:17-211:10; Ex. 58 & 58A.)
25. After February 1, 1990, Jones Oil operated primarily on government contracts, which before that date had comprised only 10 percent of its business. Because Jones Oil no longer had access to terminals, it was required to perform these government contracts by getting product supply from other "jobbers" like itself and taking an additional price mark-up. (Tr. 83:16-85:25.) Jones Oil was never able to recapture the customers on its customer list after February 1, 1990, and the government contracts eventually became unworkable and had to be canceled due to the government's inability to pay in 30 days, as Jones Oil's private customers had always done. (Tr. 85:1-86:18.)
26. From November, 1988, to January, 1990, Jones Oil had average monthly gross sales of $1,285,415. From February, 1990, to December, 1990, Jones Oil's average monthly gross sales were $287,015. (Tr. 213:18-214:16; Exs. 58 & 58A.) When Jones Oil was engaged in "crisis management" after February 1, 1990, it "went from 50, 60 employees down to three or four or five." (Tr. 326:18-20.) During this time, Jones Oil moved from the offices it could no longer afford to the Jones' apartments, where Jones Oil was operated out of an apartment. (Tr. 438:15-25.)
27. Jones Oil's last day of business was December 3, 1990, and the company's books were officially closed on December 31, 1990. (Tr. 190:5-14.)
28. An insurance broker, Robert K. Marshall, who sought Mr. Jones' commercial insurance business in 1986 was able to obtain quotes from underwriters to present a proposal to Terry Jones at that time. When the same agent attempted to prepare a similar proposal in the summer of 1990, the agent was unable to obtain any quotes from the insurance companies he regularly contacted for such information. Five of the underwriters the agent contacted for quotes in 1990 asked the agent whether the insured was "the same Terry Jones, Jones Oil, that was in the media this year." These underwriters were located in the Lincoln and Omaha, Nebraska, area. (Tr. 159:24-160:8; 160:24-163:17; 167:4-17; 169:25-170:16.)
29. Prior to 1990, Jones Oil Company had been audited two or three times in the area of excise tax. The fact of such audits had never before led to adverse publicity regarding Jones Oil. (Tr. 523:6-25.)
Expert Testimony Regarding the Failure of Jones Oil and Associated Monetary Damages
30. John N. Chapin, Jr., is the Managing Director of Litigation and Forensic Service Practice in the Midwest for KPMG Peat Marwick. He was formerly a principal at Coopers & Lybrand where he served as Partner in Charge of Litigation and Claims Services Practice in the Midwest. Chapin has a Bachelor of Science in business administration and an M.B.A. from the John L. Olin School of Business at Washington University in St. Louis. He also attended the Advanced Industry School of Banking and Finance at Rutgers University in New Jersey. Chapin is a certified fraud examiner and certified management consultant, and has authored numerous publications and presentations regarding financial analysis as it relates to damage claims, litigation decision-making, the litigation process, and computers. (Tr. 215:11-217:21; Ex. 74.) I found him to be very credible, and, in the main, I found his testimony to be convincing. Except for the issue of causation, and a few minor points, the government elected not to challenge much of Chapin's testimony on the valuation of the loss. The government called no expert to contradict Chapin.
31. As part of his occupation, Chapin conducts financial analyses related to damage claims of failed businesses, as well as industry and economic analyses of businesses. As part of these analyses, Chapin studies business conduct within certain industries and *1128 examines the viability of businesses through review of sources of income, cash flows, markets, and future plans and programs. (Tr. 217:23-218:23.)
32. Chapin performed a financial analysis of Jones Oil Company based upon financial records and other documents provided to him by Terry Jones, as well as information he gathered from Terry Jones and Jones Oil's accountant. (Tr. 218:24-219:23.) Based upon this analysis, Chapin reported findings and conclusions concerning the value of the loss of Jones Oil Company and the potential reasons for its demise or failure. (Tr. 221:10-223:224:6.)
33. In association with John Chapin, Terry Jones provided information on 21 factors relevant to business failure as those factors applied to Jones Oil. (Tr. 88:9-23; 215:11-14; Ex. 539A.) Chapin began using these factors in 1990 based upon his experience in analyzing companies that have failed. (Tr. 237:13-238:1.) The court's findings regarding each of these factors as they applied to Jones Oil immediately prior to the IRS actions against Jones Oil appear below:
a. Technology: There has been virtually no change over time in the composition of the product being sold gasoline. (Tr. 89:8-24.) This product is stable and in continuous demand. (Tr. 228:21-22.)
b. Changes in the Competitive Environment: Jones Oil's method of doing business (purchasing the lowest-priced product based on daily prices and selling the product to the highest-paying customers) enabled Jones Oil to be profitable by offering the lowest price among its competitors. Thus, there were no changes in the competitive environment during 1989 and 1990 that affected Jones Oil's ability to be profitable. (Tr. 89:25-91:1.)
c. Sensitivity to Economic Conditions: Because Jones Oil's customer base was so diverse, a failure of one market segment to purchase fuel at a particular time would have had no effect on the company's overall productivity. (Tr. 91:2-19.)
d. Eroding Profit Margins: Jones Oil did not have eroding profit margins or systemic problems with the purchase and sale of petroleum products that would have affected the company's profitability during 1989 and 1990. (Tr. 91:19-92:12.)
e. Government Regulation or Change in Taxing Structure: Any government regulation or tax structure change which may have been imposed at the relevant time would have applied to the entire oil distributorship industry, so this factor would have had no effect on Jones Oil's ability to remain a viable operation after February, 1990. (Tr. 92:13-93:4.)
f. Fluctuation in Raw Material Prices: The refineries from whom Jones Oil purchased its product sold their product at the same relative price at any given time, and any price difference between refineries was based on supply and demand. Jones Oil's marketing strategy "took advantage of the people that wanted to get rid of that product." (Tr. 93:5-24.) Further, Jones Oil did not purchase raw materials; it purchased products and jobbed them. (Tr. 230:24-231:1.)
g. Environmental Litigation: Jones Oil was not involved in any environmental litigation in the relevant time frame. (Tr. 93:25-94:7.) An environmental review had been done of all the Jones' gas stations and properties. (Tr. 231:7-11.)
h. Product Liability Litigation: Jones Oil was not involved in any product liability litigation in the relevant time frame. (Tr. 94:8-17.)
i. Loss of Key Employees: From 1989 to 1990, Jones Oil did not lose key employees. (Tr. 94:18-95:1.) While Jones Oil lost three sales people in the mid-1980's who went to work for another oil company, Rock Port Oil, Jones Oil's profits remained constant. (Tr. 137:14-139:5.) Ricardo Lucchino, a former Jones Oil employee, went to Rock Port in 1988. At that time, Jones Oil and Rock Port began competing for telemarketers. (Tr. 157:1-10.) Based on Chapin's experience of evaluating sales *1129 organizations, Chapin opined that Jones Oil did not suffer abnormal employee losses which would have impacted its business. (Tr. 231:23-232:7.)
j. Poor Labor or Management Relations: Terry Jones' relationship with his employees was good during the relevant time frame. Jones Oil was a nonunion shop and there were "no contracts or strikes" that affected Jones Oil. (Tr. 95:2-15.)
k. Limited Source of Supply or Supplier Failure: Jones Oil did not suffer a lack of supply during the relevant time period, and because Jones Oil purchased from a variety of suppliers, if one "was down for some reason or another, it had no effect" on Jones Oil. (Tr. 95:16-96:2.)
l. Long-Term Supply Contracts at Significantly Above Market Price: Jones Oil entered into supply contracts based on quantity, not price, and the price fluctuated daily. Therefore, this factor did not affect Jones Oil. (Tr. 96:3-13.)
m. Poor Credit Rating or High Cost of Funds: Jones Oil's Dun & Bradstreet credit rating has consistently been "3A1." (Tr. 96:14-97:7; Exs. 9 & 10 (D & B credit reports for 1986 & 1989).)
n. Poor Cash Management and Inadequate Cash Flows: Prior to February 1990, Jones Oil had no difficulties with cash management, as Terry Jones "spent [his] entire life working in that area." (Tr. 97:8-16.)
o. Dependence on Few Sales Persons: Just prior to February 1990, Jones Oil had 15 to 20 sales people and did not have any "unusual dependence on a few sales people." (Tr. 97:17-98:4.)
p. Decrease in Market Share: Jones Oil's market share was dependent upon the price it chose for its product. Petroleum products like those sold by Jones Oil were very price elastic, meaning that Terry Jones could greatly increase his market share simply by lowering his price a quarter to half cent per gallon. Thus, market share was in Jones Oil's control to a large extent. (Tr. 98:5-99:8.)
q. High Turnover of Sales Force: In 1989 and early 1990, Jones Oil had some new sales employees who would leave the company "very quickly." However, "if they were good, they didn't leave" and they became "long-time employees" who made high salaries. (Tr. 99:9-100:7.) While Jones Oil experienced turnover of employees, the rate of turnover remained constant from year to year. (Tr. 144:17-145:13.)
r. Deteriorating Financial Condition of Customers: Because Jones Oil's customer base was so diverse including government, farmers, corporations, and institutions the deteriorating financial condition of one type of customer would have "no effect." (Tr. 100:8-19; 236:17-23.)
s. Dependence on Few Customers: Terry Jones' business philosophy has always been that "[y]ou don't ever put yourself into a position where you depend upon one customer for supporting your organization because if you lose that one customer, you'll lose that business.... I have turned down business when the customer was too large for our organization." (Tr. 100:20-101:9.) Chapin found that "no customer accounted for a double[-]digit percentage of the sales of Jones Oil Company." (Tr.236:15-16.)
t. Volatile Product Mix: Unlike electronic products, for example, the product life of petroleum products is infinite. (Tr. 101:10-22.)
u. Credit Policies Too Strict or Lenient: Jones Oil required financial statements from its customers, bank references, and, if their customers' credit was "in any way tenuous," Jones Oil required a letter of credit. (Tr. 101:23-102:16.)
34. Based upon the above 21-factor analysis, John Chapin opined that there was "nothing ... either externally or internally" prior to February 1, 1990, which made it likely that Jones Oil was in imminent danger of going out of business. (Tr. 227:12-25.)
35. After the February 1, 1990, IRS activity at Jones Oil and the news accounts and *1130 drop in sales that occurred in the weeks immediately following the IRS activity, the following factors from the above 21-point analysis were affected:
a. Limited Source of Supply: Jones Oil's supply of product ceased because "all of the refineries got in touch with me or my organization and would not sell us product on credit, so we had no supply." (Tr. 104:17-23.)
b. Long-Term Supply Costs at Significantly Above Market Price: All long-term supply contracts with Jones Oil were canceled. (Tr. 104:24-105:6.)
c. Inadequate Cash Flow to Support Operations: Without sales, Jones Oil could not meet payroll, leading Jones Oil to have inadequate cash flow to support operations. (Tr. 105:14-22.)
d. Decrease in Market Share: After February 1, 1990, and the publicity and decrease in sales which followed, Jones Oil "had no market share." (Tr. 106:3-6.)
e. High Turnover of Sales Force: When Jones Oil could no longer get supply of petroleum products, there was a high turnover of its sales force. (Tr. 106:7-12.)
36. After his review of the above factors as they applied to Jones Oil, John Chapin found "nothing other than the release of confidential taxpayer information to a confidential informant, anonymous phone call, and the resulting publicity that led to the events that caused the demise of Jones Oil." (Tr. 240:10-15.)
37. In response to the government's "Daubert-like" causation objection to this testimony, the court found that: "[B]efore-and-after economic analysis, using the rule[-out] hypothesis, is customarily employed in economic fields to endeavor to establish causation." (Tr. 240:16-19.) Therefore, the court found that the approach used by Chapin was generally sound.
38. John Chapin also valued and computed the loss of the demise of Jones Oil Company, concluding that Jones Oil suffered the following damages:
$4,516,083 Loss of Jones Oil Company future-valued as
of Jan. 31, 1998
$ 78,854 Overpayment of petroleum taxes to Tennessee,
future-valued to Jan. 31, 1998
$ 565,356 Loss due to required liquidation of real
property valued to Jan. 31, 1998
$ 24,760 Loss due to required liquidation of personal
property of J. O. Holding, Inc., future-valued
to Jan. 31, 1998
$ 524,766 Loss in Jones Publishing, future-valued to
Jan. 31, 1998
$5,709,819 TOTAL DAMAGES AS OF JAN. 31, 1998
The method by which John Chapin derived the above figures is described below in separate paragraphs. (Exs. 65D (demonstrative exhibit only), 65E, 65E-1.)
39. Loss of Jones Oil Company: Of the three generally accepted approaches to valuing a business, Chapin chose the income or discounted cash flow approach. The income approach includes capitalization of earnings or discounted cash flow, whereas the cost or asset approach includes asset value, and the market comparable approach includes comparable sales. Because Jones Oil's financial statements reflected a history of profitable operations and evidenced Jones Oil as a business which relied on people rather than capital assets to generate cash flows, Chapin rejected the cost or asset approach to valuation. Because Chapin was unable to locate comparables to Jones Oil for the relevant time frame, Chapin also rejected the market approach. (Tr. 241:8-242:10; Ex. 65E, App. B.)
Chapin calculated Jones Oil's cash flow from operations for fiscal years 1988 and 1989, applied a weighting factor of two to the cash flow for 1989 in order to account for recency, averaged those numbers, and reached an expected business cash flow in 1990 of $498,784. Chapin then applied a 22.7 percent capitalization rate[5] to that expected *1131 cash flow to value Jones Oil Company as of October 31, 1989 (the company's year end closest to the unlawful disclosure). The product of the capitalization rate was $2,197,288; that is, the market would pay roughly 4.4 times the positive annual cash flow of $498,784 to buy a business like Jones Oil. Chapin then future-valued this amount to January 31, 1998, by increasing the amount monthly by the rate of return Jones would have received had he invested that sum in "Baa" bonds[6]. The compounding factor was based on daily compounding at the monthly "Baa" bond rate. This future-value calculation resulted in a value of Jones Oil at January 31, 1998, of $4,516,083. (Ex. 65E & 65E-1.)
40. Overpayment of Petroleum Taxes to Tennessee: Jones Oil was required to pay oil excise taxes to the State of Tennessee during 1989 and 1990. Under Tennessee state law, refunds for overpayments of oil excise taxes must be claimed within a certain time period. Because of the IRS seizure that occurred at Jones Oil on February 1, 1990, and the "damage control" activities of Jones Oil employees after that date, Jones Oil was unable to file its tax refund claim on time and such claim was denied as untimely. In his damages calculation related to the denial of Tennessee oil excise taxes for the 1989 and 1990 tax years, Chapin future-valued to January 31, 1998, the refund claimed for each of those tax years, again using the appropriate "Baa" bond rate, reaching a total of $78,854.17 for the 1989 and 1990 tax years combined. (Tr. 248:11-250:19, 322:5-326:24; Ex. 65E, App. C.)
41. Loss Due to Liquidation of Real Property: As discussed above, J.O. Holding was the holding company that owned Jones Oil. J.O. Holding owned certain property that was used almost exclusively by Jones Oil in order to conduct its business operations, but these properties were carried on the J.O. Holding balance sheet. The properties that were liquidated as a result of the demise of Jones Oil were a gas station supplied by Jones Oil at 56th and Holdrege Streets and the office space used by Jones Oil at 33rd and Adams[7] Streets in Lincoln, Nebraska. With regard to the latter property, the Joneses could not afford the mortgage payments, taxes, insurance, and maintenance costs as Jones Oil "lost more and more sales people."
In order to calculate the total real estate damages resulting from the sale of these properties, Chapin started with the fair market values of each property as reflected in appraisals prepared by a qualified appraiser as of a given date before the disclosure. He then determined the tax-assessed value on that same date. Next, he determined the tax-assessed value on the date of sale. He next determined the sales price for each property.[8] He then assumed that the appraised *1132 value would have increased or decreased at a rate equal to the increase or decrease in assessed value. Both properties enjoyed an increase in assessed value. Therefore, for each property, he multiplied a factor representing the percentage of increase times the original appraised value to determine the market value of that property at the time of sale. He then compared the sale price of each property to the market value of each property.[9] After that comparison was made, Chapin found that the properties had each sold for less than they were worth. Thus, the holding company had suffered a loss of $55,101 on one property and $280,384 on another. These loss figures were then future-valued (using the Baa bond rate) to January 31, 1998, resulting in a total loss of $565,356 on that date for both properties combined. (Tr. 250:20-253:9, 320:22-322:4, 374:13-375:4; Ex. 65E, App. D.)
42. Loss Due to Liquidation of Personal Property of J.O. Holding, Inc.: Personal property used by Jones Oil (but carried on the J.O. Holding balance sheet) to conduct its business such as desks, chairs, and business office equipment was sold at auction after the demise of Jones Oil. Chapin calculated the value of this loss by comparing the book value (cost less depreciation) of the equipment ($26,720) with the sale price of the equipment ($13,375), and determined that the loss was $13,345. Using the Baa bond rate, he valued that amount as of January 31, 1998, reaching a total of $24,760. (Tr. 253:10-254:5; Ex. 65E, App. F.)
43. Loss in Jones Publishing: Chapin opined that the amount of invested capital that had been used to develop Jones Publishing, a start-up company, was a loss related to the demise of Jones Oil because the cash being generated by Jones Oil for use by Jones Publishing was no longer available after February 1, 1990. "There was no cash being developed in the oil company business because of its demise that would have helped in Jones Publishing, and other sources, other creditors, other investors[,] were unable to be found." (Tr. 255:4-7.) Because Jones Publishing failed, Chapin took the amount of paid-in capital and loans from other sources that had been contributed to Jones Publishing and figured the investment that was lost in Jones Publishing was $275,447. Chapin future-valued that amount to January 31, 1998, which totaled $524,766. Because Jones Publishing was a start-up company, he did not attempt to value its potential successes or speculate on its earnings. (Tr. 254:2-255:24; Ex. 65E, App. E.)
Out-of-Pocket Losses to Terry Jones
44. Besides calculating damages for the above five categories, Chapin future-valued to December 31, 1997, trade and bank debt with respect to funds Terry Jones claims he paid personally after Jones Oil failed. In making these computations, Chapin did not opine whether Jones was entitled to reimbursement for this amount or whether it properly constitutes damages. Chapin calculated $754,345 as the amount of liability that existed upon dissolution of Jones Oil that was either paid personally by Terry Jones or remains outstanding. In reaching this total, Chapin applied the appropriate "Baa" bond rate to sums paid or owed to various oil companies and applied interest of $65.20 per day to a sum owed to FirsTier Bank.[10] (Tr. 256:24-260:2; Ex. 510 (demonstrative only).)
45. Terry Jones also testified that he personally had a loan from First Federal Savings *1133 & Loan that he used as working capital for his various enterprises. Terry and Patricia Jones borrowed $1,000,000 personally, pledging as collateral the equity in their apartments. The Joneses then loaned the money to J.O. Holding, which disbursed funds as needed to the Jones' various corporations. The Joneses entered into an agreement with First Federal regarding repayment of the loan after the demise of Jones Oil. While J.O. Holding has returned to the Joneses $712,000, there remains on the books of J.O. Holding a balance of $271,000 due to Terry and Patricia Jones personally. Terry Jones claims he is entitled to compensation for this amount as a result of the demise of Jones Oil. (Tr. 338:15-340:13; Ex. 55.)
Physical & Emotional Injury: Loss of Reputation
46. Terry Jones' family has lived in Lincoln, Nebraska, for four generations. Jones and his "entire family" views having a reputation for honesty and integrity as "one of the most important things there are .... your reputation is about the only thing you can take to your grave." (Tr. 345:8-16; 350:16-23.) Jones was a high school scholar, graduated from the University of Nebraska in Lincoln, and had conducted business and been involved in the community for many years. (Tr. 357:21-25; Exs. 4, 5, 34.)
47. Patricia Jones is a native Nebraskan who moved to Lincoln in 1961 and was married to Terry Jones in 1963. (Tr. 401:12-402:11;411: 1-5.) Prior to February, 1990, she had numerous social connections in Lincoln and was professionally, socially, and philanthropically involved in the community. (Tr. 411:6-414:2.) The Jones' reputation for honesty and integrity was something Pat Jones viewed as being a vital aspect of the Jones' businesses and of her faith. (Tr. 415:1-18.)
48. Terry and Pat Jones had always dreamed of early retirement and they worked hard to achieve that goal. Prior to 1990, the Joneses had listed Jones Oil Company for sale with that goal in mind. (Tr. 417:12-20.)
49. Although Terry Jones had surgery in 1985 to correct an aortic aneurism and replace a heart valve that had a congenital defect in it, Jones was in good physical and emotional health prior to February, 1990. (Tr. 351:1-24; 379:10-382:18.) Likewise, Patricia Jones was in excellent mental health. (Tr. 416:13-417:2.)
50. When Terry Jones viewed the McKnight news story on television the night of February 1, 1990, he "thought [he] was finished."
I thought we were all done. On the other hand, I had fought all my life. I came from the other side of the tracks from a financial standpoint. I had a very fine father and mother, but we never had any particular money, so I worked very hard. I worked 40 years to build these organizations, and I thought I had lost them immediately, and then when I c[a]me to in two or three days, I started working very, very hard to try and salvage everything that I could possibly salvage... I was so embarrassed and so humiliated....
....
I had spent my entire life being so proud of what I did and what I had become and what my wife and I I have got the very, very, very best wife in the whole world. I felt so bad about the fact I hurt her, and I did.
(Tr. 357:9-20; 362:16-20.)
51. At the time Terry and Pat Jones saw the television newscast, Mike McKnight had the reputation of covering "high profile-type" stories in his "Cover Story" segment in which McKnight "always looked like he was going around digging for dirt." "Cover [S]tory to Lincoln, Nebraska, was probably like ... 60 Minutes was to the nation." (Tr. 420:1-11.) To Pat Jones, the Jones' appearance on Cover Story meant they were "now guilty until proven innocent." (Tr.424:2-5.)
52. Prior to the Mike McKnight newscast, Terry and Pat Jones had never been the subjects of adverse publicity. (Tr.420: 12-16.)
53. After the news account appeared on television on February 1, 1990, the Joneses suffered several social and financial consequences. The Joneses noticed that long-time acquaintances would "look the other way" when they saw the Joneses in public. (Tr. 358:6-12.) Social invitations from people the *1134 Joneses perceived to have been friends "came to a screeching halt" after February 1, 1990. (Tr. 435:7-436:5.) The Jones' cleaning lady called them on the night of the IRS seizure, stating that she had seen the Joneses on television that evening, and she would not be coming back. (Tr. 361:15-362:9.) Business supplies for which Jones Oil had a charge account for 25 years were suddenly delivered COD. (Tr. 427:6-17; 428:13-19.) People with whom Patricia Jones had previously developed business contacts became nonresponsive and critical. (Tr. 429:12-430:9.) The Joneses were forced to refinance their apartments through friends. (Tr.358:14-23.)
54. Dr. Chester Paul, a vascular and burn surgeon at St. Elizabeth's Hospital in Lincoln, has treated Mr. Jones' medical conditions over the years and he and his wife have been long-time friends of the Joneses. (Tr. 375:17-22; 376:12-378:1.) After February 1, 1990, Dr. Paul observed Terry Jones gradually become reclusive, withdrawn, and "wast[ed] away" from not eating, leading Dr. Paul to conclude that Terry Jones was clinically depressed. (Tr. 384:8-386:4.) Dr. Paul found it necessary to prescribe anti-depressant medication to Jones as late as February of 1997. (Tr. 394:21-395:12.) Dr. Paul did not think that Jones had required or received antidepressant medication until after the disclosure. (Tr. 395:2-9.)[11] Dr. Paul did not observe "anything that would look like or appear to be a clinical depression in Terry Jones prior to February of 1990." (Tr. 394:17-20.)
55. After February 1, 1990, Terry Jones slept only four hours per night. (Tr. 360:14.) According to Pat Jones, after February 1, 1990, Terry Jones would lay awake at night and mutter "at least three or four times a night... I wish I were dead." (Tr. 439:4-9.) He quit showering and shaving. (Tr. 439:24.)
56. After February 1, 1990, Terry Jones lost his appetite, causing him to go from 185 pounds before the IRS seizure to 130 pounds in February, 1997, at which time he was hospitalized. (Tr. 360:8-361:10.) By February of 1997, seven years after the unlawful disclosure, Jones was "run[]down, emaciated, his protein mass was wasted, his immunity was bad, he couldn't breathe, he couldn't walk, he was purple-gray and anemic, and he got pneumonia and came in the hospital, and ... he was probably going to die." (Tr. 386:5-9, Testimony of Dr. Paul.) Jones was unable to breathe upon his admission to the hospital because his failure to eat caused him to lose muscle mass, including the muscles that enabled him to breathe. (Tr. 388:21-389:5.) After Jones was admitted into the hospital, Dr. Paul prescribed Prozac to treat Jones' clinical depression. (Tr. 387:22-388:11.)
57. After February 1, 1990, Pat Jones had trouble sleeping, questioned her deeply-held faith, and found it necessary to consult a psychiatrist after she had an emotional crisis. (Tr. 430:12-431:5.)
The IRS was in on Thursday, and that Mike McKnight show aired, the [C]over [S]tory aired Thursday night.... [O]n Saturday morning, I got up and knew I had to go to work to make up for Thursday that we lost, and I got in the shower and I ... replaying that whole event was so painful, I know I ended up on the floor of the shower just sobbing, and what brought me around was the cold water, and I remember crawling out and crawling into bed, and I stayed there. I stayed there the whole day. And when the sun started to set, I knew I was not going to make it through the night. I knew I would kill myself....
(Tr. 431:8-432:24.)
58. The Joneses no longer have any immediate plans to retire and they are now "essentially back to where [they] were in '63." (Tr. 436:19-23.) Although the Joneses have now prevailed on the liability portion of this litigation, they do not feel generally redeemed in the eyes of the public. "Those types of parties, those types of invitations that we had ... before have never resurfaced. Those friends of ours that knew in their hearts that we had done nothing wrong continued to support us and have to this day, but I don't I don't think that we can ever be in the community the way we *1135 were. We can never be whole." (Tr. 456:10-22.)
Results of the Investigation
59. Leo Curry, an employee of Jones Oil, was prosecuted and pled guilty as a result of the IRS investigation which involved Jones Oil. Although the government may have been able to make a case against the Jones Oil corporation because of Curry's activities, the corporation was never charged. According to Agent Tinsley, "to pursue criminal charges against a company that was out of business and had no ability to pay a fine, were one imposed as the result of a successful conviction, was a waste of the government's time and resources." (Tr. 562:1-21.)
60. The Joneses first learned they were no longer personally under investigation during a deposition with Agent Tinsley as a part of this litigation on April 15, 1994. (Tr. 441:4-15.) The government decided that "they shouldn't be prosecuted." (Tr. 583:25-587:15.) Put simply, the government had no evidence of wrongdoing on the part of Mr. and Mrs. Jones.
61. At the conclusion of the civil examination which was being conducted concurrently with the criminal investigation of Jones Oil, the government made a refund to the plaintiffs. The way this refund arose is somewhat complex. Initially, the IRS identified a $3,000,000 civil deficiency that was issued on Jones Oil Company and J.O. Holding, Inc. (Tr. 563:21-564:2; 578:8-579:10.) Then the IRS issued "closing letters" on November 6, 1995, for both Jones Oil Company, Inc., and J.O. Holding, Inc., stating that the correct tax liability for each entity after all assessments had been made, corrected, and agreed to by all parties was $1,001,151 for Jones Oil Company, Inc., and $53,649 for J.O. Holding, Inc. These assessments were then netted against tax deposits and this resulted in a refund to the Joneses of approximately $415,000. (Tr. 622:7-623:10; Exs. 86, 87, 88.) Thus, in the end, it was the government that owed the plaintiffs.
III. CONCLUSIONS OF LAW
I start with two observations. First, Terry Jones and Pat Jones have been grievously injured by their government. As a consequence, it is right that they be compensated to the full extent of their damages. Second, while an IRS criminal investigator made a mistake, he did so out of a sincere desire to protect a confidential informant during a complex multi-state criminal investigation. As a result, it would be unjust to read this opinion as a reason to demonize the agent or the IRS. With that said, I turn to the specific damage issues raised by this difficult case.
A. The Proper Recipients of Damages are Terry and Pat Jones.
When I made my liability decision, I found "in favor of Plaintiffs and against the United States on the issue of liability." Jones III, 954 F.Supp. at 195. The plaintiffs seek liquidated, actual, and punitive damages for one disclosure pertaining to Jones Oil, Terry Jones, and Pat Jones.
Because of the complex, but perfectly legal, business arrangements of the plaintiffs, it is necessary to specify the proper recipients of any damage award. The plaintiffs are Terry Jones; Pat Jones; Jones Publishing, Inc., a corporation; Jones Oil Company, Inc., a corporation; J.O. Holding, Inc., a corporation; and Jones Petroleum Company, now known as Jones Apartments, a partnership.
Terry Jones and Pat Jones owned the stock that controlled J.O. Holding. J.O. Holding in turn controlled the remainder of the corporations. It also appears that Terry and Pat Jones from time to time operated a partnership known as Jones Apartments and from time to time that partnership may have been the nominal holder of the stock in J.O. Holding. These business arrangements are further complicated by other factors. For example, Jones Oil Company has ceased doing business and may have been dissolved and J.O. Holding was the nominal owner of certain property that was liquidated as a result of the demise of Jones Oil Company.
Given these complexities, the following question arises: What person or entity is entitled to receive the damages assuming that an award is appropriate? The plaintiffs have answered this question in their brief, and the government has not objected.
*1136 After careful consideration, I adopt the position of the plaintiffs. Any award resulting from the demise of Jones Oil Company will be paid jointly to Terry Jones and Pat Jones, individually, as their interests may appear. Any award resulting from emotional distress damages sustained by Terry Jones will be paid to Terry Jones, individually. Any award resulting from emotional distress damages sustained by Pat Jones will be paid to Pat Jones, individually.
B. "Return Information ... with respect to" Pat Jones Was Disclosed.
While conceding for the sake of the damage trial that "return information" of Terry Jones and Jones Oil was improperly disclosed, the government now argues that there is no evidence that "return information" related to Pat Jones was disclosed. I disagree.
The United States has liability if an IRS agent unlawfully "discloses any ... return information with respect to a taxpayer." 26 U.S.C. § 7431(a) (emphasis supplied). The statute does not state that liability arises only if the taxpayer is identified by name. In fact, "return information" can be "any ... data ... with respect to the ... possible existence ... of liability ... of any person ... for any tax ... or offense." 26 U.S.C. § 6103(b)(2)(A). Because of the broad definition of "return information," the IRS tells its agents that a prohibited "disclosure may be either direct or indirect." Jones I, 898 F.Supp. at 1380 (quoting Internal Revenue Service Manual).
The disclosure here was "with respect to" Pat Jones, as well as Terry Jones and Jones Oil. The disclosure (essentially that a search warrant was going to be executed at Jones Oil), when interpreted in the context of all the discussions between Stennis and the informant, proclaimed that IRS criminal investigators were focusing on Jones Oil and its owners, including Pat Jones.
First, Pat Jones filed joint individual tax returns with Terry Jones. A spouse who files a joint tax return is potentially liable for the taxes owed by the other joint taxpayer. See, e.g., Estate of Gryder v. Commissioner of Internal Revenue, 705 F.2d 336, 339 (8th Cir.) (spouse failed to meet her burden under 26 U.S.C. § 6013(e) and was therefore civilly liable for under-reported income on joint return; husband had been criminally prosecuted and convicted for filing false tax returns), cert. denied, 464 U.S. 1008, 104 S. Ct. 525, 78 L. Ed. 2d 709 (1983). Thus, any disclosure pertaining to the investigation of Terry Jones was also "with respect to" Pat Jones, who was, at the very least, jointly liable for any unpaid taxes that he owed.
Second, not only did Pat Jones face civil liability regarding the joint tax returns of Terry Jones, she also faced criminal liability for the acts of Jones Oil because she was so intimately involved with Jones Oil. She owned 51 percent of Jones Oil. She was also an officer of the corporation. Furthermore, she was director of the corporation. Still further, she functioned as an "administrative assistant" to Terry Jones, the president of Jones Oil. Thus, any unlawful disclosure pertaining to Jones Oil would also be "with respect to" Pat Jones since she had serious potential criminal exposure for the acts of Jones Oil under the tax laws. See, e.g., United States v. White, 671 F.2d 1126, 1128 & 1134 (8th Cir.1982) (affirming corporation manager's criminal conviction; the manager conspired to impede the ascertainment of corporate income taxes; he was responsible for the failure to properly disclose the true nature of the corporation's revenues and expenses).
Third, at the time of the disclosure, the government believed that Pat Jones was a target of the investigation. For example, the government knew that Pat Jones was married to Terry Jones, that she was "a vice president, secretary and the major stockholder of" Jones Oil, and the government revealed this information to the judge who issued the search warrant. (Liability Trial, Ex. 3A (Redacted Search Warrant Affidavit at 3).) Still further, in the search warrant affidavit the government implied that records showing illegal activity involving Jones Oil might be "relocate[d]" in a building where "Terry Jones' wife has an office." (Id. at 18-19.) In addition, the agent in charge of this investigation admitted that "there wasn't any doubt ... this investigation involved Terry and Pat Jones as joint taxpayers and Jones Oil Company." (Liability Trial Tr. 97:23-98: 1 (emphasis added).) Thus, the government *1137 knew or should have known that a wrongful disclosure "with respect to" Terry Jones or Jones Oil would also amount to a disclosure "with respect to" Pat Jones.
In summary, I find and conclude that the unlawful disclosure was "with respect to" Pat Jones, as well as Terry Jones and Jones Oil. The disclosure was not merely wrongful because it disclosed the impending execution of a search warrant at Jones Oil. It was also wrongful because it disclosed to the informant the specifics of a criminal investigation of the Jones family. Such a disclosure had the capacity to, and in fact did, implicate Pat Jones in the public mind when the informant published it. Therefore, she is entitled to all the damages caused her personally by the disclosure.
C. Because They Are Entitled to Actual Damages, the Plaintiffs are Not Entitled to Liquidated Damages.
The law provides that liquidated damages are to be awarded if the plaintiffs did not sustain actual damages exceeding one thousand dollars. 26 U.S.C. § 7431(c)(1) (providing for the "greater of" liquidated damages in the sum of $1,000 for each disclosure or "actual damages" and, in the case of a willful disclosure or a disclosure caused by gross negligence, punitive damages, plus the costs of the action). Because I find that Jones Oil, Terry Jones, and Pat Jones each sustained actual damages in excess of one thousand dollars, I will not award liquidated damages to them.
D. The Plaintiffs Have Proven Causation for Actual Damages.
I find and conclude that the unauthorized disclosure of tax return information caused actual damage to Terry and Pat Jones individually and as owners of Jones Oil Company.[12] There is no question that the plaintiffs suffered some damage as a direct result of the unlawful disclosure. For example, it is clear beyond question that Jones Oil failed as a direct result of the unlawful disclosure; that is, the disclosure caused a tip to the news media that in turn resulted in intense news coverage that destroyed Jones Oil. Despite the clarity of the evidence, the government continues to argue that the plaintiffs failed to prove "causation." I reject the government's arguments for the following reasons.
Taxpayers, like the plaintiffs, are entitled to "actual damages sustained by [them] as a result of such unauthorized ... disclosure." 26 U.S.C. § 7431(c)(B)(i) (emphasis added). There is no case law that establishes precisely what level of "causation" is required in order to recover "actual damages." In the absence of contrary case law, and applying the plain meaning of the words of the statute, I find and conclude that the common law elements of causation must be proven in order to recover "actual damages" under section 7431.
In general[13], common law "causation" has two elements. See, e.g., Horn v. B.A.S.S., 92 F.3d 609, 611-12 (8th Cir.1996) (discussing cause in fact and proximate cause) (citations omitted); W. Page Keeton, Prosser and Keeton on Torts §§ 41 & 42 (5th ed.1984) (discussing causation in fact and proximate cause). First, the plaintiff must prove that the wrongful act in fact caused the harm; that is, the plaintiff must prove that "but for" the wrongful act, the harm would not have occurred. B.A.S.S., 92 F.3d at 611-12. Secondly, *1138 the plaintiff must prove that the harm was a "`reasonable and probable [foreseeable] consequence'" of the wrongful act; that is, the plaintiff must prove that, considering other potential causes, it is sensible to impose liability upon the defendant. Id. (quoting Callahan v. Cardinal Glennon Hosp., 863 S.W.2d 852, 865 (Mo.1993)).
With this preface in mind, I turn to the specific questions of causation raised by the government. In general, the government argues that the plaintiffs failed to prove that the disclosure in fact caused damage and that the plaintiffs failed to prove that the disclosure was the proximate cause of damage.
1. Factual Cause
I find and conclude that the factual cause of the plaintiffs' damages was (1) the unlawful disclosure to the informant that "a search warrant [is] going to be executed ... at Jones Oil," Jones I, 898 F.Supp. at 1379, and (2) the informant's subsequent telephone call to a television reporter to "come down [to Jones Oil] with [his] cameras." Id. at 1371. I further find that the informant who received the unlawful disclosure was Rick Lucchino (R. Lucchino) and that Lucchino or others at his direction made the call to the investigative reporter. I further find that "but for" the unlawful disclosure to R. Lucchino, the investigative reporter would not have known of the search and the damage would not have occurred.
The government argues that the evidence is insufficient to prove the identity of the person who received the disclosure. Moreover, the government argues that the evidence is insufficient to establish that the person who received the disclosure informed the investigative reporter of the execution of the search warrant. Still further, the government argues that the execution of the search warrant would have been discovered in any event. Also, the government argues that the plaintiffs' damage expert simply assumed causation, and there are possibly other reasons that the plaintiffs suffered damage. As a consequence, the government argues that the plaintiffs have failed to prove that the disclosure was the factual cause of their injury. I am not persuaded by the government's arguments.
I begin by recognizing that the government refused to reveal the identity of the informant, and, at the government's insistence, the court prohibited the plaintiffs from discovering the identity of the informant. United States v. Jones Oil Co., 60 F.3d 831 (8th Cir.1995) (table), 1995 WL 408251 (sustaining refusal to provide unredacted copy of search warrant affidavit); Jones v. United States, 869 F. Supp. 747, 749-50 (D.Neb.1994) (same). See also Jones I, 898 F.Supp. at 1367-68 n. 7 (noting government's objection to question put to Stennis by the plaintiffs' counsel during trial regarding whether Stennis had a conversation with Lucchino concerning the service of the warrant). As a result, I will not allow the government to use the informant privilege as both a shield and a sword. See, e.g., United States v. Workman, 138 F.3d 1261, 1264 (8th Cir.1998) (defendant would not be allowed to assert that he relied upon advice of attorney, and then prohibit inquiry into the substance of that advice; "[t]he attorney client privilege cannot be used as both a shield and a sword"). Thus, the uncertainty surrounding the identity of the informant arises because of the assertion of the government's privilege and that uncertainty is, therefore, not properly attributed to the plaintiffs.
(a) R. Lucchino Received the Disclosure.
The evidence proves that R. Lucchino was the informant who received the disclosure. We have both direct and circumstantial evidence that proves the point.
We know from Stennis that he made the unlawful disclosure to an informant on the afternoon of January 31, 1990. Jones I, 898 F.Supp. at 1367-68 (findings 24-26). We also know that the next day, after the warrant was executed that morning, R. Lucchino was recorded by his brother-in-law and best friend John Sims (Sims) "divulging the fact that the IRS was [at Jones Oil], and that he took full credit for them being there and the investigation." Id. at 1372 (finding 69). Indeed, in four separate telephone calls on the day of the search, beginning shortly after the search warrant was executed and continuing until the afternoon, R. Lucchino or his brother S. Lucchino displayed an intimate knowledge of the government's activities in searching *1139 Jones Oil. Id. at 1370-72 (findings 52, 60-70). Moreover, we also know that a few days before the search R. Lucchino cryptically told Sims "that there was something in the works with ... Terry or ... Jones Oil ... something was going to happen." Id. at 1372 (finding 72).
Although denying that he received the disclosure, we know that R. Lucchino admitted talking to the "federal people," such as Tinsley and Stennis, prior to February 1, 1990. Id. (finding 79). The plaintiffs have also proven that R. Lucchino was a former employee of Jones Oil who left the firm on less than amicable terms prior to the IRS investigation. Id. (finding 72). Lucchino had a financial incentive to harm Jones Oil since he worked for a competitor and he had left Jones Oil after Jones Oil claimed that he misappropriated proprietary information and gave it to the competitor. Id. (findings 74 and 75). We also know that at least one of the informants had previously been employed by Jones Oil. Id. at 1366 (finding 17).
In summary, the circumstantial evidence must be evaluated in light of the direct evidence of what R. Lucchino and his brother did and said while the search warrant was being executed. When we put this evidence together, the greater weight of the evidence establishes that it is more probable than not that R. Lucchino was the informant who received the unlawful disclosure.
(b) R. Lucchino Called the Reporter.
Next, I am persuaded that R. Lucchino (or someone acting at his direction, such as his brother) called Mr. McKnight, the investigative reporter, and persuaded him to come to the scene of the search. I arrive at this decision based upon the following evidence.
McKnight testified that around 9:00 a.m. he received a telephone message from a male that alerted him to a newsworthy event at Jones Oil. Specifically, the reporter was given a "tip that something was going on." Id. at 1371 (finding 56).
Shortly after the search began at about 7:00 a.m., R. Lucchino's brother, S. Lucchino, called Sims at his home. S. Lucchino had sold insurance to Jones Oil, but had lost the account when his brother left the firm. Id. at 1370 (finding 51). Sims worked at an office adjacent to Jones Oil. S. Lucchino told Sims that he "was going to miss the fun [that] was going on at Jones Oil" and Sims should "[g]et to work." Id. at 1370-71 (finding 52).
During the mid-morning, R. Lucchino called Sims and was "gloating." Id. at 1371 (findings 60-61). Later that afternoon, R. Lucchino again called Sims. He wanted to know "if things had calmed down ... if there was a news crew there, still there...." Id. (finding 63).
Then, in the afternoon, Sims called R. Lucchino. Sims taped a part of the conversation. Later that evening, Sims allowed Terry Jones to listen to the tape.
Sims recalled that during the taped portion of the telephone call, R. Lucchino "just basically took credit for the actions that had happened that morning ... talking about how he or his people ... notified the media to come down with their cameras...." Id. (finding 67). Terry Jones recalled that R. Lucchino "divulg[ed] the fact that the IRS was there, and that he took full credit for them being there and the investigation." Id. at 1372 (finding 69). Furthermore, according to Terry Jones, R. Lucchino "took full credit for the press being there" and he "was elated." Id. (finding 70).
In summary, it is obvious that R. Lucchino (or someone acting at his direction) notified McKnight of the execution of the search warrant. I arrive at this conclusion because, among other reasons, (1) it is more probable than not that R. Lucchino was the informant who received the unlawful disclosure; (2) a male called McKnight and tipped him off; (3) the informant's brother, S. Lucchino, made a statement proving that he knew about the search shortly after it began; and (4) R. Lucchino, having a motive to harm Jones Oil, admitted to his brother-in-law and best friend that he was responsible both for the IRS investigation and the media attention.
(c) The Government's Hearsay Objection is Not Valid.
The government objected[14] to the testimony of Terry Jones regarding what R. *1140 Lucchino had said to Sims when Sims secretly tape recorded their conversation on the day of the search. The tape itself was unavailable because Sims' wife had destroyed it later that same evening, but not before Sims had allowed Terry Jones to listen to the tape. R. Lucchino did not testify at trial. The government argued that the testimony about what Lucchino said was hearsay because he did not testify at trial and because his deposition was available.
The government conceded (Tr. 197; Liability Trial Tr. 47-48) that the plaintiffs had given notice that they intended to rely upon the residual exception to the hearsay rule when offering the testimony about R. Lucchino's statement. See Fed.R.Evid. 807 (second sentence). The question then became whether the testimony about what R. Lucchino said was: (1) "evidence of a material fact"; (2) "more probative on the point for which it is offered than any other evidence which the proponent can procure through reasonable efforts"; and (3) "the general purposes of the[] rules [of evidence] and the interests of justice will best be served by admission of the statement into evidence." Fed.R.Evid. 807(A)-(C). I found that all three of these prerequisites for admission of the statement had been satisfied. I now explain my reasons for that ruling in greater detail.[15]
As to the first criteria, everyone agrees that R. Lucchino's tape-recorded statement to Sims and Terry Jones' subsequent listening to, and recitation of, the statement[16] is evidence of a "material" fact. Fed.R.Evid. 807(A). The evidence goes to the heart of this case. The statement proves an unguarded contemporaneous admission of R. Lucchino, to his best friend and brother-in-law, that he caused the IRS search and that he notified the media of the search.
Secondly, R. Lucchino's deposition is not "more probative" than the trial testimony of Terry Jones about what R. Lucchino said during a tape-recorded statement shortly after the incident occurred. To the contrary, Terry Jones' trial testimony is the more probative.
Relying upon the words of Rule 807(B), the government argues[17] that Terry Jones' statement of what R. Lucchino said is not "more probative on the point ... than any other evidence which the proponent can procure through reasonable efforts." The government bases this assertion on the fact that R. Lucchino was deposed and that deposition testimony was available for use at trial. Moreover, in that deposition, R. Lucchino denied he was told about the government's intent to seize records at Jones Oil. The *1141 government's argument, although vigorously presented, is not persuasive.
Using the informant privilege, the government hamstrung the plaintiffs from taking an effective deposition of R. Lucchino. Since the plaintiffs could not force Stennis to disclose the name of the person who received the unlawful disclosure, Lucchino could profess ignorance of the entire matter knowing that the plaintiffs could not discover the truth from the government. Thus, the deposition testimony of R. Lucchino is inherently suspect.
Next, although both sides tried to subpoena R. Lucchino to testify at trial, neither side could find him. Jones I, 898 F.Supp. at 1372 (finding 78). Thus, I had no opportunity to see how R. Lucchino would have reacted to the trial testimony that directly impeached him.[18] What I do know persuades me that he was not truthful during the deposition. Id. (finding 79).
For example, during the deposition Lucchino avoided numerous questions because of a suspicious lack of memory, once lamenting that "I don't remember what I did yesterday." Id. Furthermore, in his deposition Lucchino did not deny the conversation with Sims. (Liability Trial Ex. 101, at 20:10-19.) On the contrary, when specifically asked on two occasions whether he denied having had such a conversation, Lucchino twice stated: "No, I didn't say that. I said I did not remember." (Id. 20:13-14 & 18-19.)
In contrast to Lucchino's evasive deposition, I was able to see and hear the credible live testimony of Jones during trial. In short, the live trial testimony of Jones, when weighed against the highly suspect deposition testimony of an absent witness, is the more probative.[19]
Still further, R. Lucchino's tape-recorded statement was made in an unguarded moment to his brother-in-law and best friend as the critical event was occurring. Sims testified at the liability trial, and recounted, without objection, his recollection of the taped statement. Although Sims' recollection of the statement is not identical to Terry Jones' recollection, it is very close. Thus, we have unbiased corroboration for the fact and nature of the statement recounted by Jones. As a result, the live trial testimony of Lucchino's best friend and brother-in-law makes Jones' similar trial testimony more probative than Lucchino's suspect deposition.
Finally, I am satisfied that the admission of the statement is in accord with the general purposes of the rules of evidence and the interests of justice. The use of the statement "secure[s] fairness ... to the end that the truth may be ascertained and [the] proceeding[] justly determined." Fed.R.Evid. 102. The truth is that R. Lucchino received the unlawful disclosure and tipped the media, and the tape evidence proves it.
(d) "But For" Cause
While phrased in a variety of ways, the government essentially argues that the disclosure to Lucchino was not the "but for" cause of the injury to the plaintiffs. In other words, the government argues that the evidence is insufficient to prove that "but for" the disclosure, the injury would not have occurred. Summarized and condensed, the government has three arguments in this regard.
Initially, the government asserts that the news media would have found out about the search in any event and therefore the disclosure did not harm the plaintiffs. Next, the government argues that there is no connection between the disclosure and the conclusion by John Chapin, the damage expert, that the disclosure caused damage to Jones Oil. In other words, Chapin's analysis was flawed because it assumed causation. Thirdly, the government argues that the failure of Jones Oil could have occurred because of a variety of "other reasons," such as (1) the plaintiffs were the subject of a criminal investigation and that fact (as opposed to the disclosure) could have caused the demise; (2) *1142 the seizure of the firm's records could have caused the demise; and (3) the suppliers may have had motivations other than the raid for canceling business with Jones Oil. I am not persuaded by any of these arguments.
The government asserts that the act of seizing records, occurring as it did at the intersection of busy streets during the day by IRS agents wearing raid jackets, would have surely been discovered and publicized by the news media even if the disclosure had not been made. This argument is far too speculative to be convincing.
To begin with, I am not persuaded that the news media would have learned of the raid had the disclosure not occurred. Except for the one entirely unlawful disclosure, the IRS personnel and U.S. Attorney's office were silent.[20] The search warrant affidavit was sealed. None of the plaintiffs were charged with crimes. An eye witness, who drove by the Jones building while the raid was occurring, testified that he did not think anything unusual was taking place. He simply thought it was "moving day."
In addition, the tip to McKnight brought to bear upon the plaintiffs a highly intense focus that would not have occurred, even assuming that the media would have later learned about the raid through proper channels. McKnight's "Cover Story," replete with video coverage of the search as it was taking place, was widely viewed with more interest than a dry news account. "Cover [S]tory to Lincoln, Nebraska, was ... like 60 Minutes was to the nation." (Tr. 420:1-11.) Indeed, the television station that broadcast the program was so taken with this story that it used the report in its advertisements. Thus, it is wrong to assume that the news media would have focused upon the raid with the same intensity had the media learned of the event in the normal course of events.
Regarding the government's second argument, I do not believe that Chapin's analysis was flawed because it assumed causation. In fact, Chapin followed an accepted methodology in his field. He examined Jones Oil and the related market in great detail before the unlawful disclosure and tip and after the unlawful disclosure and tip. In so doing, he carefully reviewed every facet of the Jones Oil business and related market.[21]
By ruling out other causes for the failure of Jones Oil, Chapin was able to pinpoint the unlawful disclosure and tip as the factual cause of the injury, as opposed to some other factor. Put simply, this "rule out" method does not assume causation; it tends to prove it. See, e.g., Federal Judicial Center, Reference Manual on Scientific Evidence 512 (West 1994) (discussing the question of whether there is causal link between the alleged misconduct and the measured damages in antitrust cases; stating that "experts sometimes compare market conditions in a period affected by the misconduct with conditions in another period, during which the misconduct is known to be absent").
Moreover, Chapin had direct evidence of causation to buttress his analysis. For example, Terry Jones testified that "starting almost immediately, there [were] telephone calls from various refineries to me or to my vice-president" stating "that when the IRS would write me a letter and say that I did nothing wrong, that they would be glad to get back in bed with me, but until such time, I was out of business so far as they were concerned." (Tr. 81:17-25; 125:2-8.) Absent the disclosure, tip, and resulting "Cover Story," there is no reason to think that these refineries would have started demanding on February 2, 1990, a favorable letter from the IRS as a condition for doing business with Jones Oil.
*1143 With regard to the third argument that Jones Oil might have failed because of a variety of "other reasons," I remain unconvinced. Although the plaintiffs were the subject of a criminal investigation, they were never charged and, except for the disclosure and tip, the investigation was kept confidential. Thus, the investigation is not the cause of the demise.
Moreover, although the government seized all their records, the business was fully operational the day after the search. Terry and Pat Jones were able to copy, with the government's help, all their records, including computer records. Thus, the absence of records did not cause the demise.[22]
Finally, a few suppliers may have had other motivations for canceling their business. It is impossible, however, to believe that Jones Oil had a thriving business on January 31 based upon numerous contented suppliers, but most of these same contented suppliers just happened to cancel their business on or shortly after February 2 for "other reasons." In this regard, it is important to remember that from November, 1988, to January, 1990, Jones Oil, a company that prospered with a very high credit rating, enjoyed average monthly gross sales of $1,285,415. By contrast, in the eleven months following the disclosure, the average monthly gross sales fell to a paltry $287,015. In fact, the sales fell to $356,316 in February of 1990. Something dramatic happened, and that something was the unlawful disclosure and tip.
In summary, the plaintiffs easily proved "but for" causation. In contrast, the government's arguments lack meaningful evidentiary foundations and are too speculative to be convincing.
2. Proximate Cause
The plaintiffs proved that the unlawful disclosure proximately caused the tip to McKnight, the publicity, and the resulting damage. Two points should be made.
First, the obvious purpose of prohibiting disclosures is to protect the personal and business reputations of taxpayers. In other words, a reasonable IRS agent would know that "even without an actual conviction, the suggestion of criminal activity can transform and devastate an individual's life." Diamond v. United States, 944 F.2d 431, 434 (8th Cir.1991). Thus, it would have been generally foreseeable to a reasonable IRS agent that the disclosure in this case, which obviously revealed a pending criminal investigation of the plaintiffs, could have far-reaching and devastating consequences to Jones Oil and the principals of that company.
Second, and more specifically, it should have been foreseeable to Stennis that Lucchino harbored bad feelings for Terry Jones and that Lucchino might seek to harm Jones Oil with the information provided by the disclosure. To the extent the government argues that Agent Stennis could not have foreseen that Lucchino would call the media, and, therefore, the disclosure was not the "reasonable and probable consequence" of the wrongful act, I reject the argument.
Stennis knew (or should have known) that Lucchino had left Jones Oil to join a competitor after Jones accused Lucchino of taking proprietary information. For example, Stennis stated during the liability trial that he knew the informants had "crossed paths with Mr. Jones." Jones I, 898 F.Supp. at 1386. While obviously not identifying Lucchino as one of the informants, Stennis nevertheless admitted that he knew these transactions were "ugly." Id. Plainly put, it was obvious that there was "bad blood" between Lucchino and Jones. Id. at 1372 (findings 73-77).
While Stennis might not have foreseen that Lucchino would call McKnight, Stennis (and a reasonable agent in his position) would have foreseen that Lucchino might use the disclosure to harm Jones and that is all *1144 the element of "proximate cause" requires. As our Court of Appeals has made clear, "`the law does not require precision in foreseeing the exact hazard or consequence' which in fact transpires; it is sufficient `if what occurred was one of the kind of consequences which might reasonably be foreseen.'" Griggs v. Firestone Tire & Rubber Co., 513 F.2d 851, 861 (8th Cir.), cert. denied, 423 U.S. 865, 96 S. Ct. 124, 46 L. Ed. 2d 93 (1975) (quoting Comstock v. General Motors Corp., 358 Mich. 163, 99 N.W.2d 627, 636 (1959)) (footnote omitted).
E. The Plaintiffs are Entitled to Actual Damages for the Failure of Jones Oil.
The plaintiffs claim that the unlawful disclosure and resultant demise of Jones Oil Company caused them damage. This claim has six facets.
I find and conclude that the plaintiffs are entitled to recover damages in the amount specified by their damage expert for the demise of their operating business, for the sale of real estate, and for the sale of personal property. Specifically, I find that the unlawful disclosure was the factual and proximate cause of these damages and that these damages have been proven with sufficient certainty.
I also find and conclude that the plaintiffs are not entitled to damages related to the Tennessee tax refund claim because that claim is too speculative. With regard to the Jones Publishing damage claim, I find and conclude that the evidence is insufficient to establish that the disclosure was either the factual or proximate cause of the loss. Finally, I find that the plaintiffs are not entitled to "out-of-pocket" expenses because those damages are inconsistent with the theory used by their own expert. An explanation of these decisions is set forth below.
1. Damages for the Operating Business
Jones Oil Company had become highly successful in a business that especially depended upon the perception that it was run by people of unquestioned honesty. With a spotless Dun & Bradstreet rating, Jones Oil Company was able to buy the daily excess capacity of petroleum products from a wide variety of refineries. Jones was able to make these purchases on credit at very low prices relative to prices charged by the refineries that had no excess capacity. In turn, Jones Oil was able to resell that excess capacity to various petroleum retailers who were paying the highest prices in a given geographic region.
The success of Jones Oil Company pivoted upon the trust that Jones Oil had established with the refineries. Trust was essential to the refineries' willingness to deal with Jones Oil; that is, because the refineries gave Jones Oil access to their production facilities with little or no oversight, the refineries had to be sure that Jones Oil was trustworthy. In effect, the refineries gave Jones Oil the "key to the store" on the assumption that Jones Oil and its owners were above suspicion.
When Jones Oil was pictured on "Cover Story," the various local representatives of the refineries were exposed to publicity that directly called into question the integrity of the business practices of Jones Oil. In turn, the day following the raid Jones Oil received numerous cancellations of agreements with refineries. These cancellations continued, and by the end of December of 1990, Jones Oil ceased doing business. All of this was foreseeable to a reasonable agent who contemplated the disclosure of tax return information regarding the company.
In summary, the unlawful disclosure resulted in the ruination of the company's reputation for honesty, and without that reputation, the company was destroyed. The unlawful disclosure was therefore the factual and proximate cause of the failure of Jones Oil.
What was the value of Jones Oil on or about February 1, 1990? The plaintiff commissioned John N. Chapin, Jr., the Managing Director of Litigation and Forensic Service Practice in the Midwest for KPMG Peat Marwick, to determine the damages. Of the three generally accepted approaches to valuing a business, Chapin chose the income or discounted cash flow approach.
Chapin calculated Jones Oil's cash flow from operations for fiscal years 1988 and 1989, and reached an expected positive cash flow in 1990 of $498,784. Chapin then applied *1145 a capitalization rate to that expected cash flow to value Jones Oil Company as of October 31, 1989, the fiscal year end of the company closest to the date of the unlawful disclosure. He arrived at a value of $2,197,288. Chapin then future-valued this amount to January 31, 1998, by increasing the value of the business monthly by the rate of return the plaintiffs would have received had they invested that sum in "Baa" bonds. This future-value calculation resulted in a value of Jones Oil at January 31, 1998, of $4,516,083.[23]
Aside from a dispute on the issue of causation, the government has raised no serious objection to the method used to value the business. For example, Chapin testified that his analysis was submitted to an expert employed by the government, and, after that review, the government's expert expressed no serious objection to the capitalization rate used by Chapin. (Tr. 316:12-24).[24] Indeed, the government did not call an expert to contest any part of Chapin's analysis regarding the damage calculations for Jones Oil.
In summary, I conclude that Chapin's analysis is correct regarding the value of Jones Oil Company and the damages flowing from the demise of that business. I will therefore award the plaintiffs damages for the destruction of their operating business. The judgment for these damages will be computed this way: (1) $4,516,083 (representing the damages as January 31, 1998); (2) plus a sum equivalent to interest on $4,516,083 at 5.232 percent[25], computed in accordance with 28 U.S.C. § 1961(b) from February 1, 1998, to the date of judgment (representing the damages brought forward from February 1, 1998, until the date of judgment).
2. Damages for Tennessee Taxes
The plaintiffs claim that in the wake of all the adverse publicity, they were distracted from submitting a claim for a refund on taxes that had been paid to the State of Tennessee by Jones Oil Company. The evidence reveals that the time for filing a refund for these taxes ran out during the relevant period of time. Therefore, the plaintiffs seek damages for that refund.
As the finder of fact, I reject the plaintiffs' claim for damages relating to the refund. Simply put, the evidence does not persuade me that the plaintiffs in fact suffered a loss. Even if I assume that the failure to file a refund request was caused by the unlawful *1146 disclosure, on this record it is pure speculation to conclude that the plaintiffs would have been successful on the merits of that disputed refund claim.
3. Damages for Sale of Real Estate
The plaintiffs claim that their holding company was forced to sell real estate leased to Jones Oil when Jones Oil failed; that is, when Jones Oil failed, the holding company had no further use for the property. Using a comparison of assessed values and appraised values, the sale of the real estate generated a loss, according to Chapin. Valued as of January 31, 1998, that loss was $565,356.
The government has not seriously challenged the method used by Chapin to determine the real estate loss. Moreover, I find that Chapin's damage analysis is trustworthy. Still further, I find that the holding company would not have been forced to sell the gas station or the office building leased to and operated by Jones Oil had Jones Oil survived. Lastly, it would have been foreseeable to a reasonable agent that if Jones Oil failed, the assets used to operate the business would be liquidated. I therefore find that the real estate loss was factually and proximately caused by the unlawful disclosure that resulted in the demise of Jones Oil.
In summary, I will award the plaintiffs damages regarding the sale of real estate. The judgment for these damages will be computed this way: (1) $565,356 (representing the damages as of January 31, 1998); (2) plus a sum equivalent to interest on $565,356 at 5.232 percent, computed in accordance with 28 U.S.C. § 1961(b) from February 1, 1998, to the date of judgment (representing the damages brought forward from February 1, 1998, until the date of judgment).[26]
4. Damages for Sale of Personal Property
When Jones Oil failed, it had personal property that was no longer needed. Therefore, the personal property was sold at auction. Chapin compared the book value of that personal property with the auction price of the personal property, and determined that there was a loss, valued on January 31, 1998, of $24,760.
Because the personal property would not have been sold at a loss if Jones Oil had not failed and because the loss of this type was a foreseeable consequence of the disclosure, I find that the factual and proximate cause of the loss was the wrongful disclosure. Moreover, the government has not seriously challenged Chapin's damage estimate and I find his analysis to be convincing.
In summary, I will award the plaintiffs damages regarding the sale of personal property. The judgment for these damages will be computed this way: (1) $24,760 (representing the damages as of January 31, 1998); (2) plus a sum equivalent to interest on $24,760 at 5.232 percent, computed in accordance with 28 U.S.C. § 1961(b) from February 1, 1998, to the date of judgment (representing the damages brought forward from February 1, 1998, until the date of judgment).[27]
5. Damages for Jones Publishing
The plaintiffs claim that when Jones Oil failed, the positive cash flow from the business was lost and, in turn, they were unable to invest that cash flow into Jones Publishing Company, a new business. As a consequence, the plaintiffs claim Jones Publishing failed. With the closing of Jones Publishing Company, the plaintiffs lost the money they had loaned to or invested in Jones Publishing.
While I assume that the plaintiffs lost what they invested or loaned Jones Publishing, I am not persuaded that the unlawful disclosure "caused" this loss. I have two reasons for this decision.
First, there is no persuasive evidence that Jones Publishing would have succeeded had Jones Oil not failed; that is, one cannot say that "but for" the disclosure, the plaintiffs would have recovered their investment and loans in Jones Publishing Company. Jones Publishing Company was a "start-up" business with no history. We have no hard evidence that Jones Publishing was viable before the disclosure or was likely to become viable if the disclosure had not taken place. *1147 Accordingly, the plaintiffs have not convinced me that they would have recovered their investment in, and loans to, Jones Publishing if the disclosure had not occurred.
Second, I am not persuaded that it would have been foreseeable to a reasonable agent that disclosure of tax return information regarding an established business would result in the failure of a separate "start-up" business. In other words, I am not persuaded that the unlawful disclosure was the proximate cause of the Jones Publishing loss.
6. Damages for "Out-of-Pocket Expenses"
The plaintiffs seek to recover trade and bank debt that Terry Jones claims to have paid personally after Jones Oil failed. In other words, over and above the value of the loss of Jones Oil set by Chapin, the plaintiffs seek additional expenses allegedly flowing from the demise of Jones Oil. It is important to note that Chapin, the plaintiffs' damage expert, did not support Terry Jones' claim for additional expenses. (Tr. 256:24-259:17; Ex. 510 ("The theory supporting [Terry Jones'] claims differs from the theory supporting the claims [supported by Chapin]. As such, it would not be appropriate to adjust our report to reflect these claims.").)
I do not agree that the plaintiffs are entitled to the losses categorized as additional trade and bank debt that Jones claims to have paid personally after Jones Oil failed. I find and conclude that these additional damages are inconsistent with the damage valuation approach used by Chapin, and I therefore reject the claim.
I arrive at this conclusion because, among other reasons, the income approach to the value of Jones Oil used by Chapin assumes that these debts had been paid or reserves had been made for these debts. When I award the plaintiffs the sum suggested by Chapin for the loss of Jones Oil, I am of necessity assuming that these other debts should have (or could have) been paid by the corporation. This is because the monthly cash flows used by Chapin to compute the income approach to value accounted for this debt before the income was computed. Hence, Chapin's analysis assumed that the trade and bank debt was a liability that had already been counted when valuing Jones Oil.
Let me give an example.[28] Jones claims that after Jones Oil failed, he had to pay Marathon Oil roughly $90,000, plus he still owed them money. (Filing 188, Order on Final Pretrial Conf., at 2.) If we award $2,197,288 as of approximately February 1, 1990, for the value of Jones Oil as Chapin's analysis suggests, such an award presupposes that the trade debt incurred had been paid or a reserve for payment had been established. This is true because the trade debt to Marathon should have been included in the cost of goods sold on the monthly financial statements. Thus, the income valuation approach used by Chapin assumes that the debt was paid (if the statements were compiled on a cash basis) or a reserve for payment had been established (if the statements were compiled on an accrual basis). In any event, Jones Oil should have had sufficient money to pay the trade debt if Chapin's income approach to valuation of the business was correct.
The fact that Jones personally paid the trade debt means that the stockholders took too much cash from Jones Oil, and thus paid themselves before they paid their suppliers, leaving the business solvent, but relatively cash poor. While it was perfectly legal to do this, the diversion of these funds was not caused by the IRS. More importantly, had the stockholders not diverted these funds, Chapin's analysis, predicated upon the financial statements prepared by Jones Oil, assumes that there should have been enough cash in Jones Oil to pay the trade debt without Jones having to pay the debt personally.
Put another way, if Jones Oil had been sold in February of 1990, it would have sold for approximately $2,197,000. But the income approach to valuation used by Chapin assumes that the buyer would have bought Jones Oil for $2,197,000 only if there was enough cash to pay the trade debt which had accumulated in the ordinary course of business; that is, the income approach to valuation (frequently called the capitalization of *1148 earnings approach) assumes that the buyer is paying a multiple of the net (before tax) income stream. For example, when we examine the balance sheet for January 31, 1990, the receivables ($1,785,732) exceed the total current liabilities ($1,298,546). (Ex. 58.) Someone would be willing to buy this positive income stream. However, no one would pay for these receivables without also deducting from the sale price the cost (total current liabilities) of generating these receivables.
The same is true for bank debt. The bank debt primarily represents account receivable financing. Thus, the bank debt equates to sales on the monthly statements. If the sales figures on the monthly statements are correct, then the sales should have resulted in payment of the bank debt (if the statements were on a cash basis) or a reserve for payment should have been created (if the statements were on the accrual basis). Hence, the income approach used by Chapin assumes that the bank debt has been paid or a reserve for payment created. If the business lacked the cash to pay the bank debt, then, once again, Jones must have taken an excessive amount of cash from the business.
Finally, Jones also claims that he borrowed money from a bank to use as working capital for his various businesses. The proceeds from the working capital loan were disbursed to J.O. Holding, and the holding company then apparently put part of the working capital into Jones Oil Company. Terry Jones therefore claims that when Jones Oil failed, he was personally liable for the repayment of the working capital that had been borrowed and invested in Jones Oil Company.
I assume that what Jones states is true about the working capital loan. However, that loan represents in my view (and apparently in the view of his expert) a capital investment by Jones. This being true, when Chapin valued the loss of Jones Oil, the expert's value necessarily took into consideration the amount of invested capital (no matter whether categorized as debt or equity) that would be necessary to buy Jones Oil. Thus, when I award Jones and his wife over 4.5 million dollars for Jones Oil, I am also compensating Terry Jones for any capital (working or otherwise) that he would have invested in, or loaned to, the company as a principal.
In summary, I have adopted the method used by the plaintiffs' damage expert to value the loss of Jones Oil. I reject, as did his expert, Terry Jones' claim for additional "out-of-pocket" expenses for that same loss.
F. Terry and Pat Jones are Entitled to Damages for Emotional Distress.
No one could have listened to the testimony of Terry and Pat Jones without concluding that they have suffered greatly. Thus, the question starkly presented by this case is whether I may compensate Terry and Pat Jones for the pain and suffering they experienced as a direct and proximate result of the unlawful disclosure.[29]
After careful consideration, I conclude that the law authorizes me to compensate Mr. and Mrs. Jones for their pain and suffering, and I will do so. The reasons for this decision are set forth below.
1. Section 7431(c) Allows Recovery of Emotional Distress Damages.
First, I start with the words and structure of the statute. 28 U.S.C. § 7431(c). The statute reads in pertinent part as follows:
Damages. In any action brought under subsection (a), upon a finding of liability on the part of the defendant, the defendant shall be liable to the plaintiff in an amount equal to the sum of
(1) the greater of
(A) $1,000 for each act of unauthorized inspection or disclosure of a return or return information with respect to which such defendant is found liable, or
(B) the sum of
*1149 (i) the actual damages sustained by the plaintiff as a result of such unauthorized inspection or disclosure, plus
(ii) in the case of a willful inspection or disclosure or an inspection or disclosure which is the result of gross negligence, punitive damages, plus
(2) the costs of the action.
Id.
There is nothing in these words that precludes an award for pain and suffering. For example, the statute authorizes a broad range of damages, including liquidated damages of $1,000 for each disclosure, "actual damages," and "punitive damages." Linguistically, there is no limitation on the reach of "actual" damages, so long as that damage is "something that ... exists in fact." Webster's Third New International Dictionary 22 (1986) (defining "actual").
Moreover, the structure of the statute suggests that pain and suffering have not been excluded. The word "actual" appears to distinguish one category of damage from two other categories liquidated and punitive. This structure therefore does not suggest the word "actual" was intended to mean only "out-of-pocket" damage. On the contrary, the word "actual" distinguishes that type of damage (actual) from two other types, liquidated and punitive damages.
Secondly, the statute is obviously intended to compensate for injury to privacy interests. Even innocuous disclosures, causing no provable damage whatever, will forge the government to pay $1,000 per occurrence. See, e.g., Barrett, 100 F.3d at 37 (affirming award of $260,000 in liquidated damages regarding 260 identical circular letters addressed to patients of a doctor; the doctor proved no actual damages). It is certainly consistent with the privacy protection purposes of the statute to include proven pain and suffering damages within "actual damages" if Congress has required the government to pay $1,000 when no damages are proven.
Third, to the extent the word "actual" is ambiguous, the legislative history provides no evidence that Congress understood "actual damages" to exclude pain and suffering damages. See, e.g., S.Rep. No. 94-938, pt. 1, at 348-49 (1976), reprinted in 1976 U.S.C.C.A.N. 3439, 3777-78 (this report explained the reasons why Congress adopted the first civil damage remedy for improper disclosure of tax return information; when discussing the three types of damages (liquidated, actual, and punitive) provided by the statute, the report reveals no intention to exclude damages like pain and suffering).
Fourth, a "good argument can be made that actual damages, as used in Code § 7431(c), does include other than pecuniary losses, because both § 7432 (civil damages for failure to release lien) and § 7433 (civil damages for certain unauthorized collection actions) call for `actual, direct economic damages sustained by the plaintiff.'" Allan Karnes & Roger Lirely, Striking Back at the IRS: Using Internal Revenue Code Provisions to Redress Unauthorized Disclosures of Tax Returns or Return Information, 23 Seaton Hall L.Rev. 924, 962 n. 251 (1993) (quoting 26 U.S.C. §§ 7432(b)(1) & 7433(b)(1)). Thus, when, in tax matters, Congress intended to limit the meaning of "actual damages," it modified the word "actual" with the words "direct" and "economic" to make the point clearly. The fact that Congress used the limiting words "direct" and "economic" in sections 7432 and 7433, but not in section 7431, suggests that the word "actual" may be given the Webster's all-inclusive meaning when applying section 7431.
Fifth, the case law supports a finding that pain and suffering damages are compensable under section 7431. There are only two cases that have directly ruled on whether section 7431 allows pain and suffering as an element of actual damages, and both of those cases have found that pain and suffering are included. Ward v. United States, 973 F. Supp. 996, 1002 (D.Colo.1997); Hrubec v. National R.R. Passenger Corp., 829 F. Supp. 1502, 1505-06 (N.D.Ill.1993).
Hrubec is especially instructive. In that case, Judge Aspen carefully examined damage formulations used in privacy cases generally. He also examined other statutes that used the words "actual damage."[30] He then *1150 examined the purposes behind section 7431. Ultimately he came to the following conclusion, which I adopt:
Inherent in the statute is a taxpayer's right to privacy in his filings. As with the right to privacy generally, when violated, the outstanding damage is mental and/or emotional distress. In order to further Congress' purpose, then, mental and emotional distress logically should be included in the `actual damages' provided for in § 7431(c).
Hrubec, 829 F.Supp. at 1506.
The government argues that the case of Rorex v. Traynor, 771 F.2d 383, 387 (8th Cir.1985) suggests that section 7431 may not allow a claim for emotional distress. It is true that the court speculated in Rorex that the government's position might be correct. Id.
However, the "Rorex court made no determination that such injuries are non-compensable." Allan Karnes & Roger Lirely, Striking Back at the IRS: Using Internal Revenue Code Provisions to Redress Unauthorized Disclosures of Tax Returns or Return Information, 23 Seaton Hall L.Rev. at 961 n. 251. On the contrary, the court only held that the evidence was insufficient to award such damages. Rorex, 771 F.2d at 387. Thus, Rorex is not helpful to the government.[31]
In summary, I hold that emotional distress damages are recoverable as actual damages under section 7431(c) where, as here, the plaintiffs have also proven "out-of-pocket" damages, such as the loss of an ongoing business.[32] With that holding in mind, I next turn to a determination of what damages to award.
2. Terry and Pat Jones Have Proven Emotional Distress Damages.
(a) More than "Hurt Feelings" Have Been Proven.
The Court of Appeals has told us that "hurt feelings" are not alone compensable. Rorex, 771 F.2d at 387. The evidence in this case, however, goes far beyond "hurt feelings." I find and conclude that Terry and Pat Jones each proved that the unlawful disclosure was the factual and proximate cause of proven intense pain and suffering that included, but was not limited to, harm to their credit rating and reputations. Compare Rorex, 771 F.2d at 387 ("There is no evidence of harm to their ... credit rating ... [or] their general reputation in the community.").
It is helpful to highlight the evidence of the pain and suffering that Terry and Pat Jones endured as a result of the disclosure. As a preface, it must be remembered that the plaintiffs, who were long-time members of the community, enjoyed a spotless Dun & Bradstreet rating before the disclosure. In addition, Terry and Pat Jones were in relatively good health. After the disclosure, they suffered the following:
1. Social invitations from people the Joneses perceived to have been friends "came to a screeching halt."
2. The Jones' cleaning lady called them on the night of the IRS seizure, stating that she had seen the Joneses on television that evening, and she would not be coming back.
3. Business supplies for which Jones Oil had a charge account for 25 years were suddenly delivered COD.
4. Confronted with five underwriters asking whether Jones was the person who received the media attention, an insurance *1151 broker was unable to obtain commercial insurance for Terry Jones.
5. People with whom Pat Jones had previously developed business contacts became nonresponsive and critical.
6. The Joneses were forced to refinance their apartments with friends.
7. Terry Jones (a) became reclusive, withdrawn, and "wast[ed] away" from not eating, leading Dr. Paul to conclude that Terry Jones was clinically depressed to the point that antidepressant medication was needed for the first time; (b) slept only four hours per night; (c) quit showering and shaving; (d) was admitted to the hospital because, according to Dr. Paul, he was "run[ ]down, emaciated, his protein mass was wasted, his immunity was bad, he couldn't breathe, he couldn't walk, he was purple-gray and anemic, and he got pneumonia and ... he was probably going to die."
8. Pat Jones had trouble sleeping, questioned her deeply-held religious faith, and found it necessary to consult a psychiatrist after she had an emotional crisis that caused her to contemplate suicide.
The government attempted to suggest that the emotional distress suffered by Mr. and Mrs. Jones was either not caused by the disclosure or was not sufficiently serious to warrant compensation. Without detailing each and every argument advanced by the government, it is enough to state that I am unconvinced by the government's assertions. Two examples will explain why I am not convinced.
The government argues that there is evidence that Terry Jones had a preexisting heart and lung condition and that he sought treatment for anxiety before the disclosure.[33] The government's assertion is correct. However, the totality of the evidence, particularly the testimony of Dr. Chester Paul, a long-time friend and physician who had the best opportunity to carefully observe Jones over the longest period of time, makes clear that Terry Jones was relatively happy and healthy before the disclosure.[34] After the disclosure, the same evidence indicates that there was a dramatic adverse change in the overall health and well-being of Terry Jones. I am convinced that this change was caused by the disclosure. The evidence provides no other plausible explanation.
The government points out that when Pat Jones went to a psychiatrist on February 12, 1990, shortly after the disclosure and media attention, the doctor's notes do not reveal talk of suicide. Once again, the government's assertion is correct. However, the government misses the essential point. The doctor's notes reveal that Mrs. Jones "was increasingly apprehensive" and "ruminate[d] excessively." (Ex. 512.) As a result, the doctor suggested that Mrs. Jones take Valium to deal with her anxiety. (Id.) The significant point is not whether Mrs. Jones admitted suicidal thoughts to the doctor. On the contrary, the important point is that Mrs. Jones was sufficiently distressed by the unlawful disclosure and media attention that she sought and received medical attention shortly after the raid.
(b) The Amount
Terry and Pat Jones each seek one million dollars in emotional distress damages. While I do not doubt the sincerity of their request, such an award would be an abuse of discretion. See, e.g., Kim v. Nash Finch Co., 123 F.3d 1046, 1065 & 1067 (8th Cir.1997) (reducing jury verdict from approximately $1.75 million to $100,000 for emotional distress where employee was denied promotion in violation of the civil rights laws; employee suffered anxiety, sleeplessness, stress, depression, high blood pressure, headaches, and humiliation); Peoples Bank & Trust Co. v. Globe Int'l Publ'g, Inc., 978 F.2d 1065, *1152 1070-71 (8th Cir.1992) (ordering "Substantial remittitur" where jury awarded $650,000 for emotional distress suffered by elderly woman whose picture had been used without her permission; tabloid falsely suggested that the woman was pregnant). Having stated what I believe is excessive, I now turn to what I will award.
(i) Pat Jones
I have previously described in detail the emotional suffering of Mrs. Jones, and I shall not repeat it in detail. In brief, she suffered for approximately two years. Her suffering included loss of reputation, humiliation, damage to her faith, and suicidal thoughts. She sought the help of a psychiatrist.
By October 13, 1992, Mrs. Jones had recovered from the distress caused by the raid. On that date she answered a psychological profile questionnaire. Her answers indicate that she was no longer suffering from significant emotional difficulty except for some trouble sleeping. (Ex. 3, at 2 of Ex. 542 (Zung's SAS-SDS Questionnaire).) The difficulty sleeping was attributed to concerns about her adult son's decision not to practice law. (Ex. 542, at 21:2-24.)
On the profile, she indicated that "[m]ost or all of the time" "I feel that everything is all right and nothing bad will happen," "I feel calm and can sit still easily," "I feel that I am useful and needed," "[m]y life is pretty full," and "I still enjoy the things I used to do." (Ex. 3, at 2 of Ex. 542.) "None or a little of the time" did she "feel that others would be better off if I were dead." (Id.).
I find and conclude that an award of $75,000 in damages for her emotional distress will fairly and justly compensate Mrs. Jones. In this regard, Mrs. Jones' suffering is generally analogous to the suffering described in Ward, another disclosure case, where a judgment of $75,000 for emotional distress was thought to be appropriate. Ward, 973 F.Supp. at 1002 (awarding $75,000 for emotional distress pursuant to section 7431(c)(1)(B); government's conduct caused the plaintiff to become bitter).
(ii) Terry Jones
Terry Jones' distress was both more long-lasting and much more severe than Pat Jones' suffering. Jones' distress lasted seven years. In addition to loss of reputation and humiliation, Terry Jones suffered serious medical complications as a result of his emotional distress.[35] As late as February of 1997, Terry Jones required hospitalization. At that time, according to his doctor, he was clinically depressed, emaciated, his immunity was bad, he had difficulty breathing and walking, he was purple-gray and anemic, he contracted pneumonia, and he nearly died. It was only after the February, 1997, hospitalization that Terry Jones recovered. Thankfully, Mr. Jones is now "a new man" who "looks very good" according to Dr. Paul. (Tr. 388:16-389:10.)
An award of $250,000 will fairly and justly compensate Terry Jones for his emotional distress. I recognize that this award is at the high end of other federal decisions awarding emotional distress damages. I conclude, nevertheless, that an award of $250,000 is justified, particularly given the very serious medical complications that arose as a result of the emotional distress and the fact that the distress spanned seven years. Compare, e.g., Blakey v. Continental Airlines, Inc., 992 F. Supp. 731, 738-41 (D.N.J. 1998) (granting remittitur of jury verdict; jury awarded $500,000 for emotional distress; judge reduced award for emotional distress to $250,000; plaintiff was a female airline pilot subjected to sexual harassment in the work place; the plaintiff saw her psychologist 25 times over a period of "several years"; the plaintiff's "physical symptoms ... became so severe that she was placed on psychotropic medication"; the plaintiff's "symptoms were identifiable, treated by a professional, and resulted in medication and medical leave") with Mitchell v. Globe Int'l Publ'g, Inc., 817 F. Supp. 72, 73-74 (W.D.Ark. 1993) (granting remittitur of jury verdict; jury awarded $650,000 for emotional distress; at the direction of the Court of Appeals, the judge reduced the award to $150,000; tabloid had used picture of 96-year-old woman without her permission and suggested that she *1153 was pregnant; no evidence that woman needed medical or psychological treatment as a result of the distress).
G. The Plaintiffs are Not Entitled to Punitive Damages.
Section 7431(c) provides for punitive damages "in the case of a willful ... disclosure or ... disclosure which is the result of gross negligence." The plaintiffs are not entitled to punitive damages.
Whether the conduct of Stennis is viewed objectively or subjectively, he did not act willfully or with gross negligence when he made the unlawful disclosure. Fundamentally, I have three reasons for this conclusion. First, Stennis acted out of a desire to protect the confidential informant, as opposed to a desire to harm or punish the taxpayers. Jones I, 898 F.Supp. at 1385 n. 19, 1386-87. Second, Stennis trusted the confidential informant and he had reasons for that trust; that is, Stennis did not anticipate (albeit erroneously) that the media would be called and he had a plausible factual basis to support that view. (Tr. 595:5-597:20.) Third, there was no "precise statutory, regulatory, judicial, internal procedural, or practical guidance" given to agents like Stennis; that is, IRS agents had little guidance in dealing with informants while complying with the anti-disclosure provisions of the law "in the shadowy world where informants and criminal investigators interact." Jones I, 898 F.Supp. at 1385.
While Stennis "knowingly" disclosed return information within the meaning of 26 U.S.C. § 7431(a)(1), id. at 1376 n. 16, he did not do so "willful[ly]" or with "gross negligence." See, e.g., Rorex v. Traynor, 771 F.2d at 388 (reversing award of punitive damages where agent served notice of levy on taxpayer's bank that disclosed return information; levy was not justified because taxpayers were meeting their obligation to the IRS and thus disclosure was both unnecessary and improper); Allan Karnes & Roger Lirely, Striking Back at the IRS: Using Internal Revenue Code Provisions to Redress Unauthorized Disclosures of Tax Returns or Return Information, 23 Seaton Hall L.Rev. at 962 ("Punitive damages have been awarded only rarely ....") (collecting cases).
IV. CONCLUSION
Due to the unfortunate length of this opinion, a summary is needed. In short, this is what the court has found as fact and has concluded as law:
1. Terry and Pat Jones are the proper persons to receive any damage award.
2. The unlawful disclosure was "with respect to" Pat Jones, as well Terry Jones and Jones Oil.
3. Since they are entitled to "actual damages," the plaintiffs are not entitled to liquidated damages.
4. The plaintiffs proved factual and proximate causation for the damages the court will award.
5. The plaintiffs are entitled to more than: (a) 4.5 million dollars in damages for the loss they sustained when Jones Oil failed; (b) $500,000 in damages for the loss they sustained when real estate used by Jones Oil was sold; (c) $24,000 in damages for the loss they sustained when personal property used by Jones Oil was sold.
6. The plaintiffs are not entitled to damages for the Tennessee tax refund claim, the Jones Publishing claim, or the "out-of-pocket" expense claim.
7. Pat Jones is entitled to $75,000 in emotional distress damages, and Terry Jones is entitled to $250,000 in emotional distress damages.
8. The plaintiffs are not entitled to punitive damages.
IT IS ORDERED that:
1. Judgment shall be entered by separate document. The judgment shall provide in substance that:
Judgment is entered for the plaintiffs and against the defendant United States of America for actual damages plus costs and post-judgment interest as provided by law. Otherwise, the plaintiffs shall take nothing. The amount of actual damages that shall be paid by the United States and the names of the plaintiffs entitled to receive the actual damages are set forth below:
Terry Jones and Pat Jones, jointly, as their interests may appear, shall be paid:
*1154 (a) damages for the demise of Jones Oil Company, to wit: (1) $4,516,083 (representing the damages as of January 31, 1998); (2) plus a sum equivalent to interest on $4,516,083 at 5.232 percent, computed in accordance with 28 U.S.C. § 1961(b) from February 1, 1998, to the date of judgment (representing the damages brought forward from February 1, 1998, until the date of judgment).
(b) damages for the forced sale of real estate, to wit: (1) $565,356 (representing the damages as of January 31, 1998); (2) plus a sum equivalent to interest on $565,356 at 5.232 percent, computed in accordance with 28 U.S.C. § 1961(b) from February 1, 1998, to the date of judgment (representing the damages brought forward from February 1, 1998, until the date of judgment);
(c) damages for the forced sale of personal property, to wit: (1) $24,760 (representing the damages as of January 31, 1998); (2) plus a sum equivalent to interest on $24,760 at 5.232 percent, computed in accordance with 28 U.S.C. § 1961(b) from February 1, 1998, to the date of judgment (representing the damages brought forward from February 1, 1998, until the date of judgment).
Pat Jones shall be paid damages for emotional distress, to wit: $75,000.
Terry Jones shall be paid damages for emotional distress, to wit: $250,000.
2. Judgment shall be withheld pending resolution of a request for attorney fees.
3. Any request for attorney fees shall be submitted in accordance with the local rules of practice within 14 calendar days of this date, and the United States shall have 14 calendar days thereafter to respond.
NOTES
[1] To the extent the court's findings of fact can be construed as conclusions of law, they should be so construed. Similarly, to the extent the court's conclusions of law can be construed as findings of fact, they should be so construed.
[2] Stennis testified on cross-examination that he did not recall this anxiety-attack episode until he was preparing for the damages trial during the week of trial. (Tr. 599:23-600:1.)
[3] Agents Stennis and Tinsley were asked to refer to the confidential informant in the masculine gender during their testimony at trial.
[4] During the liability trial, Sims' and Jones' testimony regarding the now nonexistent R. Lucchino tape was ruled admissible for the truth of the matter asserted over a hearsay objection to Jones' testimony. This ruling was reaffirmed during the damages phase of trial. (Tr. 3:9-19; 193:7-202:9.) Essentially, I ruled that the evidence was admissible under the residual exception to the hearsay rule and that, in any event, the hearsay objection had been waived by the government when the government did not object to Sims' testimony about the tape.
[5] Chapin reached this capitalization rate by taking the 30-year government bond rate of 7.9 percent, taking the historical average rate of long-term government bonds (4.7 percent) and for common stocks (12.1 percent), and determining a common stock differential (7.4 percent) that should be added to the government bond rate. He then determined a Beta for the oil and gas industry (.8) and multiplied it by the common stock differential to reach 5.9 percent. Chapin then added to that percentage the government bond rate, which is a (relatively) risk-free rate, in order to reach a risk-free plus equity risk rate of 13.8 percent (7.9 + 5.9). Chapin then took the common stock rate and found a differential to apply to Jones Oil to account for its small size (17.8 percent), reaching a 5.7 percent small company differential. From that, Chapin determined that the market would require a return on equity of 19.5 percent (13.8 + 5.7). Therefore, he multiplied 19.5 by the appropriate mix of debt and equity for the type of business involved, projected growth, and converted the figure into a pre-tax capitalization rate of 22.7 percent. (The formula (simplified by carrying the decimal to 4 places) is this: 100% (maximum cost of money (finance charge) necessary to acquire a business) divided by 22.7% (cost of money (finance charge) necessary to acquire this business) = 4.4052 (factor) × $498,784 (annual earnings) = $2,197,288 (amount needed to acquire business).) Chapin opined that the 22.7 percent capitalization rate was indicative of a small, privately-held, family business with a reasonably good earnings history over the past 15 years. Chapin has seen capitalization rates as high as, and higher, than 22.7 percent in his experience. (Tr. 306:23-309:25.)
[6] Chapin selected the "Baa" bond rate because an investment-grade bond rate of "Baa" was appropriate for the type of business conducted at Jones Oil. According to Chapin, "[a] lower rate would have been a junk bond rate, and [Jones Oil's] history of earnings over time eliminated that. We also used the BAA rate for our future value activity because had Mr. Jones been successful in selling his business, he would have had that capital. It would have been the rate at which he could have reasonably expected to invest it and obtained a return." (Tr. 310:12-311:3.)
[7] Throughout the damages trial, this location was referred to as 33rd and Cornhusker.
[8] Chapin testified that he assumed and was told that the sales were arms-length transactions (Tr. 317:10-14; 318:20-319:2) and the government presented no evidence to the contrary.
[9] For example, one property was appraised by a competent appraiser in 1988 for $265,000. That same property had an assessed value of approximately $92,500 in 1988. At or near the time of sale, the assessed value had increased to approximately $98,600. The assessed value therefore increased over time by a factor of approximately 1.0665. (Chapin apparently used a rounding convention to arrive at the precise factor.) Chapin then multiplied the factor times the 1988 appraised value ($265,000) to arrive at the actual value of the property at the time of sale, or $282,631. He then compared the actual value of $282,631 with the sale price of $227,530 to determine the loss of $55,101. (Ex. 65E, App.D.)
[10] Specifically, Terry Jones testified he personally paid or owes the following sums to the following entities:
MFA Petroleum $ 5,000
Valero $ 2,500
Ashland $ 5,000
Total Petroleum $ 12,000
Marathon Oil $221,576
FirsTier Bank $269,387
(Tr. 327:1-338:14; Exs. 45A, 45B, 47A, 47B, 48A, 48B, 49A, 49B, 50B, 52, 53, 54, 510 (demonstrative).)
[11] Jones took Valium infrequently both before and after the disclosure, but he was not taking it on a regular basis. (Ex. 542, Deposition of J. Boman Bastani, at 13:2-13.)
[12] This is not say, however, that the plaintiffs have proven causation for every dollar of their damage claim; that is, I now examine only the question of whether the plaintiffs proved the fact of damage. Later, I examine the question of the quantum of damages.
[13] It is not possible to precisely articulate the common law meaning of causation. Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 535 n. 32, 103 S. Ct. 897, 74 L. Ed. 2d 723 (1983) ("`Cause,' although irreducible in its concept, could not escape the ruffles and decorations so generously bestowed: remote, proximate, direct, immediate, adequate, efficient, operative, inducing, moving, active, real, effective, decisive, supervening, primary, original, contributory, ultimate, concurrent, causa causans, legal, responsible, dominating, natural, probable, and others. The difficulty now is in getting any one to believe that so simple a creature could have been so extravagantly garbed.'") (quoting Leon Green, Rationale of Proximate Cause 135-136 (1927)). Nevertheless, an appropriate decision on causation involves the evaluation of "the plaintiff's harm, the alleged wrongdoing by the defendants, and the relationship between them." Id. at 535, 103 S. Ct. 897.
[14] The objection was made during the liability trial and renewed again during the damage trial. Note, however, that the objection was limited to the testimony of Jones about the tape-recorded statement. The government did not object to Sims' testimony about the same statement. Nor did the government object to Sims' testimony about other statements that S. Lucchino or R. Lucchino had made to him earlier in the day.
[15] I also found that the government had waived the objection when the government did not object to Sims' testimony about the taped statement. (Tr. 201-202.) I reiterate that ruling now.
[16] The government suggests that when Jones recounted what he heard on a tape-recorded statement of what R. Lucchino said to Sims, Jones' testimony was double hearsay; that is, since Jones was not a participant to the conversation, the statement of R. Lucchino to Sims is one level of hearsay and the tape recording of that same statement is another level of hearsay. If there are two levels of hearsay, they are both admissible under the residual exception to the hearsay rule for the reasons articulated in the text.
[17] The government relies upon Netterville v. State of Missouri, 800 F.2d 798, 801 (8th Cir.1986) (evidence was inadmissible because it was not the most probative evidence procurable on the point for which it was offered). Suffice it to state that the facts of this case are not similar to the facts of Netterville. The opinion in Netterville notwithstanding, many other Eighth Circuit cases support the use of the residual exception to the hearsay rule. See, e.g., United States v. Earles, 113 F.3d 796, 800 (8th Cir.1997), cert. denied, ___ U.S. ___, 118 S. Ct. 851, 139 L. Ed. 2d 752 (1998); United States v. NB, 59 F.3d 771, 776-78 (8th Cir.1995); United States v. Grooms, 978 F.2d 425, 427-28 (8th Cir.1992); United States v. Calkins, 906 F.2d 1240, 1244-45 (8th Cir.1990); United States v. St. John, 851 F.2d 1096, 1098-99 (8th Cir.1988); United States v. Roberts, 844 F.2d 537, 544-47 (8th Cir.), cert. denied, 488 U.S. 983, 109 S. Ct. 534, 102 L. Ed. 2d 565 (1988); United States v. Kail, 804 F.2d 441, 449 (8th Cir.1986); United States v. Renville, 779 F.2d 430, 439-41 (8th Cir.1985); United States v. Cree, 778 F.2d 474, 477-78 (8th Cir.1985). Nevertheless, the outcome of all these cases are highly fact-specific. Thus, reliance on specific cases is not very helpful.
[18] Had Lucchino appeared at trial, his out-of-court statement recounted by Jones and Sims, both of whom testified at trial, could have been used to impeach him even if the statement was hearsay. Fed.R.Evid. 613.
[19] I note that Lucchino would not waive his right to read and sign the deposition. (Ex. 101 at 24:20-25: 1). The original deposition submitted to me did not contain his signature, although it contained a place for his signature and that of a notary public. (Id. at 26.)
[20] The government relies upon Johnson v. Sawyer, 120 F.3d 1307, 1326-29 (5th Cir.1997). The Johnson case deals with a much different situation; that is, it involves a press release about public court proceedings. In that case, the disclosure was partly lawful and partly unlawful. Suffice it to state that there was only one disclosure in this case, and that disclosure was entirely unlawful. Thus, the causation problem presented in Johnson is not present here.
[21] I am unpersuaded by the government's citation to Barrett v. United States, 100 F.3d 35, 40 (5th Cir.1996), where the court noted that an expert took "causation as a given." As explained in the text, Chapin did not take causation as a given. Moreover, there was direct evidence of causation that supported Chapin's analysis. Finally, the facts of Barrett, involving as they do a circular letter that contained both lawful and unlawful information, present much different causation issues.
[22] The government relies upon a letter the plaintiffs' lawyer wrote to the IRS shortly after the seizure stating in part that "the record seizure has made it difficult to conduct business, and, in fact, has basically put the Company out of business." (Ex. 506.) The government reads too much into this letter. First, it does not state that the seizure of records, as contrasted with the publicity surrounding the seizure of records, was the cause of the failure. Second, the letter was written before the lawyer or the Joneses knew the true facts about the unlawful disclosure and tip. Third, the letter does not disprove the undisputed fact that Jones Oil was fully operational the day after the search. Fourth, this would not be the first time a lawyer was wrong.
[23] The government suggests that the plaintiffs are not entitled to prejudgment interest and the government implies that Chapin's present-value calculation is in effect a prejudgment interest calculation. I disagree with the premise of the government's argument that Chapin is suggesting an award of prejudgment interest. The government destroyed an operating business that would have continued to generate profits but for the disclosure. Chapin's analysis picks a valuation date in 1990 and then brings that value to the present in an attempt to explain what the value of the business would have been had it not ceased operating. The present-value component of Chapin's analysis is an appropriate recognition of the fact that the plaintiffs have been deprived of a successful operating business. The Baa bond rate is equivalent to the rate of return one would expect in businesses like Jones Oil. Thus, whether the plaintiffs sold or kept Jones Oil, they would have had an investment that generated a rate of return approximating that bond rate on the date judgment is entered for them, and that is what they have been deprived of by the disclosure. If instead of a business that was destroyed, a Baa bond had been destroyed, no one would contend that the damages would be limited to the face amount of the bond. On the contrary, the owner would be entitled to the face amount of the bond, plus the rate of return on the bond, until judgment is entered. The same is true for an operating business. Moreover, no matter how one characterizes Chapin's present-value analysis, the failure to award this component of damage would result in something less than an award of "actual damages" called for by the statute.
[24] I examined Chapin to satisfy myself as to the validity of his analysis. (Tr. 305-316). Among other things, this inquiry included questions regarding the appropriateness of the capitalization rate which he used to determine the loss, as well as his use of the Baa bond rate which he used to future-value the loss. As noted earlier, I found Chapin very credible and well-informed.
[25] This equals the judgment rate of interest effective as of February 1, 1998. See Memorandum from Patricia A. Poplinger, Chief, Analysis and Policy Staff, Administrative Office of the United States Courts, to All Clerks, United States Courts (Feb. 5, 1998) (certifying interest rates to be charged pursuant to 28 U.S.C. § 1961 and 40 U.S.C. § 258(e)(1)). I have elected to use this rate of return after January 31, 1998, because the evidence fails to reveal what the Baa bond rates were after January 31, 1998. As previously noted, see n. 23, the plaintiffs were deprived of an operating business and they are thus entitled to be compensated as if their business had operated to the date of judgment.
[26] See n. 25.
[27] See n. 25.
[28] The examples discussed in the text are not the only illustrations that could be used to explain the inconsistency between Chapin's method and Terry Jones' additional claim.
[29] The plaintiffs also assert that their reputations were damaged, and I do not doubt their assertion. However, they have not suggested that there is a factual or legal difference between a claim for pain and suffering (emotional distress) and a claim for loss of reputation. Indeed, the plaintiffs treat the two concepts interchangeably. For purposes of this case, so do I.
[30] Like Judge Aspen, I am aware that the "actual damage" language of the Privacy Act, 5 U.S.C. § 552a, has been interpreted in conflicting ways.
[31] I also note that in Rorex "[t]he government based its position on Fitzpatrick v. I.R.S., 665 F.2d 327, 331 (11th Cir.1982), a Privacy Act case .... A later Fifth Circuit case held that actual damages under the Privacy Act included damages for not only out-of-pocket costs, but also for physical and mental injuries for which there was competent evidence in the record. Johnson v. Dept. of Treasury, IRS, 700 F.2d 971, 972 (5th Cir.1983)." Allan Karnes & Roger Lirely, Striking Back at the IRS: Using Internal Revenue Code Provisions to Redress Unauthorized Disclosures of Tax Returns or Return Information, 23 Seaton Hall L.Rev. at 961 n. 251. As a result, much of the government's position in Rorex has been undermined.
[32] It is unnecessary to decide whether emotional distress damages could be recovered when no other actual damages are proven. Accordingly, I express no opinion on such a question.
[33] I note that the government must "take their victim as they find [him]." Hurley v. Atlantic City Police Dept., 933 F. Supp. 396, 425 (D.N.J. 1996) (awarding, by way of remittitur, $175,000 for emotional distress in an employment discrimination case; plaintiff suffered from psychological disorders that arose partly because of childhood experiences and other unrelated events and partly because of sex discrimination).
[34] The government relies upon one part of a psychiatrist's note indicating that Jones suffered from anxiety in June of 1989. However, that same note suggests that Jones was "sleeping well," was "[n]eatly groomed," and was "well oriented." (Ex. 2 to Ex. 542.) Importantly, the note concludes by stating that all "[p]sychological tests are normal." (Id.) Parenthetically, the psychiatrist was a personal friend of Mr. and Mrs. Jones. (Tr. 434:2-4.)
[35] Jones did not submit a claim for the hospital or doctor bills. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/106322/ | 368 U.S. 360 (1962)
FEDERAL TRADE COMMISSION
v.
HENRY BROCH & CO.
No. 74.
Supreme Court of United States.
Argued November 16, 1961.
Decided January 15, 1962.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT.
Solicitor General Cox argued the cause for petitioner. With him on the briefs were Assistant Attorney General Loevinger, Daniel M. Friedman, Richard A. Solomon, Irwin A. Seibel, Charles H. Weston, James McI. Henderson, PGad B. Morehouse and Alan B. Hobbes.
Frederick M. Rowe argued the cause for respondent. With him on the briefs were Joseph DuCoeur and Harold Orlinsky.
*361 MR. JUSTICE BRENNAN delivered the opinion of the Court.
The Federal Trade Commission seeks reversal of the action of the Court of Appeals for the Seventh Circuit in modifying the cease-and-desist order which the Commission had issued against the respondent Broch on finding that Broch violated § 2 (c) of the Clayton Act.[1] 285 F.2d 764. The action of the Court of Appeals was sua sponte, and was taken in proceedings on remand which followed our reversal of that Court's earlier action setting aside the order in its entirety because Broch's conduct was thought not to violate § 2 (c).[2]Federal Trade Comm'n v. Broch & Co., 363 U.S. 166, reversing 261 F.2d 725. We granted certiorari, 366 U.S. 923.
Broch is a broker selling food products on commission for some 25 seller principals. One of his principals is *362 Canada Foods, Ltd., a processor of apple concentrate. The Commission found that Broch, to make possible Canada Foods' acceptance of an offer from J. M. Smucker Co. to buy an unusually large quantity of apple concentrate at less than Canada Foods' established price, reduced to 3%, for this sale, the agreed 5% rate of commission ordinarily payable by Canada Foods to Broch.[3] The Commission adjudged, and in our prior opinion we agreed, that this action of Broch was, in the circumstances, a violation of § 2 (c).
The Commission's order was not confined to restraints against repetition of the precise violation of § 2 (c) which Broch was found to have committed, nor was the application of the order limited to future sales from Canada Foods to Smucker.[4] Paragraph (1) did prohibit the *363 repetition of the particular violation which Broch committed, but in connection with sales for Canada Foods, or for "any other seller principal," to Smucker, or "to any other buyer." Paragraph (2) also extended its prohibitions to sales from all seller principals to all buyers, but went beyond paragraph (1) to prohibit Broch from "In any other manner . . . directly or indirectly" paying, granting or allowing, in the words of § 2 (c), "anything of value as a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof . . . ." The Court of Appeals excised from the order all references to "any other seller principal" and to "any other buyer," thus limiting the order's application to future sales from Canada Foods to Smucker.
The Commission renews here the argument it made in the Court of Appeals that judicial modification of the order was precluded because Broch failed to object to the scope of the order before the Commission. Broch disputes that he failed to register a proper objection before the Commission. We see no reason to determine the fact. We will assume, without deciding, that the Court of Appeals properly passed upon the scope of the order. We nevertheless think that in the circumstances of this case the order should have been affirmed in the form entered by the Commission.
Broch supports the action of the Court of Appeals as to paragraph (1) of the order with the argument that, *364 since the order was based only upon findings limited to an asserted illegal payment respecting a single sale from Canada Foods to Smucker, the Commission's ban was too sweeping in its application to sales from all seller principals to all buyers. There is no merit in this argument. The Commission has a wide discretion to formulate a remedy adequate to prevent Broch's repetition of the violation he was found to have committed. See Jacob Siegel Co. v. Federal Trade Comm'n, 327 U.S. 608, 611-612. We cannot say that the Commission exceeded its discretion in banning repetitions of Broch's violation in connection with transactions involving any seller and buyer, rather than simply forbidding recurrence of the transgression in sales between Canada and Smucker. Federal Trade Comm'n v. Cement Institute, 333 U.S. 683, 728-729. Compare United States v. United States Gypsum Co., 340 U.S. 76, 90.
Broch further argues that the Commission exceeded its discretion in the prohibitions embodied in paragraph (2). He did not cross-petition this Court for a writ of certiorari and does not here challenge paragraph (2) as modified by the Court of Appeals. Had the only vice claimed in paragraph (2) been its extension to all seller principals and all buyers, the Court of Appeals' sua sponte amendment would for reasons already stated have been clearly erroneous. But Broch contends that, before it was restricted to transactions involving Canada and Smucker, this part of the order was so broad as to jeopardize the conduct of his entire business, in that it unqualifiedly prohibited reductions of commissions coupled with lower priceseven uniform reductions, or reductions which are service- or cost-justified, or reductions for the purpose of meeting competition.
In considering Broch's challenge to paragraph (2) it is necessary to observe that the 1959 amendments to § 11 of the Clayton Actwhich substitute for the Clayton Act *365 provisions for enforcement of administrative orders those in § 5 of the Federal Trade Commission Actdo not apply to enforcement of the instant order.[5] In consequence, Broch cannot be subjected to penalties except for violation of an enforcement order yet to be entered by an appropriate Court of Appeals, to be predicated upon a determination that some particular practice of Broch violated the Commission's order. Thus Broch is not, by virtue of that order, presently acting under the risk of incurring any penalty without further administrative and judicial consideration and interpretation, despite the fact that he has already received determination of his petition for review. Federal Trade Comm'n v. Ruberoid Co., 343 U.S. 470, 477-480.[6]
*366 Upon any future enforcement proceeding, the Commission and the Court of Appeals will have ready at hand interpretive toolsthe employment of which we have previously sanctionedfor use in tailoring the order, in the setting of a specific asserted violation, so as to meet the legitimate needs of the case. They will be free to construe the order as designed strictly to cope with the threat of future violations identical with or like or related to the violations which Broch was found to have committed,[7] or as forbidding "no activities except those which if continued would directly aid in perpetuating the same old unlawful practices." Federal Trade Comm'n v. Cement Institute, 333 U.S. 683, 727. They need not as we have already made clearread the order as denying *367 to Broch the benefit of statutory defenses or exceptions. Federal Trade Comm'n v. Ruberoid Co., supra, at 475-476; Federal Trade Comm'n v. National Lead Co., 352 U.S. 419, 426.[8] Nor need the order be construed as prohibiting anything as clearly lawful as a uniform reduction in commissions.[9] And, we repeat, these various interpretive aids will have to be brought to bear by a Court of Appeals upon a particular practice of Broch, and will have to yield the announced result that such practice violates the order, before Broch can be subjected to penalties because of still a second repetition of the violation.
In this situation, and on this record, we hold that the attempt of the Court of Appeals to redress the asserted overbroadness by the inapt device of confining paragraph (2) to Canada's sales to Smucker was inappropriate and, indeed, any attempt to restrict the scope of the order would have been premature.
We do not wish to be understood, however, as holding that the generalized language of paragraph (2) would necessarily withstand scrutiny under the 1959 amendments.[10] The severity of possible penalties prescribed *368 by the amendments for violations of orders which have become final underlines the necessity for fashioning orders which are, at the outset, sufficiently clear and precise to avoid raising serious questions as to their meaning and application.[11] See Labor Board v. Express Pub. Co., 312 U.S. 426, 435-437; Federal Trade Comm'n v. Cement Institute, 333 U.S. 683, 726; Federal Trade Comm'n v. Morton Salt Co., 334 U.S. 37, 54. Compare New Haven R. Co. v. Interstate Commerce Comm'n, 200 U.S. 361, 404; Swift & Co. v. United States, 196 U.S. 375, 400-401.
The judgment of the Court of Appeals is reversed and the case is remanded with direction to affirm the order of the Federal Trade Commission.
It is so ordered.
MR. JUSTICE BLACK concurs in the result.
MR. JUSTICE WHITTAKER, with whom MR. JUSTICE FRANKFURTER and MR. JUSTICE HARLAN join, dissenting.
On the Court's assumption that the Court of Appeals had power, sua sponte, to modify the decree, I would affirm. This Court reversed the judgment of the Court of Appeals on the prior appeal largely on the very narrow ground that petitioner's "reduction in brokerage was made to obtain this particular order and this order only . . . ," *369 363 U.S. 166, 176, and therefore the Court of Appeals was justified in limiting the Commission's order accordingly.
When its attention is focused to the appropriateness of the scope of an order to restrain illegality, the Commission has shown responsible awareness of the difference in shaping its order to a situation like the one presented by this case, to wit: a specific, closely confined illegality as distinguished from a widespread illegal practice inimical to the public interest. See opinion of the Commission in In re Colgate-Palmolive Co. and Ted Bates & Co., Docket No. 7736, December 29, 1961, CCH Trade Reg. Rep., ¶ 15,643, pp. 20,474, 20,485. So, too, has the United States Court of Appeals for the Second Circuit shown responsive awareness and appreciation of that distinctive difference. Swanee Paper Corp. v. Federal Trade Comm'n, 291 F.2d 833, 837-838.
NOTES
[1] Section 2 (c) as amended by the Robinson-Patman Act, 49 Stat. 1527, 15 U.S. C. § 13 (c), is as follows:
"(c) Payment or acceptance of commission, brokerage or other compensation.
"It shall be unlawful for any person engaged in commerce, in the course of such commerce, to pay or grant, or to receive or accept, anything of value as a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof, except for services rendered in connection with the sale or purchase of goods, wares, or merchandise, either to the other party to such transaction or to an agent, representative, or other intermediary therein where such intermediary is acting in fact for or in behalf, or is subject to the direct or indirect control, of any party to such transaction other than the person by whom such compensation is so granted or paid."
[2] Following the remand Broch filed a motion which sought, inter alia, a modification of the order on the ground of its allegedly "unduly broad scope." In opposing the motion the Commission claimed that Broch had not objected to the scope of the order in the proceedings before the Commission or in the original review proceedings, and was therefore not entitled to have the Court entertain the motion. Broch's motion was denied but the order embodying the denial also included the provision questioned here amending the order "On the Court's own motion."
[3] There was evidence in the proceedings before the Commission that, following the transaction described above, Broch continued to sell apple concentrate to Smucker on behalf of Canada Foods at a reduced price and to receive a reduced commission of 3% on such sales.
[4] The Commission's order was as follows:
"It is ordered That respondents Henry Broch and Oscar Adler, copartners trading as Henry Broch & Co., their representatives, agents, or employees, directly or through any corporate or other device, in connection with the sale of food or food products for Canada Foods Ltd., or any other seller principal, in commerce, as `commerce' is defined in the Clayton Act, as amended, do forthwith cease and desist from:
"(1) Paying, granting or allowing, directly or indirectly, to The J. M. Smucker Co., or to any other buyer, or to anyone acting for or in behalf of or who is subject to the direct or indirect control of such buyer, any allowance or discount in lieu of brokerage, or any part or percentage thereof, by selling any food or food products to such buyer at prices reflecting a reduction from the prices at which sales of such foods are currently being effected by respondents for Canada Foods Ltd. or any other seller principal, as the case may be, where such reduction in price is accompanied by a reduction in the regular rate of commission, brokerage or other compensation currently being paid to respondents by such seller principal for brokerage services; or
"(2) In any other manner, paying, granting or allowing, directly or indirectly, to The J. M. Smucker Co., or to any other buyer, or to anyone acting for or in behalf of or who is subject to the direct or indirect control of such buyer, anything of value as a commission, brokerage or other compensation or any allowance or discount in lieu thereof upon, or in connection with, any sale of food or food products to such buyer for its own account."
[5] 38 Stat. 734, 15 U.S. C. § 21, as amended July 23, 1959, Pub. L. 86-107, 73 Stat. 243. The order herein was entered by the Commission on December 10, 1957. The procedures enacted by the 1959 amendments therefore do not apply to it. See Sperry Rand Corp. v. Federal Trade Comm'n, 110 U. S. App. D. C. 1, 288 F.2d 403.
[6] The 1959 Amendments resulted from a congressional conclusion that the former § 11 procedures were too cumbersome to assure effective enforcement of agency orders. It was said in the House Committee Report accompanying the 1959 amendments:
"The Clayton Act, in its present enforcement procedures, permits a person to engage in the same illegal practices three times before effective legal penalties can be applied as a result of action by the commission or board vested with jurisdiction. First, in order to issue and serve a cease-and-desist order initially, the commission or board must investigate and prove that the respondent has violated the prohibitions of the Clayton Act. No provision of the Clayton Act, however, makes the commission or board's cease-and-desist order final in the absence of an appeal by the respondent for judicial review. At the present time, the Clayton Act contains no procedure by which the commission or board may secure civil penalties for violations of its orders.
"Second, before the commission or board may obtain a court ruling that commands obedience to its cease-and-desist order, it must again investigate and prove that the respondent has violated both the order and the Clayton Act. The jurisdiction of the court of appeals, under the present provisions of Clayton Act section 11, cannot be invoked by the commission or board unless a violation of the cease-and-desist order is first shown.
"Third, enforcement of the court's order must be secured in a subsequent contempt proceeding, which requires proof that new activities of the respondent have violated the court's order. This entails a third hearing before the commission and a review thereof by the court of appeals.
"In contrast, the procedures that are contained in the Federal Trade Commission Act for enforcement of cease-and-desist orders issued thereunder are much simpler and more direct. A cease-and-desist order issued pursuant to section 5 of the Federal Trade Commission Act, as amended, becomes final upon the expiration of the time allowed for filing a petition for review, if no such petition is filed within that time." H. R. Rep. No. 580, 86th Cong., 1st Sess, 4 See also S. Rep. No. 83, 86th Cong., 1st Sess. 2-3.
[7] Cf. Federal Trade Comm'n v. Morton Salt Co., 334 U.S. 37, 51-53; Federal Trade Comm'n v. National Lead Co., 352 U.S. 419, 430-431. "In carrying out [its] function the Commission is not limited to prohibiting the illegal practice in the precise form in which it is found to have existed in the past. If the Commission is to attain the objectives Congress envisioned, it cannot be required to confine its road block to the narrow lane the transgressor has traveled; it must be allowed effectively to close all roads to the prohibited goal, so that its order may not be by-passed with impunity." Federal Trade Comm'n v. Ruberoid Co., 343 U.S. 470, 473.
[8] Broch complains of the order's omission of any reference to the statutory exception for brokerage "for services rendered in connection with the sale or purchase of goods . . . ." We made it clear in our prior opinion that the order need not be read as prohibiting transactions to which the statutory exception applies. 363 U.S., at 173, 177, n. 19. Nor need the order, when viewed in the context of Broch's violation, be read as prohibiting Broch from reducing commissions competitively to gain a particular buyer's account, if the competitive setting would otherwise have afforded a defense to a charge under § 2 (c).
[9] "Had respondent . . . agreed to accept a 3% commission on all sales to all buyers there plainly would be no room for finding that the price reductions were violations of § 2 (c). Neither the legislative history nor the purposes of the Act would require such an absurd result, and neither the Commission nor the courts have ever suggested it." 363 U.S., at 176.
[10] See notes 5, 6, supra.
[11] The penalties under the 1959 amendments are as follows:
"Any person who violates any order issued by the commission or board under subsection (b) of this section after such order has become final, and while such order is in effect, shall forfeit and pay to the United States a civil penalty of not more than $5,000 for each violation. . . . Each separate violation of any such order shall be a separate offense, except that in the case of a violation through continuing failure or neglect to obey a final order of the commission or board each day of continuance of such failure or neglect shall be deemed a separate offense." | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/1949949/ | 505 F. Supp. 2d 176 (2007)
Marvin GREEN, as representative for minor child SG, Plaintiff,
v.
Joseph STUYVESANT Captain, U.S. Navy, et al., Defendant.
Civil Action No. 06-1434(RBW).
United States District Court, District of Columbia.
September 11, 2007.
*177 Marvin Green, pro se.
Marian L. Borum, U.S. Attorney's Office, Washington, DC, for Defendant.
MEMORANDUM OPINION
WALTON, District Judge.
On August 14, 2006, the plaintiff, proceeding pro se, filed his Complaint ("Compl.") in this action, which challenges one of the defendants' Captain Joseph Stuyvesant, the Commanding Officer of Naval Air Station in, Sigonella, Italy issuance of a barment order on June 27, 2006, that has the effect of barring the plaintiff s wife, Sophia Torok, and minor son, SG, from the Sigonella Naval Air Station. Compl. at 2.[1] Specifically, the barment order prohibited the plaintiffs wife and minor son from accessing the Sigonella Naval Air Station for any purpose, including, but not limited to, receiving medical treatment at the Naval hospital and the son attending school at the Stephen Decatur Secondary School, which are located on the grounds of the Naval Air Station. Id. at 2-4. The plaintiff asserts that the barment order "represents `reckless disregard' in its execution and is legally defective in its failure to separately recognize SG's continuing status as a [Department of Defense] Civilian's dependent independent of his mother's mis-classification." Id. at 5.
Currently before this Court is the defendants' December 19, 2006, motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) (lack of subject matter jurisdiction)[2] ("Def.'s Mot.").[3] For the following reasons, the defendants' motion must be granted.
I. Standards of Review
Dismissal for Lack of Jurisdiction
On a Federal Rule of Civil Procedure 12(b)(1) motion to dismiss, the plaintiff bears the burden of establishing by a preponderance of the evidence that the court has jurisdiction to entertain his claims. Grand Lodge of Fraternal Order of Police v. Ashcroft, 185 F. Supp. 2d 9, 13 (D.D.C.2001) (holding that the court has an "affirmative obligation to ensure that it is acting within the scope of its jurisdictional *178 authority"); Pitney Bowes, Inc. v. U.S. Postal Serv., 27 F. Supp. 2d 15, 19 (D.D.C. 1998). Since a motion for dismissal under "Rule 12(b)(1) presents a threshold challenge to the court's jurisdiction. . . .", Haase v. Sessions, 835 F.2d 902, 906 (D.C.Cir.1987) (citations omitted), Rule 12(b)(1) requires dismissal of a complaint if the Court "lack[s] . . . jurisdiction over the subject matter. . . ." Fed.R.Civ.P. 12(b)(1). While the Court is required to accept as true all of the factual allegations contained in the complaint when reviewing a motion to dismiss pursuant to Rule 12(b)(1), Leatherman v. Tarrant County Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 164, 113 S. Ct. 1160, 122 L. Ed. 2d 517 (1993), because the plaintiff has the burden of establishing the Court's jurisdiction, the "plaintiffs 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 of Fraternal Order of Police, 185 F.Supp.2d at 13-14 (citation and internal quotation marks omitted). This scrutiny permits the Court to consider material outside of the pleadings in its effort to determine whether it has jurisdiction. See 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); Haase, 835 F.2d at 906; Grand Lodge of Fraternal Order of Police, 185 F.Supp.2d at 14.
II. Legal Analysis
The defendant requests that the Court dismiss the plaintiff's Complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) because: (1) "this Court lacks jurisdiction over the subject matter of an action under the Federal Tort Claims Act, because Green has not asserted, nor can he allege, that he has exhausted his administrative remedies under that Act," Def.'s Mot. at 4, and (2) "this Court lacks jurisdiction over the subject matter of Green's prayer for relief with respect to [the] state and federal law claims of `reckless disregard' and `child endangerment' because courts have long refrained from providing litigants with `advisory opinions' of the type Green seeks," id. at 4-5, and (3) "Green lacks standing to advance these criminal charges before this Court", id. at 5. In the plaintiff s opposition, he does not address any assertions and arguments set forth in the defendants' motion to dismiss pursuant to Rule 12(b)(1). See Plaintiff Opposition ("Pl.'s Opp'n."). The Court is therefore left to evaluate the sustainability of this matter against the challenge being raised by the defendants based solely on the plaintiff's Complaint.
The Supreme Court instructed in Haines v. Kerner, 404 U.S. 519, 520, 92 S. Ct. 594, 30 L. Ed. 2d 652 (1972) that the complaint of a pro se plaintiff must be held to "less stringent standards than formal pleadings drafted by lawyers." Richardson v. United States 193 F.3d 545, 548 (D.C.Cir.1999) (holding that "[c]ourts must construe pro se filings, liberally") (citing Haines, 404 U.S. at 520, 92 S. Ct. 594). Despite this required leniency, a pro se plaintiffs Complaint "must at least meet a minimal standard" of what pleadings must entail. Price v. Phoenix Home Life Ins. Co., 44 F. Supp. 2d 28, 31 (D.D.C.1999) (citing Wilson v. Civil Town of Clayton, Ind., 839 F.2d 375, 378-79 (7th Cir.1988)).
Here, the plaintiff has failed to set forth in his Complaint the statutory or other authority upon which his claim is grounded or the basis for this Court's jurisdiction. Initially, the plaintiff asserts that his son is being harmed medically by his inability to have access to the military base following his recent surgery and contends that his son will further be harmed *179 by not being able to attend the high school located on the base which he has attended for the past five years. Compl. at 3-4. The plaintiff then states in his Complaint that he is challenging defendant Stuyvesant's issuance of the June 27, 2006 barment order that has resulted in his wife and minor son being barred from the Sigonella Naval Air Station, id. at 2, and he requests that the Court "set aside" the barment order. Id. at 4. Finally, the plaintiff requests that this Court find that the "[p]laintiff[,] as [a] parent[,] has the right to file civil `reckless disregard' and/or `child endangerment' charges (or other similar laws as might be more applicable), against the office of Base Capt., NAS Sigonella-under California law . . . [and] federal law." Id. at 5. This totally fails to comply with the pleading requirements of Federal Rule of Civil Procedure 8(a). Fed.R.Civ.P. 8(a) (requiring a party seeking relief to set forth in the party's pleading "(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 the pleader seeks"). Having failed to specify the basis for this Court's jurisdiction, the Court must conclude that the plaintiff has failed to establish that the Court has subject matter jurisdiction.[4] Accordingly, the defendants' motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) must be granted.
III. Conclusion
For the foregoing reasons, the defendants' motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) (lack of subject matter jurisdiction) is GRANTED.[5]
*180 SO ORDERED on this 11th day of September, 2007.[6]
NOTES
[1] The Court notes that although the plaintiff lists Kerry Abramson as a defendant to this action in the caption of his complaint, all of his allegations asserted in his complaint challenge Captain Stuyvesant's barment order. Therefore, the complaint is silent as to what, if any, role defendant Abramson played in the issuance of the barment order. Nevertheless, the Court's rulings in this Memorandum Opinion, and the Order filed contemporaneously herewith, also encompass defendant Abramson. In addition, since neither the paragraphs nor the pages of the, plaintiff's Complaint are numbered, the Court has sequentially numbered the pages of his five page Complaint for ease of reference.
[2] The defendants also move for dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6) and for summary judgment pursuant to Federal Rule of Civil Procedure 56. However, due to the resolution of the defendants' Rule 12(b)(1) request, the Court does not need to address these alternative grounds for dismissal at this time.
[3] The following papers have also been submitted in connection with this motion: (1) Plaintiff's Memorandum in Opposition to Defendant's Motion to Dismiss ("Pl.'s Opp'n") and (2) Defendant's Reply to Plaintiff's Memorandum in Opposition to Defendant's Motion to Dismiss, or in the alternative for Summary Judgment ("Def.'s Reply").
[4] The plaintiff's explanation concerning the challenge of the defendants' barment order hardly provides even a hint as to how this Court can exercise jurisdiction over this matter'. The only conceivable jurisdictional basis upon which this Court could entertain this matter is the Administrative Procedures Act ("APA"). However, because, the plaintiff does not allege in his complaint that the barring of his wife and son from the Sigonella Naval Air Station was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law," 5 U.S.C. § 706(2)(A), the Court cannot conclude that relief is being sought under the APA. Moreover, even if the Court could conclude that an APA claim has been pled, the Court would be unable to conclude that it can entertain this matter because the plaintiff has failed to allege that Sigonella Naval Air Station is a United States military facility or that he has exhausted all administrative remedies available to him.
[5] Also pending before the Court is the plaintiff's (1) Motion for Temporary Restraining Order Lifting Barment Order and Providing Evidence of Jurisdiction and Request a Finding or Order for SG as to His Student Residency Requirements filed on January 14, 2007 (stating that the Court has jurisdiction over the plaintiff because he interviewed with the State Department in Washington, D.C.); (2) Motion to Compel Defendant Council to DC Court Rule LCvR 7(m) filed on January 15, 2007; (3) Second Motion to Compel Rule LCvR7(m) with additional arguments against dismissal filed on January 17, 2007; (4) Request for Finding Re: Status of Appeal to a Congressperson as it Relates to Administrative Remedy Process filed on February 25, 2007(requesting that the Court order defendant Stuyvesant to respond to the plaintiff's wife's and son's appeals to their congressmen regarding his issuance of the June 27, 2006 barment order); (5) Motion for Summary Judgment as to the Defendants Failure to Contest Evidence filed on February 27, 2007(requesting that the Court find that the defendants have conceded disputed facts and that the defendants coordinated with the Department of Defense Dependent Schools-Europe to prosecute other matters filed with this Court); and (6) Motion for Order of Return of Government Identification Card to Rightful Custodian and Request for a Continuance Allowing Time to Reopen Case 06-1009 and Answer the Courts Objections as to Venue and Tort filed on June 19, 2007(requesting that the Department of the Navy return his wife's identification card to her and requesting that the Court reopen Marvin Green v. DODDS-E, Civ. No. 06-1009 (D.D.C. filed May 30, 2006) because he now has better arguments to make as it relates to venue). Since the Court is dismissing this matter pursuant to Federal Rule of Civil Procedure 12(b)(1) (lack of subject matter jurisdiction), all pending motions in this action are also denied without prejudice. The plaintiff is also advised that his motion to reopen the case of Marvin Green v. DODDS-E, Civ. No. 06-1009 (D.D.C. filed May 30, 2006), should not have been filed in this case but in that case itself.
[6] An Order consistent with the Court's ruling has been issued contemporaneously herewith. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2438870/ | 328 F. Supp. 2d 23 (2004)
Chawntavia WATKINS, et al., Plaintiffs,
v.
Paul VANCE, et al., Defendants.
No. CIV.A. 98-3081(PLF).
United States District Court, District of Columbia.
August 5, 2004.
*24 *25 Donna Lee Wulkan, Washington, DC, for Plaintiffs.
Barbara A. Miller, Birch, Horton, Bittner & Cherot, Edward P. Taptich, Nancy S. Schultz, Robert C. Utiger, Scott Michael Leighton, Cary D. Pollak, Office Of Corporation Counsel, Washington, DC, Laurie Pouzzner McManus, Arlington, VA, for Defendants.
MEMORANDUM OPINION AND ORDER
PAUL L. FRIEDMAN, District Judge.
This matter is before the Court for further consideration of Plaintiffs' Third Motion for Interim Attorneys' Fees filed in connection with counsel's efforts in prosecuting the claims of a number of plaintiffs. Upon consideration of plaintiffs' supplemental submission and the Court's prior opinions and orders issued in this matter, the Court will grant plaintiffs relief as delineated below.
I. BACKGROUND
Plaintiffs filed this action on December 18, 1998 under the Civil Rights Act, 42 U.S.C. § 1983, to enforce their rights under the Individual with Disabilities Education Act ("IDEA"), 20 U.S.C. §§ 1400 et seq. On September 20, 2000, the Court granted in part and denied in part plaintiffs' third motion for attorneys' fees and costs relating to plaintiffs' counsel's prosecution of this matter. Specifically, the Court granted the motion insofar as the Court found that plaintiffs are prevailing parties in this matter and that the hours expended by plaintiffs' attorneys were reasonable. See Memorandum Opinion and Order of September 20, 2000 at 3. The Court denied the motion insofar as (1) the hourly rate for Patricia Julianelle was not reasonable under the Laffey matrix in light of the Court's Memorandum Opinion and Order of March 31, 2000 ("March 31 Memorandum Opinion"); and (2) counsel had failed to provide the Court with information sufficient enough to determine whether the rates requested for "MDL" and "JA" are reasonable. See id. The Court ordered plaintiffs to file supplemental briefs addressing these two issues, which brief plaintiffs filed. Defendants did not respond to plaintiffs' supplemental brief.
II. DISCUSSION
A. Evaluation of Attorneys' Fees Petitions
The Court previously has set forth the appropriate analytical framework for determining the award of attorneys' fees and costs in cases like this one. See Blackman v. District of Columbia, 59 F. Supp. 2d 37, 42-44 (D.D.C.1999). To recover reasonable attorneys' fees, plaintiffs must first demonstrate that they each of them is a prevailing party in the litigation. See id. at 40-41. The Court then must *26 determine whether the fees sought are reasonable by calculating "the number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate" the so-called "lodestar" fee. Hensley v. Eckerhart, 461 U.S. 424, 433, 103 S. Ct. 1933, 76 L. Ed. 2d 40 (1983).[1] In this case, defendants do not contest that plaintiffs are prevailing parties, and the Court's review of the motion and related filings confirm that in fact plaintiffs did prevail in this matter.
On the issue of reasonableness, plaintiffs must submit supporting documentation with the motion for attorneys' fees, providing sufficient detail so that the Court can determine "with a high degree of certainty" that the hours billed were actually and reasonably expended, that the hourly rate charged was reasonable, and that the matter was appropriately staffed to do the work required efficiently and without duplicative billing. In re Olson, 884 F.2d 1415, 1428-29 (D.C.Cir.1989) (emphasis in original). See also Hensley v. Eckerhart, 461 U.S. at 433, 103 S. Ct. 1933; Covington v. District of Columbia, 57 F.3d 1101, 1107 (D.C.Cir.1995). At a minimum, a fee applicant must provide some information about the attorneys' billing practices and hourly rate, the attorneys' skill and experience (including the number of years that counsel has practiced law), the nature of counsel's practice as it relates to this kind of litigation and the prevailing market rates in the relevant community. See Covington v. District of Columbia, 57 F.3d at 1107.[2]
Once the plaintiff has provided such information, there is a presumption that the number of hours billed and the hourly rate are reasonable, and the burden shifts to the defendants to rebut plaintiff's showing of reasonable hours and reasonable hourly rates for attorneys of this skill level and experience for this kind of case. "[I]n the normal case the Government must either accede to the applicant's requested rate or provide specific contrary evidence tending to show that a lower rate would be appropriate." Covington v. District of Columbia, 57 F.3d at 1109-10 (quoting Nat'l Ass'n of Concerned Veterans v. Secretary of Defense, 675 F.2d 1319, 1326 (D.C.Cir.1982)) (emphasis added).
B. Plaintiffs' Remaining Fee Petitions
In its March 31, 2000 Memorandum Opinion, the Court determined that "the maximum fee that an attorney of Ms. Julianelle's experience should receive is ... $160 per hour from June 1, 1999 to May 31, 2000." Memorandum Opinion and Order of March 31, 2000 at 4. In response to the Court's later September 20, 2000 Order, plaintiffs have submitted with their supplemental brief a revised invoice of Ms. Julianelle's work that reflects this adjusted rate. See Plaintiffs' Supplemental Memorandum Regarding Plaintiffs' Third Motion for Interim Attorneys' Fees ("Pls.' Supp."), Attach. 1, Plaintiffs' Revised Invoice Regarding Joshua McMillan; and Attach. 2, Plaintiff's Revised Invoice for PI-Attorneys' Fees. The Court finds this new schedule adequately addresses the Court's *27 previous concerns regarding Ms. Julianelle's hourly billing rate.
Plaintiffs also have provided materials in support of their claims for fees for the efforts of "MDL," or Maria D. Luciano. According to the materials, Ms. Luciano is a paralegal who received her paralegal degree from Antioch School of Law in 1997 and has been employed in the Law Offices of Donna L. Wulkan since 1996. The Law Office generally bills for Ms. Luciano's work at $75.00 per hour, and submitted an invoice reflecting this rate. See Pls.' Supp., Attach. 3, Sworn Affidavit of Maria D. Luciano at 1.[3] In light of Ms. Luciano's position and experience as documented in plaintiffs' submission, the Court concludes that $75.00 is a reasonable rate to charge for her work.
Finally, the Court considers the materials provided by plaintiffs in support of their fee application with respect to "JA," or Jamie L.A. Rodriguez. Ms. Rodriguez is a second year associate with the Law Offices of Donna Wulkan who has worked on "dozens" of special education cases in the District of Columbia and Maryland, and is a member in good standing of the Bars of the District of Columbia and Maryland. Pls.' Supp., Attach. 4, Sworn Affidavit of Jamie L.A. Rodriguez at 1. As reflected in the invoice submitted, Ms. Rodriguez's efforts in September 1999 through January 2000 were billed at a rate of $125.00, a rate below the permissible rate provided for in the Laffey Matrix. See Laffey Matrix 1992-2003 (providing rate of $165.00 for attorneys with one to three years of experience). In light of Ms. Rodriquez's position and experience as documented in plaintiffs' submission, the Court concludes that $125.00 is a reasonable rate to charge for her work.
Because the Court previously concluded that plaintiffs are prevailing parties and that the hours expended by plaintiffs' attorneys' were reasonable, in light of the foregoing the Court will order defendants to pay the amounts requested by plaintiffs pursuant to the invoices submitted with plaintiffs' supplemental brief. Accordingly, it is hereby
ORDERED that defendants shall pay plaintiffs in attorneys' fees in the amount of $8582.50 on or before September 3, 2004. If this amount is not paid on or before September 3, 2004, it will bear interest at the rate established by 28 U.S.C. § 1961 from September 4, 2004.
SO ORDERED.
NOTES
[1] After calculating the lodestar figure, in some cases the Court in its discretion may adjust the fee upward or downward based on other considerations, especially the degree of success that plaintiff had in prevailing on his or her claim. See Farrar v. Hobby, 506 U.S. 103, 114-15, 113 S. Ct. 566, 121 L. Ed. 2d 494 (1992).
[2] The prevailing market rate can be determined by reference to the so-called Laffey matrix. See Laffey v. Northwest Airlines, Inc., 572 F. Supp. 354 (D.D.C.1983), rev'd on other grounds, 746 F.2d 4 (D.C.Cir.1984). If the hourly rate requested is above what is allowed by the Laffey matrix, the rate will be reduced to the maximum hourly rate provided by the matrix.
[3] The Court notes that the Laffey matrix provides that Ms. Luciano could have been billed as high as $90.00 per hour for her efforts between June 1, 1999 and May 30, 2000. See Laffey Matrix 1992-2003, available at http://www.usdoj.gov/usao/dc /Divisions/Civil_Division/Laffey_ Matrix_2.html. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3163454/ | In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 15-1405
CINCINNATI INSURANCE CO.,
Plaintiff-Appellee,
v.
VITA FOOD PRODUCTS, INC.,
Defendant-Appellant.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 13 C 5181 — Edmond E. Chang, Judge.
____________________
ARGUED NOVEMBER 2, 2015 — DECIDED DECEMBER 16, 2015
____________________
Before BAUER, POSNER, and KANNE, Circuit Judges.
POSNER, Circuit Judge. The Cincinnati Insurance Company
issued a liability insurance policy to a company called Paint-
ers USA for a one-year period beginning on January 15,
2011. It has brought this suit to try to avoid having to pro-
vide coverage to another company, Vita Food Products,
which claims to be an “additional insured”—that is, to also
be covered by the liability insurance policy that Cincinnati
had issued to Painters.
2 No. 15-1405
The policy covered “bodily injury” caused by an “occur-
rence” (an accident, presumably) for which the insured was
legally liable to the injured person. But in addition the policy
allowed the insured to add an “additional insured” to the
policy by an oral agreement (or a written one, but this case
involves an oral agreement), provided that the oral agree-
ment preceded the “occurrence” and that “a certificate of in-
surance showing that person or organization as an addition-
al insured has been issued.” No permission from Cincinnati
Insurance is required for the primary insured to create an
additional insured, provided that the two insureds have a
relationship that makes the addition of a second insured
consistent with the nature and aims of the policy, as when
the original insured is providing products or services to the
additional insured (as occurred in this case).
While Cincinnati’s insurance policy was in force, Painters
was hired by Vita Food Products to do painting on Vita’s
premises. According to Vita, Painters agreed to add Vita as
an additional insured—orally. Vita doubtless was concerned
that if one of Painters’ workers was injured on Vita’s prem-
ises, the worker would file a tort suit against Vita—he
couldn’t sue Painters because an employee normally has on-
ly a workers’ compensation remedy against his employer
and not a common law tort remedy.
In fact, one of Painters’ workers, Nardo Ovando, did sue
Vita, for negligent maintenance of its premises. It was soon
after Painters began doing work for Vita and before there
was any written confirmation of the oral agreement that
Ovando fell while working at Vita. He sustained a terrible
injury, and remains in a coma to this day. A tort suit was
filed against Vita on Ovando’s behalf and that of his wife
No. 15-1405 3
(Karina Baez, who claims loss of consortium). The suit be-
fore us, however, is a diversity suit brought by the insurance
company to obtain a declaration that Vita was not covered
by the policy that the company had issued to Painters. The
company points out that the accident, even if it occurred af-
ter the oral agreement that added Vita as a party insured,
occurred before the preparation of the certificate confirming
Vita’s status as an additional insured. Ovando and Baez are
named as additional defendants, since as plaintiffs in the
state court tort suit against Vita they might claim an entitle-
ment to share in any insurance proceeds that Vita receives in
order to help it pay damages to the plaintiffs, should Vita be
held liable for Ovando’s accident.
Painters had requested the certificate within hours after
Ovando’s injury, and an insurance agent for Cincinnati In-
surance had issued it to Vita the next day. But the district
judge agreed with Cincinnati that the certificate had come
too late—that until it was prepared and signed the “addi-
tional insured” was not actually insured. And so the judge
granted summary judgment in favor of the insurance com-
pany, precipitating this appeal by Vita. The insurance com-
pany also denied, and continues to deny, that the oral
agreement adding Vita as an insured preceded the accident.
But there was conflicting evidence on that point, and the dis-
trict judge therefore correctly ruled that the issue could not
be resolved on a motion for summary judgment.
But his grant of summary judgment in favor of Cincin-
nati Insurance was premature. The reference in the insur-
ance policy to a certificate of insurance is ambiguous. It
could, as Cincinnati argues, be regarded as a prerequisite to
coverage of the additional insured, but equally it could be
4 No. 15-1405
regarded as intended merely to memorialize the oral agree-
ment, in which event the date of the certificate would not
matter. A third possibility—which like the second supports
Vita’s position—is that the oral agreement must be memori-
alized in writing before the insured can file a claim.
The district judge invoked “the requirement that cover-
age is extended only ‘where a certificate has been issued.’”
But that’s not what the policy says. The oral agreement has
to precede the accident that gives rise to the insured’s claim,
but there is no indication of when the certificate of insurance
has to be issued. We have just suggested that a permissible
interpretation would be that it must be issued before the ad-
ditional insured files a claim with the insurance company, as
it was in this case.
An ambiguous insurance contract is interpreted “against
the drafter of the policy and in favor of coverage,” Outboard
Marine Corp. v. Liberty Mutual Ins. Co., 607 N.E.2d 1204, 1217–
20 (Ill. 1992), in recognition that such contracts are drafted
by, and therefore likely to be slanted in favor of, the insurer
and that the insured rarely has any bargaining power be-
cause such contracts are usually industry-wide standard-
form contracts, the terms of which therefore are not negoti-
ated anew every time a person or firm seeks insurance cov-
erage. The commercial general liability policy issued by Cin-
cinnati Insurance to Painters is such a contract, for it is of-
fered to potential insureds on a take-it-or-leave-it basis. Since
the reference in the policy to the certificate of insurance is
ambiguous, the judge erred in holding that the policy’s
“clear and unambiguous” language proves that Vita was not
an additional insured. The pertinent language was neither
clear nor unambiguous. The certificate may be useful in
No. 15-1405 5
heading off a dispute over whether there really is an oral
agreement. But the fulfillment of that purpose would require
only that the certificate precede the additional insured’s
claim for the proceeds of the insurance policy, and the certif-
icate in this case did precede the claim.
Cincinnati Insurance argues that requiring the certificate
before a liability-triggering event occurs is necessary to pro-
tect the insurer against fakery by the insured. After Ovan-
do’s accident Painters would have been desperate for Vita to
be acknowledged as an additional insured, as otherwise Vi-
ta, facing suit by Ovando and his wife, might try to drag
Painters into the suit, accusing it of responsibility for the ac-
cident. The certificate was not issued by Painters or Vita,
however, but instead, as we noted earlier, by an insurance
agent on behalf of Cincinnati Insurance. The agent would
not be willing to backdate a certificate of insurance at the in-
sured’s (Painters’) request, so requiring that the certificate
precede the accident would provide extra protection against
fakery. Oral agreements are valid contracts, however, and
the insurance policy is explicit that an oral agreement is suf-
ficient to add an additional insured.
The certificate of insurance, in contrast, is not a contract.
It states that it “is issued as a matter of information only,”
“confers no rights upon the certificate holder,” “does not af-
firmatively or negatively amend, extend or alter the cover-
age afforded by the policies,” and “does not constitute a con-
tract between the issuing insurer(s), authorized representa-
tive or producer, and the certificate holder.” Cincinnati In-
surance calls it a precondition to insuring Vita against liabil-
ity for the accident to Ovando. Were it a precondition it
would indeed amend the coverage provided by the policy
6 No. 15-1405
that Cincinnati Insurance issued to Painters. But the lan-
guage of the certificate indicates that it isn’t a precondition
to anything; it’s just information.
The insurance company cites a similar case that it won,
Cincinnati Ins. Co. v. Gateway Construction Co., 865 N.E.2d
395 (Ill. App. 2007), but overlooks a crucial difference: in
Gateway the policy did not permit an oral agreement to add
an additional insured. See id. at 399. Our interpretation of
the additional-insured provision in the present case is sup-
ported by such cases as ATOFINA Petrochemicals, Inc. v. Con-
tinental Casualty Co., 185 S.W.3d 440, 443–44 (Tex. 2005), and
United States Fidelity & Guaranty Co. v. Shorenstein Realty Ser-
vices, LP, 591 F. Supp. 2d 966, 968–70 (N.D. Ill. 2008) (Illinois
law).
So if Vita can prove that there was an oral agreement to
add it as an additional insured prior to the accident to
Ovando, it will be entitled to coverage under Cincinnati In-
surance’s policy. The judgment of the district court in favor
of the insurance company is therefore REVERSED and the
case REMANDED for further proceedings consistent with
this opinion. | 01-03-2023 | 12-17-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/2502934/ | 70 F.Supp.2d 678 (1999)
In re TRITON LIMITED SECURITIES LITIGATION.
No. 5:98CV256.
United States District Court, E.D. Texas, Texarkana Division.
September 29, 1999.
*679 *680 U. Seth Ottensoser, Keith M. Fleischman, Steven G. Schulman, Milberg Weiss Bershad Hynes & Lerach, LLP, New York City, Damon Young, John Michael Pickett, Young & Pickett, Texarkana, TX, for D.H. Lee, Jr., Ken Bortner.
Roger F. Claxton, Kilgore & Kilgore, Dallas, TX, U. Seth Ottensoser, Keith M. Fleischman, Steven G. Schulman, Milberg *681 Weiss Bershad Hynes & Lerach, LLP, New York City, for North River Trading Co., L.L.C., Richard L. Zorn, Elizabeth Clofine.
James N. Haltom, George L. McWilliams, Richard Andrew Adams, Patton Haltom Roberts McWilliams & Greer, LLP, Texarkanna, TX, Nelson James Roach, Charles Cary Patterson, Jeffrey John Angelovich, Bradley Earl Beckworth, Jason Brandt Stephens, Daingerfield, TX, U. Seth Ottensoser, Keith M. Fleischman, Steven G. Schulman, Milberg Weiss Bershad Hynes & Lerach, LLP, New York City, for D.H. Lee, Jr.
U. Seth Ottensoser, Keith M. Fleischman, Steven G. Schulman, Milberg Weiss Bershad Hynes & Lerach, LLP, New York City, Lance Lee, Damon Young, Young & Pickett, Texarkana, TX, for Richard Strauss, Michael Nmn Brown.
MEMORANDUM OPINION AND ORDER
FOLSOM, District Judge.
Before the Court is the Defendants' Motion To Dismiss for Improper Venue or Transfer Case to the Northern District of Texas (Doc. #19).[1] On April 27, 1999, the Court held a hearing on the Defendants' motion. After considering the motion, the response, additional filings, and the arguments of counsel at the hearing, the Court finds the following.
I. BACKGROUND
This is a securities fraud case. Seeking class certification, the named Plaintiffs are persons who purchased common stock of Triton Energy, Ltd. ("Triton") and who seek to recover damages caused by Triton's alleged violations of federal and common law. Generally, the Plaintiffs allege that Triton is an industrial oil and gas exploration and production company. On March 30, 1998, Triton announced that it was putting itself up for sale. It was reported that interest in Triton was heavy, with over thirty potential bidders examining Triton's corporate books. Triton stated that it would accept sealed bids through June 30, 1998. Plaintiffs allege that Triton's stock increased twenty percent between March 30 and May 7 of 1998.
Between July 14, 1998, and July 16, 1998, Triton's stock began to drop sharply. On Friday, July 17, 1998, Triton announced that its bidding process had been unsuccessful, that it would not be selling the company, and that it had accepted a bid from Atlantic Richfield Co. to buy one-half of its interest in its Southeast Asia gas field. Triton's stock price lost approximately one-third of its value as result of the announcement.
Plaintiffs allege that Triton carried out a plan, scheme, and course of conduct which was intended to deceive the investing public, artificially inflate and maintain the market price of Triton securities, and cause the Plaintiffs and purported class members to purchase Triton securities at inflated prices. Plaintiffs allege that Triton employed devices, schemes, and artifices to defraud and made untrue statements of material fact and/or omitted material facts necessary to make the prior statements not misleading. Plaintiffs allege Triton performed these acts through interstate commerce and/or mail.
Plaintiffs allege this action arises under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") (15 U.S.C. §§ 78j(b) and 78t(a)), and the rules and regulations promulgated thereunder, including SEC Rule 10b-5 (17 *682 C.F.R. § 240.10b-5). Plaintiffs assert venue is proper in this District pursuant to § 27 of the Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1391(a), (b), and (d). Plaintiffs allege that the acts giving rise to the violations complained of occurred or caused injury in this District, including SEC filings and other public statements disseminated regarding Triton during the class period.
Defendants move to dismiss these causes of action for improper venue and in the alternative to transfer venue to the Northern District of Texas. Defendants argue that pursuant to the applicable venue rules provided by the Exchange Act, venue is not proper in the Eastern District. As such, Defendants contend that pursuant to 28 U.S.C. § 1406(a) the cases should be dismissed or transferred to the Northern District of Texas. Alternatively, pursuant to 28 U.S.C. § 1404, the Defendants assert the Court should transfer this action to the Northern District of Texas for the convenience of the parties, witnesses, and in the interest of justice.
The evidence provided to the Court establishes the following. Triton is a Cayman Islands corporation. The Defendants maintain no offices in this District. Triton's United States offices are headquartered in Dallas, which is in the Northern District of Texas. Triton's officers are located in Dallas. All press releases, announcements, and other media statements applicable to this case were issued from Dallas. Plaintiff D.H. Lee, Jr., purchased 1,000 shares of Triton stock at a price of $29 1/16 per share on July 16, 1998, while in Texarkana, which is in the Eastern District of Texas. On July 14 and 15, 1998, Robert Hillier purchased a total of 900 shares of Triton stock from his home in Smith County, Texas, which is within the Eastern District. Robert Hillier is not a named plaintiff.
Although Robert Hillier is not a named plaintiff, the evidence reveals that the March 30, 1998, press release from Triton was accessed and read by him within the Eastern District of Texas via the Internet. The March 30, 1998, press release lies at the heart of the majority of Plaintiffs' claims of fraud against the Defendants. In that press release, Triton announced that "strategic alternatives under consideration may include the sale or farmout of a portion or all of the Company's interest in Block A-18 of the Malaysia-Thailand Joint Development Area in the Gulf of Thailand, the sale of a portion or all of the Company's interest in the Cusiana and Cupiagua oil fields in Colombia, or both." Further, the press release contains quotes directly from Defendant Thomas G. Finck. Specifically, Mr. Finck states, "We have a substantial, valuable resources base that is only partially developed and amounts to about one billion barrels of equivalent oil, or 27.3 barrels per share.... We believe the stock market has not yet fully recognized the value of these assets."
In addition to the March 1998 press release, Plaintiffs have provided the Court with a Reuters news article dated the twelfth of May. In that article Mr. Finck states that his "plans to sell key assets or the entire company has drawn `strong' interest from industry giants." In addition, Mr. Finck indicated that due to high industry interest in this sale, Triton opened more data rooms in London. However, he stated the data rooms would be closed by the end of May with bids due in by late June and the company's management would make a decision in July.
Plaintiffs have also produced other press releases from Triton. All of the press releases from Triton contain an Internet website address: www.tritonengergy.com. However, as to these press releases, there is no evidence that they were received in the Eastern District of Texas.
II. DISCUSSION
A. 15 U.S.C. § 78aa
The Securities Exchange Act provides liberal venue rules to allow plaintiffs who are "subject to nationwide securities *683 fraud schemes to vindicate their rights without having to resort to fragmented litigation." In Re Towner Petroleum Company Securities Litigation, MDL 607, 1986 WL 290, at *12 (E.D.Pa. June 30, 1986). However, Defendants assert that Plaintiffs cannot establish facts sufficient to demonstrate that this Court has venue over this action. Defendants argue that no Triton office, officer, or business was present in or conducted within the Eastern District. Defendants argue that Plaintiffs' claims establish that venue is proper in the Northern District. Further, Defendants argue that no act of material importance to the consummation of the alleged scheme occurred within the Eastern District as required by 15 U.S.C. § 78aa.
Plaintiffs assert that because Triton is an alien defendant and can be sued in any district, venue in the Eastern District is proper for all defendants. Triton is a Cayman Islands corporation and as such is subject to the provision of the general federal venue statute which states that an alien may be sued in any district. 28 U.S.C. § 1391(d). As with any alien defendant, § 1391(d) applies "wholly outside the operation of all the federal venue laws, general and special." Brunette Machine Works, Ltd. v. Kockum Industries, Inc., 406 U.S. 706, 714, 92 S.Ct. 1936, 32 L.Ed.2d 428 (1972). However, Defendants Thomas G. Finck and Peter Rugg are not aliens. When an alien and a non-alien are joined as defendants, "venue for the entire action is proper in any district where it is correct as to the non-alien defendant." Japan Gas Lighter Assoc. v. Ronson Corp., 257 F.Supp. 219, 225 (D.N.J.1966); see also Square D. Co. v. Niagara Frontier Tariff Bureau, Inc., 1984 WL 2929, at *3 (D.D.C. Jan.24, 1984). Accordingly, § 1391(d) does not establish venue in this district.
The Court next turns to § 27 of the Securities Exchange Act of 1934, 15 U.S.C. § 78aa. Section 78aa states in pertinent part:
Any criminal proceeding may be brought in the district wherein any act or transaction constituting the violation occurred. Any suit or action to enforce any liability or duty created by this chapter or rules and regulations thereunder, or to enjoin any violation of such chapter or rules and regulations, may be brought in any such district or in the district wherein the defendant is found or is an inhabitant or transacts business, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found.
The test for a civil action is "that applicable to a criminal proceeding under the Act which `may be brought in the district wherein any act or transaction constituting the violation occurred.'" Hooper v. Mountain States Securities Corp., 282 F.2d 195, 204 (5th Cir.1960) (quoting § 78aa).
Plaintiffs argue that venue is proper in the Eastern District because of the nationwide service of process provision of § 78aa. "Once a case is filed in an appropriate district under § 78aa, the statute gives the district court the authority to serve the defendants nationwide." Busch v. Buchman, Buchman & O'Brien, Law Firm, 11 F.3d 1255, 1257 (5th Cir.1994). As such, "when a federal court is attempting to exercise personal jurisdiction over a defendant in a suit based upon a federal statute providing for nationwide service of process, the relevant inquiry is whether the defendant has had minimum contacts with the United States." Id. at 1258. The Court agrees with the Plaintiffs that it has personal jurisdiction over the Defendants.
Plaintiffs next argue that because the Court has personal jurisdiction over Triton pursuant to § 78aa, it is thus a resident of this District in accordance with 28 U.S.C. § 1391(b) and (c). Section 1391(b) provides in pertinent part that venue is proper in "a judicial district where any defendant resides, if all defendants reside in the *684 same State." Section 1391(c) states that a "corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction." As such, Plaintiffs argue that because personal jurisdiction exists as to Triton in this District, then Triton's residency exists in this District. Further, Defendants have admitted that Peter Rugg and Thomas G. Finck are residents of the State of Texas. Therefore, all Defendants are residents of the State of Texas, and venue in the Eastern District is proper pursuant to § 1391(b).
Defendants argue that Plaintiffs cannot mix the provisions of the general venue statute with § 78aa. Defendants assert that Plaintiffs must independently satisfy venue requirements of § 78aa. As a "general matter, courts have interpreted special venue provisions to supplement, rather than preempt, general venue statutes." Go-Video, Inc. v. Akai Elec. Co., Ltd. 885 F.2d 1406, 1409 (1989). Further, the issue was squarely addressed in Icon Industrial Controls Corp. v. Cimetrix, Inc., 921 F.Supp. 375 (W.D.La.1996). In Icon, the plaintiff brought an antitrust action against four defendants wherein the defendants moved to dismiss for lack of personal jurisdiction and improper venue. Plaintiffs contended that venue was proper pursuant to a combined application of § 12 of the Clayton Act (15 U.S.C. § 22) and the general venue provisions of 28 U.S.C. §§ 1391(b) and (c). The defendants in Icon argued that the worldwide service provision did not apply to all anti-trust cases, but only to those antitrust cases where the special venue provisions set forth in the first clause of § 12 were met. Icon, 921 F.Supp. at 378.
In a detailed analysis of the personal jurisdiction question, the district court in Icon began with an examination of the worldwide service of process language in § 12 of the Clayton Act. The pertinent language of that section is as follows, "... and all process in such cases may be served in the district of which it is an inhabitant, or wherever it may be found." 15 U.S.C. § 22. Citing the Ninth Circuit case, Go-Video, Inc., the Icon court found there was "no indication in the legislative history that Congress intended to restrict the availability of worldwide service of process to those cases governed by the special venue rules contained in § 12." Icon, 921 F.Supp. at 380. In fact, the district court in Icon found that § 12 of the Clayton act could be supplemented by 28 U.S.C. §§ 1391(d) and 1391(c). Icon, 921 F.Supp. at 380 ("Nor is there any language in Go-Video which suggests that § 1391(d) is the only statutory rule of venue that supplements the venue rules provided by Section 12....").
Other district courts have agreed with this interpretation of the Clayton Act's worldwide service of process provision in relation to the general venue statutes. See Paper Systems Inc. v. Mitsubishi Corp., 967 F.Supp. 364, 366-67 (E.D.Wis.1997) (stating as to 15 U.S.C. § 22, "[T]he worldwide service of process clause should stand on its own, independent from the venue clause. Paper systems may rely on § 22's service of process provision without satisfying § 22's venue provisions. Instead, Paper Systems may rely on 28 U.S.C. § 1391(d) for venue...."); see also Daniel v. American Bd. of Emergency Medicine, 988 F.Supp. 127, 197-201, 255-56 (W.D.N.Y.1997) ("In applying the antitrust venue provisions, courts have concluded that Congress' intent was to enlarge the plaintiff's choice of forum by reading the Clayton Act's venue provisions as supplemental to, rather than superseding, the general venue provisions."); see also Kingsepp v. Wesleyan University, 763 F.Supp. 22, 28 (S.D.N.Y.1991) ("Thus, venue in this district may be authorized under either section 12 or under the general federal venue provisions of 28 U.S.C. § 1391(b)."). As such, the Icon court found it had personal jurisdiction over the defendants.
Turning to the issue of venue, the Icon court dealt with the exact argument presented to this Court. The Icon plaintiff contended that venue was proper pursuant *685 to §§ 1391(b) and (c) because the residency of the corporate defendants was determined by personal jurisdiction under Section 12 of the Clayton Act. The district court agreed by stating, "Having already determined that the defendants are subject to personal jurisdiction in Louisiana, and that the venue provisions of Section 12 of the Clayton Act are not exclusive, the court agrees that § 1391(c) provides a basis for venue." Icon, 921 F.Supp. at 382. Again, the Western District of Louisiana is not alone in this application of the Clayton Act in combination with §§ 1391(b) and (c). See Kingsepp, 763 F.Supp. at 28 ("Wesleyan and Williams are corporations who are, and were at the time this action commenced, subject to jurisdiction in this action under section 12 of the Clayton Act. They are therefore deemed to `reside' in this district pursuant to section 1391(c)."); see also Daniel, 988 F.Supp. at 273 ("In this case, the court has found, under the nationwide contacts analysis authorized by Clayton Act Section 12, that each of the defendant corporations has sufficient contacts with the United States to be subjected to personal jurisdiction.... Therefore, as each of these defendants have sufficient contacts with this district for personal jurisdiction purposes and have been properly served, they also have sufficient contacts with this district for purposes of venue.... Each of these Defendants as corporations are thus deemed to reside in this district for purposes of Section 1391(c)").
The Court finds the above arguments persuasive and sound when comparing the similar provision of 15 U.S.C. § 78aa with the general venue provisions of §§ 1391(b) and (c). See Leasco Data Processing Equipment Corp. v. Maxwell, 468 F.2d 1326, 1340 n. 10 (2d Cir.1972) (stating as to § 27 Securities Exchange Act, "This rather ineptly worded provision and the similar one in § 22(a) of the 1933 Act appear to have been modeled on § 12 of the Clayton Act"). By reaching the same conclusion regarding the service of process provision of § 78aa, the Court has personal jurisdiction over Triton. Pursuant to 28 U.S.C. § 1391(c), Triton is a resident of the Eastern District of Texas. Defendants Rugg and Finck are residents of the State of Texas. Therefore, pursuant to 28 U.S.C. § 1391(b), venue is proper in the Eastern District because "any" defendant, Triton, resides in this District and all defendants reside in the same state.
However, the Court also finds that venue is proper in the Eastern District pursuant to 15 U.S.C. § 78aa. As stated above, § 78aa provides that any suit to enforce liability under the 1934 Act may be brought in the district where any act or transaction constituting the violation occurred. As the Fifth Circuit has stated, "the `act' contemplated by the statute need not be crucial, nor must `the fraudulent scheme be hatched in the forum district.'" Hilgeman v. National Ins. Co. of America, 547 F.2d 298, 301 (5th Cir.1977) (quoting, Hooper v. Mountain States Securities Corp., 282 F.2d 195, 204 (5th Cir.1960)). Rather, the jurisdictional act must be "`of material importance to the consummation of the scheme.'" Id. However, the defendant need not be "physically present in the forum district nor need he commit more than a single act in the district if that act is important to the consummation of the scheme." Id. at 302 n. 11. As the Hilgeman court found, "[T]here can be little doubt that the sending of the premium payment notice into Alabama was a step of material importance to that year's consummation of the ongoing scheme, i.e., extracting an annual payment from the plaintiff." Id. at 302. Further, the Court may look beyond the Complaint in resolving venue issues.
Defendants argue that no acts occurred in the Eastern District. Further, they argue that evidence submitted by one Plaintiff cannot be considered for venue determinations as to the others. In addition, Defendants argue that the Mr. Hillier's evidence cannot be considered by this Court because he is a non-party.
*686 Similar arguments were advanced by defendants in the case of In Re Towner Petroleum, 1986 WL 290 at *12 and *14. In In Re Towner Petroleum, thirteen separate cases filed in various federal district courts were consolidated in one district for multidistrict litigation purposes. The court noted that, "All of the actions consolidated in this multidistrict litigation concern a single, allegedly fraudulent scheme to market securities nationally." Id., 1986 WL 290, at *11. One of the defendants argued that each plaintiff "must show venue and personal jurisdiction with respect to his or her own claim and that each plaintiff must establish an act or transaction relating to his or her own purchase of securities within this district in order to come within the venue requirements of ... 15 U.S.C. § 78aa." Id. at *14. The plaintiffs contended that venue and personal jurisdiction were proper for one set of plaintiffs' claims on the basis of acts or transactions in the district relating to any one of the plaintiffs' claims. Id.
After discussing a previous ruling wherein the district court found that one of the defendants had transacted business in and was a resident of the district for venue purposes, the district court noted that in one particular plaintiffs' case individual defendants were alleged to have conspired to defraud investors across the nation. As "part of that scheme, TPC, under the control of the individual defendants, distributed the Prospectus and sold securities in this district." Id. Because of the "broad reach of the securities law," and in "accordance with Congress' intention to grant securities fraud victims the means to redress injuries perpetrated by nationwide fraud scheme without resort to fragmented litigation," the district court held that venue was proper pursuant to § 27 of the Exchange Act for all of the plaintiffs' claims joined in the one action. Id. As the district court stated:
The acts or transactions in this district that relate to the claims of John T. Synnestvedt and Lockhart Associates were part of a single, allegedly fraudulent scheme to market securities throughout the nation. All of the Synnestvedt plaintiffs allegedly were defrauded in the same scheme. Although the plaintiffs purchased the partnership shares through separate brokers in different parts of the country, the D & O defendants' involvement in the allegedly fraudulent scheme presumably was uniform throughout the country. The venue provision in section 27 of the Exchange Act was purposely drafted to allow defrauded investors adequate means to redress harm caused by nationwide securities fraud, and courts have not hesitated to give section 27 of the Exchange Act a broad swath and have sustained plaintiff's choice of venue even though based on only one act or acts peripheral to the alleged violations.... In order to provide an adequate means for defrauded investors to obtain relief against the perpetrators of nationwide securities fraud, the venue provision of section 27 of the Exchange Act should be interpreted to allow an investor defrauded in one federal district to join in a suit with another investor defrauded in another district against common defendants utilizing a common scheme to defraud.
Id. at *14 (citations omitted). In addition, the district court stated, "There is no dispute, however, that venue is proper in this district as to John T. Synnestvedt and Lockhart Associates. This action, therefore, could have been brought in this district as a class action, so that the broad interpretation of the securities law venue provision does not allow any further forum shopping than is already permitted under other procedural devices." Id. at *15.
In the present cases, the evidence presented by the Plaintiffs establishes that information regarding the desirability of owning Triton's stock did enter the Eastern District of Texas and was relied upon by persons in the Eastern District of Texas. Although Mr. Hillier is not a named *687 party, his evidence shows that the press releases at issue in this case were sent directly into the Eastern District of Texas. See Kogok v. Fields, 448 F.Supp. 197, 199 (E.D.Pa.1978) (stating, "Venue is based on the mailing of proxy statements, quarterly and annual reports, and prospectuses by TDA to non-parties who reside in the Eastern District of Pennsylvania" and holding the materiality test was satisfied for venue in that district) (emphasis added). Triton publicly announced that "strategic alternatives under consideration may include the sale or farmout of a portion or all of the Company's interest in Block A-18 of the Malaysia-Thailand Joint Development Area in the Gulf of Thailand, the sale of a portion or all of the Company's interest in the Cusiana and Cupiagua oil fields in Colombia, or both." That announcement was purposefully placed in the Eastern District. Further, Defendant Thomas G. Finck's statement, "We have a substantial, valuable resources base that is only partially developed and amounts to about one billion barrels of equivalent oil, or 27.3 barrels per share.... We believe the stock market has not yet fully recognized the value of these assets," entered this District. Additionally, a nationally printed Reuters news story spoke of the Defendants' representations regarding the value of the company. See Oxford First Corp. v. PNC-Liquidating Corp., 372 F.Supp. 191, 197-98 (E.D.Pa.1974) (venue proper in district when defendants made statements to third party that defendants knew or should have known would be read and relied upon by plaintiffs in district). These representations form the basis for the Plaintiffs' claims of the alleged misrepresentations and the single, allegedly fraudulent scheme to market securities nationally. Finally, Mr. D.H. Lee, a named Plaintiff, purchased 1,000 shares of Triton stock in the Eastern District during the time when the alleged scheme occurred.
The Hilgeman case requires the defendant's act within this district to be of "material importance to the consummation of the scheme." As in Hilgeman, this Court views the sending of press releases into the Eastern District and the subsequent sale of Defendant company's stock in the Eastern District to be the very alleged fraudulent scheme that the Plaintiffs complain. Therefore, venue is proper in this District.
B. The Co-Conspirator Theory
The "co-conspirator" theory provides that "in a multi-defendant securities proceeding, where a common scheme of acts or transactions to violate the securities act is alleged, if venue is established for any of the defendants in the forum district there is sufficient justification to establish venue as to the other defendants, even in the absence of any contact or substantial contact by any one defendant within that district." Hilgeman, 547 F.2d at 302 n. 12. The "co-conspirator" theory has been adopted by the Fifth Circuit. Id.; see also Securities Investor Protection Corp. v. Vigman, 764 F.2d 1309, 1318 (9th Cir.1985) ("The strong policy favoring the litigation of related claims in the same forum supports the application of a co-conspirator venue theory in actions based upon violations of federal securities statutes"). This Court has found that venue as to all Defendants is proper in this District pursuant to § 1391(b). Further, the Court finds that venue is proper in this District as to Triton and Defendant Finck because of the statements contained in the press release which entered this District. In addition, using the "co-conspirator" theory, venue is proper as to all Defendants because of the common scheme or acts of any one within this District.
C. 28 U.S.C. § 1404
As an alternative position the Defendants urge the Court to transfer this action to the Northern District of Texas under 28 U.S.C. § 1404(a), which provides:
For the convenience of the parties and witnesses, in the interest of justice, a district court may transfer any civil action *688 to any other district or division where it might have been brought.
The purpose of § 1404 is to prevent the waste of time, energy and money and to protect litigants, witnesses and the public against unnecessary inconvenience and expense. See State Street Capital Corp. v. Dente, 855 F.Supp. 192, 197 (S.D.Tex. 1994). The Supreme Court has noted that § 1404(a) is intended to place discretion in the district court to adjudicate motions for transfer of venue according to "individualized, case-by-case consideration of convenience and fairness." Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988) (quoting, Van Dusen v. Barrack, 376 U.S. 612, 622, 84 S.Ct. 805, 11 L.Ed.2d 945 (1964)).
The party moving for a change of venue bears the burden of demonstrating why the forum should be changed. Time, Inc. v. Manning, 366 F.2d 690, 698 (5th Cir.1966). "[B]efore this Court can order a [convenience] transfer, the defendants must carry a strong burden to prove that [the convenience] factors clearly favor such a change." TV-3, Inc. v. Royal Ins. Co. of America, 28 F.Supp.2d 407, 411 (E.D.Tex. 1998). Defendants seeking a transfer cannot carry their burden by merely making unsupported assertions, but rather they must properly establish relevant venue facts by affidavit, deposition or otherwise. See Plum Tree, Inc. v. Stockment, 488 F.2d 754, 756-57 (3d Cir.1973) (vacating district court's convenience transfer that was based not on supported evidence but only on "facts and conclusions asserted in defendants' motion"); see also Job Haines Home for the Aged v. Young, 936 F.Supp. 223, 228 (D.N.J.1996) ("In reviewing the factors which weigh for or against [a convenience] transfer, this Court must look to facts which are a matter of record, not merely to assertions in the attorneys' briefs").
The decision to transfer venue for the convenience of the parties and witnesses, in the interest of justice, is within the sound discretion of the district court. Rich v. Southern Gulf Operators, 879 F.Supp. 49, 51 (E.D.Tex.1995). In determining whether an action should be transferred under § 1404(a), the court examines factors which fall into two groups: (1) those relating to the convenience of the litigants, and (2) those relating to the public interest in the fair and efficient administration of justice. Mortensen v. Maxwell House Coffee Co., 879 F.Supp. 54, 56 (E.D.Tex.1995) (citing Walter Fuller Aircraft Sales v. Republic of Philippines, 965 F.2d 1375, 1389 (5th Cir.1992)).
The convenience factors consist of (1) the plaintiff's choice of forum; (2) the relative ease of access to the sources of proof; (3) the cost of obtaining attendance of witnesses and other trial expenses; (4) the place of the alleged wrong; and, (5) the possibility of delay and prejudice if transfer is granted. Id. The public interest factors consist of (1) the relative backlog and other administrative difficulties in the two jurisdictions; (2) the fairness of placing the burdens of jury duty on the citizens of the state with the greater interest in the dispute; (3) the local interest in adjudicating local disputes; and, (4) the appropriateness of having the case in a jurisdiction whose law will govern the dispute in order to avoid difficult problems in conflicts of laws. Id.
1. Plaintiff's Choice of Forum
A plaintiff's right to choose a forum is "well-established," and his choice is usually highly esteemed. Texas Instruments, Inc. v. Micron Semiconductor, 815 F.Supp. 994, 996 (E.D.Tex.1993). The plaintiff's choice of a forum is "a paramount consideration in any determination of transfer request, and that choice should not be lightly disturbed." Young v. Armstrong World Indus., 601 F.Supp. 399, 401 (N.D.Tex.1984) (citing Shutte v. Armco Steel Corp., 431 F.2d 22, 25 (3d Cir.1970)). Further, the judicial system inherently provides a plaintiff with his choice of forum:
*689 The existence of [forum choices] not only permits but indeed invites counsel in an adversary system, seeking to serve in his client's interests, to select the forum that he considers most receptive to his cause. The motive of the suitor in making this choice is ordinarily of no moment: a court may be selected because its docket moves rapidly, its discovery procedures are liberal, its jurors are generous, the rules of law applied are more favorable, or the judge who presides in that forum is thought more likely to rule in the litigant's favor.
McCuin v. Texas Power & Light Co., 714 F.2d 1255, 1261-62 (5th Cir.1983).
The Defendants contend that because no Plaintiff resides in the Eastern District, the Plaintiffs' choice of forum is subject to close scrutiny. Further, Defendants argue that Plaintiff's Response ignores that the choice of forum for class actions cannot claim the deference otherwise given to Plaintiffs. See, e.g. Job Haines, 936 F.Supp. at 228 (stating, "[T]he weight of authority holds that in class actions ... the class representative's choice of forum is entitled to lessened deference"). However, even though the Plaintiffs' choice of forum gets lessened deference, it is still at least a factor which should be considered in a convenience transfer analysis. See, e.g. Georgouses v. NaTec Resources, Inc., 963 F.Supp. 728, 730 (N.D.Ill.1997) (plaintiff's choice of forum in class action is "simply one factor among many to be considered").
In fact, this was the approach recognized in Job Haines, one of the cases relied upon by the Defendants for the proposition that the plaintiffs' choice of forum in this situation is entitled to lessened deference. Job Haines, 936 F.Supp. at 228. The court, after stating the plaintiff's choice in the class action was entitled to lessened deference, went on to recognize authority holding that "the 1404(a) factors are still balanced by the court in making a transfer determination, and the balance must tip strongly in favor of transfer before disturbing the plaintiff's choice." Id.
The named Plaintiffs have obviously chosen the Eastern District of Texas as the forum in which they wish to pursue their claims. At a minimum, this choice is a factor which weighs against transfer. Additionally, the Court is inclined to at least give some deference to this choice, especially in light of the fact that the venue provisions of the securities laws are intended to give plaintiffs liberal choice in their selection of a forum. See Securities Investor Protection, 764 F.2d at 1317.
2. Convenience and Associated Costs of Attendance of Witnesses
The Defendants argue because a large number of the likely witnesses in this case reside in the Northern District of Texas, the Defendants would not be able to compel the appearance of material non-party witnesses, or insure the appearance of voluntary witnesses at trial. Defendants aver that the testimony of non-party material witnesses is crucial in a securities case, and non-party officers, directors, and executives of Triton Energy would be called to testify at trial as to the events alleged in Plaintiffs' complaints. As such, if these witnesses cannot be compelled to appear, the Defendants would be forced to present their defense through the use of deposition testimony. Defendants further assert that a majority of the witnesses with knowledge of the matters alleged in Plaintiffs' complaints are located in the Northern District of Texas. Consequently, Defendants argue that all of the parties would bear the significant cost of obtaining the presence of such witnesses in the Eastern District. Additionally, Defendants assert that their material witnesses on the key issues would be Triton Energy officers, directors, executives, and employees and the named Plaintiffs.
The mere assertions initially offered in Defendants' Motion are wholly insufficient to tip this factor in favor of the Defendants. As the party seeking transfer, Defendants *690 must clearly specify the key witnesses to be called and make a general statement of what their testimony will cover. Fletcher v. Southern Pacific Transp. Co., 648 F.Supp. 1400, 1402 (E.D.Tex.1986) (citing Young, 601 F.Supp. at 401-402). Defendants provide by way of affidavit in their Reply a listing of the witnesses which may be called to trial. Defendant Rugg specifically identifies only one non-party witness who resides in Dallas, Texas, who will be called to testify. While Defendant Rugg states that other persons from engineering and accounting firms in Dallas will be called to testify about estimates of Triton's reserves and Triton's financial statements, no further information is provided to show these witnesses will be inconvenienced or burdened by Defendants hiring them to testify in the Eastern District. The Court assumes from the evidence provided by the Defendants that these witnesses will appear to testify in any court on behalf of the Defendants because they have been retained to do so.
In addition, Mr. Rugg lists five Triton employees from Dallas, Texas, area who will be called by the Defendants. "It is the convenience of non-party witnesses, rather than of employee witnesses, however, that is the more important factor and accorded greater weight." Gundle Lining Construction Corp. v. Fireman's Fund Insurance Co., 844 F.Supp. 1163, 1166 (S.D.Tex.1994). This Court is not persuaded that the Defendants will have a difficult or burdensome time in producing its own employees for testimony in the Eastern District. The Court finds the Defendants have failed to carry their burden in showing that this prong of the analysis weighs in favor of transfer.
3. Relative Ease of Access to Proof
The Defendants assert that this factor favors venue in the Northern District of Texas because Triton Energy's headquarters are located in Dallas, a majority of the documents that appear to be relevant to the Plaintiffs' claims are in Dallas, and no documents are located in the Eastern District. Defendants, however, fail to show that these documents are so voluminous that they would be difficult to transport. Therefore, the Court does not consider this as an important factor in the transfer analysis. See Met-L-Wood Corp. v. SWS Indus., Inc. 594 F.Supp. 706, 710 (N.D.Ill.1984) (the location of documents is not an important factor "unless documents are so voluminous that their transport is a major undertaking"); see also Arrow Electronics, Inc. v. Ducommun, Inc., 724 F.Supp. 264, 266 (S.D.N.Y. 1989) (denying transfer into district where defendant's documents were located because doing so would merely shift the transportation burden from the defendant to the plaintiff). Additionally, the location of documents is entitled to little weight in this analysis, given the ease with which they can now be copied. See 15 Charles A. Wright, Arthur R. Miller and Edward H. Cooper, FEDERAL PRACTICE AND PROCEDURE § 3853 (1986). Accordingly, this factor does not weigh in favor of transfer.
4. Possibility of Delay and Backlog of Cases
The Defendants assert that the relative congestion of the dockets in the Eastern and Northern District also favors transfer to the Northern District. Defendants provide a report of the Administrative Office of the United States Courts in support of their motion. The report is based upon the number of cases, termination rates, and cases filed from the years 1996 to 1997. The Defendants' evidence addresses district wide numbers. However, in September of this year, this Court will actually experience a direct loss of a significant number of cases due to the appointment of a new federal district court judge in the Eastern District of Texas. As a result, this Court will have the Texarkana Division solely and will be able to move cases along at a much more rapid speed. Accordingly, this factor weighs against transfer.
*691 5. Place of the Alleged Wrong
Defendants assert that the place of the alleged wrong, Dallas, Texas, favors transfer. However, in this securities fraud case, the Court finds that the place of the alleged wrong is not limited to the Northern District of Texas due to the nationwide public dissemination of information which forms the basis of this suit.
6. Community Interest
Defendants argue that the citizens of Dallas County have the greater interest in correcting an alleged wrong in their community. The Court finds, however, that the citizens of the Eastern District buy and sell stocks just as the citizens of Dallas County. The Court finds that the citizens of the Eastern District have a substantial interest in correcting any wrongdoing on the part of companies who trade stocks on a national basis.
7. Time, cost, and ease in conducting the trial
Defendants argue that the time, cost, and ease in conducting the trial favor transfer to the Northern District. Looking at the Defendants' arguments as to this "catch-all" factor, the Court finds that it has adequately addressed the concerns presented with the above analysis. Accordingly, this factor does not favor transfer. In addition, the delay and prejudice which would result if a transfer was granted weighs against transferring the case. As such, Defendants fail to overcome their burden to disturb the Plaintiffs' choice of forum. Accordingly, Defendants' motion to transfer is denied.
III. CONCLUSION
Having considered the Defendants' Motions to Dismiss for Improper Venue and Alternative Motion to Transfer Venue (Doc. #19), the Responses of the Plaintiffs, the arguments put forth in hearing, and having set forth its findings in a Memorandum Opinion, and being otherwise sufficiently advised, it is hereby
ORDERED, ADJUDGED, and DECREED that the Defendants' Motion to Dismiss for Improper Venue and Alternative Motion to Transfer Venue (Doc. #19) is DENIED.[2]
NOTES
[1] On November 10, 1998, the Court consolidated the civil actions numbered 5:98CV263, 5:98CV275, 5:98CV279, 5:98CV281, 5:98CV285, 5:98CV307, and 5:98CV320 into one cause of action under the number of the first filed cause, Civil Action No. 5:98CV256. This Order applies to all of the Defendants' motions to dismiss and transfer venue filed in all of the above-numbered cases prior to consolidation. Those are as follows: 5:98CV263 Doc. #17; 5:98CV275 Doc. #13; 5:98CV279 Doc. #12; 5:98CV281 Doc. #13; 5:98CV285 Doc. #12; and 5:98CV307 Doc. #11.
[2] As stated above, this Order applies to all of the Defendants' motions to dismiss and transfer venue filed in all of the above-numbered cases prior to consolidation. Therefore, the following motions are denied: 5:98CV263 Doc. #17; 5:98CV275 Doc. #13; 5:98CV279 Doc. #12; 5:98CV281 Doc. #13; 5:98CV285 Doc. #12; and 5:98CV307 Doc. #11. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3160921/ | NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with Fed. R. App. P. 32.1
United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Argued October 6, 2015
Decided December 8, 2015
Before
DIANE P. WOOD, Chief Judge
RICHARD A. POSNER, Circuit Judge
ANN CLAIRE WILLIAMS, Circuit Judge
No. 15‐1273
BARBARA STAHL, Appeal from the United States District
Plaintiff‐Appellant, Court for the Northern District of
Illinois, Eastern Division.
v.
No. 13 C 752
CAROLYN COLVIN, Acting
Commissioner of Social Security, Mary M. Rowland,
Defendant‐Appellee. Magistrate Judge.
O R D E R
Barbara Stahl is seeking disability benefits based on an array of physical and
mental problems, including diabetic neuropathy, degenerative disc disease, depression,
and anxiety. Thus far, her efforts have been unsuccessful. An administrative law judge
found that, despite these serious medical conditions, she retains the residual functional
capacity (RFC) to perform light work with certain limitations; the district court upheld
that decision. Stahl challenges the ALJ’s findings concerning her credibility, the weight
accorded the opinions of treating physicians, and the judge’s assessment of her residual
functional capacity. We conclude that these findings are not supported by substantial
evidence, and so we reverse.
No. 15‐1273 Page 2
I
A
At the age of 50, Stahl applied in August 2011 for disability insurance benefits and
supplemental security income, claiming that as of June 2010, diabetic neuropathy,
degenerative disc disease, depression, and anxiety rendered her unable to hold a job. For
12 years before that onset date, Stahl had worked as a childcare provider, running a
daycare center out of her home; before that she occasionally performed data entry as a
temporary employee. Since mid‐2010, Stahl has neither held a job nor been
self‐employed, although she has continued to babysit her nephew’s children once a
week, typically at night while they are sleeping.
Stahl first complained of burning pain in her feet when she visited an emergency
room in July 2010. She told the doctors there that she had been in pain for the previous
five months and that she had a history of diabetes, which was being treated with two
oral medications, Glyburide and Metformin. A physical examination revealed that Stahl
was alert and oriented, and she had normal neurological responses to a motor exam and
a sensory exam. The doctor prescribed her Norco as a pain reliever. Stahl recently had
lost her insurance, and so a social worker provided her with information on obtaining
ongoing medical care and medications.
Stahl next sought care in February 2011, when she complained that the pain in her
feet was so bad that she could barely walk; nonetheless, she reported that her overall
pain level was a low 2 out of 10. A physical exam was labeled “normal,” but the results
were troublesome enough to prompt the treating doctor to prescribe medications for her
diabetes, hypertension and cholesterol, and he added Prozac for her anxiety and
naproxen and Tylenol for her neuropathy. When Stahl requested prescription refills in
June 2011, she admitted that she had stopped taking her diabetes medication because it
was “too strong for her,” and she reported that she had no pain. The treating doctor
accordingly lowered the dosage on her diabetes medication. Two months later, though
she was still taking Norco, Stahl reported pain and neuropathy, for which the doctor
prescribed Neurontin.
A few days after that encounter, Stahl went to the emergency room, complaining
of tingling and numbness in her feet, anxiety, and depression. The doctor there
determined that she had normal strength and range of motion after a musculoskeletal
No. 15‐1273 Page 3
exam, and that she was alert, oriented, and cooperative. He gave her a psychiatry
referral to address her anxiety and depression.
One month later, in September 2011, Stahl returned to the emergency room with
reports of numbness and tingling in her arms. She was seeking a refill of her pain
medication and treatment for a ganglion cyst (a noncancerous lump that can cause pain
if it is pressing on a nerve) on her right wrist. She again complained of pain and
numbness in her hands and feet (signs of neuropathy) when she visited Dr. Fahmeeda
Begum in March 2012. Dr. Begum, a primary care physician, characterized Stahl’s
diabetes as well‐controlled, but she recommended an increased dosage of Gabapentin
after concluding that Stahl’s neuropathy had not responded to treatment.
Stahl saw a neurologist, Dr. Maria Gragasin, in May 2012, and reported again that
she had experienced burning pain in her extremities for the previous two years and a
sensation of pins and needles in her extremities. She added that she had mild low‐back
pain, but she denied a history of recurrent neck or low‐back pain. Dr. Gragasin noted that
Stahl was alert and oriented and had normal muscle tone, but she had a reduced sense of
touch in her hands and feet. Dr. Gragasin concluded that she probably had peripheral
neuropathy caused by her diabetes, and potentially by alcohol as well. She advised Stahl
to stop drinking.
Stahl returned to Dr. Gragasin in July 2012 for a follow‐up appointment for the
burning pain in her hands and feet. Dr. Gragasin noted that Stahl had denied a history of
neck or lower‐back pain at the previous visit, but that she now reported “almost constant
neck pain for several years,” as well as recurrent lower‐back pain that radiated to her
right thigh. Dr. Gragasin ordered CT scans of her spine, the results of which showed
degenerative disk and joint changes on some vertebrae and some impingement of the
foramen (the opening in the vertebrae that nerves travel through). The impingement was
mild on some vertebrae and severe on others.
Stahl also sought treatment for her mental condition. She first visited Dr. Regina
Hall‐Ngorima in August 2011, after she had received a psychiatry referral from an
emergency room doctor earlier that month. Stahl reported anxiety and depression,
especially after her son got into legal troubles two years earlier. She also reported a head
tremor which prevented her from going to the doctor, going on job interviews, and
getting her hair done. She told Dr. Hall‐Ngorima that she had run a daycare facility in
her home until the year before (2010), when she lost her accounting job. Dr.
Hall‐Ngorima noted that Stahl was very tearful, had poor grooming, was depressed and
No. 15‐1273 Page 4
anxious, but was logical and linear with no suicidal ideation, delusions, or
hallucinations. Dr. Hall‐Ngorima diagnosed her with anxiety, ruled out social phobia as
a diagnosis, and prescribed Citalopram and Clonazepam.
The next month Stahl saw Dr. Jeffrey Karr, a psychologist, at the request of the
Social Security Administration. She told Dr. Karr that she previously enjoyed hobbies
like crocheting and bowling, but this stopped six years ago when her son’s father died.
She currently talks to friends twice every two weeks, and her sister visits multiple times
a week. She stated that she needs help with laundry and chores and depends on her son
for help. She reported occasional alcohol use, claiming that the last time she drank had
been a month earlier when she had five beers. Dr. Karr noted that her prescriptions from
Dr. Hall‐Ngorima had not been filled, and though Stahl looked exhausted, there were no
visible signs of physical discomfort or obvious motor difficulties, including tremors. He
characterized her as eager to talk and stated that she offered coherent, intelligible
responses. He diagnosed her with a history of alcohol abuse and depression. He also
concluded that she did not “exhibit overt signs of substance usage, gross
psychopathology, cognitive difficulty or visible physical distress,” and that, if she was
substance‐free, she could handle money.
Stahl followed up with Dr. Hall‐Ngorima a few times. At a visit in November
2011, she reported that she took two Clonazepam to sleep at night and one during the
day every two to three days, with no noticeable side effects. At her next visit, in February
2012, Stahl stated that she was sleeping better, had no side effects from her medication,
and only took a Clonazepam in the morning if she planned to go out. The doctor found
Stahl to be alert and oriented, with adequate grooming; she concluded that Stahl’s
condition was improving. In support of Stahl’s request for assistance from her town, Dr.
Hall‐Ngorima submitted a form in which she opined that Stahl suffered from severe
social phobia and depression and thus could not work. When Stahl returned in July 2012
for another appointment, Dr. Hall‐Ngorima concluded that her condition was
worsening. On that occasion, though Stahl’s grooming was adequate, Stahl was crying
and sweating and had a fine tremor. Dr. Hall‐Ngorima adjusted her medications.
Stahl also visited Dr. Priya Pillai, a family physician, in November 2011, who
offered her opinion on Stahl’s ability to work. Dr. Pillai believed that Stahl’s physical
limitations were severe, and that she could lift only 5 pounds at a time, stand for less
than an hour in an 8‐hour workday, and sit for less than 2 hours. The medical evidence
in the record does not include any record of treatment that Stahl received from Dr. Pillai.
No. 15‐1273 Page 5
Dr. Towfig Arjmand, a state agency consultant, reviewed Stahl’s file in October
2011, but he did not examine her. On the basis of the paper record he concluded that she
could occasionally lift 20 pounds, frequently lift 10 pounds, stand or walk for 6 hours of
an 8‐hour day, and sit for 6 hours. He specified some limitations: she could never climb
ladders or ropes and should avoid concentrated exposure to hazards such as machinery
and heights. Dr. George Andrews seconded those findings in February 2012, also
without examining her.
Dr. Marva Dawkins conducted a psychiatric review of Stahl’s file in October 2011.
She noted that Stahl suffered from depression, anxiety, and alcohol abuse, and
concluded that Stahl had moderate limitations in daily living activities, social
functioning, and maintaining concentration, persistence, and pace. In completing the
mental RFC assessment, Dr. Dawkins noted that Stahl had moderate limitations in
understanding, remembering, and carrying out detailed instructions, as well as
moderate limitations in her abilities to complete a normal workday without interruption,
to interact with the general public, and to respond to changes. Dr. Dawkins concluded
that Stahl has the mental capacity to do simple, routine tasks for jobs where there are no
strict production quotas, and that she would perform best with minimal contact with the
general public.
Dr. Donna Hudspeth conducted a second psychiatric review in February 2012.
She noted depression and alcohol abuse, moderate difficulties in maintaining
concentration, persistence, or pace, and mild difficulties in daily living and social
functioning. Dr. Hudspeth concluded that Stahl could perform simple one‐ and two‐step
tasks and could communicate with supervisors and fellow employees, but characterized
her as “manipulative” and thought that she should not work with the general public.
B
At the hearing before the administrative law judge in 2012, Stahl testified that she
had diabetes and neuropathy in her hands, legs, and feet. These conditions, she said,
caused severe and limiting pain. She could no longer pick up a child or change a diaper,
nor could she lift or open a gallon of milk. She lies down seven out of eight hours in a
day, and is able each day to stand for only about half an hour and walk for 15–20
minutes. She reported that she is not able either to stand or to use her hands for data
entry for more than one‐third of a workday. Because of her peripheral neuropathy, she
must use a coat with ties and Velcro shoes. She also stated that doctors told her to keep
off her feet and keep them elevated above her head, to limit swelling. She gets
No. 15‐1273 Page 6
nausea‐inducing headaches for a few hours every day and has a head tremor, which at
times has been so severe that it prevented her from completing an eye test. She takes
medications for these conditions, but she experiences substantial side effects from them,
including fatigue, blurry vision, vomiting, weight gain, drowsiness, tremors, and
difficulty concentrating.
Stahl also explained that her activity and interaction with others was very limited.
She said that she was very forgetful and needed to write things down. She leaves the
house once a week to go grocery shopping, which she does with her sister’s assistance.
She described a limited social life: she does not have friends and does not spend time
with others; she gets along with others but feels isolated; but she does go to her sister’s
home for holiday celebrations. She has no hobbies. She feeds the cats and does the
laundry occasionally, but her son does most of the other chores at home. Stahl stated that
she used to drink alcohol, but only at weddings and holidays, but had stopped drinking
in 2009 or 2010, and could not drink presently because of her medications. Stahl told the
judge that, after she became disabled in June 2010, she worked “maybe one day a week”
babysitting her nephew’s sons at night while her nephew was at work, but that her son
was on hand in case anything happened.
Stahl’s sister, Mary Fahy, also testified about Stahl’s limitations. Fahy testified
that she sees Stahl almost every day, that she drives her to the grocery store and to
doctor’s appointments. If Fahy is unavailable, Stahl takes the bus, but only to places she
has been before. Fahy helps Stahl with chores around the house, including putting away
the groceries and doing laundry; she said that Stahl’s son did not help with chores at all.
Fahy characterized her sister as “a recluse” with no friends, who has a “hard time
communicating,” and commented that there are days when Stahl cannot get off the
couch. Fahy also stated that Stahl regularly has neuropathy flare‐ups that cause
significant pain, especially in the winter, and that Stahl frequently needs crutches to get
around.
Based on this testimony and the reports from the physicians, the ALJ asked a
vocational expert (VE) a series of hypothetical questions (varying the assumptions about
physical and mental ability, but holding age, education, and work experience constant).
We list them here by number:
Assumption 1: a person who can perform light work, but lacks the ability
to do detailed work for extended periods, cannot climb ladders, ropes, or
scaffolds, can frequently climb ramps or stairs, but cannot have more than
No. 15‐1273 Page 7
occasional concentrated exposure to hazards, can occasionally interact
with coworkers and the public, and can occasionally set goals and plan
independently. VE response: such a person could perform unskilled light
occupations, such as a ticket taker, a recreation attendant, or a mail clerk.
Assumption 2: same as scenario 1, but also limited to occasional use of her
arms and hands for fine or gross manipulation. VE response: there are no
occupations for someone with those limitations.
Assumption 3: same as scenario 1, but also limited to frequent, though not
continuous, use of the upper extremities for fine or gross manipulation. VE
response: the three occupations mentioned in response to hypothetical one
would be available.
Assumption 4: same as scenario 1, but the person could occasionally
perform tasks requiring fine vision, such as reading. VE response: such a
person could work as a recreation attendant, a ticket taker, or a cafeteria
attendant.
Assumption 5: a person limited to sedentary work (as opposed to light
work in scenario 1), but with the additional limitations discussed in
scenario 1. VE response: this hypothetical person would be able to work as
a sorter, a final assembler, or a hand packager.
Assumption 6: a person unable to leave her home four days a week. VE
response: no occupations would be available.
Assumption 7: someone limited to sitting for two hours and standing or
walking for one hour in each eight‐hour workday, who would also need to
take breaks as needed throughout the day, and could not lift more than
five pounds. VE response: no occupations would be available.
The ALJ applied the required five‐step analysis in her written decision, see
20 C.F.R. §§ 404.1520(a)(4), 416.920(a)(4), and determined (step one) that Stahl had not
engaged in substantial gainful activity since her alleged onset date; (step two) that
Stahl’s major depressive disorder, alcohol abuse, anxiety disorder, diabetes with
neuropathy, and degenerative disc disease were severe impairments; (step three) that
none of these equaled a listed impairment; (step four) that she had the residual
functional capacity to perform light work, but with limitations on lifting, carrying,
climbing, fine or gross manipulation with her hands, exposure to hazards, interactions
with coworkers and the public, and detailed work for extended periods, and that those
limitations prevented her from performing any past relevant work; and (step five) that
she could work as a ticket taker, recreation attendant, or mail clerk (apparently relying
on assumptions 1, 3, or 4).
No. 15‐1273 Page 8
In determining Stahl’s RFC, the ALJ found that Stahl’s testimony about the
severity of her impairments was inconsistent with the medical record. No clinical
findings supported Fahy’s testimony that Stahl needed crutches to walk or Stahl’s claim
that she needed constantly to keep her feet elevated above her body. The ALJ was also
bothered that Stahl had substantial gaps in treatment in 2010 and 2011; she drew the
inference from those gaps that Stahl’s symptoms were not as severe as she portrayed
them. The ALJ thought that Stahl was inconsistent in her reports of side effects from her
medications, sometimes characterizing them as severe and sometimes saying that there
were no such effects. The ALJ also thought it significant that Stahl sometimes stopped
taking her diabetes medication and failed to fill prescriptions from her psychiatrist.
Mental‐health doctors consistently found Stahl to be alert and oriented, and she did not
exhibit overt signs of substance abuse, cognitive difficulty, or visible physical distress.
The ALJ also noted that Stahl’s reports about alcohol consumption did not add up: Stahl
testified that she had stopped consuming alcohol in 2009 and 2010, yet she reported to
doctors in 2011 and 2012 that she drank up to once a week, consuming five or six beers.
The ALJ declined to give any particular weight to the opinions of Dr. Pillai, who
suggested significant physical restrictions on Stahl’s ability to work, or Dr.
Hall‐Ngorima, who concluded that social phobia and depression prevented Stahl from
working at all. Dr. Pillai’s opinion was flawed because she relied too heavily on Stahl’s
self‐reporting and failed to confirm Stahl’s allegations with any clinical findings. The
ALJ thought that Dr. Hall‐Ngorima’s opinion was inconsistent with evidence that Stahl
had improved under her care with minimal treatment and with Stahl’s activities. The
ALJ accorded considerable weight to the opinion of Dr. Karr, the examining
psychologist, who concluded that Stahl did not exhibit overt signs of substance usage,
gross psychopathology, cognitive difficulty or visible physical distress. This
contradicted (the ALJ said) Stahl’s testimony that she had problems with functioning
and memory. The ALJ relied heavily on the opinions of Dr. Arjmand and Dr. Andrews,
the state agency medical consultants, who concluded that she could do light work with
some limitations. The ALJ accorded some weight to the opinions of Dr. Dawkins and
Dr. Hudspeth, the state agency mental health consultants, who found that Stahl could
work with some mental‐health limitations, but the ALJ rejected Dr. Hudspeth’s
conclusion that Stahl should not have any contact with the public.
The district court, acting with the consent of the parties through a magistrate
judge (28 U.S.C. § 636(c)), concluded that substantial evidence supported the ALJ’s
decision. The court concluded that the ALJ’s credibility determination was not patently
No. 15‐1273 Page 9
wrong. It credited the ALJ with comprehensively evaluating Stahl’s credibility and RFC,
and it agreed with the ALJ that there were inconsistencies between Stahl’s testimony and
the medical record. The court found that the ALJ gave good reasons for her decision not
to give controlling weight to the opinions of Stahl’s treating doctors. Last, the court
described the ALJ’s RFC determination as “thorough, thoughtful, and fully grounded in
the medical evidence, including physicians’ opinions and Stahl’s testimony.”
II
On appeal, Stahl argues both that the ALJ’s adverse credibility determination is
based on either trivial or nonexistent inconsistencies, and that her RFC determination is
not supported by substantial evidence. We take these points in turn.
Although the ALJ’s credibility discussion got off to a bad start by using the
boilerplate language we repeatedly have criticized, see, e.g., Bjornson v. Astrue, 671 F.3d
640, 644–45 (7th Cir. 2012), we do not rest our decision on this point. As we have
acknowledged, the use of this unfortunate and circular formula “does not automatically
undermine … the ALJ’s ultimate conclusion if he otherwise points to information that
justifies his credibility determination.” Pepper v. Colvin, 712 F.3d 351, 367–68 (7th Cir.
2013). Here, the single sentence of boilerplate is found within an eight‐page discussion of
the alleged inconsistencies between Stahl’s testimony and the medical evidence in the
record. The ALJ identified several areas in which she believed there were inconsistencies
between the medical evidence and Stahl’s testimony, including Stahl’s varying
admissions about her consumption of alcoholic beverages, the lack of medical evidence
supporting her supposed need for crutches, the question whether she was impaired by
side effects from her medications, gaps of seven months and four months in her
treatment, and her occasional lack of compliance with medical directions. Though Stahl
testified that she was extremely forgetful, mental‐health doctors frequently found her to
be alert, oriented, and without evidence of psychotic features.
Stahl argues that these apparent contradictions are readily explainable. Her
alcohol use played no part in the ALJ’s RFC, and so it does not matter whether she
stopped drinking altogether in 2009 or 2010, or if she stopped her excessive drinking and
reduced her consumption to a socially acceptable five or six beers per week. Although it
appears that no doctor ever prescribed crutches for her, no prescription is necessary;
crutches can be bought by anyone who wants them. Stahl, recall, had no insurance—a
fact that also influenced the frequency of her doctor visits. As for her reports about side
effects, the ALJ never considered the possibility that they varied as her medications were
No. 15‐1273 Page 10
adjusted, or that she saw no benefit in reporting them to the doctors because there was
nothing to be done about the problem. We held in Terry v. Astrue, 580 F.3d 471, 477 (7th
Cir. 2009), that a failure to report side effects to doctors does not, in and of itself,
discredit complaints of “disabling pain.” Id.
It is also troubling that the ALJ drew an adverse inference from Stahl’s failure to
pursue additional testing and treatment for her degenerative disc disease. The ALJ noted
that, according to the medical evidence in the record, hospital staff provided Stahl with
information on obtaining healthcare without insurance during her July 2010 visit to the
emergency room for foot pain. But the ALJ never asked Stahl if her lack of resources
limited her ability to see the doctor in general or for her degenerative disc disease in
particular. See Craft v. Astrue, 539 F.3d 668, 679 (7th Cir. 2008). Given her lack of
insurance, Stahl took the position that she simply had to live with the back pain, which
in itself appears not to have been her most serious problem.
There are also problems with the ALJ’s evaluation of Stahl’s work history and its
relation to the unrebutted testimony about Stahl’s extremely limited daily activities. The
ALJ wrote that Stahl’s testimony about her work in 2010 was “vastly inconsistent” with
the work history that she reported to doctors, but that conclusion finds no support in the
record. Stahl reported to Dr. Hall‐Ngorima that she was operating a daycare center in
her home until 2010, when she lost her “accounting job.” At the hearing before the ALJ,
Stahl testified that in 2010 she babysat her nephew’s children (with the help of her son)
one day a week while the nephew worked at night. There is nothing inconsistent in those
two statements. The information Stahl reported to Dr. Hall‐Ngorima was about her
work before she became disabled in June 2010, while her hearing testimony was about the
work she performed after the onset of her disability—work that was for a family
member, that consumed a small fraction of a work‐week, and that was done with
assistance.
Stahl also contends that the ALJ did not accord sufficient weight to the opinions
of Dr. Pillai, a treating physician, and Dr. Hall‐Ngorima, a treating psychiatrist. These
are secondary points, however. Even if we assume that the ALJ was justified in
discounting Dr. Pillai’s opinion that Stahl could lift only five pounds, stand for one hour
a day, and sit for two hours a day (because it was based only on Stahl’s subjective
responses and was not consistent with the other medical evidence in the record), and Dr.
Hall‐Ngorima’s opinion that Stahl could not work for at least twelve months due to
severe social phobia, these opinions have at most a peripheral bearing on Stahl’s
No. 15‐1273 Page 11
condition. Stahl’s peripheral neuropathy, which was barely mentioned by the ALJ,
required a much harder look.
We conclude that the ALJ’s credibility determination finds no support in the
evidence of record, and that her conclusion that Stahl remains able to perform jobs such
as ticket taker, recreation attendant, or mail clerk in the national or regional economy
fails to take account of all of the evidence. We therefore REVERSE the district court’s
judgment and REMAND this case to the agency for further proceedings. | 01-03-2023 | 12-08-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1441699/ | 278 F.Supp. 908 (1968)
UNITED STATES of America
v.
Christian Maria ROUSSEL aka Abraham Muicey.
Crim. A. No. 67-354.
United States District Court D. Massachusetts.
February 5, 1968.
*909 Paul F. Markham, U. S. Atty., Albert F. Cullen, Jr., Asst. U. S. Atty., Dept. of Justice, Boston, Mass., for the Government.
Karnig Boyajian, Boston, Mass., Courtappointed for defendant.
MEMORANDUM
MURRAY, District Judge.
The indictment here charges that defendant on or about December 11, 1967 fraudulently and knowingly did import and bring into the United States at Boston, Massachusetts, a narcotic drug, namely, heroin, in violation of 21 U.S.C. § 174. The case came on to be heard on defendant's motion to suppress five clear plastic bags or envelopes taken from the defendant supposed to contain heroin. Defendant contends the seizure of the bags and contents violated his rights under the Fourth Amendment to the Federal Constitution. I find the following facts.
1. Defendant arrived on Flight 019 Air France from Paris, France, at Logan Airport, Boston, on December 11, 1967, about 2:47 P.M. After deplaning, he entered the United States Customs area at the airport and proceeded to follow the procedure outlined by customs officials. Shortly after entering the area, he attracted the attention of one Killeen, a customs port investigator in plain clothes, who thought defendant's gait and posture were unusual and kept defendant under observation until he had completed the customs procedure and was about to leave the customs area. Killeen then requested defendant to accompany him to the private search room. While Killeen was observing defendant, he communicated to one Christopher, also a customs port investigator in plain clothes, his suspicions that defendant had something concealed on his body. Thereupon, Christopher observed defendant as he helped defendant retrieve his suitcase from a baggage carousel and as defendant carried the suitcase to and through the baggage inspection line. Christopher also suspected defendant was concealing something on his body under his outer coat. Each of the inspectors noticed an unusual bulge under the back of defendant's outer coat when he inclined his body either in an effort to retrieve his suitcase from the carousel, or in grasping it and carrying it to the baggage inspection line, and also noticed an *910 unusual stiffness in his gait and posture as he walked about the customs area. When Killeen requested defendant to accompany him to the private search room, Christopher went to the inspection area to get defendant's customs declaration.
2. In the search room defendant removed his outer coat, suit jacket and shirt at Killeen's request. It was then revealed that defendant was carrying several plastic bags or envelopes containing a white powdered substance suspended from surgical tape which surrounded and adhered to his upper torso. The bags were at his back. After observing the plastic bags, and being informed by defendant that he wished to talk with someone in French or Spanish, Killeen arranged with his supervisor Gustafson to call the customs agents in Boston. Following that telephone call, customs agent Grant appeared within a half hour.
3. Grant saw defendant sitting in a chair in the search room, with his shirt removed, and the plastic bags containing the white powder hanging from the surgical tape adhering to his body. Grant examined the passport which defendant had handed to Killeen, the customs declaration which Christopher had secured, and other papers taken from defendant in the search room. These included airplane tickets, health certificates, police identification certificate, and a blood group certificate. There was a photograph on the passport and one on the police identification certificate. These appeared to bear strong resemblance to defendant. The passport was issued by the Argentine Republic to one "Abraham Muicey" and the police identification certificate, to "Christian Maria Roussel." The declaration contained no reference to the plastic bags. Grant removed a sample of the powdered substance from one of the bags, subjected the sample to a field test for heroin, and concluded from the results that the substance was in fact heroin. Grant then arrested the defendant for unlawful importation of heroin.
Upon the basis of the foregoing findings, the question is whether the bags and contents should be excluded from evidence at the trial of the indictment on the grounds that seizure of them violated Fourth Amendment standards as to reasonableness of the search. Defendant contends the seizure here was unreasonable and cannot be justified because (a) the search took place before the arrest, (b) there was no probable cause to arrest defendant at the time he was searched, and (c) the conduct of the customs agents at the time of the search must be judged as if it were the ordinary case of a search conducted by police officers. The United States counters the defendant's contention by asserting that all that need be shown in this case is that there were suspicious circumstances involving defendant which justified the search by customs inspectors for purposes of customs laws enforcement. The assertion is also made that this case falls within the exception to the ordinary rule that a search without a warrant must be adjudged unreasonable unless it is shown to be incidental to an arrest made upon probable cause.
I find that the customs inspectors and agent were acting in the course of their duties under 19 U.S.C. §§ 482, 1581, and 19 C.F.R. § 23.1(d) (1967)[1], in conducting the search and seizing the plastic bags and their contents. Section 482, in its pertinent parts, provides that
"Any of the officers or persons authorized to board or search vessels may stop, search, and examine, as well without as within their respective districts, any * * * person, on * * * whom he or they shall suspect there is merchandise which is subject to duty, or shall have been introduced into the United States in any manner contrary to law, * * * and to search any *911 * * * envelope, wherever found, in which he may have a reasonable cause to suspect there is merchandise which was imported contrary to law; and if any such officer or other person so authorized shall find any merchandise on or about any such * * * person, or in any such * * * envelope, which he shall have reasonable cause to believe is subject to duty, or to have been unlawfully introduced into the United States, whether by the person in possession or charge, * * * or otherwise, he shall seize and secure the same for trial."
Killeen and Christopher reasonably suspected that defendant was concealing on his body some object or material which he did not intend to exhibit to customs officials. Their suspicions were strengthened when examination of the customs declaration disclosed no reference to things or objects other than the handbag and suitcase which defendant carried openly in plain view. Killeen was acting to enforce the customs laws when he requested defendant to accompany him to the private search room. Not knowing whether defendant had anything concealed on his body Killeen concluded that only a search of defendant would establish whether defendant was in fact attempting to bring property into the United States unlawfully. Defendant partially disrobed himself, not voluntarily, but faced with the coercive circumstances of a request made by a customs official apparently vested with governmental authority. Killeen used no force against defendant to accomplish the disrobing, nor did he, in the privacy of the search room, subject defendant to any indignities. Indeed, no charges against Killeen or Christopher, or any other customs agent, are made on that score. Inasmuch as the powdered substance could not be identified by visual inspection, Grant took appropriate means to discover what it was by puncturing one of the plastic bags and removing part of the contents. Grant was satisfied that defendant had brought heroin into the United States in violation of the laws thereof. The arrest of the defendant which followed thereupon was incidental to the search made of him in the enforcement of the customs laws. It is the burden of the Government to establish the legality of the search and seizure. I rule that the search was reasonable and the seizure of the plastic bags and contents was lawful.
The authority of customs officers to search persons in the course of their duties under 19 U.S.C. §§ 482, 1581, for contraband property unlawfully imported or brought into the United States, is limited by the proscription against "unreasonable" searches of the Fourth Amendment. A constitutionally valid search by customs officers of a person entering the United States from a foreign country stands, however, upon a different footing than searches generally. "Judicial recognition of this distinction has given rise to the term `border search', in order to distinguish official searches which are reasonable because made solely in the enforcement of Customs laws from other official searches made in connection with general law enforcement. Validity for this distinction is found in the fact that the primordial purpose of a search by Customs officers is not to apprehend persons, but to seize contraband property unlawfully imported or brought into the United States." Alexander v. United States, 362 F.2d 379, 381-382 (9th Cir. 1966), cert. denied, 385 U.S. 977, 87 S.Ct. 519, 17 L.Ed.2d 439 (1966). Accord, Boyd v. United States, 116 U.S. 616, 6 S.Ct. 524, 29 L.Ed. 746 (1886); Morales v. United States, 378 F.2d 187 (5th Cir. 1967); Murgia v. United States, 285 F. 2d 14 (9th Cir. 1960), cert. denied, 366 U.S. 977, 81 S.Ct. 1946, 6 L.Ed.2d 1265 (1961); King v. United States, 258 F.2d 754 (5th Cir. 1958), cert. denied, 359 U.S. 939, 79 S.Ct. 652, 3 L.Ed.2d 639 (1959). It is not a prerequisite to a border search that the customs officers have probable cause to believe the person searched is committing a crime. Carroll v. United States, 267 U.S. 132, 45 S.Ct. 280, 69 L.Ed. 543 (1925). Mere suspicion alone that contraband property is *912 being brought into the United States is sufficient to justify a border search for the purpose of enforcing the customs laws. Cervantes v. United States, 263 F.2d 800 (9th Cir. 1959). That defendant was required to disrobe partially so that the customs officials could determine whether he was carrying property concealed on his person was not an unreasonable request, and did not invalidate the search. Witt v. United States, 287 F.2d 389 (9th Cir. 1961), cert. denied, 366 U.S. 950, 81 S.Ct. 1904, 6 L.Ed. 2d 1242 (1961). Compare Schmerber v. California, 384 U.S. 757, 86 S.Ct. 1826, 16 L.Ed.2d 908 (1966). In the instant case the conduct of the customs officers in relation to the defendant all took place within the ambit of the customs area. Accordingly, there is no merit to the defendant's contention that the time, place and circumstances of the search require a finding that the search was unreasonable as it was not incidental to an arrest upon probable cause. See Cervantes v. United States, supra.
The motion to suppress is denied.
NOTES
[1] 19 C.F.R. § 23.1(d) (1967). "A customs officer * * * may stop, search, and examine any * * * person within the limits of the United States * * * on whom he may have reasonable cause to believe there is merchandise subject to duty or which has been introduced into the United States contrary to law." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3512491/ | 1 Reported in 237 N.W. 22.
The involved claim of Werner Noser, Jr. against the estate of his mother, Babetha Noser, deceased, was disallowed in the probate court of Goodhue county. On claimant's appeal to the district court pleadings were framed and a trial had resulting in a verdict for claimant. The administrator appeals from the order denying his alternative motion for judgment or a new trial.
The claim is upon an alleged contract, implied as of fact, for services rendered by claimant as a laborer on the farm of his mother from 1911 to 1917. The mother departed this life in 1928. The answer of the administrator pleaded the general issue and the statute of limitations, asserting that the cause of action, if any, had not accrued within six years before the filing of the claim. That plea was good, unless claimant could establish something which tolled the statute or that the maturity of his claim was so postponed as to bring it within the six-year period. No effort was made in the former direction, and such as there was to show a deferred maturity failed.
There is testimony that sometime during the year preceding that of her decease Babetha Noser had stated "that she would pay Werner for his labor." The same witness, amplifying his testimony under the stimulus of cross-examination, said the deceased had told him "that she had to pay Werner some money, now then this spring," of 1927. That does not even tend to show that the claim upon which payment was intended was to mature that spring. There is nothing justifying such an inference, at least to the exclusion of *Page 467
the equally probable one that the debt was long past due. At best, the evidence left in the realm of conjecture this essential element of claimant's case. Hence the verdict for him cannot stand. There must be ground for reasonable inference rather than mere conjecture to support a finding for the affirmative of such an issue. Krell v. Robinson, 173 Minn. 483,217 N.W. 596; Robertson v. C. R.I. P. Ry. Co. 177 Minn. 303,225 N.W. 160.
There is no other evidence aiding claimant at this point. So we must hold that the verdict, finding for him on the issue of the statute of limitations, has no evidence in its support. In consequence it was error not to grant a new trial.
Defendant moved for directed verdict upon the ground "that the claim of the appellant is barred" by the statute of limitations. That motion should have been granted, and I think that the case should be remanded with directions for the entry of judgment for appellant notwithstanding the verdict. But my brethren all feel that there should be an opportunity for a new trial.
The order appealed from is reversed. | 01-03-2023 | 07-05-2016 |
https://www.courtlistener.com/api/rest/v3/opinions/2472777/ | 777 F. Supp. 2d 44 (2011)
SIERRA CLUB, Plaintiff,
v.
UNITED STATES DEPARTMENT OF AGRICULTURE, Rural Utilities Service, et al., Defendants, and
Sunflower Electric Power Corporation, Defendant-Intervenor.
Civ. Action No. 07-01860(EGS).
United States District Court, District of Columbia.
March 29, 2011.
*46 David S. Baron, Earthjustice, Washington, DC, Amanda W. Goodin, Jan Hasselman, Earthjustice Legal Defense Fund, Seattle, WA, for Plaintiff.
Alison D. Garner, Julie S. Thrower, U.S. Department of Justice, Washington, DC, for Defendants.
Sharon M. Mattox, Vinson & Elkins, L.L.P., Houston, TX, for Defendant-Intervenor.
MEMORANDUM OPINION
EMMET G. SULLIVAN, District Judge.
Plaintiff Sierra Club filed this action on October 16, 2007, alleging that the Department of Agriculture's Rural Utilities Service and certain officials in the Department of Agriculture (collectively, "the federal defendants") violated the National Environmental Policy Act of 1969 by failing to produce an environmental impact statement in connection with its involvement in the expansion of Sunflower Electric Power Corporation's ("Sunflower") coal-fired generating plant in Holcomb, Kansas. Sunflower has intervened as a defendant. Pending before the Court are Sunflower's motion to dismiss the complaint as moot, plaintiff's motion for summary judgment (consolidated with its motion for a preliminary injunction pursuant to Federal Rule of Civil Procedure 65(a)(2)), the federal defendants' cross-motion for summary judgment, and Sunflower's cross-motion for summary judgment.
*47 Upon consideration of the motions, the responses and replies thereto, the applicable law, the entire record, and for the reasons set forth below, Sunflower's motion to dismiss the complaint as moot is DENIED, plaintiff's motion for summary judgment is GRANTED, the federal defendants' cross-motion for summary judgment is DENIED, and Sunflower's cross-motion for summary judgment is DENIED.
I. BACKGROUND
Briefly stated, plaintiff maintains that the Rural Utilities Service ("RUS") should have performed an environmental impact statement ("EIS") in conjunction with RUS's involvement in the project to expand a power plant facility. As is discussed in more detail below, the National Environmental Policy Act ("NEPA") requires federal agencies to include an EIS "in every recommendation or report on proposals for legislation and other major Federal actions significantly affecting the quality of the human environment[.]" 42 U.S.C. § 4332.
The Rural Electrification Act of 1936 gives the Secretary of Agriculture authority, which has been delegated to RUS, to "make loans in the several States and Territories of the United States for rural electrification and for the purpose of furnishing and improving electric and telephone service in rural areas, . . . and for the purpose of assisting electric borrowers to implement demand side management, energy efficiency and conservation programs, and on-grid and off-grid renewable energy systems." 7 U.S.C. § 902(a). The Rural Electrification Act further authorizes RUS to make loans for rural electrification to corporations organized "for the purpose of financing the construction and operation of generating plants, electric transmission and distribution lines or systems for the furnishing and improving of electric service to persons in rural areas[.]" 7 U.S.C. § 904(a). (RUS's predecessor was the Rural Electrification Administration ("REA").)
According to plaintiff, RUS's involvement in the expansion of the Holcomb power plant in connection with certain loans and loan guarantees to Sunflower, amounted to a "major federal action" within the meaning of NEPA such that an EIS was required. In particular, plaintiff argues that RUS's approvals relating to the expansion of the power plant, as well as the financial assistance provided by RUS, in the form of debt forgiveness and consent to a lien subordination, qualified RUS's involvement as a major federal action.
A. 1980 Approval of Loan and Loan Guarantee
In 1980, after preparing an EIS, the REA approved a loan and loan guarantees to Sunflower Electric Cooperative, Inc. ("Old Sunflower") The loan and loan guarantees, totaling approximately $543 million, were provided to Old Sunflower for the construction of a coal-fired generating station ("Holcomb Unit 1") to be located near Holcomb, Kansas. Administrative Record ("AR") 03866.
B. 1987 Restructuring and Issuance of Promissory Notes
Soon after the construction of Holcomb Unit 1, Old Sunflower became unable to meet its debt repayment obligations to REA and other creditors. AR 04546. Accordingly, in 1987 Old Sunflower entered into an agreement, the 1987 Debt Restructure Override Agreement and Amended and Restated Credit Agreement (the "1987 DRA"), with REA and its other creditors to restructure its debt. AR 03871-3975. Under the 1987 DRA, Old Sunflower issued three classes of promissory notes, referred to as the A Notes, B Notes, and C *48 Notes. AR 00149. REA's share of the principal balance on the A Notes was $294.5 million; on the B Notes it was $98.3 million; on the C Notes it was $61.4 million. Fed. Defs.' Statement of Facts Supp. Cross-Mot. Summ. J. ("Fed. Defs.' Statement of Facts") ¶¶ 5-7. The A Notes required regularly scheduled payments, but payment on the B Notes was required only when Old Sunflower had excess cash, as defined by the 1987 DRA. AR 00168-169. Each year, any unpaid interest on the B Notes was capitalized and added to the outstanding principal balance. As for the C Notes, payments were to begin only after the B Notes were fully repaid, and any remaining balance on the C Notes would expire in December 2019. AR 00169. Furthermore, in order to secure the notes it issued under the 1987 DRA, Sunflower granted a lien to REA and its other secured creditors on substantially all of its assets. AR 00276.
C. The 2002 Corporate and Debt Restructuring
After the 1987 restructuring, Old Sunflower was able to remain current on the A Notes, but it made no payments on the B Notes or C Notes. Because the interest was capitalized on the B Notes, the principal owed to RUS on these notes had increased from the $98.3 million owed in 1987 to $413.9 million in 2002. Because Old Sunflower was at risk of defaulting, Old Sunflower and its creditors elected to negotiate another restructuring. AR 00004-11.
The 2002 corporate and debt restructuring (the "2002 Restructuring") divided Old Sunflower's assets between two new corporations, Sunflower Electric Power Corporation ("New Sunflower" or "Sunflower") and the Holcomb Common Facilities ("HCF"). New Sunflower, the defendant-intervenor in this action, purchased Old Sunflower's assets with certain exceptions. AR 00216-247.[1] In particular, New Sunflower did not purchase a segment of land on the Holcomb site that the parties recognized could be used by a potential additional generating facility ("Holcomb Unit 2"). In addition to this land footprint that could be used by a second generating unit, New Sunflower also did not purchase certain "Common Facilities" such as coal handling and storage facilities, a solid waste landfill, and a sewage treatment plant. The Common Facilities support the operation of Holcomb Unit 1, but they could also support the operation of additional generating units. These leftover assets not purchased by New Sunflower, namely the land footprint for a potential Holcomb Unit 2 and the Common Facilities, were acquired by HCF. HCF is a wholly owned subsidiary of Old Sunflower.
Significantly for purposes of the instant action, New Sunflower purchased Old Sunflower's assets by issuing an entirely new set of notes to the holders of the old A, B and C Notes discussed above. AR 00173-175. The new classes of notes issued to RUS can be categorized as the new A Notes, the new B notes, the Residual Value Notes, and the Holcomb 3 Notes. New Sunflower's payments on the new A Notes, identical in amount to the old A Notes, were credited against Old Sunflower's A Notes. AR 00173. The new A Notes have since been paid in full.
With respect to the remaining classes of new notes, including new B Notes, the Residual Value Notes, as well as the Holcomb 3 Notes, any payments made by Sunflower are all credited against Old Sunflower's debt under the old B Notes. AR 00174. However, the monetary value of the old B Notes issued pursuant to the 1987 DRA was substantially different than the value of these new notes. The new B *49 Notes are non-interest bearing notes with a fixed payment schedule, issued in the total amount of $88.4 million. (However, for every payment that Sunflower makes on time on the new B Notes, the principal balance is reduced such that if Sunflower makes all its payments in a timely fashion, it will only pay a total of $44.2 million. AR 00174.) On the Residual Value Notes, New Sunflower is not required to make any regularly scheduled payments. Instead, the Residual Value Notes are redeemable in December 2016 for the greater of either $125 million or 43% of the fair market value of Holcomb Unit 1. AR 00175. Finally, the Holcomb 3 Notes issued by Sunflower are interest-bearing notes, but they are payable only if and when Sunflower builds or becomes the operator of a third generating plant at the Holcomb Site. AR 00175. RUS's share of the Holcomb 3 Notes was $1.8 million. If a third plant is not built or operated by Sunflower by December 2021, the Holcomb 3 notes are cancelled. AR 00175.
Unlike New Sunflower, HCF (the other new entity formed in conjunction with the 2002 Restructuring) did not issue new promissory notes. Instead, for the purchase of the Holcomb Unit 2 land footprint and the Common Facilities, RUS and the other creditors received a security interest in HCF and an assignment of annual rent payments from the use of the Holcomb Unit 2 site and Common Facilities. AR 00190.
The 2002 Restructuring also affected the lien held by RUS on Old Sunflower's assets. As mentioned above, prior to the 2002 Restructuring, RUS held a first priority lien on the Holcomb site. RUS has not yet released this lien. However, pursuant to the 2002 Restructuring, RUS agreed that it will, in the future, release the portion of its lien covering the Holcomb Unit 2 site and the Common Facilities, if and when the Holcomb Unit 2 generating plant is developed. In exchange, Sunflower agreed to grant to RUS a security interest in the rent paid for the use of the Common Facilities and the Holcomb Unit 2 site.[2]
Old Sunflower, RUS, and other creditors executed an Agreement and Consent to Sunflower Restructuring on September 30, 2002. AR 00216-247. In connection with the 2002 Restructuring, in particular as outlined in the amended loan contract and mortgage agreement, Sunflower also agreed to obtain approval from RUS before undertaking a variety of activities or entering certain types of contracts. Among others, Sunflower agreed: (i) that it would not "enter into any agreement or other arrangements . . . for the development of Holcomb Unit 2 without the prior written approval of RUS" and "[a]ny RUS approval will be on such terms and conditions as RUS, in its sole discretion, may require at such time" (AR 04391); (ii) that it would not "enter into any agreement or arrangement . . . for Holcomb Site Development. . . or for other use of the Holcomb Unit 1 site, the fair market value of which would exceed $1 million annually[,] without the prior written approval of RUS" and "[a]ny RUS approval will be on such terms and conditions as RUS, in its sole discretion, may require at such time" (AR 04391); (iii) that it will not "[c]onstruct, make, lease, purchase or otherwise acquire any extensions or additions to its system or enter into any contract therefore" without the prior written approval of RUS (AR 04389); (iv) that it will not "[p]urchase, lease or otherwise acquire any parcel or parcels of land or enter into any contract therefore" without the prior written approval of RUS (AR 04389); (v) that it will not enter into any contracts or arrangements regarding power purchase *50 or sale arrangements, power supply and delivery arrangements, power marketing contracts, system management and maintenance contracts, or any contracts relating to financial products such as options, futures or hedges without the prior written approval of RUS (AR 04389-04390); (vi) that it would not "charge, assign, pledge, mortgage or otherwise encumber any of its property" without prior written approval from RUS (AR 04459); and (vii) Sunflower agreed to limitations on mergers, sale of its business or assets, leases and transfers of its capital assets in the absence of prior approval from RUS (AR 04467-04468).
D. The 2007 Agreements
Since the 2002 Restructuring, Sunflower has sought approval from RUS on a number of occasions in accordance with the conditions outlined above. Most relevant to this action, on several occasions Sunflower sought approvals relating to the development of new generating plants at the Holcomb Unit 2 site. As noted above, the 2002 Debt Restructuring agreements required Sunflower to seek approval from RUS before "enter[ing] into any agreement or other arrangements . . . for the development of Holcomb Unit 2 without the prior written approval of RUS." AR 04391.[3]
In October of 2005, RUS granted conditional approval of Sunflower's execution of a Memorandum of Agreement ("MOA") with Tri-State Generation and Transmission Association, Inc. ("Tri-State") regarding the proposed development of two new generating units at the Holcomb site. AR 04574. Subsequently, in September of 2006, RUS granted conditional approval for Sunflower to enter into a Purchase Option and Development Agreement ("PODA") with Tri-State, as well as various other related agreements, again for the proposed development of two new generating units at the Holcomb site. AR 04610-4611.
As a condition of its approval of all of these agreements, RUS initially demanded that Sunflower deposit all funds it received pursuant to the agreements into an escrow account until "RUS and Sunflower have reached a definitive agreement on the amount of additional consideration due to RUS for Holcomb Site Development." AR 04574; AR 004610. Because Sunflower objected to the use of an escrow account in its dealings with Tri-State, further negotiations between RUS and Sunflower took place in early 2007. Ultimately, RUS agreed that the funds could be placed in a "Development Account" rather than an escrow account. Accordingly, in a July 26, 2007 letter, RUS approved Sunflower's execution of an updated PODA with Tri-State and several related agreements. AR 07444. In addition to the development of Holcomb Unit 2, the agreements provided for the potential construction of a Holcomb Unit 3 and a Holcomb Unit 4.
In addition, also on July 26, 2007, RUS also provided Sunflower with a separate letter, referred to by the parties as the "Additional Consideration Letter." AR XXXXX-XXXX. As mentioned above, in connection with the 2002 Restructuring, RUS and the other creditors had received a security interest in HCF and an assignment of annual rent payments for the use of the Holcomb Unit 2 site and Common Facilities. However, the terms of the Additional Consideration Letter modified this arrangement. Instead, for each additional power plant being considered for the Holcomb site, RUS received yet another set of promissory notes. With respect to Holcomb *51 Unit 2, Sunflower issued promissory notes (the "2007 Holcomb 2 Notes") in the amount of $52 million; with respect to the 2007 Holcomb 3 Notes, the amount was $23 million; and with respect to the 2007 Holcomb 4 Notes, the amount was $16 million. AR 08228, 08239, 08244. These notes are interest bearing, but payment is due only if and when the respective generating unit is placed into commercial operation. Furthermore, each of these 2007 promissory notes, totaling $91 million, will be cancelled on December 31, 2021 if the respective generating unit has not been placed into commercial operation.
II. Mootness
As a threshold matter, the Court must consider Sunflower's motion to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(1), on the ground that the Court lacks subject-matter jurisdiction because plaintiff's Amended Complaint is moot.[4] As discussed in more detail below, the Court concludes that, because Sunflower has failed to demonstrate that no effective relief is available, the case is not moot.
A. Legal Framework
The purpose of the mootness doctrine is to "ensure[] that federal courts only decide ongoing cases and controversies." Cody v. Cox, 509 F.3d 606, 608 (D.C.Cir.2007) (citing Clarke v. United States, 915 F.2d 699, 700-701 (D.C.Cir.1990)). "A case is moot when `the challenged conduct ceases such that there is no reasonable expectation that the wrong will be repeated' in circumstances where `it becomes impossible for the court to grant any effectual relief whatever to the prevailing party.'" United States v. Philip Morris USA, Inc., 566 F.3d 1095, 1135 (D.C.Cir.2009) (quoting City of Erie v. Pap's A.M., 529 U.S. 277, 287, 120 S. Ct. 1382, 146 L. Ed. 2d 265 (2000)); see also Lemon v. Geren, 514 F.3d 1312, 1315 (D.C.Cir.2008) ("A case becomes moot when `intervening events make it impossible to grant the prevailing party effective relief.'") (quoting Burlington N. R.R. Co. v. Surface Transp. Bd., 75 F.3d 685, 688 (D.C.Cir.1996)). "The burden of demonstrating mootness is a heavy one." Daingerfield Island Protective Soc'y v. Lujan, 920 F.2d 32, 35 (D.C.Cir.1990) (quoting Cnty. of Los Angeles v. Davis, 440 U.S. 625, 631, 99 S. Ct. 1379, 59 L. Ed. 2d 642 (1979)). "[E]ven the availability of a partial remedy is sufficient to prevent a case from being moot." Byrd v. EPA, 174 F.3d 239, 244 (D.C.Cir.1999) (quoting Calderon v. Moore, 518 U.S. 149, 150, 116 S. Ct. 2066, 135 L. Ed. 2d 453 (1996)); see also FTC v. Whole Foods Market, Inc., 548 F.3d 1028, 1034 (D.C.Cir.2008).
Sunflower argues that plaintiff's claims are constitutionally moot for two reasons. First, Sunflower argues that the transactions and approvals at issue, namely the 2002 Restructuring and the 2007 approvals, have been completed and are therefore no longer subject to judicial review. Second, Sunflower argues that no effective relief is available to plaintiff to address RUS's completed approvals. Each of these arguments is addressed below in turn.
*52 B. Judicial Review of Completed Transactions and Approvals
Sunflower first argues that, because the transactions and approvals at issue in this case have already been completed by RUS, plaintiff's claims are no longer subject to judicial review and are therefore moot.[5] This analysis misstates the applicable standard. In fact, contrary to Sunflower's assertion, this Circuit has held that effective relief is available to plaintiffs, under certain circumstances, when NEPA has been violated even if the transaction at issue has been completed. For example, in Lemon, the court concluded that the case was not moot despite the fact that the land transfer at issue had already been completed because "[i]f unraveling the transfer is necessary after the district court decides the merits, it will be within the court's power to do so." 514 F.3d at 1316;[6]see also Muckleshoot Indian Tribe v. Forest Serv., 177 F.3d 800, 815 (9th Cir.1999) (rejecting mootness argument despite completion of property transfer because "[c]onveyance of a property to another does not moot a case").[7]
C. Availability of Effective Relief
Second, Sunflower argues that effective relief is not available to plaintiff, (i) because NEPA is a procedural statute with no ability to provide retroactive relief, and (ii) because RUS has no authority to impose ongoing environmental mitigation measures on Sunflower in a manner that would offer prospective relief to plaintiff.
Sunflower's argument that NEPA is a procedural statute with no ability to provide retroactive relief, has been contradicted by this Circuit. See, e.g., Lemon, 514 F.3d at 1315. Sunflower is correct that NEPA guarantees a process, rather than a particular result. See, e.g., DOT v. Public Citizen, 541 U.S. 752, 756-757, 124 S. Ct. 2204, 159 L. Ed. 2d 60 (2004) ("NEPA itself does not mandate particular results. . . . Rather, NEPA imposes only procedural *53 requirements on federal agencies with a particular focus on requiring agencies to undertake analyses of the environmental impact of their proposals and actions.") (internal quotation marks omitted). Such a conclusion does not, however, preclude the availability of retroactive relief when the federal agency has failed to provide that process in accordance with NEPA.[8] This Circuit has, for example, enjoined a construction project when the approval process associated with that construction process failed to comply with NEPA. In Realty Income Trust v. Eckerd, 564 F.2d 447 (D.C.Cir.1977), the court held that:
Ordinarily when an action is being undertaken in violation of NEPA, there is a presumption that injunctive relief should be granted against continuation of the action until the agency brings itself into compliance. The fact that the present project is currently under construction by no means insulates it from the equity power of a court: The substantial additional costs which would be caused by court-ordered delay may well be justified by the compelling public interest in the enforcement of NEPA.
Id. at 456 (internal quotation marks omitted).
Sunflower's remaining argument is that RUS lacks the authority to impose ongoing environmental mitigation measures on Sunflower and, therefore, there can be no effective relief for plaintiff.[9] In particular, Sunflower argues that RUS has "no statutory or regulatory authority to modify its past approvals in an environmentally mitigating manner" and, furthermore, that "none of the contracts between RUS and Sunflower provide RUS ongoing environmental mitigation authority over Sunflower." Sunflower Mot. to Dismiss at 21, 22.
Sunflower is correct that the ability of a court to grant effective relief in the context of a NEPA action involving a non-federal party can depend on whether the agency has maintained authority to impose mitigation measures. Karst Envtl. Educ. & Prot., Inc. v. EPA, 475 F.3d 1291, 1298-1299 (D.C.Cir.2007) (plaintiff's claims against one of the federal agency defendants were moot because the plaintiff failed to allege that the federal agency had authority to impose mitigation measures upon the [non-federal party]). Here, however, plaintiff has sufficiently alleged that RUS has maintained authority over Sunflower. The authority of a federal agency to impose mitigation measures need not be a statutory authority; a contractual agreement may also create the authority. See Karst, 475 F.3d at 1298 ("if [the federal agency] actually has authoritywhether *54 by statute, regulation, contract, or otherwiseto impose mitigation measures upon [the non-federal party], [plaintiff's] claim might well remain justiciable.") (citing Vieux Carre Prop. Owners, Residents, & Assocs. v. Brown, 948 F.2d 1436, 1446 (5th Cir.1991)).
The Amended Complaint cites to the terms of the loan contract signed as part of the 2002 Debt Restructuring which require, in part, that Sunflower seek approval from RUS before it "enter[s] into any agreement or other arrangements . . . for the development of Holcomb Unit 2 without the prior written approval of RUS." AR 04391. Plaintiff has also alleged that "the parties contemplate that RUS will provide lien releases and/or subordinations, and authorizations for releases of funds from the Holcomb Development Account in the future. Further, Sunflower is to operate all of the new coal-fired electric generating units, and RUS's extensive control over Sunflower's business will remain in place at least until such time as all loans to the United States are repaid." Am. Compl. ¶ 137. Therefore, the Court finds plaintiff has also adequately alleged that RUS maintains the same level of authority over Sunflower as existed in 2007 when it granted the approvals challenged by plaintiff.
The Court concludes that, while fashioning a remedy may be difficult under the complicated circumstances that exist in the instant action, the practical difficulties identified by Sunflower both with respect to prospective and retroactive relief "are more appropriately considered when weighing the equities of any particular remedy." Tinoqui-Chalola Council v. Dep't of Energy, 232 F.3d 1300, 1305 (9th Cir.2000). Accordingly, Sunflower's motion to dismiss the action as moot is hereby DENIED.
III. Plaintiff's Claims Under NEPA
A. Legal Standards
i. Administrative Procedure Act
Under the Administrative Procedure Act ("APA"), a reviewing court may set aside agency actions, findings or conclusions that are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). Courts thus typically review an agency action to determine whether the agency has "relied upon factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise." Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins., 463 U.S. 29, 42, 103 S. Ct. 2856, 77 L. Ed. 2d 443 (1983). However, a federal agency's determination that NEPA is wholly inapplicable to its actions, as defendants argue in the instant case, is "`not entitled to the deference that courts must accord to an agency's interpretation of its governing statute' and is instead `a question of law, subject to de novo review.'" Mineral Policy Ctr. v. Norton, 292 F. Supp. 2d 30, 54-55 (D.D.C.2003) (quoting Citizens Against Rails-to-Trails v. Surface Transp. Bd., 267 F.3d 1144, 1150-51 (D.C.Cir.2001)).
ii. National Environmental Policy Act
In enacting NEPA, Congress "recogniz[ed] the profound impact of man's activity on the interrelations of all components of the natural environment, particularly the profound influences of population growth, high-density urbanization, industrial expansion, resource exploitation, and new and expanding technological advances[.]" 42 U.S.C. § 4331. The goals of NEPA reflect "the continuing policy of the *55 Federal Government, in cooperation with State and local governments, and other concerned public and private organizations, to use all practicable means and measures, including financial and technical assistance, in a manner calculated to foster and promote the general welfare, to create and maintain conditions under which man and nature can exist in productive harmony, and fulfill the social, economic, and other requirements of present and future generations of Americans." Id. "Two fundamental principles underlie NEPA's requirements: federal agencies have the responsibility to consider the environmental effects of major actions significantly affecting [the] environment, and the public has the right to review that consideration." Found, on Econ. Trends v. Heckler, 756 F.2d 143, 147 (D.C.Cir.1985) (citing Bait. Gas & Elec. Co. v. Natural Res. Def. Council, Inc., 462 U.S. 87, 103 S. Ct. 2246, 76 L. Ed. 2d 437 (1983)).
NEPA requires federal agencies to prepare an environmental impact statement ("EIS") under certain circumstances. In particular, NEPA mandates that:
[A]ll agencies of the Federal Government shall . . . include in every recommendation or report on proposals for legislation and other major Federal actions significantly affecting the quality of the human environment, a detailed statement by the responsible official on (i) the environmental impact of the proposed action, (ii) any adverse environmental effects which cannot be avoided should the proposal be implemented, (iii) alternatives to the proposed action, (iv) the relationship between local short-term uses of man's environment and the maintenance and enhancement of long-term productivity, and (v) any irreversible and irretrievable commitments of resources which would be involved in the proposed action should it be implemented.
42 U.S.C. § 4332.
Although the REA prepared an EIS before approving the original loan and loan guarantees to Old Sunflower in 1980, it is the defendants' position that NEPA does not apply to the agency's subsequent involvement in Sunflower. Accordingly, no EIS was prepared in connection with any of RUS' actions related to the Holcomb Expansion Project. Plaintiff claims that the federal defendants violated NEPA by failing to do so.
In response to plaintiff's assertion that NEPA applies, Sunflower and the federal defendants have made several arguments. First, Sunflower argues that there has never been a "proposal" within the meaning of § 4332 and, therefore, the statute does not apply. Second, the defendants argue that RUS has not taken a "major federal action" within the meaning of § 4332 and the accompanying regulations. Third, Sunflower argues that RUS was contractually prohibited from imposing environmental standards as a condition of its approvals. Fourth, Sunflower argues that RUS lacked the requisite discretion to impose environmental conditions. Finally, the defendants argue that RUS regulation 7 C.F.R. § 1794.3 exempts its actions related to the Holcomb Expansion Project from NEPA.
For the reasons discussed below, the Court agrees with the plaintiff that NEPA does apply to RUS's actions in connection with both the 2002 Restructuring, as well as the approvals granted in 2007.
B. Whether a "Proposal" Occurred Sufficient to Trigger NEPA Requirements
In its cross-motion for summary judgment, Sunflower first argues that no EIS was necessary in connection with the *56 Holcomb Expansion Project because NEPA requires an EIS only when an agency has made "proposals for legislation and other major Federal actions significantly affecting the quality of the human environment[.]" 42 U.S.C. § 4332. According to Sunflower, no "proposal" was ever made.
The Council on Environmental Quality ("CEQ"), established by NEPA and charged with "formulat[ing] and recommend[ing] national policies to promote the improvement of the quality of the environment," 42 U.S.C. § 4342, has promulgated a regulation explaining the "proposal" requirement in § 4332. It states:
`Proposal' exists at that stage in the development of an action when an agency subject to the Act has a goal and is actively preparing to make a decision on one or more alternative means of accomplishing that goal and the effects can be meaningfully evaluated. Preparation of an environmental impact statement on a proposal should be timed . . . so that the final statement may be completed in time for the statement to be included in any recommendation or report on the proposal. A proposal may exist in fact as well as by agency declaration that one exists.
40 C.F.R § 1508.23.
Sunflower, relying heavily on the Supreme Court's decision in Kleppe v. Sierra Club, 427 U.S. 390, 96 S. Ct. 2718, 49 L. Ed. 2d 576 (1976), asserts that "[f]or the `proposal' element to be satisfied, a `coherent plan' must exist, and it must be `specific.'" Sunflower Opp'n Summ. J. at 5-6 (citing Kleppe, 427 U.S. at 401 n. 12, 96 S. Ct. 2718). According to Sunflower, no specific plans yet exist with respect to the Holcomb Expansion Project, such as the exact number and size of potential new generating units, and an EIS is therefore not yet required.
The Court does not find Sunflower's reliance on Kleppe persuasive. In Kleppe plaintiffs sought a "comprehensive environmental impact statement under [NEPA] on the entire [Northern Great Plains Region]" in connection with various coal-related operations. Kleppe, 427 U.S. at 395, 96 S. Ct. 2718. However, the Kleppe court concluded that "there is no evidence in the record of an action or a proposal for an action of regional scope," Id. at 400, 96 S. Ct. 2718 (emphasis added). Instead, all of the proposals were "for actions of either local or national scope." Id. at 399, 96 S. Ct. 2718. Although the court in Kleppe concluded that no proposal for a regional plan existed, the court nonetheless stated that for "both an individual coal-related action and the new national coal-leasing program, an agency deals with specific action of known dimensions. With appropriate allowances for the inexactness of all predictive ventures, the agency can analyze the environmental consequences and describe alternatives as envisioned by [NEPA]." Id. at 402 n. 14, 96 S. Ct. 2718.
In contrast to Kleppe, there is a sufficiently defined proposal in the instant case. As plaintiff points out, the major federal action taken by RUS is not the Holcomb Expansion Project itself; rather, the major federal action at issue is the agency's decision to maintain federal control over, provide assistance to, and grant approvals for an otherwise non-federal project. These actions have not only been sufficiently defined, they have already been executed. Furthermore, to the extent that more than one option for the Holcomb Expansion Project existed, this does not excuse RUS from complying with NEPA. On the contrary, CEQ regulations instruct the federal agency to "integrate the NEPA process with other planning at the earliest possible time to insure that planning and decisions reflect environmental values, to avoid delays later in the *57 process, and to head off potential conflicts." 40 C.F.R. § 1501.2. By doing so, an agency is able to "[s]tudy, develop, and describe appropriate alternatives to recommended courses of action in any proposal which involves unresolved conflicts concerning alternative uses of available resources[.]" 40 C.F.R. § 1501.2(c) (emphasis added).
Accordingly, this Court concludes that a "proposal" within the meaning of 42 U.S.C. § 4332 and CEQ regulation 40 C.F.R § 1508.23 did exist with respect to the agency's involvement in the Holcomb Expansion Project.
C. Whether a Major Federal Action Took Place
One of the main disputes between the parties is whether RUS's involvement in the Holcomb Expansion Project has risen to the level of a "major federal action." As explained above, NEPA requires that an EIS be prepared in connection with any "recommendation or report on proposals for legislation and other major Federal actions significantly affecting the quality of the human environment." 42 U.S.C. § 4332. The Court concludes that RUS's involvement in the Holcomb Expansion Project constituted a major federal action, both in connection with the 2002 Restructuring and in connection with the approvals granted in 2007, for the reasons discussed in more detail below.
i. Regulatory Framework
The CEQ has issued regulations further defining the term "major federal action." In particular, 40 C.F.R. § 1508.18 provides, in relevant part, that:
`Major Federal action' includes actions with effects that may be major and which are potentially subject to Federal control and responsibility. . . . Actions include the circumstance where the responsible officials fail to act and that failure to act is reviewable by courts or administrative tribunals under the Administrative Procedure Act or other applicable law as agency action.
(a) Actions include new and continuing activities, including projects and programs entirely or partly financed, assisted, conducted, regulated, or approved by federal agencies; new or revised agency rules, regulations, plans, policies, or procedures; and legislative proposals. . . .
(b) Federal actions tend to fall within one of the following categories:
* * *
(4) Approval of specific projects, such as construction or management activities located in a defined geographic area. Projects include actions approved by permit or other regulatory decision as well as federal and federally assisted activities.
40 C.F.R. § 1508.18.
Plaintiff, conceding that the Holcomb Expansion Project is itself a non-federal action, has sought to demonstrate that RUS's actions fall within the scope of § 1508.18 on two primary grounds. First, plaintiff argues that RUS's actions with respect to Sunflower amounted to approvals of the Holcomb Expansion Project such that the project was "potentially subject to Federal control and responsibility" within the meaning of § 1508.18. Second, plaintiff argues that RUS provided sufficient financial and other assistance to the Holcomb Expansion Project to make its involvement a major federal action under NEPA. As discussed below, the Court concludes plaintiff has demonstrated that RUS's involvement in the Holcomb Expansion Project amounted to major federal action under either analysis.
ii. Federal Approvals
As noted above, CEQ regulation § 1508.18 provides that actions by a federal agency "with effects that may be major *58 and which are potentially subject to Federal control and responsibility" are major federal actions such that the requirements of NEPA apply. 40 C.F.R. § 1508.18. Furthermore, "[a]ctions include new and continuing activities, including projects and programs . . . approved by federal agencies." 40 C.F.R. § 1508.18(a). In addition, § 1508.18(b)(4) states in its non-exhaustive list of major federal actions that actions include "[a]pproval of specific projects," such as "actions approved by permit or other regulatory decision as well as federal and federally assisted activities." 40 C.F.R. § 1508.18(b)(4). Although defendants concede that a federal agency's involvement in a non-federal project may in some instances constitute a major federal action, they argue that "affirmative conduct taken or approval given by a federal agency alone is not enough to turn a non-federal project into a major federal action." Fed. Defs.' Opp'n Summ. J. at 8.
This Circuit has addressed this issue in Foundation on Economic Trends v. Heckler, 756 F.2d 143, in which the court affirmed a preliminary injunction enjoining the National Institutes of Health, a federal agency, from approving an experiment that would release genetically engineered organisms into the open environment until an appropriate environmental assessment was complete. Id. Federal regulations require that any entity seeking to deliberately release such organisms obtain approval from the NIH before doing so. Id. at 149. The court concluded that the approval granted by the agency amounted to a major federal action such that NEPA applied. Id.; see also Citizens Alert Regarding Env't v. EPA, 259 F. Supp. 2d 9, 20 (D.D.C.2003) ("[A] project may be deemed a major federal action even where federal money has not actually been provided. This happens most often in circumstances where federal entities have sufficient authority over the local project so as to control or influence its outcome.")[10]
Furthermore, an otherwise non-federal project can be "potentially subject to Federal control and responsibility" within the meaning of 40 C.F.R. § 1508.18 as a result of contractual terms agreed upon between the federal agency and the non-federal parties involved in the project. For example, in Morris Cnty. Trust for Historic Pres. v. Pierce, 714 F.2d 271 (3rd Cir. 1983), the court concluded that the terms of the contract between a federal agency, the Department of Housing and Urban Development ("HUD") and the non-federal party "provided HUD with sufficient authority over the [project] to constitute major federal action." Id. at 278.
Turning now to the instant case, it is apparent that, throughout the long history of RUS's involvement in Sunflower, the federal agency retained substantial control over the Holcomb site, particularly as it related to the potential development of additional power plants, such as the Holcomb Expansion Project. As described in detail above, Sunflower's debt to RUS was restructured twice, first in 1987 and then again in 2002. In each instance, RUS conditioned its approval of the restructuring on its continued control over Sunflower.
Crucially, one of the ways in which RUS elected to maintain control over Sunflower *59 was to require Sunflower, by the terms of the 2002 Restructuring, to agree that it would not "enter into any agreement or other arrangements . . . for the development of Holcomb Unit 2 without the prior written approval of RUS." AR 04391. Furthermore, Sunflower agreed that "[a]ny RUS approval will be on such terms and conditions as RUS, in its sole discretion, may require at such time." AR 04391 (emphasis added). By this agreement, and in a myriad of other ways described above, RUS ensured that Sunflower would be unable to proceed with the development of a second power plant without the approval of RUS.[11] The approvals granted by RUS to Sunflower in 2007 reflect the intention of the parties, made explicit during the 2002 Debt Restructuring, that RUS would maintain the ability to influence the Holcomb Expansion Project. Simply put, Sunflower, without the prior approval of RUS, would not have been able to enter into the agreements with Tri-State relating to the Holcomb Expansion Project.
The federal defendants do concede that if "approval of a substantial portion of the project is required," a non-federal project becomes a major federal action. Fed. Defs.' Opp'n Summ. J. at 10. However, they argue that a major federal action only exists if the federal agency has "control over the entire non-federal project[.]" Fed. Defs.' Opp'n Summ. J. at 8 (emphasis added). Defendants' argument relies largely on cases in which the involvement of the federal agency was limited to a discrete segment of a larger project. In those cases, the courts generally find that, while the federal agency might be expected to prepare an EIS with respect to the small segment in which they are involved, the federal agency was not required to prepare and EIS with respect to the entire project.[12] The instant case, however, does not involve a federal agency that gave an approval for a small, segmented portion of a larger project. The Holcomb Expansion Project, in its entirety, required approvals from RUS to proceed. Defendants' reliance *60 on case law involving this type of segmented construction projects is thus unpersuasive.
Defendants also argue that the control maintained by RUS is irrelevant because the control reflected RUS's financial concerns, rather than environmental concerns. According to defendants, the restructuring agreements reflected "RUS's primary concern. . . [to] mak[e] sure that Sunflower does not enter any financial relationships that would jeopardize its further and continued ability to repay RUS. . . . Under these loan documents, RUS has retained the authority to approve certain financial arrangements that Sunflower enters with regard to further development of the Holcomb Expansion Project in order to ensure repayment of its loans and loan guarantees." Fed. Defs.' Opp'n Summ. J. at 21. Even assuming that RUS's primary objective in 2002 and afterward has been to maximize federal debt recovery, the fact remains that in 2002 RUS elected to retain authority over the Holcomb Expansion Project and later, in 2007, gave necessary approvals which allowed the project to proceed. As such, RUS's actions became major federal actions within the meaning of NEPA.
iii. Federal Assistance
Actions which are "approved by federal agencies" are only one type of major federal action. CEQ regulations also define "major federal action" to include non-federal projects "entirely or partly financed. . . by federal agencies," 40 C.F.R. § 1508.18(a). Accordingly, "federal funding is a significant indication that a project constitutes a major federal action[.]" Sw. Williamson Cnty. Cmty. Ass'n v. Slater, 243 F.3d 270, 279 (6th Cir.2001); see also Citizens Alert, 259 F.Supp.2d at 19.[13]
Furthermore, if the level of federal involvement in the non-federal project amounts to the creation of a joint venture or partnership between the federal agency and a non-federal entity, federal courts have considered the arrangement to be a major federal action such that even the non-federal entity may be enjoined from violating NEPA. See, e.g., Fund for Animals v. Lujan, 962 F.2d 1391, 1397 (9th Cir.1992) ("[A] nonfederal actor that enters into a partnership or joint venture whereby the federal government provides goods, services, or financing may be enjoined from violating NEPA."); Landmark West! v. USPS, 840 F. Supp. 994, 1000 *61 (S.D.N.Y.1993); Dalsis v. Hills, 424 F. Supp. 784 (W.D.N.Y.1976).
Federal funding provided solely for the purpose of conducting an EIS or other type of preliminary appraisal, prior to other involvement in the project, is generally considered insufficient to constitute a major federal action. In Macht v. Skinner, 916 F.2d 13 (D.C.Cir.1990), for example, the D.C. Circuit declined to apply NEPA to a non-federal project for the construction of a light rail system, in part, because, although the relevant federal agency granted the state $2.5 million, the funding was for the purpose of performing an EIS for possible extensions to the light rail system. The court stated that because "the Light Rail Project does not yet involve major federal action, we do not decide whether NEPA may require an environmental analysis if [the federal agency] ultimately decides to fund construction of the extensions. . . . If such an eventuality occurs, appellants may renew their claim that an EIS is required prior to the disbursement of federal funds or question the scope of the EIS[.]" Id. at 17; see also Citizens Alert, 259 F.Supp.2d at 17 ("[B]ecause `federal financial assistance to the planning process in no way implies a commitment by the federal agency to . . . undertake, fund, or approve any action that directly affects the human environment,' such funding does not render an otherwise state or local project sufficiently federal to make NEPA applicable.") (quoting Atlanta Coal. Transp. Crisis v. Atlanta Reg'l Comm'n, 599 F.2d 1333, 1347 (5th Cir. 1979)).[14]
In situations in which a project is only partially funded by the federal agency, federal courts have in some instances looked to the proportion of federal funding to non-federal funding to determine whether there is a major federal action. If the amount of federal funding is insignificant or only provided with respect to a small segment of the project, the involvement of the federal agency may not constitute a "major federal action." See, e.g., Rattlesnake Coal. v. EPA, 509 F.3d 1095, 1101 (9th Cir.2007) ("While significant federal funding can turn what would otherwise be a state or local project into a major federal action, consideration must be given to a great disparity in the expenditures forecast for the local and federal portions of the entire program.") (internal quotation marks omitted); Ka Makani, 295 F.3d at 960 (same); Sancho v. Dep't of Energy, 578 F. Supp. 2d 1258, 1267 (D.Haw.2008) (holding that the contribution by a federal agency of $531 million toward a project did not constitute a major federal action because the funding represented less than 10% of the $5.84 billion project cost); but cf. Sierra Club v. Fish & Wildlife Serv., 235 F. Supp. 2d 1109 (D.Or.2002) ("Given the overwhelming percentage of federal dollars involved, and the fact that the amount itself, regardless of the percentage it represents, is more than $3 million, the federal funding contribution alone is probably sufficient to `federalize' the project.").
Finally, "where the federal government has not made a `firm commitment' to fund the project, the non-federal actor's mere anticipation of that money does not convert an otherwise local project into a federal one." Citizens Alert, 259 F.Supp.2d at 24 (citing Macht, 916 F.2d at 17); see also Los Ranchos de Albuquerque *62 v. Barnhart, 906 F.2d 1477, 1481 (10th Cir.1990) ("[B]ecause [the non-federal parties] are only eligible for federal assistance, that eligibility in itself is not sufficient to establish a major federal action requiring the [federal agency] to comply with the requirements of NEPA.").
In the instant case, plaintiff argues that RUS gave sufficient financial assistance to Sunflower to qualify as a major federal action. In particular, plaintiff asserts that RUS gave substantial financial assistance to Sunflower in connection with the 2002 Restructuring, during which RUS "effectively wrote off hundreds of millions of dollars in Sunflower's loans so that the project could proceed." Pl.'s Mem. Supp. Summ. J. at 19-20. Defendants, on the other hand, assert that "not a single cent of Old Sunflower's debt was written off as a result of the restructuring." Sunflower's Opp'n Summ. J. at 18.
The Court agrees with the plaintiff that, while defendants may be correct that Old Sunflower's debts were not explicitly written off, the consequence of the restructuring was to leave Old Sunflower with no assets or ability to pay its own debts off. As discussed in detail above, under the terms of the 1987 DRA, Old Sunflower issued three classes of promissory notes, the A Notes, B Notes, and C Notes. REA's share of the principal balance on the A Notes was $294.5 million; on the B Notes it was $98.3 million; on the C Notes it was $61.4 million. With respect to the B Notes in particular, Old Sunflower was at risk of defaulting by 2002. With the capitalized interest, the principal owed to RUS on these notes had risen to $413.9 million. When New Sunflower purchased most of Old Sunflower's assets during the 2002 Debt Restructuring, it issued new promissory notes to RUS. While it may be true that RUS has a chance of recovering more money as a result of the 2002 Restructuring than it would have if it had not approved the restructuring and Old Sunflower had defaulted, the new set of promissory notes nonetheless amounted to substantially less debt for New Sunflower than Old Sunflower had been burdened with.[15] As a consequence, RUS effectively provided financing to Sunflower for the Holcomb Expansion Project.
The federal defendants themselves seem to concede that RUS will, in the future, write some portion of Sunflower's debt off; they merely deny that the amount is known. See, e.g., Fed. Defs.' Opp'n Summ. J. at 24 ("RUS has not written any of [Old] Sunflower's debt off to date. The exact and final amount of the RUS loss will not be known until as late as 2021, when all the notes have matured.").
Defendants' arguments that any financial assistance provided to Sunflower was not substantial enough to be considered a major federal action are unpersuasive. Neither party offers a definitive estimate of how much Sunflower's debt was reduced overall, but a comparison of the notes issued under the 1987 DRA and those issued under the 2002 Debt Restructuring convinces this Court that it is indeed substantial. Furthermore, the Court notes that the administrative record reflects, and the parties agree, that Sunflower realized a tax benefit as a result of the 2002 Debt Restructuring in the amount of [REDACTED]. AR [REDACTED].
Defendants assert that, even assuming Sunflower obtained financial assistance from RUS in connection with the 2002 Restructuring, such assistance was unrelated to the Holcomb Expansion Project specifically. However, the record reflects otherwise. Crucially, the agency provided *63 this assistance to Sunflower in conjunction with the 2002 Restructuring-the direct, intended consequence of which was to divide Old Sunflower's assets such that Holcomb Unit 1 and most other assets were acquired by New Sunflower (the entity now burdened with the debt to RUS), whereas the land and common facilities necessary for the Holcomb Expansion Project were acquired by a separate entity, namely HCF. Additionally, RUS agreed to release its lien on the Holcomb Unit 2 site. RUS's actions reflect the agency's intention to make the Holcomb Expansion Project possible through the assistance provided in 2002.
Federal defendants repeatedly cite to National Organization for Reform of Marijuana Laws v. Drug Enforcement Administration, 545 F. Supp. 981 (D.D.C. 1982), in support of their argument on this point. However, the Court finds this comparison flawed. In Marijuana Laws, although the Drug Enforcement Agency ("DEA") provided financial and other support to the state of Florida for marijuana law enforcement generally, the specific project at issue the Marijuana Laws case was the plan to eradicate marijuana plants through an herbicidal spraying program. Id. With respect to the spraying program in particular, the court concluded that "federal funding, federal control, and federal `go-ahead' actions are lacking." Id. at 984.[16] In contrast to Marijuana Laws, RUS provided significant federal assistance to enable the Holcomb Expansion Project.
In addition to the financial benefits granted to Sunflower through the debt restructuring, RUS provided additional assistance to Sunflower when it committed to releasing its lien on the Holcomb Unit 2 site and the Common Facilities, if and when the Holcomb Unit 2 generating plant is developed. Defendants argue that the release relates only to "a very small portion of the total Holcomb site." Fed. Defs.' Opp'n Summ. J. at 25. However, the portions of the Holcomb site containing the Holcomb Unit 2 site and the Common Facilities contain all the necessary properties for the development of the Holcomb Expansion Project. At issue in this action is the assistance provided by RUS in support of the Holcomb Expansion Project, not the entire Holcomb site.
Accordingly, the Court finds that the involvement of RUS in Sunflower amounted to a project "entirely or partly financed" by a federal agency. 40 C.F.R. § 1508.18(a). Contrary to defendants' arguments, RUS did not merely provide assistance to some discrete aspect of the Holcomb Expansion Project, nor was its contribution insignificant. Accordingly, its actions were subject to the requirements of NEPA.
In sum, the Court concludes that, both because RUS gave necessary approvals for the Holcomb Expansion Project and because RUS provided financial assistance to *64 the project, the Holcomb Expansion Project was subject to "Federal control and responsibility", 40 C.F.R. § 1508.18, and therefore RUS's involvement amounted to a major federal action within the meaning of NEPA.
D. Whether RUS was Contractually Prevented from Exercising Control Over the Holcomb Expansion Project
Sunflower makes the additional argument that, although some provisions of the loan contracts between Sunflower and RUS require Sunflower to seek approval from RUS before engaging in certain activities, an attempt by RUS to impose environmental standards as a condition of its approval would have been a breach of the agreements between the parties. Citing Centex Corporation v. United States, 395 F.3d 1283, 1304 (Fed.Cir.2005), Sunflower argues that, as a matter of federal common law governing the interpretation of contracts to which the United States is a party, each party is under an obligation "not to act so as to destroy the reasonable expectations of the other party." Sunflower Opp'n Summ. J. 13-14 (quoting Centex, 395 F.3d at 1304).
According to Sunflower, "RUS was created by Congress to serve as a lender, not a regulator," and it "was with RUS's statutorily defined role as a lender, and only a lender, in mind that Sunflower agreed to the terms of the contracts." Sunflower Opp'n Summ. J. at 14. Therefore, Sunflower "could not reasonably have expected that RUS could review or impose conditions on the design details of any new generating units," and "nothing in the contract provisions . . . gives RUS the authority to alter plans or withhold its approval or consent for a particular project for environmental reasons." Sunflower Opp'n Summ. J. at 15, 17. In light of Sunflower's expectations at the time the contracts were signed, Sunflower now argues that "RUS would have been acting in bad faith and in an objectively unreasonable manner had it attempted to impose environmental standards as a condition of its consents." Sunflower Opp'n Summ. J. at 16.
The Court disagrees with Sunflower's position. First, the terms of the 2002 Restructuring explicitly gave RUS broad authority to place conditions on any approvals it granted in connection with the Holcomb Expansion Project. AR 04391. Sunflower has not pointed to any restriction, explicit or otherwise, in the agreements between RUS and Sunflower that would bar RUS from considering the environmental impacts of the Holcomb Expansion Project or conditioning its approval on a reduction of the environmental impact of the Holcomb Expansion Project. Furthermore, while it is undeniable that the focus of the Rural Electrification Act of 1936, 7 U.S.C. §§ 901-918, was indeed to give the Secretary of Agriculture the authority to make loans for rural electrification projects, Congress no less clearly intended the provisions of NEPA to apply to all federal agencies. 42 U.S.C. § 4332. The agency may not contractually or otherwise avoid those statutorily defined obligations.
E. Whether RUS Had the Requisite Discretion
In support of their assertion that NEPA does not apply to RUS's involvement in the Holcomb Expansion Project, defendants also argue that they lack the discretion to review the environmental impacts of the Holcomb Expansion Project, In the words of the federal defendants:
RUS has no discretion to meaningfully consider the alleged impacts from the Holcomb Expansion Project on global warming from carbon dioxide emissions, or on air quality from the emissions of *65 other air pollutants. This is delegated to the Environmental Protection Agency and the State of Kansas. . . . RUS's authority over its borrowers is solely as a lender interested in repayment of a borrower's debt to the Government in the agreed-upon time.
Fed. Defs.' Opp'n Summ. J. at 30.
This argument is wholly unpersuasive. NEPA not only explicitly gives all federal agencies the authority to consider environmental impacts, it compels them to do so. See 42 U.S.C. § 4332; Found, on Econ. Trends, 756 F.2d at 147; Clark, 27 F.Supp.2d at 12 ("NEPA requires that all federal agencies prepare a detailed statement with respect to any major federal action significantly affecting the quality of the human environment.").
NEPA plainly applies to all federal agencies, irrespective of their primary functions. The defendants themselves concede that, not only did RUS conduct an EIS before granting Old Sunflower the loan in 1980, but also that "RUS's actual approval of a new loan . . . would be subject to NEPA." Fed. Defs.' Reply at 6. Nor does defendants' argument that the State of Kansas and the EPA also have regulatory authority over the Holcomb Expansion Project persuade the Court that RUS may ignore its responsibilities under NEPA.
Defendants' reliance on the Supreme Court's decision in DOT v. Public Citizen, 541 U.S. 752, 124 S. Ct. 2204, 159 L. Ed. 2d 60 (2004), is similarly unpersuasive. In Public Citizen, a federal agency within the Department of Transportation proposed rules relating to safety regulations of Mexican motor carriers operating within the United States. Public Citizen, 541 U.S. 752, 124 S. Ct. 2204. The regulations were promulgated in accordance with an executive order lifting the moratorium on Mexican motor carriers pursuant to the North American Free Trade Agreement ("NAFTA"). The federal agency prepared an environmental assessment ("EA"), a more limited document than the EIS, in which it evaluated a variety of environmental impacts in different scenarios. However, the EA did not evaluate the environmental effects that would result from the actual increase in cross-border operations of Mexican motor carriers; instead it focused on other effects, such as an increase in the number of roadside inspections. Plaintiffs challenged this omission, arguing that the agency violated NEPA by failing to consider the environmental impact of the increase in Mexican motor carriers in the EA. The Supreme Court ruled in favor of the federal agency, concluding that the federal agency properly omitted this issue from consideration because the federal agency "has no ability to countermand the President's lifting of the moratorium or otherwise categorically to exclude Mexican motor carriers from operating within the United States," and holding that "it would not . . . satisfy NEPA's `rule of reason' to require an agency to prepare a full EIS due to the environmental impact of an action it could not refuse to perform." Id. at 766, 769, 124 S. Ct. 2204.
In contrast to Public Citizen, defendants in the instant action can point to no authority, executive or otherwise, that prohibits RUS from imposing conditions on Sunflower related to any identified environmental impacts of the Holcomb Expansion Project, nor have they cited any authority preventing RUS from modifying its course of action based on those environmental impacts. On the contrary, NEPA and the accompanying regulations explicitly grant RUS the requisite discretion. There is no material difference between the discretion RUS had in 1980, when it granted Old Sunflower the initial loan after preparing an EIS, and the discretion the agency has in connection with its more recent involvement in Sunflower.
*66 Sunflower's argument, in particular, that RUS lacks discretion ignores a fundamental feature of prior case law on this subject, namely that an agency's role must be considered "merely ministerial" to avoid the application of NEPA. As this Circuit has explained, "[i]f . . . the agency does not have sufficient discretion to affect the outcome of its actions, and its role is merely ministerial, the information that NEPA provides can have no effect on the agency's actions, and therefore NEPA is inapplicable." Citizens Against Rails-to-Trails, 267 F.3d at 1151; see also Sugarloaf Citizens Ass'n v. FERC, 959 F.2d 508, 513 (4th Cir.1992) (addressing the role of a federal agency in granting certifications to certain types of power production facilities, and holding that the federal agency "does not have discretion to deny certification to any facility which meets the enumerated criteria and that its certification of this project was therefore merely a ministerial act.").
RUS's role in the Holcomb Expansion Project has not been "merely ministerial." The complex new arrangements negotiated in 2002 and then in 2007 evidence a significant amount of authority and discretion entrusted to this agency. As noted above, Sunflower agreed in 2002 that it would not "enter into any agreement or other arrangements. . . for the development of Holcomb Unit 2 without the prior written approval of RUS" and "[a]ny RUS approval will be on such terms and conditions as RUS, in its sole discretion, may require at such time[.]" AR 04391 (emphasis added). The federal defendants themselves acknowledge that RUS has the authority to decide "whether to finance, what to finance, and the terms and conditions of a loan[.]" Fed. Defs.' Opp'n Summ. J. at 31.[17] This discretion gives the agency sufficient leverage to take the environmental impacts of its actions into account when making decisions.
F. Whether RUS Regulations at 7 C.F.R. Pt. 1794 Exempt the Holcomb Expansion Project From NEPA Review
Finally, defendants argue that RUS's actions are exempt from NEPA pursuant to environmental policy and procedure regulations implemented by RUS. These regulations, set forth in 7 C.F.R. Part 1794, "contain[] the policies and procedures of [RUS] for implementing the requirements of [NEPA]." 17 C.F.R. § 1794.1. They are "intended to help RUS officials make decisions that are based on an understanding of environmental consequences, and take actions that protect, restore, and enhance the environment." 7 C.F.R. § 1794.1(b). Defendants point specifically to 7 C.F.R. § 1794.3 which states:
The provisions of [7 C.F.R. Part 1794] apply to actions by RUS including the approval of financial assistance pursuant to the Electric, Telecommunications, and Water and Waste Programs, the disposal of property held by RUS pursuant to such programs, and the issuance of new or revised rules, regulations, and bulletins. Approvals provided by RUS pursuant to loan contracts and security instruments, including approvals of lien accommodations, are not actions for the purposes of this part and the provisions of this part shall not apply to the exercise of such approvals.
7 C.F.R. § 1794.3 (emphasis added). Defendants argue that RUS' approvals amounted to no more than "[a]pprovals provided by RUS pursuant to loan contracts" *67 and, accordingly, are exempt from NEPA under § 1794.3.
As a threshold matter, the Court must determine whether defendants' interpretation of § 1794.3 is entitled to deference. Although ordinarily "an agency's construction of its own regulations is entitled to substantial deference," Martin v. Occupational Safety and Health Review Commission, 499 U.S. 144, 150, 111 S. Ct. 1171, 113 L. Ed. 2d 117 (1991), an agency's "litigating positions are not entitled to deference when they are merely appellate counsel's post hoc rationalizations for agency action, advanced for the first time in the reviewing court." Id. at 156, 111 S. Ct. 1171; see also Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 212, 109 S. Ct. 468, 102 L. Ed. 2d 493 (1998)("[W]e have declined to give deference to an agency counsel's interpretation of a statute where the agency itself has articulated no position on the question, on the ground that `Congress has delegated to the administrative official and not to appellate counsel the responsibility for elaborating and enforcing statutory commands.'") (quoting Inv. Co. Inst. v. Camp, 401 U.S. 617, 628, 91 S. Ct. 1091, 28 L. Ed. 2d 367 (1971)).
An agency's litigation position is nevertheless given deference in certain limited circumstances, as stated in Auer v. Robbins, 519 U.S. 452, 117 S. Ct. 905, 137 L. Ed. 2d 79 (1997). As this Circuit has explained:
There are at least three preconditions for applying this so-called Auer deference. First, the language of the regulation in question must be ambiguous, lest a substantively new rule be promulgated under the guise of interpretation. Second, there must be `no reason to suspect that the interpretation does not reflect the agency's fair and considered judgment on the matter in question.' Finally, the agency's reading of its regulation must be fairly supported by the text of the regulation itself, so as to ensure that adequate notice of that interpretation is contained within the rule itself.
Drake v. FAA, 291 F.3d 59, 68 (D.C.Cir. 2002) (citing Auer, 519 U.S. at 461-462, 117 S. Ct. 905).
In the instant case, the Court concludes that the defendants' position with respect to § 1794.3 is not entitled to substantial deference. First, at least with respect to RUS's commitment to release the lien on the Holcomb 2 site and the Common Facilities, § 1794.3 is ambiguous in light of conflicting language in another RUS regulation, namely 7 C.F.R. § 1717.850. Section 1717.850 states that "[u]nder certain circumstances, such as when the project does not qualify for a categorical exclusion, the environmental requirements of 7 C.F.R. part 1794 may apply to applications for lien accommodations, subordinations, and releases." Id. (emphasis added). Second, defendants point to no evidence in the record that the agency itself evaluated whether NEPA applied to its actions during the 2002 Restructuring or the subsequent approvals in 2007. Finally, for the reasons that follow, the Court cannot conclude that the agency's reading of the regulation is "fairly supported by the text of the regulation itself." Drake, 291 F.3d at 68. Specifically, the Court does not find the agency's actions can be fairly stated to amount to mere "approvals provided by RUS pursuant to loan contracts." 7 C.F.R. § 1794.3.
With respect to the 2002 Restructuring, the federal defendants argue that the approvals provided by RUS were granted pursuant to the 1987 DRA. In support of their argument, the federal defendants point to text in the 2002 agreements that identifies provisions in the 1987 DRA requiring Sunflower to seek written approval from RUS before it undertook specified *68 actions. See Fed. Defs.' Reply at 5-6 (citing AR 222, AR 3952).
However, Sunflower did more than simply request approval from RUS pursuant to these old loan contracts, and RUS did more than simply grant the approval. Instead, entirely new agreements were drafted, entirely new and different obligations were created, including new promissory notes, and entirely new parties were subject to those obligations. With respect to the RUS's release of the lien on the Holcomb 2 site, RUS also did not approve the lien subordination as an approval pursuant the then-existing 1987 DRA. Instead, the lien subordination was part of the new arrangements created in 2002.
Although it is perhaps a closer call with respect to the approvals granted in 2007, ultimately the Court concludes that here too, the agency did not simply grant approvals pursuant to pre-existing loan contracts. Once again, new promissory notes were issued and entirely new agreements between RUS and Sunflower were created, such as the Additional Consideration Letter.
The Court also finds that, even assuming RUS's actions were consistent with its own regulation § 1794.3, such an interpretation would be invalid as applied in the instant case because it would conflict with NEPA and the implementing regulations promulgated by the CEQ. The agency is not entitled to substantial deference with respect to the interpretation of the CEQ regulations, including § 1508.18 defining "major federal action." See, e.g., Grand Canyon Trust v. FAA, 290 F.3d 339, 342 (6th Cir.2002) ("Although federal agencies have discretion to decide whether a proposed action is significant enough to warrant preparation of an EIS, the court owes no deference to the [Federal Aviation Administration's] interpretation of NEPA or the CEQ regulations because NEPA is addressed to all federal agencies and Congress did not entrust administration of NEPA to the [Federal Aviation Administration] alone.") (internal quotation marks omitted); see also (Citizens Against Rails-to-Trails, 267 F.3d at 1150) ("Because NEPA's mandate is addressed to all federal agencies, the [Surface Transportation Board's] determination that NEPA is inapplicable . . . is not entitled to the deference that courts must accord to an agency's interpretation of its governing statute."); Morris Cnty., 714 F.2d at 276 ("CEQ guidelines are entitled to substantial deference in interpreting the meaning of NEPA provisions, even when CEQ regulations are in conflict with an interpretation of NEPA adopted by one of the Federal agencies.") (citing Andrus v. Sierra Club, 442 U.S. 347, 358, 99 S. Ct. 2335, 60 L. Ed. 2d 943 (1979)).
Accordingly, under NEPA and the relevant CEQ regulations, RUS's actions taken with respect to Sunflower and the Holcomb Expansion Project are properly considered major federal actions and are therefore subject to the requirements of NEPA, in particular 42 U.S.C. § 4332.
IV. CONCLUSION
For the foregoing reasons, Sunflower's motion to dismiss the complaint as moot is DENIED, plaintiff's motion for summary judgment is GRANTED, federal defendants' cross-motion for summary judgment is DENIED, and Sunflower's cross-motion for summary judgment is DENIED. Furthermore, defendants' request for an additional opportunity to brief the issues relating to the appropriate remedy is hereby GRANTED. An appropriate Order accompanies this Memorandum Opinion.
NOTES
[1] New Sunflower was initially named SEP Corporation.
[2] As discussed below, this final aspect of the agreement was later modified.
[3] The parties have referred to the plans involving the development of additional generating units at the Holcomb site as the "Holcomb Expansion Project," and the Court will do the same.
[4] In addition to its assertion that the case is moot on constitutional grounds, Sunflower argues that the case should be dismissed on the grounds of prudential mootness. Prudential mootness allows the court to exercise its discretion and dismiss a case that, although not actually moot, "is so attenuated that considerations of prudence and comity for coordinate branches of government counsel the court to stay its hand, and to withhold relief it has the power to grant." Chamber of Commerce v. Dep't of Energy, 627 F.2d 289, 291 (D.C.Cir.1980). In the instant case, the Court concludes that it would be inappropriate to exercise its discretion in this manner.
[5] Sunflower goes so far as to assert that plaintiff may not have ever had an opportunity to challenge RUS's actions in connection with the 2002 Debt Restructuring. According to Sunflower, "[b]ecause the RUS approval and the closing of the transactions occurred on the same day, under the analytical framework applied when the focus is on the object of the federal agency action, there was a short or non-existent window between the point in time when a challenge to the 2002 restructuring became ripe and the point in time when the challenge became moot." Sunflower Mot. to Dismiss at 15.
[6] While the holding in Lemon rested at least in part on the court's conclusion that all the parties to the transaction were before the court, 514 F.3d at 1316, this Court notes that RUS and Sunflower were the only two parties to at least some of the transactions and approvals at issue in the instant action. Thus, if anything, this may affect the scope of the remedy available to the plaintiff, but it does not indicate that relief is unavailable.
[7] As is evident in the cases cited by Sunflower itself, completion is a potentially relevant factor in the mootness analysis when it relates, not merely to the agency's action, but rather to the actual project at issue. For example, in Fund for Animals, Inc. v. Bureau of Land Management, 460 F.3d 13 (D.C.Cir.2006), plaintiff's case challenging the federal agency's plan relating to gathers of wild horses and burros was held to be moot because the gathers had already occurred and could not be undone; therefore, "it was impossible for the court to grant any effectual relief whatever." Id. at 22; see also Feldman v. Bomar, 518 F.3d 637, 643 (9th Cir.2008) (holding that a challenged action relating to the killing of feral pigs was moot because, by the time the court heard the case, the pigs had already been killed and plaintiffs had already "suffered whatever harm could conceivably result from the challenged agency action.") The instant case, however, differs substantially from these two cases in an obvious way. Here, as far as the Court has been made aware, the Holcomb Expansion Project has not yet resulted in the construction of an actual power plant.
[8] Sunflower cites the Supreme Court decision in Tennessee Valley Auth. v. Hill, 437 U.S. 153, 174 n. 18, 98 S. Ct. 2279, 57 L. Ed. 2d 117 (1978), for the proposition that NEPA is not "`intended . . . to afford retroactive relief.'" Sunflower Mot. to Dismiss at 12. However, this reading of Hill is erroneous. The decision in Hill addressed the scope of a particular provision of the Endangered Species Act, and the footnote cited by Sunflower merely states that "the dissent's position logically means that an agency would be obligated to comply with § 7 [of the Endangered Species Act] only when a project is in the planning stage. But if Congress had meant to so limit the [Endangered Species] Act, it surely would have used words to that effect, as it did in the National Environmental Policy Act, 42 U.S.C. §§ 4332(2)(A), (C)." Hill, 437 U.S. at 174 n. 18, 98 S. Ct. 2279.
[9] Sunflower also claims that the approvals granted by RUS were "ministerial approvals," and therefore RUS lacked the ability, even at the time the approvals were issued, to impose environmental conditions. Sunflower Mot. to Dismiss at 23. However, this argument essentially asserts that NEPA is wholly inapplicable to these approvals, an issue more appropriately addressed as part of the merits determination. (Sunflower has also made this argument in their cross-motion for summary judgment, and the Court therefore addresses this argument below.)
[10] Other Circuits have reached the same conclusion. See, e.g., Md. Conservation Council, Inc. v. Gilchrist, 808 F.2d 1039, 1042 (4th Cir. 1986) ("A non-federal project is considered a `federal action' if it cannot `begin or continue without prior approval of a federal agency.'") (quoting Biderman v. Morton, 497 F.2d 1141, 1147 (2d Cir.1974)); NAACP v. Med. Ctr., Inc., 584 F.2d 619, 633 (3d Cir. 1978) ("[W]hen a federal agency gives a legally necessary discretionary approval enabling another significantly to impact on the environment, the agency may be required to file an EIS.").
[11] In addition to the relevant contractual provisions, plaintiff identifies a series of RUS regulations which, according to plaintiff, "dictate that RUS approval for Sunflower's actions was required." Pl.'s Mem. Supp. Summ. J. at 10. The regulations cited include 7 C.F.R. § 1717.1202(b), as well as 7 C.F.R. § 1717.608, 7 C.F.R. § 1717.616, 7 C.F.R. § 1717.657, 7 C.F.R. § 1717.853, 7 C.F.R. § 1717 subpart M, and 7 C.F.R. § 1717 subpart R. Section 1717.1202(b), for example, is a provision in the subpart of RUS regulations dealing with the policies and standards of RUS with respect to the settlement of debts. It states that "modifications regarding the debt owed by a borrower may be granted under the authority of the Administrator only by means of the explicit written approval of the Administrator in each case." 7 C.F.R. § 1717.1202(b). However, while § 1717.1202(b) and the other cited regulations perhaps prevent Sunflower from proceeding with the plans for the Holcomb Expansion Project in the manner the company desired without RUS approval, plaintiff has not persuaded this Court that the provisions generally prevent a borrower from undertaking this type of project without RUS approval.
[12] This is commonly seen in the cases involving the construction of a highway, a rail line or a power line. In these instances, courts have repeatedly held that, while the federal agency might be expected to consider environmental impacts with respect to the small segment in which it was involved, the agency was not required to consider the environmental impact of the entire project if it had no involvement in the remaining portions of the project. See, e.g., Coal, for Underground Expansion v. Mineta, 333 F.3d 193, 198 (D.C.Cir.2003) (holding that although "other parts of the [rail transit] system are federally funded, [this] does not make the discrete Clayton-Shrewsbury Extension federally funded."); Weiss v. Kempthorne, 580 F. Supp. 2d 184, 189 (D.D.C.2008) (concluding that the consent by the National Park Service to lease 22 acres of a public park as part of a 500 acre development project did not make the entire, otherwise non-federal, development a major federal action).
[13] Regarding the lien subordination at issue in the instant case, the Court notes that federal assistance need not come in the form of monetary assistance to qualify as a major federal action. For example, in Fund for Animals v. Clark, 27 F. Supp. 2d 8, 13 (D.D.C. 1998), the court concluded that the federal agency was "so intimately involved in the discussion and planning of the [bison] hunt, the federal defendants cannot now claim to have no responsibility under NEPA with respect to the hunt or the supplemental feeding programs." Id.; see also Fund For Animals v. Mainella, 283 F. Supp. 2d 418, 432 (D.Mass. 2003) ("The administrative record reveals that [the federal agency] makes a substantial contribution of personnel and equipment to the management of the Seashore's hunting program. . . . Accordingly, there is sufficient federal participation to make [the program] a `major Federal action.'"). In Scottsdale Mall v. Indiana, 549 F.2d 484 (7th Cir. 1977), the state defendants even attempted to avoid compliance with NEPA by returning federal funds and withdrawing a state highway project from a federal aid highway program. Id. at 485. The Seventh Circuit nonetheless held that NEPA applied. Id. at 489 ("Our review of the record indicates federal participation in the programming, location, design, preliminary engineering, and right of way acquisition stages [of the highway by-pass project]. Hence, we have no difficulty concluding on the basis of the record before us that the entire by-pass project is a `major federal action' within the meaning of 42 U.S.C. § 4332(C) and that an EIS is required[.]").
[14] In Ka Makani, 295 F.3d 955, the Ninth Circuit came to a similar conclusion as the court in Macht. Addressing the question of whether federal funding for the development of a water resource system constituted a major federal action, the court concluded that NEPA did not apply, in part, because the federal funding was "clearly designated for use in the preparation of an EIS, and at most, other preliminary activities that would have no real impact on the physical environment[.]" Ka Makani, 295 F.3d at 962.
[15] See discussion, supra, of the new B Notes, the Residual Value Notes, and the Holcomb 3 Notes issued in connection with the 2002 Debt Restructuring.
[16] Similarly, defendants' reliance on Citizens Alert, 259 F. Supp. 2d 9, is misplaced. The construction of the pipeline at issue in Citizens Alert was largely funded under an indirect EPA program whereby the EPA granted sums of money to states, who in turn "disperse[d] this money for projects of their [the states'] choosing[.]" Id. at 13-14. In contrast to RUS's decision to provide direct assistance to Sunflower, the EPA regulations at issue in Citizens Alert explicitly delegated the environmental review process to the state. Id. at 14 n. 2. It is also significant that the court in Citizens Alert noted that the EPA was considering directly funding a small portion of the project. The court stated that it assumed for the purposes of the dispute before it, that "if EPA actually provides the $1.7 million appropriated by Congress . . . that funding decision would itself be a `major federal action.'" Id. at 16.
[17] The Court notes that the federal defendants have stated that they "do not entirely agree with Sunflower's characterization of the consents and approvals as `ministerial.' Although some of the consents were ministerial, others are not[.]" Fed. Defs.' Resp. to Sunflower's Mot. Dismiss at 7 n. 4. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2468120/ | 738 F. Supp. 2d 74 (2010)
Donald G. JONES, Plaintiff,
v.
LOUISIANA STATE BAR ASSOCIATION, et al., Defendants.
Civil Action No. 09-0616 (JDB).
United States District Court, District of Columbia.
September 16, 2010.
*76 Donald G. Jones, Riverdale, GA, pro se.
Richard John Tyler, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, LA, Timothy K. Webster, Sidley Austin, LLP, Washington, DC, for Defendandts.
MEMORANDUM OPINION
JOHN D. BATES, District Judge.
Plaintiff, proceeding pro se, brings this action seeking recovery of $50 billion for the victims of Hurricane Katrina and Hurricane Rita, $22 million in personal damages, and extensive injunctive relief against attorneys at the law firm of Jones & Walker and other persons involved in hurricane relief efforts and actions affecting plaintiff's Louisiana properties. In total, plaintiff has named over 120 defendants, most of whom reside in Louisiana. On April 21, 2009, the Court issued an order observing that venue was likely improper in this district because only seven defendants are alleged to reside in the District of Columbia, with the rest of the 100-plus defendants located primarily in Louisiana, where most of the property is located and the relevant events took place. See Order at 1-2 & n. 2, ECF # 5. The Court further determined that threshold defenses under Rule 12(b) of the Federal Rules of Civil Procedure should be considered with respect to the seven District of Columbia defendants, for if they were dismissed, it would likely be appropriate to transfer venue to an appropriate judicial district lying within Louisiana pursuant to 28 U.S.C. § 1404. Id. Those motions have now been filed and fully briefed.[1]
*77 The D.C. Bar moves to dismiss the complaint for lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted. The Jones Walker defendants in the District of ColumbiaR. Christian Johnsen, Bill Cody, W. Russell King, Nancy Peele, Paul Cambon and Norma Jane Sabiston ("Jones Walker DC Defendants")have separately moved to dismiss on those same grounds.[2] Plaintiff has responded to both motions and the matter is ripe for resolution. For the reasons stated below, the Court will grant the motions to dismiss, and then transfer the case to the Eastern District of Louisiana as to the remaining defendants.
BACKGROUND
The essence of plaintiff's prolix 143-page amended complaint with respect to the defendants in the District of Columbia is that the Jones Walker attorneys misused their legal licenses and violated numerous civil rights laws and the Constitution when they lobbied Congress and other governmental agencies to secure various types of relief for their clients in the wake of Hurricane Katrina and Hurricane Rita in 2005. See Am. Compl. at 79-92. As plaintiff puts it:
[the Jones Walker Defendants] misused their licenses when they lobbied Congress to pass legislation . . . which sent over $200 billion dollars of U.S. HUD, DOC, CORPS OF ENGINEERS, FEMA, and such other well intended federal assistance, which has not restored plaintiff et al Communities . . ., but which in fact has created industry. . . in areas which were not the true Congressional intended recipients of these billions of dollars of federal funds and programs. . . .
. . . The [Jones Walker] Defendants misused their licenses when they built an interlocking fabric of experience, relationships, and expertise in getting Congress, and other State legislatures to approve legislation to appropriate funds under the disguise that it is in the "General Welfare of the Public," but in fact it has been designed to end up in the hands of those whom the Federal Law did not prescribe it for.
See Am. Compl. at 83, 87 (emphasis in original). Plaintiff recasts this allegation in numerous ways throughout the Amended Complaint (id. at 79-92), but overall to the same effectthat the Jones Walker DC Defendants have served only the interests of their private business clients and failed to serve the public welfare, in particular, the "true" victims of the hurricanes, i.e., "the Low Income, the Handicapped, the less fortunate American people, whom were portrayed in their dire plights at the Superdome, and the Convention Center, in the aftermath of hurricanes Katrina and Rita." See Am. Compl. at 86.
Because the Jones Walker DC Defendants are allegedly attorneys licensed to practice law in the District, plaintiff also has sued the District of Columbia Bar ("D.C. Bar") based on his belief that the D.C. Bar is responsible for licensing and disciplining attorneys and his belief that the D.C. Bar has failed to fulfill its duties with respect to the Jones Walker attorneys. See Am. Compl. at 12, 52. It bears noting at the outset that the D.C. Bar is not the entity that "licenses" attorneys that duty falls to the District of Columbia Court of Appeals. D.C.Code § 11-2501. Rather, the D.C. Bar is the "official arm" *78 of the District of Columbia Court of Appeals that manages those attorneys who have been admitted by the Court of Appeals to the practice of lawa matter of which this Court takes judicial notice. See Rules Governing the District of Columbia Bar, Preamble & Rule 1.
In any event, plaintiff alleges that the D.C. Bar has "fail[ed] to address numerous complaints of fraud, unethical behavior, obvious conflicts of interest, falsifying of court documents, and . . . continu[ed] to renew the licenses of these attorneys, in spite of obvious evidence that they warrant disbarment, and/or suspension. . . ." Am. Compl. at 12. Plaintiff thus seeks a judicial order requiring the D.C. Bar (and all other state licensing boards) to "review[ ] and investigat[e]" the Jones Walker attorneys "to determine if suspension and/or disbarment is warranted for these heinous violations." Id. at 92.
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 courtplaintiff 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 Pharmaceuticals, 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) *79 (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 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.
DISCUSSION
I. Standing
The D.C. Bar and the Jones Walker DC Defendants both move to dismiss the amended complaint on the ground that plaintiff lacks standing to pursue the claims. It is well-settled that there are three minimum elements necessary to establish standing:
First, the plaintiff must have suffered an "injury in fact"an invasion of a legally protected interest which is (a) concrete and particularized, and (b) "actual or imminent, not `conjectural' or `hypothetical.'" Second, there must be a causal connection between the injury and the conduct complained ofthe injury has to be "fairly . . . trace[able] to the challenged action of the defendant, and not. . . th[e] result [of] the independent action of some third party not before the court." Third, it must be "likely," as opposed to merely "speculative," that the injury will be "redressed by a favorable decision."
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992) (citations and footnote omitted); accord Center for Law and Educ. v. Dep't of Educ., 396 F.3d 1152, 1157 (D.C.Cir. 2005). Defendants contend that plaintiff fails to meet any of these elements, although focusing on causation and redressability.[3]See D.C. Bar Mem. at 4-7; Jones Walker Mem. at 14-19.
Defendants contend that plaintiff has not, and cannot, allege an injury "fairly traceable" to their conduct because his injury flows instead from the acts of third partiesthat is, Congress, which enacted the legislation complained of, and other federal and local governmental bodies, *80 which allegedly implemented deficient, or otherwise mismanaged, hurricane relief programs The Court agrees. Plaintiff simply fails to allege the manner in which the D.C. Bar or the Jones Walker attorneys aggrieved plaintiff other than his wholly conclusory statement that their actions deprived him of millions of dollars of hurricane relief monies that Congress and others should have allocated more equitably. See Am. Compl. at 92 (conclusory allegation that he should be awarded $22 million "personally for the damages caused by the Jones' defendants misuse of their licenses" because they prevented plaintiff from benefitting from Congress's hurricane relief legislation); Pl.'s Opp'n to Jones Walker Mot., ECF Doc. No. 35-1, at 21 (alleging that plaintiff has "received not one dime" of Congressional hurricane relief monies). In other words, plaintiff's injuryhis continued financial suffering after the devastation of the 2005 hurricanesis not fairly traceable to the conduct of the D.C. Bar or the Jones Walker DC Defendants. Therefore, plaintiff lacks standing to sue these defendants.
Plaintiff lacks standing to pursue his claims against the D.C. Bar for a second reason. The primary relief sought against the D.C. Baran order requiring an investigation of the Jones Walker attorneyswould not redress any alleged injury plaintiff has suffered. As the D.C. Bar points out, such an order would only relate to potentially prospective discipline against the Jones Walker attorneys and would not ensure that plaintiff would receive any monetary damages from them. See D.C. Bar Mem. at 7. Whether disciplinary action might result in the payment of damages "can, at best, be termed only as speculative." See Linda R.S. v. Richard D., 410 U.S. 614, 618, 93 S. Ct. 1146, 35 L. Ed. 2d 536 (1973) (holding that "a citizen lacks standing to contest the policies of the prosecuting authority when he himself is neither prosecuted nor threatened with prosecution," and noting the speculative nature of any direct recovery by the citizen). In other words, plaintiff's injury is not redressable by a favorable decision against the D.C. Bar, and hence, plaintiff lacks standing to sue the D.C. Bar for this additional reason.
II. The Jones Walker DC Defendants
Even if plaintiff had standing to sue the Jones Walker DC attorneys or the D.C. Bar, his complaint should be dismissed for failure to state a claim upon which relief can be granted. The Jones Walker DC Defendants move to dismiss plaintiff's complaint on the ground that the governmental petitioning of which plaintiff complains is immune from liability under the Noerr-Pennington doctrine. See Jones Walker Mem. at 19-21. Under the Noerr-Pennington doctrine, those who "petition[ ] the Government for redress of grievances, whether by efforts to influence legislative or executive action or by seeking redress in court, [are] immune from liability" for such activity under the First Amendment. Covad Commc'ns Co. v. Bell Atlantic Corp., 398 F.3d 666, 677 (D.C.Cir. 2005) (citing E.R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 136, 81 S. Ct. 523, 5 L. Ed. 2d 464 (1961), and Cal. Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508, 510, 92 S. Ct. 609, 30 L. Ed. 2d 642 (1972)). An exception to that immunity is recognized where the defendants' activity is a "sham" for "threats, intimidation, and other coercive measures," primarily to "harass or discriminate against the plaintiff[ ]." See Smithfield Foods, Inc. v. United Food and Commercial Workers Int'l Union, 593 F. Supp. 2d 840, 844 (E.D.Va.2008).
The Court has reviewed plaintiff's original and amended complaints, and his memoranda in opposition to the Jones Walker motion to dismiss, and it is clear *81 that all of plaintiff's allegations against the Jones Walker DC Defendants solely concern their petitioning activities on behalf of their clients before various governmental bodies. See Am. Compl. passim; Pl.'s Opp'n to Jones Walker Mot., ECF Doc. No. 35, at 24-25 (contending that in petitioning Congress, "Jones Walker . . . [acted] in their official capacity of Lobbyist for Laws, [and] . . . solely as an Attorney Law Firm," and "PURELY FOR PROFITS"). Furthermore, none of the allegations even remotely suggest that the Jones Walker DC Defendants used that petitioning activity as a "sham" for the purpose of intimidating or harassing plaintiff or otherwise discriminating against him. Accordingly, the Court holds that the Jones Walker DC Defendants are immune from plaintiff's claims under the Noerr-Pennington doctrine.[4]
III. The District of Columbia Bar
The D.C. Bar contends that, even if plaintiff had standing to assert a claim against it, the D.C. Bar should be dismissed from this case based on, inter alia, immunity against claims challenging how it conducts the attorney disciplinary process. See D.C. Bar Mem. at 11-13. The Court agrees.
First, D.C. Bar Rule XI, § 19(a) provides for broad immunity to participants in the disciplinary process. It states:
(a) Immunity. Complaints submitted to the Board or Bar Counsel shall be absolutely privileged, and no claim or action predicated thereon may be instituted or maintained. Members of the Board, its employees, members of Hearing Committees, Bar Counsel, and all assistants and employees of Bar Counsel, all persons engaged in counseling, evaluating or monitoring other attorneys pursuant to a Board or Court order or a diversion agreement, and all assistants or employees of persons engaged in such counseling, evaluating or monitoring shall be immune from disciplinary complaint under this rule and from civil suit for any conduct in the course of their official duties.
Id. (emphasis added). The District of Columbia Court of Appeals promulgated this rule under the statutory authority given to it by Congress to adopt rules concerning the "censure, suspension, and expulsion" of bar members. See District of Columbia Court Reform and Criminal Procedure Act of 1970, Pub.L. No. 91-358, §§ 11-2501, 11-2502, 84 Stat. 473, 521 (July 29, 1970); see also Rules Governing the District of Columbia Bar, Preamble. Accordingly, suits against those components of the D.C. Bar engaged in the disciplinary process are appropriately dismissed based on the immunity conferred by this rule. See Thomas v. Knight, 257 F. Supp. 2d 86, 94 (D.D.C.2003) (where defendants are "acting within the scope of their official duties as the disciplinary arm of the [D.C. Court of Appeals], they are immune" from suit), aff'd, 2003 WL 22239653 (D.C.Cir. Sept. 24, 2003); Nwachukwu v. Rooney, 362 F. Supp. 2d 183, 192 (D.D.C.2005) (noting that D.C. Bar Rule XI, § 19(a) grants those acting as the disciplinary arm of the courtthere, the Bar Counsel"immunity from suit for any conduct in the course of their official duties").
*82 Additionally, the common law also provides absolute immunity to the D.C. Bar with respect to its decisions whether or not to initiate disciplinary proceedings. The D.C. Circuit has held that another disciplinary arm of the District of Columbia Court of Appealsthe Committee on the Unauthorized Practice of Lawis entitled to "the full protection of absolute immunity" for its actions involved in the assessment of whether to initiate disciplinary proceedings. See Simons v. Bellinger, 643 F.2d 774, 780 (D.C.Cir.1980). The court explained that "the Committee was performing, by delegation, the inherent judicial function of determining who is authorized to practice law," and was "serv[ing] as an arm of the court." Id. Those same principles apply to the D.C. Bar, which plaintiff has sued based on its alleged failure to disbar or pursue some other disciplinary action against the Jones Walker attorneys. See Nwachukwu, 362 F.Supp.2d at 192 (holding that "an allegedly wrongful decision not to initiate formal proceedings . . . is judicial in nature" and, hence, entitled to absolute immunity under Simons v. Bellinger, 643 F.2d at 780). Plaintiff objects to dismissal, invoking broad references to the general duty of the D.C. Bar "to protect, defend, and honor the United States Constitution," and the primacy of his Constitutional rights over any immunity doctrines. See Pl.'s Opp'n to D.C. Bar's Mot., ECF Doc. No. 40, at 8-15. However, that rhetoric fails altogether to address the legal standards that govern absolute immunity. In short, the D.C. Bar is shielded from plaintiff's claims by the immunity set forth in D.C. Bar Rule XI, § 19(a) and the absolute immunity attendant to its disciplinary functions as recognized in Simons v. Bellinger.
IV. Venue
Plaintiff has alleged that venue lies in the District of Columbia based on the actions of the Jones Walker DC attorneys and the D.C. Bar. Am. Compl. at 12. The Court observed in its initial order that a transfer of venue to Louisiana would likely be appropriate if the DC defendants were dismissed, in light of the location of well over 100 defendants there and the close nexus between the events alleged and that state. See Order at 2-3 (filed Apr. 21, 2009).[5]
The general venue statute provides that: "For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." 28 U.S.C. § 1404(a). Here, virtually all of the remaining named parties are located in Louisiana. These include the Louisiana State Bar Association and its Board of Governors, two judges in the Eastern District of Louisiana, dozens of attorneys in New Orleans or elsewhere in Jefferson Parish, and sheriffs located in Jefferson Parish. See Am. Compl. at 13-40. Many of these parties appear to be the relevant witnesses as well. Since the few defendants located in the District of Columbia have been dismissed, this case has no further connection to this venue. Plainly, then, venue is appropriate in Louisiana, and in particular, in the Eastern District of Louisiana (which covers New Orleans and the Jefferson Parish). Therefore, pursuant to 28 U.S.C. § 1404, the Court concludes that it is in the interests of justice to transfer this action to the Eastern District of Louisiana for the convenience of the parties and witnesses *83 and also considering the close nexus between the events alleged and that district.[6]
CONCLUSION
For the foregoing reasons, the Court will grant the motions to dismiss filed by the District of Columbia Bar and the Jones Walker DC Defendants. With respect to the remaining defendants, the Court will transfer this action to the Eastern District of Louisiana. A separate order accompanies this memorandum opinion.
NOTES
[1] For ease of reference, the Court will refer to defendants' memoranda in support of their motions to dismiss as "D.C. Bar Mem." and "Jones Walker Mem.," respectively. Plaintiff has filed several memoranda with the Court, which will be referred to by an abbreviated title and ECF document number.
[2] Cody and Sabiston deny plaintiff's contention that they are employed by the Jones Walker law firm, but state they will treat plaintiff's factual allegations as true for purposes of the motion to dismiss. See Jones Walker Mem. at 1 n. 2. They also note that they have not been served with process, but have joined in the Jones Walker motion to dismiss in the interest of judicial economy. Id.
[3] Defendants suggest that plaintiff has failed to establish injury-in-fact, but stress the other two prongs for simplicity. See D.C. Bar Mem. at 5 n. 2. The Court also has serious doubts as to whether plaintiff has alleged injury-in-fact, in light of the generalized nature of his injurythat is, the continued suffering of plaintiff and all others in the Louisiana area from an allegedly inadequate and mismanaged federal and state response to Hurricanes Katrina and Rita. Injuries which are "general rather than particularized are not sufficient to create standing." See Taitz v. Obama, 707 F. Supp. 2d 1, 3 (D.D.C.2010). Hence, a plaintiff seeking "`relief that no more directly and tangibly benefits him than it does the public at large . . . does not state an Article III case or controversy.'" Id. (quoting Lujan, 504 U.S. at 573-74, 112 S. Ct. 2130). However, the defendants have not briefed this aspect of standing, and hence the Court does not rest its holding on the absence of injury-in-fact.
[4] The Jones Walker DC Defendants also move to dismiss plaintiff's claims on the ground that they did not have an attorney-client relationship with him and, hence, owed him no legal duties. See Jones Walker Mem. at 9-14; Jones Walker Supplemental Mem. at 2-4; Jones Walker Reply at 2-14; Pl.'s Opp'n, ECF Doc. No. 35, at 9-14, 20-21. However, plaintiff and defendants both refer to facts outside of the complaint to make their arguments on this issue, and hence the Court does not reach it in resolving the pending motions.
[5] For example, plaintiff alleges that many of the Louisiana defendants misused their professional licenses to pursue illegal seizures, sales, and attachments of his Louisiana properties and to interfere with several lawsuits in state and federal courts located in Louisiana. See, e.g., Am. Compl. at 51-72, 95-97. The complaint further indicates that plaintiff was a resident of Louisiana during much of the time period at issue. Id. at 59-70.
[6] Transfer of venue arguably is required under 28 U.S.C. § 1406(a) as well, which provides for transfer where a case is filed in the wrong district. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3173623/ | UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
_________________________________________
)
Robert Smith, Jr., )
)
Plaintiff, )
) Civil No. 14-cv-00959 (APM)
v. )
)
United States of America, )
)
Defendant. )
_________________________________________ )
MEMORANDUM OPINION
I. INTRODUCTION
In September 2011, Robert Smith, Sr., died while in the care of the Veterans Affairs
Medical Center in Washington, D.C. Before his passing, Smith executed paperwork—witnessed
by three employees of the Medical Center—that left his personal property and life insurance
benefits to his nieces. Smith’s son, Plaintiff Robert Smith, Jr., who inherited none of his father’s
property or assets, now brings this action claiming that the Medical Center’s employees were
negligent in acting as witnesses to his father’s testamentary acts. For the reasons explained below,
Defendants’ Motion to Dismiss is granted.
II. BACKGROUND
A. Factual History
After a long history of battling various ailments, Robert Smith, Sr. (“Smith”), died at the
Veterans Affairs Medical Center (the “Medical Center”) in Washington, D.C., on September 13,
2011. Shortly before his death, on August 22, 2011, Smith executed a Last Will and Testament in
which he left all of his personal property to his nieces. Pl.’s Mot. to Amend. the Compl., Ex. 3,
ECF No. 19-3, at 3-5 [hereinafter Mot. to Amend.]. He also signed other paperwork designating
his nieces as the beneficiaries of two life insurance policies and a civil service retirement plan
death benefit. Compl., ECF No. 1, at 3-5; Mot. to Amend., Ex. 3 at 7. Smith completed the
paperwork while he was a patient at the Medical Center. Mot. to Amend., Ex. 3 at 3-5, 11. All
three people who witnessed his testamentary acts—Lea Anderson, Keon Anderson, and Valerie
Flowers (collectively the “Medical Center Employees”)—were, at the time, employees of the
Medical Center. Id.
Smith’s son, Plaintiff Robert Smith, Jr., received none of his father’s personal property or
assets. On April 11, 2013, more than 19 months after his father’s death, Plaintiff filed an
administrative claim on a Standard Form 95 (“SF-95”) with Defendant United States Department
of Veterans Affairs. Mot. to Amend., Ex. 3 at 1. In his claim, Plaintiff accused the Medical Center
Employees of “conspir[ing] and forg[ing] the signature of Robert Smith on a Last Will and
Testament, on Designation of Beneficiaries for insurance benefits, death benefits, and retirement
benefits.” Id. He further accused the Medical Center Employees of assisting Smith’s nieces to
steal his father’s wallet, keys, credit cards, and other personal property. Id. Plaintiff asserted that
the “above described acts constituted fraudulent misrepresentation, conspiracy, collusion, forgery,
malfeasance, theft and negligence.” Id. After conducting an investigation, the Department of
Veterans Affairs rejected Plaintiff’s administrative claim on December 10, 2013. Id., Ex. 4,
ECF No. 19-4.
B. Procedural History
On June 6, 2014, Plaintiff filed this action naming the Department of Veterans Affairs and
the United States Office of Personnel Management (“OPM”) as defendants. Compl. ¶ 3. In his
Complaint, Plaintiff asserted five claims under the Federal Tort Claims Act (“FTCA”). Counts
One through Four each alleged that the Medical Center Employees had acted negligently by
2
serving as witnesses to Smith’s various testamentary acts. Id. at 2-5. In Count Five, brought only
against OPM, Plaintiff claimed that “[OPM] has not responded to the Plaintiff’s requests for
information and has not paid death benefits to anyone.” Id. ¶ 25.
On March 9, 2015, Defendants moved to dismiss the Complaint under Federal Rules of
Civil Procedure 12(b)(1) and 12(b)(6) for, respectively, lack of subject matter jurisdiction and
failure to state a claim. Mot. to Dismiss, ECF No. 16, at 1. Under Rule 12(b)(1), Defendants
primarily asserted that Plaintiff had failed to exhaust his administrative remedies, which is a
jurisdictional prerequisite to filing suit under the FTCA. Id. at 8-10. Specifically, Defendants
contend that Plaintiff did not exhaust his remedies “because his claim to the Agency presented a
wholly different set of facts, allegations, and claims than his Complaint filed in this Court.” Id. at
8. Under Rule 12(b)(6), Defendants argued that, because Plaintiff had failed to allege that the
Medical Center Employees owed him any duty, he could not maintain his negligence claims. Id.
at 13-15.
Instead of filing an opposition to Defendants’ motion, Plaintiff moved to amend his
Complaint in several ways. See generally Mot. to Amend the Compl., ECF No. 19. First, to shore
up his negligence claims, Plaintiff asked to add allegations that (1) the Medical Center Employees
“had a duty to follow regulations and customs of the Medical Center which prohibited employees
from signing and witnessing documents concerning the personal affairs of [its] patients,” id., Ex. 2,
ECF No. 19-2, ¶ 12, and (2) he had “relied upon employees of the Medical Center to follow its
regulations and customs,” id. ¶ 12. Second, Plaintiff sought to name the Medical Center as a
defendant and to assert against it a claim that it had failed to adequately train its employees as to
alleged policies that prohibited them from witnessing acts and signing documents concerning
patients’ personal affairs. Id. ¶¶ 16-19. Third, Plaintiff wished to include the allegation that he
3
had “exhausted his administrative remedies.” Id. ¶ 4. Defendants opposed the Motion to Amend
on the ground that Plaintiff’s proposed amendments were futile. See generally Defs.’ Opp’n to
Pl.’s Mot. to Amend, ECF No. 21.
III. STANDARDS OF REVIEW
The motions before the court require it to consider standards of review under
Rules 12(b)(1), 12(b)(6), and 15(b). Those standards are as follows.
A. Motion to Dismiss under Rule 12(b)(1)
A motion filed under Rule 12(b)(1) imposes on a court “an affirmative obligation to ensure
that it is acting within the scope of its jurisdictional authority.” Grand Lodge of Fraternal Order
of Police v. Ashcroft, 185 F. Supp. 2d 9, 13 (D.D.C. 2001). Plaintiff bears the burden of proving
that the court has subject matter jurisdiction to hear his claims. See Lujan v. Defenders of Wildlife,
504 U.S. 555, 561 (1992). “For this reason, ‘the [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 (citation omitted).
In analyzing a 12(b)(1) motion, a court need not limit itself to the complaint. Settles v. U.S.
Parole Comm’n, 429 F.3d 1098, 1107 (D.C. Cir. 2005). It “may consider such materials outside
the pleadings as it deems appropriate to resolve the question whether it has jurisdiction to hear the
case.” Scolaro v. D.C. Bd. of Elections and Ethics, 104 F. Supp. 2d 18, 22 (D.D.C. 2000) (citations
omitted); see also Herbert v. Nat'l Acad. of Scis., 974 F.2d 192, 197 (D.C. Cir. 1992) (“[W]here
necessary, the court may consider 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.” (citations omitted)).
4
B. Motion to Dismiss under Rule 12(b)(6)
“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. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim
is facially plausible when “the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Id. The factual
allegations in the complaint need not be “detailed”; however, the Federal Rules demand more than
“an unadorned, the-defendant-unlawfully-harmed-me accusation.” Id. “Threadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. If the
facts as alleged fail to establish that a plaintiff has stated a claim upon which relief can be granted,
a court must grant defendant’s Rule 12(b)(6) motion. See Am. Chemistry Council, Inc. v. U.S.
Dep’t of Health & Human Servs., 922 F. Supp. 2d 56, 61 (D.D.C. 2013).
In evaluating a motion to dismiss under Rule 12(b)(6), the court must accept a plaintiff’s
factual allegations as true and “construe the complaint ‘in favor of the plaintiff, who must be
granted the benefit of all inferences that can be derived from the facts alleged.’” Hettinga v. United
States, 677 F.3d 471, 476 (D.C. Cir. 2012) (quoting Schuler v. United States, 617 F.2d 605, 608
(D.C. Cir. 1979)). The court need not accept as true “a legal conclusion couched as a factual
allegation,” Papasan v. Allain, 478 U.S. 265, 286 (1986), or “inferences . . . unsupported by the
facts set out in the complaint,” Kowal v. MCI Commc’ns Corp., 16 F.3d 1271, 1276 (D.C. Cir.
1994).
C. Motion to Amend Complaint under Rule 15(a)(2)
Under Federal Rule of Civil Procedure 15(a)(2), a “court should freely give leave [to
amend] when justice so requires.” The Supreme Court has emphasized that Rule 15(a)’s “mandate
5
is to be heeded.” Foman v. Davis, 371 U.S. 178, 182 (1962). “If the underlying facts or
circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded
an opportunity to test his claim on the merits.” Id. Denying leave to amend is “inconsistent with
the spirit of the Federal Rules,” and thus an abuse of discretion, id., unless the court provides a
sufficient reason for so doing, such as “futility of amendment, undue delay, bad faith, dilatory
motive, undue prejudice, or repeated failure to cure deficiencies by previous amendments.” Boyd
v. District of Columbia, 465 F. Supp. 2d 1, 3 (D.D.C. 2006) (other citation omitted) (citing Foman,
371 U.S. at 182).
IV. DISCUSSION
A. Failure to Exhaust Administrative Remedies
The FTCA contains a claim presentment requirement that is a jurisdictional prerequisite to
filing suit. See 28 U.S.C. § 2675(a); GAF Corp. v. United States, 818 F.2d 901, 917 (D.C. Cir.
1987) (“In order to establish jurisdiction under the Act, a claimant must provide the agency with
notice of a claim . . . .”). Congress included the presentment requirement in the FTCA to “enable
the agency to investigate and ascertain the strength of a claim . . . [and] to determine whether
settlement or negotiations . . . are desirable.” Id. at 920. To satisfy the requirement, a claimant
must “file (1) a written statement sufficiently describing the injury to enable the agency to begin
its own investigation, and (2) a sum-certain damages claim.” Id. at 919. The claimant need not,
however, “substantiate [the claim] to the agency’s satisfaction.” Id. at 917.
Though satisfying the presentment requirement is hardly onerous, it does demand
consistency between the facts the claimant presents to the agency and the facts she alleges in her
complaint. A claimant “may not ‘present one claim to the agency and then maintain suit on the
basis of a different set of facts.’” Williams v. United States, 932 F. Supp. 357, 361 (D.D.C. 1996)
6
(quoting Deloria v. Veterans Admin., 927 F.2d 1009, 1012 (7th Cir. 1991)). The reason for that
limitation is obvious. The purpose of the presentment requirement is to enable an agency to
investigate, evaluate, and settle a claim before litigation ensues. Such purpose would be defeated
if a claimant could present one set of facts to an agency but seek a liability finding based on a
different set of facts in court.
In this case, Plaintiff has not met the presentment requirement. The facts underlying the
negligence claims in his Complaint differ sharply from the facts contained in his administrative
claim. In his Complaint, Plaintiff accuses the Medical Center Employees of “negligently” serving
as witnesses to Smith’s testamentary acts. Compl. at 2-5. According to Plaintiff, Medical Center
policy prohibited the employees from acting in such a capacity. Pl.’s Opp’n to Defs.’ Mot. to
Dismiss, ECF No. 22, at 9 [hereinafter Pl.’s Opp’n].1
In contrast, Plaintiff’s administrative claim accuses the employees of committing
intentional torts, if not criminal acts. The SF-95 Plaintiff submitted to the agency alleges that the
Medical Center Employees (1) “conspired and forged” Smith’s signature on various testamentary
documents and (2) “assisted and aided” his nieces in stealing his personal property. Mot. to
Amend., Ex. 3 at 1. This presents a starkly different factual predicate than that alleged in the
Complaint. Whereas the administrative claim contends that Smith did not sign the documents in
question—the Medical Center Employees forged the signatures, according to the SF-95—the
Complaint’s premise is that Smith did in fact himself execute the documents, but the employees
were “negligent” in choosing to serve as witnesses to his acts. Because of the significant
differences in these factual scenarios, the presentment requirement bars Plaintiff from proceeding
1
Technically speaking, Plaintiff’s Opposition to Defendant’s Motion to Dismiss (“Plaintiff’s Opposition”) is a reply
brief to Defendant’s Opposition to Plaintiff’s Motion to Amend the Complaint. See ECF No. 21. Plaintiff then late-
filed an “Opposition to Defendant’s Original Motion to Dismiss” that incorporated Plaintiff’s arguments from
Plaintiff’s Opposition, ECF No. 26, which the court accepted, Minute Order, June 26, 2015.
7
on his newly conceived negligence claims. See Murphy v. United States, 121 F. Supp. 2d 21, 27
(D.D.C. 2000) (dismissing the plaintiff’s invasion of privacy claim for failure to exhaust because
that claim “demand[ed] markedly different factual evidence than those of common law assault or
negligence,” which the plaintiff had advanced in his administrative claim); cf. Pullen v. United
States, No. Civ. A. 96-1211 (RCL), 1997 WL 350003 (D.D.C. June 11, 1997), at *4 (denying a
motion to dismiss where the factual difference between the administrative claim and the complaint
was minor).
Plaintiff contends he did not run afoul of the presentment requirement because his SF-95
listed “negligence” among the types of conduct committed by the Medical Center’s employees.
Pl.’s Opp’n at 5. He argues: “The presentment requirement does not require that a claim based
on negligence, and a claim based on intentional acts, be submitted separately. Neither does it
prohibit a claim from including both intentional acts and negligent acts.” Id. Plaintiff is correct
insofar as he asserts that the presentment requirement does not require a claimant to list every
conceivable cause of action in an administrative claim in order to reserve those claims for a federal
court litigation. “If the claim ‘fairly apprises the government of the facts leading to the claimant’s
injury, new theories of why those facts constitute tortious conduct can be included in a federal
court complaint.’” Bush v. United States, 703 F.2d 491, 494 (5th Cir. 1983) (quoting Rise v. United
States, 630 F.2d 1068, 1071 (5th Cir. 1981)) (cited approvingly in GAF Corp., 818 F.2d at 919
n.106).
But merely identifying a theory of liability—in this case, “negligence”—by name in an
administrative claim is not enough to preserve it for a federal court complaint. Although a claimant
need not specify a particular theory of liability for every claim, she must assert facts such that the
agency can assess the claim for settlement. See GAF, 818 F.2d at 921 (rejecting interpretation of
8
the presentment requirement as “demand[ing] that the claimants specify particular theories of
liability for each of the underlying claims”). Thus, whether a claimant has satisfied the
presentment requirement depends on the facts set forth in the administrative claim, not on the
identified possible theories of liability.
Here, Plaintiff’s inclusion of “negligence” on his SF-95 failed to provide the requisite
notice. Within a text box titled “Basis of Claim,”2 Plaintiff wrote: “The above described acts
constituted fraudulent misrepresentation, conspiracy, collusion, forgery, malfeasance, theft and
negligence.” Mot. to Amend., Ex. 3 at 1 (emphasis added). As discussed, those “above described
acts” were the Medical Center’s Employees’ alleged forgery of Smith’s signature and their
supposed aid to his nieces in stealing his personal property. Id. Nothing in the SF-95 adequately
apprised the agency of Plaintiff’s alternative factual basis for a claim: that the agency employees
merely witnessed Smith executing the documents in question and in so doing violated Medical
Center policy.
Plaintiff also contends that, in addition to identifying “negligence” on his SF-95, he placed
the agency on notice of his negligence claim by attaching ten pages of various documents to the
SF-95. The court disagrees. The documents attached to the SF-95 include copies of: (1) Plaintiff’s
retainer agreement with his counsel; (2) Smith’s Last Will and Testament; (3) a letter from OPM
to Smith’s niece about how to apply for death benefits; (4) a letter from OPM to Plaintiff rejecting
his request for death benefits and identifying Smith’s nieces as the appropriate beneficiaries; and
(5) four pages of Smith’s medical records. See Mot. To Amend, Ex. 3 at 2-11. None of these
materials, even read together with the SF-95, sufficiently put the agency on notice about the
2
The “Basis of Claim” text box contains instructions that emphasize the importance of providing a detailed factual
basis for the claim. See Mot. to Amend., Ex. 3 at 1 (“State in detail the known facts and circumstances attending the
damage, injury, or death, identifying persons and property involved, the place of occurrence and the causes thereof.”).
9
negligence claims now advanced in the Complaint. None of the documents imply, let alone
expressly state, that the Medical Center Employees merely served as witnesses to Smith’s
testamentary acts. If anything, the attached materials reinforce the allegation of intentional
misconduct stated in the SF-95, as they draw attention to Smith’s nieces and his supposedly
compromised medical condition at the time he executed the relevant documents. In short, because
the SF-95 and the documents attached to it did not adequately apprise the agency of the negligence
claims that Plaintiff now asserts in his Complaint, this court lacks subject matter jurisdiction to
consider them.3
To be clear, the court’s ruling that it lacks subject matter jurisdiction pertains to all of
Plaintiff’s negligence claims, including his claim against OPM. Defendant has not argued that the
court lacks jurisdiction with respect to the OPM claim because of Plaintiff’s failure to exhaust.
See Def.’s Opp’n to Pl.’s Mot. to Amend at 5 (arguing only that the proposed amended complaint
“still makes no reference to negligence (or any other legal theory of liability)”). The court,
however, has an independent obligation to determine whether subject-matter jurisdiction exists,
even if not specifically raised by Defendant. See Arbaugh v. Y&H Corp., 546 U.S. 500, 501 (2006)
(“[C]ourts . . . have an independent obligation to determine whether subject-matter jurisdiction
exists, even in the absence of a challenge from any party.”). Plaintiff has neither alleged nor
supplied any evidence establishing that he submitted an administrative claim to OPM before filing
suit. The court therefore lacks subject matter jurisdiction as to the claim against OPM, as well.
3
Because the court has construed Plaintiff’s Complaint as asserting claims of negligence, the court does not reach
Defendant’s argument that Plaintiff has in actuality pled claims for negligent misrepresentation and deceit as to which
the United States has not waived immunity under the FTCA. See Mot. to Dismiss at 10-12.
10
B. Failure to State a Claim
Defendant also argues that Plaintiff’s claims must be dismissed under Rule 12(b)(6)
because he has failed to sufficiently allege claims for negligence. To establish a claim for
negligence, a plaintiff must allege that (1) the defendant owed the plaintiff a duty of care; (2) the
defendant breached that duty; and (3) the defendant’s acts proximately caused the plaintiff to suffer
an injury. See Wash. Metro. Area Transit Auth. v. Ferguson, 977 A.2d 375, 377 (D.C. 2008); see
also Tarpeh-Doe v. United States, 28 F.3d 120, 123 (D.C. Cir. 1994) (“Tort liability under the
FTCA is determined according to the law of the state where the alleged acts or omissions
occurred.”). Defendant contends that Plaintiff has failed to allege facts that would support the
existence of a duty owed to Plaintiff. Mot. to Dismiss at 13-14. Although the court already has
found that it lacks subject matter jurisdiction to hear Plaintiff’s claims, the court agrees with
Defendant and also dismisses the Complaint on the alternative ground that it fails to state a claim
of negligence.
The existence of a legal duty owed by the defendant to the plaintiff is an essential element
of a negligence claim. Wash. Metro. Area Transit Auth., 977 A.2d at 377. The plaintiff “must
specify a negligent act and ‘characterize the duty whose breach might have resulted in negligence
liability.’” District of Columbia v. White, 442 A.2d 159, 162 (D.C. 1982) (quoting Kelton v.
District of Columbia, 413 A.2d 919, 922 (D.C. 1980)). The description of the duty cannot,
however, “rest on mere ‘conclusory assertions.’” Simms v. District of Columbia, 699 F. Supp. 2d
217, 227 (D.D.C. 2010) (quoting White, 442 A.2d at 162).
Plaintiff asserts that he was owed a duty as a potential beneficiary of his father’s estate
based on “a policy at [the Medical Center] that employees shall not witness any document that is
going to be used outside the hospital.” Pl.’s Opp’n at 9. According to Plaintiff, although this
11
“policy” is nowhere committed to writing, it is taught “during training of employees” and “echoed
in The Department of Veteran[s] Affairs, Mission Statement, which states that employees are
required to report to the Office of Inspector General employees [who] perform serious improper
practices and theft by deception that results in damage or loss to another.” Id.
Defendants vigorously dispute the existence of such a policy and Plaintiff’s
characterization of the Mission Statement. See Def.’s Reply to Pl.’s Opp’n, ECF No. 23, at 11.
The court, however, need not wade into the debate. Even assuming that such an internal policy
exists, it does not create a duty in favor of the public in general or in favor of potential beneficiaries,
such as Plaintiff. See Kugel, 947 F.2d at 1507-08 (D.C. Cir. 1991) (holding that violations of
“intra-office” manuals do not “create a duty in favor of the general public”; alleged violation of
Department of Justice (DOJ) internal guidelines did “not make out a discrete negligence claim
under the FTCA” (citing Schweiker v. Hansen, 450 U.S. 785 (1981))); Hatfill v. Ashcroft, 404 F.
Supp. 2d 104, 120-21 (D.D.C. 2005) (holding that an alleged violation of DOJ regulations
concerning disclosure of information did not give rise to a FTCA claim); see also Schweiker, 450
U.S. at 789 (holding that a Social Security Administration claims manual “has no legal force”);
Sloan v. Dep’t of Hous. & Urban Dev., 231 F.3d 10, 18 (D.C. Cir. 2000) (holding that agency
employees’ alleged violation of internal audit guidelines did not support a due process violation).4
Therefore, because Plaintiff has failed to allege that the Medical Center Employees owed him a
duty, Plaintiff’s negligence claims must be dismissed.
4
The court also has looked at whether, under common law, a witness to a testamentary act owes a duty to potential
beneficiaries. No such duty appears to exist. At most, a witness has a “duty to inquire into the competency of the
maker of the will.” Thompson v. Smith, 103 F.2d 936, 940 (D.C. Cir. 1939). However, the court has not found, and
Plaintiff has not cited, any authority holding that such duty flows to potential beneficiaries and that a breach of such
duty gives rise to a claim for negligence.
12
The same conclusion pertains to Plaintiff’s claim of negligence based on OPM’s alleged
conduct. Plaintiff has not alleged any facts that would establish OPM owed him a duty. See
Compl. ¶¶ 23-25. And, even if he has alleged a duty, he has not alleged OPM breached it. See id.
¶¶ 23, 25 (alleging that “Plaintiff requested [that OPM] not pay the death benefits of his father”
and that OPM “has not paid death benefits to anyone”) (emphasis added).
C. Motion to Amend
Finally, the court denies Plaintiff’s Motion to Amend because permitting amendment of
the Complaint would be “futile.” “Courts may deny a motion to amend a complaint as futile . . .
if the proposed claim would not survive a motion to dismiss.” James Madison Ltd. by Hecht v.
Ludwig, 82 F.3d 1085, 1099 (D.C. Cir. 1996). The court has had the benefit of reviewing
Plaintiff’s proposed Amended Complaint. See Mot. to Amend., Ex. 2. None of his proposed
amendments would enable him to survive a motion to dismiss.
Count One of the Amended Complaint largely restates and consolidates in a single count
Plaintiff’s negligence claims, which arise from the Medical Center Employees’ witnessing of
Smith’s testamentary acts. Id. ¶¶ 11-15. Count Three restates Plaintiff’s negligence claim arising
from OPM’s alleged misconduct. Id. ¶¶ 20-23. None of Plaintiff’s proposed amendments cure
the defects discussed above.
Count Two of the Amended Complaint seeks to join the Medical Center itself as a
defendant and to assert against it a claim for negligent “failure to train.” Id. ¶¶ 16-19. But
Plaintiff’s new claim suffers from the same fatal deficiency as his other negligence claims:
Plaintiff failed to administratively exhaust the new claim. The SF-95 does not supply any facts
that would apprise the Veterans Administration of a claim asserting that Plaintiff’s injuries were
proximately caused by the Medical Center’s negligent training of its employees.
13
Further, Plaintiff’s proposed Count Two would not survive a motion to dismiss for a second
reason. Under 28 U.S.C. § 2680(a)—also known as the “discretionary function exception” to the
FTCA—the federal government is immune from liability for agents’ decisions that “‘involve an
element of judgment or choice.’” United States v. Gaubert, 499 U.S. 315, 323 (1991) (quoting
Berkovitz by Berkovitz v. United States, 486 U.S. 531, 534 (1988)). “In this circuit, federal
government hiring and employee supervision decisions are generally held to ‘involv[e] the
exercise of political, social, or economic judgment,’ and therefore, to fall with the scope of the
United States’ sovereign immunity.” Daisley v. Riggs Bank, N.A., 372 F. Supp. 2d 61, 82 (D.D.C.
2005) (quoting Burkhart v. Wash. Metro. Area Transit Auth., 112 F.3d 1207, 1217 (D.C. Cir.
1997)). That immunity encompasses decisions about training employees. “The extent of training
with which to provide employees requires consideration of fiscal constraints, public safety, the
complexity of the task involved, the degree of harm a wayward employee might cause, and the
extent to which employees have deviated from accepted norms in the past.” Burkhart, 112 F.3d
at 1217. In short, because Plaintiff’s proposed failure-to-train claim against the Medical Center
rests on “the exercise of political, social, or economic judgment,” id., Defendant is immune from
suit. Permitting Plaintiff to add such a claim therefore would be futile.
V. CONCLUSION
For the foregoing reasons, Defendant’s Motion to Dismiss is granted and Plaintiff’s Motion
to Amend the Complaint is denied. A separate Order accompanies this Memorandum Opinion.
Dated: January 29, 2016 Amit P. Mehta
United States District Judge
14 | 01-03-2023 | 01-29-2016 |
https://www.courtlistener.com/api/rest/v3/opinions/3171518/ | UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,
v. Criminal Action No. 15-42 (JEB)
ALAN J. SALTZMAN, D.O., et al.,
Defendants.
MEMORANDUM OPINION
While it is not uncommon for defendants to seek trial delays based on a lack of mental
competence, it is far rarer to see a legitimate claim of physical incapacity. Yet that is what the
Court now faces.
Alan Saltzman, a doctor of osteopathy (D.O.) residing in south Florida, and Titilayo
Akintomide Akinyoyenu, a pharmacist and owner of a retail pharmacy in Washington, D.C.,
were indicted in March 2015 on four conspiracy-related counts involving an alleged scheme to
unlawfully distribute prescription drugs by internet and mail. Last July, Saltzman moved to
sever and indefinitely postpone his trial on the ground of poor health. He suffers from a number
of serious ailments and argues that a lengthy trial conducted far from his home would place him
at great risk. The government does not dispute that Saltzman is unwell but believes that his
medical needs may be accommodated by the Court in such a way that severance is not necessary.
Convinced by persuasive testimony that a joint trial would at present constitute an
unwarranted physical ordeal, the Court will grant Saltzman’s Motion to Sever, but will order a
continuance only through the end of Akinyoyenu’s trial. The Court will at that point determine
whether Saltzman is physically able to withstand his own separate trial.
1
I. Background
A. Procedural History
According to the indictment, Defendants collaborated in a scheme to unlawfully fulfill
tens of thousands of prescription drug orders. Pursuant to the alleged conspiracy, Saltzman
would approve prescription-drug requests from online buyers without seeing, consulting,
diagnosing, or evaluating those “patients.” In that way, the government charges, he wrote
prescriptions without having established a doctor-patient relationship, which is a prerequisite for
the lawful distribution of a controlled substance. See Indictment, ¶¶ 13, 20. With Saltzman’s
prescriptions in hand, Akinyoyenu as pharmacist would then fill the orders despite knowing that
the prescriptions were not bona fide. In this manner, the government alleges, Defendants
completed upwards of 60,000 orders and took in approximately $8.4 million in proceeds. Id.,
¶¶ 20, 22, 24.
Saltzman was arraigned by videoconference in April 2015, see Minute Entry of Apr. 29,
2015, and placed on personal recognizance at his home in Florida. See ECF No. 13 (Order
Setting Conditions of Release). In July 2015, on account of his poor health, he moved to sever
his case from Akinyoyenu’s and sought an indefinite continuance. See Mot. at 1-2. After
briefing on the matter was complete, the Court held an evidentiary hearing on December 11,
2015, at which Saltzman, his wife Dorota, and his gastroenterologist and coordinator of care –
Dr. David Silver – testified. See ECF No. 47 (Transcript).
B. Saltzman’s Medical Condition
The central consideration in evaluating Defendant’s Motion is his current physical
condition, which the Court will describe by drawing on his physician’s affidavits, the testimony
presented at the December 2015 hearing, and the Court’s observations of Saltzman at that time.
2
Fortunately, the parties seem to agree on the medical evidence, with a dispute emerging only as
to what legal conclusion may be drawn therefrom.
Saltzman is 65 years old. See Mot., Exh. A (Affidavit of David Silver, M.D.), ¶ 9. He
suffers from numerous interrelated ailments affecting his digestive, endocrine, circulatory,
muscular, nervous, skeletal, and immune systems, all of which place substantial limits on his
physical activity and require routinized treatment.
1. Digestive Problems
Digestive issues loom large for Saltzman. In his late 20s, he was diagnosed with
Crohn’s, a disease that causes inflammation of the small intestine and has the potential to affect
the whole digestive tract. See Test. of Dr. David Silver, Tr. at 20:18-21:2. He first attempted to
manage his Crohn’s medicinally, but he ultimately underwent numerous abdominal surgeries to
remove “a significant portion of his small intestines.” Silver Aff., ¶ 12. He now suffers what is
known as Short Bowel Syndrome, which means he lacks the intestinal length needed to “absorb
the amount of nutrients” and retain “fluid levels” sufficient for survival. Id., ¶ 13. In 2010, he
was also diagnosed with colon cancer, which required surgical removal of portions of his large
intestine. Id., ¶ 22. This further reduced his body’s ability to absorb fluids. See Silver Test., Tr.
at 21:12-17.
Shortly before his colon-cancer diagnosis, Saltzman lost his ability to meet all of his
nutritional needs by consuming solid foods. See Silver Aff., ¶ 14. He thus began receiving
intravenous infusions of liquid containing all of the necessary nutritional requirements for his
survival – e.g., lipids, proteins, carbohydrates, and vitamins, as well as some medications. Id.,
¶ 15. This liquid infusion is called “Total Parenteral Nutrition” (TPN). Id. Following treatment
of his colon cancer, he was forced to receive 100% of his nutrition through TPN. Id., ¶ 23. This
3
necessitates a daily infusion; he “plug[s] in” to an IV system that dispenses the nutrient-rich fluid
over an 11- to 12-hour period. See Silver Aff., ¶¶ 15-16; Testimony of Alan Saltzman, Tr. at
114:7-12. He receives the infusions overnight, usually beginning around 6:30 p.m. and ending
when he wakes sometime between 5:30 and 6:00 a.m. See A. Saltzman Test., Tr. at 114:7-15.
The quantity of fluids he receives overnight results in “fluid overload,” which, given his
failed kidneys (more on that below), means that those fluids are slow to leave the body. See
Supplemental Affidavit of Dr. David Silver, at ¶ 6; Silver Aff., ¶ 27. During fluid overload, his
heart is forced “to work harder to try and push oxygen and nutrients through” his body, see
Silver Aff., ¶ 27, which makes it difficult for him to breathe. See Silver Test., Tr. at 42:3-7.
Upon waking every morning, he typically takes a diuretic to help him evacuate the fluids, rests
for a few more hours, and then is finally ambulatory sometime around 9:00 a.m. See A.
Saltzman Test., Tr. at 115:8-116:5.
2. Infections
His need to receive IV nutrition also created parallel, infection-related problems. The
IV’s entry points into his body are “permanent openings,” and, as a result, they are “prone to
receiving bacteria from human contact.” Silver Aff., ¶ 18. Saltzman has already suffered
bacterial infections and/or blood clots in both arms related to the presence of IVs, and neither
arm is now able to be used as a site for TPN infusions. See id., ¶¶ 19, 34. Once he lost the
ability to use his arms as IV entry points, he briefly received his TPN through his jugular vein – a
location that can only be used temporarily – and now has a port installed in his chest. See id.,
¶¶ 34-35. According to his gastroenterologist, the chest port is “the last and worst location for a
Port”; last, because he has no other permanent options available on his body for receiving IV
4
infusions, and worst, because “an infection in [his] chest can be rapidly fatal.” Id., ¶ 35; see
Silver Test., Tr. at 28:6-16.
3. Blood Transfusions
Saltzman’s digestive issues have also had a negative impact on his renal functions and
capacity to produce blood, leading to chronic renal insufficiency, kidney failure, and anemia.
Silver Aff., ¶ 26; Silver Supp. Aff., ¶ 4. These issues have rendered him unable to produce
erythropoietin, a hormone that the body needs to make blood cells and platelets. See Silver
Supp. Aff., ¶ 4 & Appendix A (Medication List) (describing administration of Procrit); Silver
Test., Tr. at 30:3-31:3. Since he cannot produce his own blood, Saltzman must receive blood
transfusions for replenishment. See Silver Test., Tr. at 32:12-23. His blood is sampled weekly
to test his hemoglobin level, which measures his red-blood-cell concentrations. See id. at 31:15-
32:23; Testimony of Dorota Saltzman, Tr. at 84:7. If his levels are abnormally low – a state that
carries risk of heart attacks and strokes – he receives a transfusion. See Silver Test., Tr. at 33:19-
25.
Like the nightly infusions of TPN, blood transfusions require large volumes of fluid to
enter his body, which musts occur slowly. See id. at 34:18-23, 35:14-15. They typically take
four to six hours, and, because the transfusions cause temporary respiratory stress, an additional
period of recovery may be necessary before his breathing returns to normal. Id. at 35:1-17,
58:10. He has been receiving blood transfusions on average once per month, although that
frequency appears to have increased more recently. See id. at 32:12-23, 48:10-14, 58:4-6.
4. Orthopedic Issues
Saltzman’s Crohn’s disease has caused bone-related problems, which increase his risk of
fracture-related hospitalization, cause pain, and decrease both his mobility and dexterity. On
5
account of his taking steroids (Prednisone) to treat his Crohn’s, he has developed Cushing’s
disease, which deteriorates and embrittles his bones, rendering them more susceptible to
breakage. See Silver Aff., ¶ 25; Silver Supp. Aff., ¶ 10. His physician indicates that he has been
hospitalized in the past for “frequent broken bones and fractures.” Silver Aff., ¶ 25.
He also has cervical stenosis, a condition that causes narrowing of the spinal canal and
pinching of the spinal cord. See Silver Test., Tr. at 28:17-29:10. This condition, in combination
with his osteoporosis, causes pain, numbness, weakness in his extremities, and may result in
paralysis from the neck down. See id. & at 48:15-23; Silver Supp. Aff., ¶ 10. It also makes
sitting upright painful, which may be ameliorated by periodic standing or stretching. See Silver
Test., Tr. at 10:24-11:6.
5. Routine Medical Care
Saltzman has assembled a team of doctors to treat this confluence of medical problems.
He sees his hematologist most frequently – typically every Friday for around one hour – to draw
and test his blood, which is used to prepare his nutritional infusions. See id. at 49:20-50:7; A.
Saltzman Test., Tr. at 102:20-103:10. He sees several physicians at least monthly, including Dr.
Silver, his gastroenterologist, as well as his primary-care, pain-management, and infectious-
disease doctors. See A. Saltzman Test., Tr. at 103:14-24. He also requires sporadic – i.e., once
every few months – checkups from his neurosurgeon, urologist, and nephrologist. Id. at 122:10-
18. Finally, he depends heavily on a pharmacist with the capacity to prepare his TPN, which
must be formulated in response to the particular blood-test results provided by his hematologist.
See Silver Test., Tr. at 49:15-50:18.
6
6. Activities and Physical Appearance
Saltzman’s mobility is relatively constrained, both because of his physical state as well as
practical limits placed upon his schedule by necessary treatments and appointments. In the 12
hours of each day when he is not connected to the TPN-infusion pump, he spends much of his
time resting, napping, and attending medical appointments. See D. Saltzman Test., Tr. at 80:10-
12, 93:25-94:4; A. Saltzman Test., Tr. at 125:16-25. He occasionally accompanies his wife
when she walks their dog in a “small circle around [their] neighborhood.” D. Saltzman Test., Tr.
at 82:6-10. And at times they go to lunch at restaurants close to their house, where they stay
only briefly and Saltzman eats very little, if anything. See id., 93:7-24. He is able to drive
himself to his medical appointments. See id., 93:25-94:4.
At the hearing Saltzman appeared alert and responsive. It began at 11:00 a.m. and
adjourned at 3:00 p.m., and it included one ten-minute break and one hour-long lunch break from
1:00 to 2:00 p.m. See Tr. at 38:16, 96:19-20. He testified, however, that he “fe[lt] terrible.” Id.
at 116:23; see id. at 117:11-13 (“[M]y stomach is starting to hurt. My arms are burning. My
neck hurts. And I’m having problems catching my breath.”).
II. Legal Standard
This Circuit has not addressed what standard governs the question of whether to sever or
postpone a defendant’s trial in a criminal case on the ground of physical incapacity. Its civil
precedent, while undoubtedly hoary, concludes that this is a matter committed to the discretion
of the trial-court judge. See Harrah v. Morgenthau, 89 F.2d 863, 864 (D.C. Cir. 1937) (reversing
district court’s denial of a six-month continuance for abuse of discretion where “the plaintiff was
his [own and] only witness and was so seriously ill that his appearance in court would probably
have resulted in his death”); Bradshaw v. Stott, 7 App. D.C. 276, 280 (D.C. Cir. 1895) (“The
7
postponement or continuance of a cause, in the courts of the United States . . . has . . . been
generally regarded as a matter addressed peculiarly to the sound discretion of the trial
court . . . .”). More recent criminal decisions in other circuits concur. See Bernstein v. Travia,
495 F.2d 1180, 1182 (2d Cir. 1974) (“Whether a defendant’s physical condition is so poor as to
require a continuance or severance” in a criminal case is a decision “reserved to the sound
discretion of the district Judge.”); accord United States v. Zannino, 895 F.2d 1, 13 (1st Cir. 1990)
(concluding that district court did not abuse discretion in denying continuance where it “took
substantial steps to reduce the medical risks incident to trial,” including ordering that Defendant
be “tried alone and sever[ing] most of the charges against him, leaving only three. . . . [that] were
handpicked to create both a shorter trial and one likely to curtail wear and tear on the defendant
(emotional as well as physical)”); United States v. Brown, 821 F.2d 986, 988 (4th Cir. 1987) (no
abuse of discretion in denying continuance).
III. Analysis
In weighing whether a severance or continuance is proper, the Court’s goal is to “assess
the degree to which a defendant’s health might impair his participation in his defense,” and to
determine whether “the proceeding is likely to worsen the defendant’s condition” or may result
in risk to his health, and to balance that against “the public interest in bringing those accused of
criminal misconduct promptly to account.” Brown, 821 F.2d at 988. “The mere possibility of an
adverse effect on [Defendant’s] wellbeing is not enough to warrant a postponement.” Zannino,
895 F.2d at 13. Rather, “‘the medical repercussions must be serious and out of the ordinary; the
impending trial must pose a substantial danger to a defendant’s life or health.’” Id. at 13-14
(quoting Brown, 821 F.2d at 988); see also United States v. Passman, 455 F. Supp. 794, 797
8
(D.D.C. 1978) (“The defendant cannot fairly be subjected to legal proceedings that would
involve a substantial risk to his health or life.”).
There is “no all-inclusive checklist of the factors which bear on such a determination.”
Zannino, 895 F.2d at 14. But when a defendant makes a “colorable claim of medical
dangerousness,” the Court should
investigate the situation, assemble the pertinent data, and then
consider not only the medical evidence but also the defendant’s
activities (in the courtroom and outside of it), the steps defendant is
taking (or neglecting to take) to improve his health, and the
measures which can feasibly be implemented to reduce medical
risks. . . . [T]he judge must [then] weigh the foreseeable risks
against the demonstrable public interest, taking into account factors
such as the severity of the charges and the extent of the
government’s interest in trying the defendant. If the perceived risks
overbalance the perceived benefits, a continuance must be granted.
Id.
The government does not contest that Saltzman is a very sick man with serious and
sometimes life-threatening conditions – all of which are unlikely to improve – or that his
ailments limit his ability to sit through and participate in trial as a defendant. Nor does it dispute
that Saltzman is actively managing his health and doing all he can to improve his physical
condition.
The Court, too, finds this portrait to be accurate. The written testimony presented by
Silver, along with his and both Saltzmans’ trial testimony, offered credible evidence that
Defendant’s health concerns are serious and debilitating. The $64 question is what conclusion to
draw from those facts. After briefly laying out the basic assumptions connected with the
anticipated trial, the Court explains why a severance is warranted.
It is helpful to begin by assessing the projected conditions under which Saltzman would
be tried were the Court to reject his plea for severance. In his Motion, he states that the
9
“Government . . . informed [Saltzman’s] counsel that [it] expects to call 20 witnesses during [its]
case-in-chief that would last at least three weeks.” Mot. at 14-15. The government does not
dispute that representation, but estimates – perhaps optimistically – that the whole trial is
“estimated to last two to three weeks.” Opp. at 13. The Court will assume for purposes of the
motion that the trial would, under normal conditions, last at least three weeks, and that it would
likely extend to five or six if the Court accommodated Saltzman’s reduced daily mobility and
need for regular appointments by shortening both the hours per day (from seven hours, excluding
lunch, to five) and days per week (from five days to four). See, e.g., Tr. at 49:5-51:6 (Court’s
questions to Dr. Silver regarding possible trial-schedule modifications); Opp. at 13 (proposing
trial schedule with “shorter court days and weeks [and] frequent recesses”).
While providing these accommodations would likely make the trial conditions more
tolerable on a daily basis, it would increase the amount of time that Saltzman would be away
from his Florida home, meaning that he would spend a longer duration separated from his long-
time medical team. Also, given Saltzman’s history of relatively frequent hospitalizations in
2015, see Silver Aff., ¶¶ 29-36; Silver Supp. Aff., ¶ 8; A. Saltzman Test., Tr. at 120:11-12, and
the fact that his condition has not improved, the longer the trial extends, the more likely he is to
suffer a condition requiring a period of hospitalization. See Silver Test., Tr. at 51:1-5 (“[I]f
you’re going to put him here for six weeks, I would say there’s a good chance he would end up
in the hospital sometime during that period because it’s hard to keep him out of the hospital.”).
And the longer the trial, the more recesses would be necessary for blood transfusions or other
medical visits. Finally, all of this does not take into consideration the effect of any stress that
Saltzman might undergo as a result of trial upon his other medical troubles. See id. at 42:8-
43:15.
10
In addition, although courts typically benefit from a denial of severance – since one trial
is almost always more efficient than two – that would likely not be the case here. Indeed, the
Court would be beholden to the vicissitudes of Saltzman’s condition from day to day and hour to
hour, and would likely be required to preside over considerably lengthened proceedings.
Codefendant Akinyoyenu, moreover, would also suffer from the increased time and expense of a
long trial. The more the government attempts to accommodate Saltzman’s health by adjusting
the trial schedule – e.g., more days off, shorter trial days – the more burdensome the result to
Akinyoyenu. But this conflict can be eliminated altogether if the two are tried separately. See
United States v. Gunter, No. 12-394-4, 2013 WL 5942341, at *2 (E.D. Pa. Nov. 5, 2013)
(granting defendant’s motion to sever trial from his codefendants and temporarily continue
where court concluded that “a significant extension of the trial schedule would unfairly increase
the expense for the other two defendants”); see also United States v. Jones, 876 F. Supp. 395,
397 (N.D.N.Y. 1995) (identifying “usefulness of delay” as a relevant factor).
Severance offers the additional benefit of streamlining the evidence and reducing the total
trial time for Saltzman as a single defendant if and when he is ultimately tried. At such a trial,
the government would have no need to present evidence relevant to Akinyoyenu’s charges but
immaterial to Saltzman’s. In addition, Saltzman could move to transfer the case to the Southern
District of Florida – should he believe such transfer to be warranted, see Platt v. Minnesota Min.
& Mfg. Co., 376 U.S. 240, 241 (1964) – without having to justify the added burden that such an
action would impose on a codefendant who lives in the Washington, D.C., area.
By severing the trials and delaying Saltzman’s until the conclusion of Akinyoyenu’s, the
Court and the parties would also benefit from additional information regarding Saltzman’s
physical condition. It may be that his health is relatively stable or he may suffer a decline in the
11
coming months. In addition, the Court will be able to more precisely estimate the length of
Saltzman’s prospective trial while using Akinyoyenu’s as a guide. It may then determine
whether further postponement is warranted or whether trial should proceed.
The Court recognizes that a severance and temporary postponement also comes with a
cost. It places added stress on witnesses who may be called to testify in both trials, it burdens
government resources by forcing it to manage two trials, and it may provide Saltzman with a
slight advantage insofar as he may benefit from “knowledge of the contents and weaknesses of a
witness’s testimony” provided in Akinyoyenu’s trial. See United States v. Gambino, 729 F.
Supp. 954, 970-71 (S.D.N.Y. 1990). In addition, it taxes the public’s interest in “speedy
disposition” of criminal cases, see Bernstein, 495 F.2d at 1182, since Saltzman’s trial will be
delayed for additional months.
At the same time, these burdens do not appear to outweigh the benefits of severance,
particularly since the Court is not at this point concluding that an indefinite continuance is
warranted or that Saltzman can never stand trial. The government, furthermore, has not argued
that any delay is intolerable, and thus the Court concludes that there is little to no “injury to the
public interest” that would “result from delay.” United States v. Doran, 328 F. Supp. 1261, 1263
(S.D.N.Y. 1971). This is true, in part, because Saltzman’s crimes are significantly less
substantial than those in other cases in which a severance and continuance were denied in part
due to the seriousness of the offense. See Zannino, 895 F.2d at 3 (senior figure in “La Cosa
Nostra” indicted on racketeering predicated on two counts of murder and four counts of
conspiracy to commit murder); United States v. Al Fawwaz, 67 F. Supp. 3d 581, 588 (S.D.N.Y.
2014) (seriousness of offense weighed heavily in denial of motion to sever where defendant
charged with “conspiracy to kill Americans abroad, resulting in the August 1998 bombings of
12
two United States embassies”); United States v. Gigante, 987 F. Supp. 143, 151 (E.D.N.Y. 1996)
(public “interest in a speedy disposition is plain” where defendant charged with “six murders,
conspiracy to commit three other murders, and various crimes of labor payoffs, extortion, and
mail fraud”); United States v. Gambino, 809 F. Supp. 1061, 1079 (S.D.N.Y. 1992) (“[T]he
public clearly has an interest in avoiding any delay or total preclusion of John Gambino’s trial”
where he was charged “with being a ‘captain’ in a large-scale organized crime association known
as the Gambino Crime Family” and that he “committed various acts of racketeering including
distribution of narcotics, murder, extortion, loansharking, and illegal gambling.”); United States
v. Carollo, No. 94-158, 1995 WL 143539, at *3 (E.D. La. Mar. 30, 1995) (“When the allegations
include ties to organized crime, other courts have found that it would be inappropriate to sever
and indefinitely postpone a defendant’s trial.”); cf. Gunter, 2013 WL 5942341, at *2 (E.D. Pa.
Nov. 5, 2013) (“While . . . fraud charges . . . are serious, there are crimes of greater magnitude in
the lexicon of federal offenses.”).
Even if the Court were to view this crime as similar to those mentioned above, such a fact
would weigh far more heavily in a decision to indefinitely postpone – resulting in a “total
preclusion of a trial,” see Doran, 328 F. Supp. at 1263 – than it does in assessing the effect of a
limited delay. The government does not dispute, furthermore, that Saltzman poses no risk of
repeating the crimes charged in his indictment. It agrees that he is no longer a licensed
osteopath, see Opp. at 2 n.1, which is a necessary predicate for serving as a prescribing physician
in online-pharmacy operations. The likelihood of recidivism is therefore null. See United States
v. Pollock, No. 11-71, 2014 WL 5782778, at *16 (M.D. Fla. Nov. 6, 2014) (indicating a
preference for speedy trial of defendant charged with distributing child pornography where “the
potential for any recidivism is high regardless of how ill Defendant may be: all Defendant needs
13
is a computer and the internet to commit the crimes that he is alleged to have committed”).
Severance and a temporary continuance creates no additional risk to the public welfare, and it
will not impinge on “the Government’s right to present its charges and to fulfill its public duty.”
United States v. DePalma, 466 F. Supp. 920, 926 (S.D.N.Y. 1979).
On balance, therefore, the Court concludes that Saltzman’s health and the benefits
associated with severing the trial outweigh the drawbacks of doing so.
IV. Conclusion
For these reasons, Saltzman’s Motion to Sever will be granted. The Court will permit a
continuance lasting through the end of Akinyoyenu’s trial. At that point, the Court will revisit
the issue and, depending on the medical evidence, set a trial date.
/s/ James E. Boasberg
JAMES E. BOASBERG
United States District Judge
Date: January 22, 2016
14 | 01-03-2023 | 01-22-2016 |
https://www.courtlistener.com/api/rest/v3/opinions/3158805/ | UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
JOHN ALRIDGE,
Plaintiff,
Civil Action No. 14-1952 (BAH)
v.
Judge Beryl A. Howell
RITE AID OF WASHINGTON, D.C., INC.,
Defendant.
MEMORANDUM OPINION
The plaintiff, John Alridge, proceeding pro se, brings this lawsuit against his current
employer, the defendant Rite Aid of Washington, D.C., Inc., 1 alleging employment
discrimination, defamation, and “13th and 14th [A]mendments [c]ivil [r]ights” violations
principally for events that occurred between November 2011 and February 2012. Compl. at 4,
9–10, ECF No. 1. The plaintiff alleges that he has suffered at least four years of harassment, id.
at 8, forced to perform “back-breaking” labor that his coworker was not required to do, id. at 4,
subjected to vicious rumors of being a “drug addict, alcoholic an[d t]hief,” id. at 8, and
repeatedly retaliated against by management for his attempts to report the discriminatory
behavior, id. at 5, 9. Pending before the Court is the defendant’s Motion to Dismiss. See Def.’s
Mot. Dismiss (“Def.’s Mot.”), ECF No. 4. For the reasons set forth below, the defendant’s
motion is granted.
1
Although the plaintiff initially named “Rite Aid Corporation” as the defendant in this action, the defendant
avers, and the plaintiff has not objected, that Rite Aid of Washington, D.C., Inc. is “[t]he proper corporate entity.”
Def.’s Mot. Dismiss (“Def.’s Mot.”) at 1 n.1, ECF No. 4; see also Pl.’s Opp’n Def.’s Mot. Dismiss (“Pl.’s Opp’n”)
at 2 (“I would like to file to properly identify the defendant as Rite Aid of Washington, D.C., Inc.”), ECF No. 7;
Fox/Neal Order, dated April 10, 2015 at 1 n.1, ECF No. 6.
1
I. BACKGROUND
In November 2011, the plaintiff, who has worked for the defendant since about 2008 and
identifies himself as a “Native American Seminole and Black,” was re-assigned to work as one
of two Assistant Managers at a Rite Aid pharmacy located at 5600 Georgia Avenue, Washington,
D.C. (“D.C. Rite Aid”). Compl. at 4 (noting that “May 2012” marked the plaintiff’s “4th year
working in Rite Aid Corporation”). The plaintiff’s supervisor at this Rite Aid branch, store
manager Bachir Jobe, is an “African” and the other employees at this store are “90% African.”
Id.
Within his first week at the store, the plaintiff alleges that the manager “made it very
clear that he did not identify with [the plaintiff] at all and did not want [him] there,” and
repeatedly referred to the plaintiff as “Yankee.” Id. The plaintiff was frequently required to
work outside “in the cold and rain” and to work overnight shifts during truck deliveries, which
involve “back-breaking, heavy-labor, bone-crushing work.” Id. In comparison to the plaintiff’s
assigned tasks, the other Assistant Manager never worked outside during the “cold, rainy, winter
season,” and never “had to work truck nights.” Id. The other Assistant Manager was given
preferable treatment, according to the plaintiff, because, although he was “born in America,” his
“parents are directly from Africa,” and the manager “identifies with and shares the same cultural
values.” Id.
The plaintiff avers that he “DO[ES]N’T KNOW WHY [HE] WAS TREATED THIS
WAY. CULTURAL DIFFERENCES, SKIN COMPLEXION, WHERE [HE] WAS FROM,
NOT FROM BUT [HE] WOULD LIKE SOME HELP IN FINDING OUT WHY.” Id. at 4
(emphasis in original).
2
In December 2011, a month after the plaintiff began working at the D.C. Rite Aid, the
plaintiff called the District Manager to “discuss the discriminatory, hostile and unfavorable
nature” of the store manager’s behavior towards him. Id. at 5. The District Manager, however,
simply responded “Live with it,” and discouraged the plaintiff from calling human resources,
commenting that the plaintiff can “[c]all them but make sure you know what you are doing.” Id.
Tensions apparently escalated. On December 30, 2011, the store manager accused the
plaintiff of stealing $100 from the store. Id. The plaintiff called the Loss Prevention Agent
Manager (“LPA”) to defend himself against these accusations. The money was ultimately
discovered in the deposit bag at the bank two days later, but the manager never cleared the
plaintiff’s name with the LPA. Id. On January 4, 2012, the plaintiff called the LPA regarding
the “unfair treatment” by the manager, to which the LPA allegedly responded “You don’t wanna
go above [the District Manager] and as a friend and a fellow associate, you don’t wanna call HR
because it would ruin your career.” Id.
The plaintiff alleges that, after he spoke to the LPA, the LPA then began spreading
rumors, going “from store to store, telling everybody [he] was a drug addict, alcoholic an[d
t]hief,” which culminated in events on February 13, 2012. Id. at 8. An hour after the plaintiff
arrived at work that day, the plaintiff alleges that the District Manager and the LPA accused him
of drinking and being “a danger to the public, the customers,” his coworkers and himself. Id. at
5. The plaintiff was then “escorted out of the store by security and [t]he District Manager,”
required to take a blood-alcohol test, with negative results, and immediately “suspended until
further notice,” without pay. Id. at 6; id. Ex. (“Controlled Substance Test Report, dated February
22, 2012”) at 19, ECF No. 1.
3
Eleven days later, on February 24, 2012, without evidence of any wrongdoing on the part
of the plaintiff, the District Manager lifted the suspension, but transferred him to another D.C.
Rite Aid location that was “45-minutes to an hour away from [the plaintiff’s] home,” even
though the plaintiff alleges that the District Manager supervised seven stores that were closer to
his home. Id. Understandably upset at his treatment, the plaintiff contacted human resources to
“discuss[] the entire matter,” including “all [his] concerns and what has transpired [in] [sic] the
last couple of months.” Id. at 7. The plaintiff alleges that the human resources (“HR”)
representative became “defensive” when the plaintiff expressed concern about his treatment by
the LPA and the District Manager, who were “lunch buddies” and had “a close professional
relationship” with the HR representative. Id. The HR representative “assured [the plaintiff]
500% that they have no derogatory or discriminatory intentions against [the plaintiff].” Id.
The plaintiff continued to have difficulty upon his return to work at the new Rite Aid
branch. He alleges that, due to the LPA’s “slander,” when he first transferred to the new Rite
Aid branch, “[t]he [f]irst thing the Store manager [a]sk me was what [k]ind of drugs [was the
plaintiff] on,” and that “there is no drinking allowed at work.” Id. at 8.
On March 28, 2012, the plaintiff filed a Charge of Discrimination with the Equal
Employment Opportunity Commission (“EEOC”), alleging discrimination based on national
origin and retaliation. Pl.’s Opp’n Def.’s Mot. Dismiss (“Pl.’s Opp’n”) Ex. A (“EEOC Charge”)
at 3, ECF No. 7-1. Due to the preceding events and the EEOC charge, the plaintiff alleges that
his “hours have been cut an[d he has b]een passed over at least six different times for promotion
to store manager,” even though he is “[m]ore qualified than many of the manager[]s they have
place[d] in the stores,” and he has had “[s]ix years of management experience.” Compl. at 9.
4
On August 15, 2013, the EEOC notified the plaintiff that “the EEOC is unable to
conclude that the information obtained established violations of the statutes.” Compl. Ex.
(“EEOC Right-to-Sue Letter, dated August 15, 2013”) at 18, ECF No. 1. The notice further
alerted the plaintiff of his “right to sue” the defendant under “Title VII, the Americans with
Disabilities Act, the Genetic Information Nondiscrimination Act, or the Age Discrimination in
Employment Act,” but that such a lawsuit must be filed “WITHIN 90 DAYS of [the plaintiff’s]
receipt of this notice; or [his] right to sue based on this charge will be lost.” Id. (emphasis in the
original).
On November 15, 2013, the plaintiff filed a complaint against the defendant in this Court,
Pl.’s Opp’n Ex. (“Complaint, dated November 15, 2013) at 4, ECF No. 7-1, but his application to
proceed in forma pauperis (“IFP”) was denied on November 21, 2013. Compl. Ex. (Application
to Proceed without Prepaying Fees, dated November 15, 2013) (“2013 App.”) at 2, ECF No. 1.
In accordance with normal practice, the Clerk’s office also notified the plaintiff in a form letter
that “[a]s a result of the Judge’s ruling, [his] case has not been filed with our Court and is being
returned to you at this time.” 2 Nearly a year later, on November 19, 2014, the plaintiff paid the
requisite filing fee and filed the instant complaint, see Compl., ECF No. 1 (docket text
accompanying entry of Compl., indicating receipt of filing fee), alleging employment
discrimination, defamation and violations of his Thirteenth and Fourteenth Amendment rights,
Compl. at 4–9. The defendant’s motion to dismiss the plaintiff’s complaint, under Federal Rule
of Civil Procedure 12(b)(6) is now ripe for resolution. Def.’s Mot. at 1.
2
This Court takes judicial notice of this document, which is in the Clerk’s office.
5
II. LEGAL STANDARD
Federal Rule of Civil Procedure 8(a)(2) requires that a complaint contain “a short and
plain statement of the claim showing that the pleader is entitled to relief,” to encourage brevity
and, at the same time, “give the defendant fair notice of what the . . . claim is and the grounds
upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (ellipses in
original; internal quotations and citations omitted); Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
551 U.S. 308, 319 (2007). The Supreme Court has cautioned that although “Rule 8 marks a
notable and generous departure from the hyper-technical, code-pleading regime of a prior era, []
it does not unlock the doors of discovery for a plaintiff armed with nothing more than
conclusions.” Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009).
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the
“complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that
is plausible on its face.” Wood v. Moss, 134 S. Ct. 2056, 2067 (2014) (quoting Iqbal, 556 U.S. at
678). A claim is facially plausible when the plaintiff pleads factual content that is more than
“‘merely consistent with’ a defendant’s liability,” but allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing
Twombly, 550 U.S. at 556); see also Rudder v. Williams, 666 F.3d 790, 794 (D.C. Cir. 2012).
Although “detailed factual allegations” are not required to withstand a Rule 12(b)(6) motion, a
complaint must offer “more than labels and conclusions” or “formulaic recitation of the elements
of a cause of action” to provide “grounds” of “entitle[ment] to relief,” Twombly, 550 U.S. at 555
(alteration in original), and “nudge[ ] [the] claims across the line from conceivable to plausible,”
id. at 570. Thus, “a complaint [does not] suffice if it tenders ‘naked assertion[s]’ devoid of
‘further factual enhancement.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557)
6
(second alteration in the original). In considering a motion to dismiss for failure to plead a claim
on which relief can be granted, the court must consider the complaint in its entirety, accepting all
factual allegations in the complaint as true, even if doubtful in fact. Twombly at 555; Harris v.
D.C. Water and Sewer Auth., 791 F.3d 65, 68 (D.C. Cir. 2015) (in considering Rule 12(b)(6)
motion, the “court must accept as true all of the allegations contained in a complaint” and “to
draw reasonable inference” therefrom “that the defendant is liable for the misconduct alleged,”
but that tenet “is inapplicable to legal conclusions,” and “threadbare recitals of the elements of a
cause of action, supported by mere conclusory statements, do not suffice” (internal quotations
and citations omitted)).
Where, as here, the plaintiff is proceeding pro se, the court must “‘liberally construe[]’”
the complaint, applying “‘less stringent standards than formal pleadings drafted by lawyers.’”
Abdelfattah v. U.S. Dep’t of Homeland Sec., 787 F.3d 524, 533 (D.C. Cir. 2015) (quoting
Erickson v. Pardus, 551 U.S. 89, 94 (2007) (per curiam)). The pro se plaintiff “must nonetheless
plead ‘factual matters that permit [us] to infer more than the mere possibility of misconduct.”
Brown v. Whole Foods Market Group, Inc., 789 F.3d 146, 150 (D.C. Cir. 2015) (quoting
Atherton v. D.C. Officer of the Mayor, 567 F.3d 672, 681–82 (D.C. Cir. 2009)). In evaluating a
pro se complaint, the court may “consider the affidavits and exhibits . . . filed by a pro se litigant
[that] were intended to clarify the allegations in the complaint.” Abdelfattah, 787 F.3d at 533
(citing Atherton, 567 F.3d at 777).
III. DISCUSSION
The plaintiff has asserted a claim of employment discrimination, as well as additional
claims for “defamation” and violations of the “13th and 14th Amendment.” Compl. at 4, 5 and 7.
The defendant contends that the plaintiff has failed to state a claim under Rule 12(b)(6) for any
7
of these claims. Def.’s Mem. Supp. Mot. Dismiss (“Def.’s Mem.”) at 2, ECF No. 4-1. The
Court addresses each of these claims seriatim below.
A. Employment Discrimination
The pro se complaint is liberally construed as attempting to plead employment
discrimination, in violation of 42 U.S.C. § 2000e, et seq. (“Title VII”). 3 Civil Cover Sheet at 2
(citing “42 U.S.C. 2000” as cause of action), ECF No. 1-1. Title VII prohibits an employer from
“discriminat[ing] against any individual with respect to his compensation, terms, conditions, or
privileges of employment, because of such individual’s race, color, religion, sex, or national
origin,” 42 U.S.C. § 2000e-2(a)(1), and from retaliating against any individuals who “oppose any
practice made an unlawful employment practice” by Title VII, id. § 2000e-3(a); see also Harris,
791 F.3d at 68 (“Title VII . . . both prohibits employers from engaging in employment practices
that discriminate on the basis of race . . . and bars them from retaliating against an employee
‘because he has opposed any [such] practice.’” (quoting 42 U.S.C. § 2000e-3(a)) (alteration in
the original)). At the same time, Title VII provides administrative remedies that the plaintiff
must exhaust prior to bringing their claims to court. Nat’l R.R. Passenger Corp. v. Morgan, 536
U.S. 101, 104–05, 109 (2002); Payne v. Salazar, 619 F.3d 56, 65 (D.C. Cir. 2010) (quoting
3
Race-based discrimination and retaliation in the private employment context are also prohibited by 42
U.S.C. § 1981. See 42 U.S.C. § 1981(a) (“All persons within the jurisdiction of the United States shall have the
same right . . . to make and enforce contracts . . . as is enjoyed by white citizens.”); CBOCS West, Inc. v. Humphries,
553 U.S. 442, 452, 457 (2008) (holding that 42 U.S.C. § 1981 encompasses claims of “retaliation for reasons related
to the enforcement of the statutory right,” and therefore extends to “an individual who suffers retaliation because he
has tried to help a different individual, suffering direct racial discrimination, secure his § 1981 rights” (emphasis in
the original)); Ayissi-Etoh v. Fannie Mae, 712 F.3d 572, 576 (D.C. Cir. 2013) (“Section 1981 prohibits private
employers from intentionally discriminating on the basis of race with respect to the ‘benefits, privileges, terms, and
conditions’ of employment.” (citing 42 U.S.C. § 1981 and Runyon v. McCrary, 427 U.S. 160, 170 (1976))). The
plaintiff, however, has not sufficiently pled a claim arising under section 1981 because he does not allege anywhere
in his complaint, his EEOC charge, or his opposition to the defendant’s motion to dismiss that he suffered
discrimination based on race. At most, he appears to argue that he was discriminated by his store manager based on
“cultural differences,” or “national origin,” EEOC Charge at 3 (under the question “Discrimination based on,” the
plaintiff checked “national origin” and “retaliation”), noting that the plaintiff is “Native American Seminole and
Black,” and the manager was “African,” Compl. at 4.
8
Bowden v. United States, 106 F.3d 433, 437 (D.C. Cir. 1997)). Namely, a Title VII plaintiff
must “file a charge with the [EEOC] either 180 or 300 days ‘after the alleged unlawful
employment practice occurred.’” Morgan, 536 U.S. at 105 (quoting § 2000e-5(e)(1)). If the
EEOC declines to file a civil action on behalf of the plaintiff under Title VII, as the EEOC did in
the instant case, the aggrieved person may bring an action against his employer within ninety
days of receiving his right to sue letter from the EEOC, 42 U.S.C. § 2000e-5(f)(1).
The defendant argues, and the Court agrees, that the plaintiff did not timely file his
lawsuit alleging violation of Title VII because the EEOC mailed the plaintiff his right-to-sue
letter on August 19, 2013 but the plaintiff did not file the instant complaint until November 19,
2014, more than a year later, and well outside the ninety-day statutory period. Def.’s Mem. at 6.
Courts strictly enforce the ninety-day statutory limit and “‘will dismiss a suit for missing the
deadline by even one day.’” Woodruff v. Peters, 482 F.3d 521, 525 (D.C. Cir. 2007) (quoting
Wiley v. Johnson, 436 F. Supp. 2d 91, 96 (D.D.C. 2006)).
The ninety-day limit, however, is not a jurisdictional bar and is thus “‘subject to equitable
tolling, estoppel, and waiver.’” Colbert v. Potter, 471 F.3d 158, 167 (D.C. Cir. 2006) (quoting
Zipes v. Trans World Airlines, Inc., 455 U.S. 385, 393 (1982)); see also Maggio v. Wisconsin
Ave. Psychiatric Center, Inc., 795 F.3d 57, 60 (D.C. Cir. 2015) (discussing whether the plaintiff
is entitled to equitable tolling of the ninety-day period). A plaintiff may be entitled to equitable
tolling if he “pursued [his] rights diligently” or “proved some extraordinary circumstance
prevented [him] from satisfying the statute of limitations.” Dyson v. District of Columbia, 710
F.3d 415, 416 (D.C. Cir. 2013).
The plaintiff counters that he did timely file a lawsuit against the defendant alleging
employment discrimination and retaliation because he attempted to file a complaint on
9
November 15, 2013, within ninety days of his receipt of the right-to-sue letter. Pl.’s Opp’n at 2.
The November 15, 2013 complaint, however, was improperly filed because the plaintiff did not
pay the filing fee and his application to proceed IFP was denied. 2013 Ohio App. at 2. The plaintiff
did not re-file his complaint until nearly a year later, on November 19, 2014. See Compl. at 1.
The plaintiff has alleged no facts in his instant complaint to justify the delay or otherwise offered
any explanation for not promptly heeding the notification that his 2013 complaint was not filed
with the Court. In less egregious circumstances involving less of a delay than the year-long
delay at issue here, judges on this Court have not hesitated to conclude that the pro se plaintiff is
not entitled to equitable tolling. See Uzoukwu v. Metro. Washington Council of Gov’ts, 983 F.
Supp. 2d 67, 75 (D.D.C. 2013) (denying equitable tolling of the ninety-day limitation period
because the plaintiff waited a month to file a motion to reconsider the denial of leave to proceed
IFP and was, therefore, “inexcusably tardy”); Obaseki v. Fannie Mae, 840 F. Supp. 2d 341, 346
(D.D.C. 2012) (equitable tolling is not warranted where the “plaintiff failed to resubmit her
complaint,” after her IFP application was denied, “until ten days later,” and the plaintiff
“provides no explanation for the delay”); cf. Williams v. Court Servs. & Offender Supervision
Agency for D.C., 840 F. Supp. 2d 192, 196–97 (D.D.C. 2012) (the plaintiff “diligently pursued
his claim” where he “refiled his complaint within three or four days of receiving notice” that “his
motion for leave to proceed IFP was denied”).
The Court therefore finds that the plaintiff neither diligently pursued his rights against the
defendant nor demonstrated any extraordinary circumstances preventing him from doing so.
Consequently, the plaintiff is not entitled to equitable tolling to excuse the untimeliness of his
10
discrimination and retaliation claims, construed to be alleging a violation of Title VII. 4
Accordingly, the plaintiff’s employment discrimination claims under Title VII are dismissed. 5
B. Defamation
The plaintiff alleges his supervisors defamed him by going “store to store telling
everybody [he] was a drug addict, alcoholic an[d t]hief,” culminating in the events on February
13, 2012, when he was accused of drunkenness, escorted out of work, forced to take a blood
alcoholic test and ultimately suspended without pay for two weeks. Compl. at 8. According to
the plaintiff, the plaintiff’s rumored substance abuse problems has affected the way he is treated
by his neighbors and at the new Rite Aid branch to which he was re-assigned. Id. The defendant
counters that the plaintiff’s defamation claim is timely barred and, consequently, must be
dismissed. Def.’s Mem. at 9.
The District of Columbia provides a one-year limitations period for defamation claims.
See D.C. Code § 12-301 (“Except as otherwise specifically provided by law, actions for the
4
To the extent the plaintiff attempts to bring a retaliation claim under Title VII based upon his allegation that
as a result of his filing an EEOC charge, his “[h]ours have been cut an[d he has b]een passed over at least six
different times for promotion to store manager,” Compl. at 9, the plaintiff has failed to administratively exhaust this
claim. A plaintiff must file a separate charge in order to exhaust administratively each discrete retaliatory or
discriminatory act. Morgan, 536 U.S. at 114. The plaintiff has not alleged that he filed a new charge with EEOC
alleging these particular retaliatory acts. Accordingly, the plaintiff may not bring a Title VII claim based on these
acts of retaliation.
5
Even if the plaintiff had timely filed his complaint, his Title VII claim as to the underlying direct
employment discrimination would still fail. “Under Title VII . . . the two essential elements of a discrimination
claim are that (i) the plaintiff suffered an adverse employment action (ii) because of the plaintiff’s race, color,
religion, sex, national origin, age, or disability.” Baloch v. Kempthorne, 550 F.3d 1191, 1196 (D.C. Cir. 2008). The
plaintiff plainly states in his complaint that he is unsure about the reason for his allegedly unfair treatment by the
store manager at the D.C. Rite Aid, and indicates that he filed this lawsuit for “HELP IN FINDING OUT WHY.”
Compl. at 4 (emphasis in the original). Though the plaintiff “need not plead facts showing each of these elements in
order to defeat a motion under Rule 12(b)(6),” Gordon v. U.S. Capitol Police, 778 F.3d 158, 161–62 (D.C. Cir.
2015), he must still allege sufficient facts to “allow the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged,” Iqbal, 556 U.S. at 678. In the instant case, the plaintiff has not alleged sufficient
facts to support the reasonable inference that the manager’s mistreatment of the plaintiff was motivated by the
plaintiff’s membership in a protected class. In fact, the plaintiff shares the same race as the store manager and the
same national origin, the United States, as the other Assistant Manager, who allegedly received preferential
treatment. Id. The plaintiff’s retaliation claims, on the other hand, may have had a better chance at survival under
Title VII had they been administratively exhausted and timely filed.
11
following purposes may not be brought after the expiration of the period specified below from
the time the right to maintain the action accrues: . . . (4) for libel, slander, assault, battery,
mayhem, wounding, malicious prosecution, false arrest or false imprisonment – 1 year.”);
Maupin v. Haylock, 931 A.2d 1039, 1041-42 (D.C. 2007) (“A claim for defamation must be filed
within one year of accrual of the cause of action.”).
The defamation that the plaintiff alleges occurred no later than February 2012, since that
is “one of the reason[s] [he] was drug tested” on February 13, 2012. Compl. at 8. The plaintiff
did not file the instant lawsuit until November 19, 2014, however, which places this claim
outside the one-year statutory limitations period. Accordingly, the plaintiff’s defamation claim is
dismissed.
C. Thirteenth Amendment Violation
The plaintiff also brings a Thirteenth Amendment claim, arguing that he was subjected to
involuntary servitude when he was “forced to accept the transfer of location” to a new Rite Aid
branch that is “a 45-minute/1 hour drive to other side of the town” because he had “no other
choice to be able to pay bills.” Pl.’s Opp’n at 3. The Thirteenth Amendment, however, does not
provide a free-standing, implied private right of action. 6 See Richardson v. Loyola College in
Maryland, Inc., 167 Fed. Appx. 223, 225 (D.C. Cir. 2005) (“[T]he Thirteenth Amendment does
not provide an independent cause of action for discrimination.”); Doe v. Siddig, 810 F. Supp. 2d
127, 135–36 (D.D.C. 2011) (collecting cases and noting that “[c]ourts in this Circuit have
6
Even if the plaintiff’s Thirteenth Amendment claim were construed to have been brought under 42 U.S.C. §
1981, which was enacted under the authority of the Thirteenth Amendment to eradicate the badges and incidents of
slavery, Runyon v. McCrary, 427 U.S. 160, 170 (1976), the claim would nonetheless fail. As explained supra in n.2,
the plaintiff failed to allege sufficient facts to bring a claim, under section 1981, that he was discriminated against
based on his race.
12
consistently held that there is no private right of action under the Thirteenth Amendment”).
Accordingly, the plaintiff’s Thirteenth Amendment claim is dismissed.
D. Fourteenth Amendment Violation
Lastly, the plaintiff asserts a Fourteenth Amendment claim against his private employer.
The Fourteenth Amendment, however, only applies to actions taken by state actors, not by
private entities. See U.S. CONST. amend. XIV § 1 (“No State shall make or enforce any laws
which shall abridge the privileges or immunities of citizens of the United States; nor shall any
State deprive any person of life, liberty, or property, without due process of law, nor deny to any
person within its jurisdiction of the equal protection of the laws.” (emphasis added)); Rendell-
Baker v. Kohn, 457 U.S. 830, 838 (1982) (noting that “the Fourteenth Amendment, which
prohibits the states from denying federal constitutional rights and which guarantees due process,
applies to acts of the states, not to acts of private persons or entities”). As the defendant points
out, “Plaintiff does not, nor could he, allege that Rite Aid is a state actor.” Def.’s Mem. at 11.
Accordingly, the plaintiff has failed to state a claim under the Fourteenth Amendment.
IV. CONCLUSION
The plaintiff’s allegations, which are assumed to be true for purposes of this motion, of
unfair treatment and a difficult employment situation made worse, rather than ameliorated, when
he sought assistance from defendant’s employees outside of the Rite Aid branch where he was
assigned, are troubling. Not every instance of unfair treatment has a legal remedy, however,
especially if the claims are untimely filed and the reason for the treatment cannot be clearly
identified as stemming from the type of discrimination that falls within the purview of Title VII
and related statutes.
13
For the foregoing reasons, the defendant’s motion to dismiss, ECF No. 4, is granted.
The Clerk of the United States District Court for the District of Columbia is directed to close this
case.
An Order consistent with this Memorandum Opinion will be issued contemporaneously.
Digitally signed by Hon. Beryl A. Howell
Date: November 30, 2015 DN: cn=Hon. Beryl A. Howell, o=U.S.
District Court for the District of Columbia,
ou=United States District Court Judge,
email=Howell_Chambers@dcd.uscourts.g
ov, c=US
___________________________
Date: 2015.11.30 17:18:41 -05'00'
BERYL A. HOWELL
United States District Judge
14 | 01-03-2023 | 11-30-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/2469388/ | 777 F. Supp. 2d 151 (2011)
Anthony LEWIS, Plaintiff,
v.
DRUG ENFORCEMENT ADMINISTRATION, Defendant.
Civil Action No. 09-0264 (RBW).
United States District Court, District of Columbia.
April 15, 2011.
*153 Anthony Lewis, Coleman, FL, pro se.
Tyler James Wood, U.S. Attorney's Office for D.C., Washington, DC, for Defendant.
MEMORANDUM OPINION
REGGIE B. WALTON, District Judge.
The plaintiff brings this action against the Drug Enforcement Administration ("DEA") seeking judicial review under the Administrative Procedure Act ("APA"), see 5 U.S.C. § 702 (2006), regarding the seizure of two vehicles, along with their contents, and the administrative forfeiture of the vehicles by the DEA.[1] This matter is before the Court on the defendant's motion to dismiss and the plaintiff's motion for injunctive relief. For the reasons discussed below, the defendant's motion will be granted and the plaintiff's motion will be denied.
I. BACKGROUND
On August 17, 1993, the plaintiff was arrested at his residence in Tampa, Florida, *154 at which time two vehicles and the contents thereof were seized by DEA Special Agents Tom Feeney and Dale Van Dorple, two Tampa Police Department officers, and a Hillsborough County Deputy Sheriff. Complaint ("Compl.") ¶¶ 3-4. The vehicles were described as a 1969 Cadillac DeVille convertible (VIN E9259095) ("DeVille") and a 1987 Chevrolet Blazer S-10 (VIN 1G8CS18R2G8116399) ("Blazer"). See id. ¶¶ 3-5; Memorandum of Points and Authorities in Support of Defendant's Motion to Dismiss ("Def.'s Mem.") at 2, Declaration of Terrence J. King ("King Decl.") ¶¶ 4(a), 5(a). The personal property inside the vehicles allegedly included jewelry, clothing, and tools. See Compl., Ex. A (Itemized List).
According to the plaintiff, he was provided neither a warrant authorizing these seizures, nor an inventory list of the vehicles' contents. Compl. ¶¶ 5-6. The plaintiff contends that the "vehicles were never used to facilitate any illegal narcotics activities, nor . . . [were they] derived from proceeds of illegal narcotics dealing." Id., Exhibit ("Ex.") B (Affidavit of Anthony Lewis) ("Pl.'s Aff.") ¶ 5. The plaintiff has "remained incarcerated [by] the federal Government [since] August 17, 1993," and allegedly he never "receive[d] notice of the seizure" of his property. Compl. ¶ 8. "The [p]laintiff was later convicted and sentenced in the [United States] District Court [for the] Middle District of Florida, Tampa Division," id. ¶ 17, and is serving a term of life imprisonment, see United States v. Lewis, No. 8:93-CR-249-RAL-1 (M.D.Fla. filed Sept. 16, 1993).[2]
A. Administrative Forfeiture Proceedings
1. The DeVille
DEA employees in its Tampa, Florida office "prepared and submitted a forfeiture report," which either "[a]n attorney or paralegal reviewed . . . to determine if the DEA field office provided adequate information to support administrative forfeiture proceedings against the property." Def.'s Mem., King Decl. ¶ 4(a). This process "included a legal review of the evidence that existed to seize the . . . DeVille." Id. Based on this review, "the DEA accepted [the] case for administrative forfeiture." Id.
Pursuant to 19 U.S.C. § 1607(a) (2006), the DEA sent two written notices of the DeVille's seizure by certified mail, along with domestic return receipts, to the plaintiff at his Tampa, Florida residence. Def.'s Mem., King Decl. ¶ 4(b)-4(c); see id., Exs. 1 and 3 (Notices of Seizure dated October 8, 1993).[3] Someone signed each *155 return receipt on October 18, 1993. Id., Exs. 2 and 4 (domestic return receipts for certified mail). In addition, the DEA sent a notice of the seizure to the plaintiff at the Pinellas County Jail in Clearwater, Florida. Id. ¶ 4(d); see id., Ex. 5 (Notice of Seizure dated October 8, 1993). This third notice was returned to the DEA by the United States Post Office, with the envelope "stamped `RETURNED TO SENDER' and marked `MOVED. LEFT NO ADDRESS.'" Id. ¶ 4(d); see id., Ex. 6.
The DEA provided notice of "the seizure of the property . . . in USA TODAY, a newspaper of general circulation in the Middle District of Florida and the District of Columbia." Def.'s Mem., King Decl. ¶ 4(e). The notice was "published once each week for three successive weeks: October 20 and 27, and November 3, 1993." Id. ¶ 4(e); see id., Ex. 7 (Legal Notices). Both "[t]he published and mailed notices explained the option of filing a claim and cost bond, or an affidavit of indigency in lieu of the cost bond, with the DEA Forfeiture Counsel in order to contest the forfeiture action in United States District Court." Id. ¶ 4(e). The DEA received neither a claim nor a cost bond by the November 9, 1993 deadline, id., and on November 26, 1993, "the DEA forfeited the . . . DeVille . . . to the United States" pursuant to 19 U.S.C. § 1609 [(2006)]. Id. ¶ 4(f); see id., Ex. 8 (Declaration of Forfeiture dated November 26, 1993).
2. The Blazer
As was the case with the DeVille, DEA employees in its Tampa office "prepared and submitted a forfeiture report," and upon its review, which "included a legal review of the evidence that existed to seize the . . . Blazer," the case was "accepted. . . for administrative forfeiture." Def.'s Mem., King Decl. ¶ 5(a). On November 1, 1993, the DEA sent by certified mail, along with return receipts, three notices of seizure to the plaintiffone to the plaintiff's Tampa, Florida residence, one to the plaintiff at the Pinellas County Jail, and one to the plaintiff's attorney. Id. ¶¶ 5(c)-(f); see id., Exs. 19, 21 and 23 (Notices of Seizure dated November 1, 1993). The DEA also mailed a fourth notice to Henry L. Lewis at the same Tampa, Florida address as the plaintiff's residence. Id. ¶ 5(f); see id., Ex. 25 (Notice of Seizure dated November 1, 1993). With the exception of the notice mailed to the Pinellas County Jail, which the United States Postal Service returned, id., Ex. 22, an individual signed for each of the other three notices, id., Exs. 20, 24, and 26 (domestic return receipts for certified mail).
The DEA "published in USA TODAY, a newspaper of general circulation in the Middle District of Florida and the District of Columbia," a notice of the seizure "once each week for three successive weeks: November 10, 17, and 24, 1993." Def.'s Mem., King Decl. ¶ 5(g) & Ex. 27 (Legal Notices). Once again the DEA did not receive a claim or cost bond by the November *156 30, 1993 deadline, and "the DEA forfeited the . . . Blazer . . . to the United States" on December 17, 1993. Id. ¶¶ 5(g)-(h) & Ex. 28 (Declaration of Forfeiture dated December 17, 1993).
B. Criminal Action No. 93-249
The plaintiff filed in his criminal case a Petition for Writ of Replevin "in an attempt to obtain judicial review of the . . . DEA's seizure and administrative forfeiture of his vehicles and the contents of his vehicles." Compl. ¶ 16; Def.'s Mem., King Decl., Ex. 9 (Petition for Writ of Replevin, Lewis v. United States, No. 93-249-CR-T-21 (B) (M.D.Fla. June 9, 1994)).[4] According to the plaintiff, his property was seized and forfeited without probable cause, proper notice and hearing, and otherwise was taken in violation of law. See generally, Def.'s Mem., King Decl., Ex. 9. The presiding judge in the plaintiff's criminal case held a hearing on January 30, 1997, and denied the petition on March 24, 1997.[5] Compl. ¶ 20. That proceeding has been summarized by another Judge of the Middle District of Florida as follows:
Judge Nimmons held that Lewis failed to establish that any of the fourteen items of personal property at issue were ever contained within either [the DeVille or the Blazer] at the time those vehicles were seized on August 17, 1993, or that the items of personal property were ever seized from the vehicles by any Government agent. Judge Nimmons further held that the Government had established by a preponderance of the evidence that Detective Tim Lovett of the Hillsborough County Sheriff's Office, Detective Rick Olewinski of the Tampa Police Department, and Special Agents Dale Van Dorple and Tom Feeney with the [DEA] did not remove or steal any of the fourteen items of personal property from either of the vehicles on August 17, 1993, or in the days following, in connection with the processing of the vehicles for administrative seizure by the [DEA].
See Def.'s Mem., King Decl., Ex. 17 (Order, Lewis v. United States, No. 95-580-CIV-T-24E (M.D.Fla. July 15, 1997)) at 2 (internal citations omitted). According to the plaintiff, Judge Nimmons "did not effect review of the . . . DEA's seizure and administrative forfeiture" of the vehicles. Compl. ¶ 20.
C. Civil Action No. 95-580
The plaintiff "filed a civil action against the . . . DEA and others . . . in the . . . Middle District of Florida, Tampa Division, in Case Number 95-[580]-civ-T-24E, for the illegal seizure and forfeiture" of the DeVille and the Blazer. Compl. ¶ 18; see Lewis v. United States, No. 8:95-580-SCB (M.D.Fla. filed Apr. 14, 1995); see also Def.'s Mem., King Decl., Ex. 10 (Amended Complaint, Lewis v. United States, No. 95-580-CIV-T-24E (M.D.Fla. May 30, 1995)). The United States Court of Appeals for the Eleventh Circuit summarized these proceedings as follows:
Lewis . . . filed this civil action seeking declaratory, injunctive, and monetary relief against Tom Feeney and Dale *157 Van Dorple, agents of the [DEA], Jack Fernandez, the federal prosecutor in [his] criminal case, and the United States. Lewis' amended complaint alleged that (1) Feeney and Van Dorple, in connection with their arrest of Lewis, seized and disposed of Lewis' [DeVille and Blazer], and personal property therein, illegally and without a hearing, and (2) Fernandez failed to prevent Feeney and Van Dorple's illegal actions by exercising his exclusive authority to begin forfeiture proceedings against Lewis. Lewis sought to hold Feeney, Van Dorple, and Fernandez liable under Bivens [v. Six Unknown Named Agents of the Fed. Bureau of Narcotics, 403 U.S. 388, 91 S. Ct. 1999, 29 L. Ed. 2d 619 (1971)], alleging that the seizure of his property without a warrant violated the Fourth Amendment, and the forfeiture of his property without notice or a hearing violated the Fifth Amendment. Lewis also claimed that Feeney, Van Dorple, and Fernandez were liable under the [Federal Tort Claims Act ("FTCA")], based upon their violation of Florida law regarding the illegal conversion of property. Lewis sought to hold the United States liable under the FTCA pursuant to the theory of respondeat superior.
* * * * * *
On August 26, 1996, the district court granted the United States' motion for summary judgment on Lewis's FTCA claim, finding that the seizure of his property fit within the ambit of 28 U.S.C. § 2680(c), and exemption from the FTCA's general waiver of sovereign immunity in cases where property is seized pursuant to law enforcement purposes. In regard to Lewis' Bivens claims against Van Dorple, Feeney, and Fernandez, the district court ruled as follows: (1) granted summary judgment for the defendants on Lewis' Fourth Amendment claim, finding that the confiscation of Lewis' property was supported by probable cause and occurred pursuant to a valid warrant; (2) granted summary judgment for the defendants on Lewis' Fifth Amendment claim regarding the forfeiture of two of his automobiles, where proper notice had been issued; and (3) granted summary judgment for Fernandez, but denied summary judgment for Van Dorple and Feeney on Lewis' Fifth Amendment claim regarding the forfeiture of his personal property within the automobiles, finding that material issues of fact remained disputed regarding [their] actions, but that Lewis had failed to establish a causal connection between the loss of his personal property and any actions of Fernandez.
Lewis v. Feeney, No. 98-2328, Slip Op. at 2-3, 4-5, 194 F.3d 1322 (11th Cir. Aug. 31, 1999) (per curiam) (emphasis added).
Based on Judge Nimmons' earlier denial of the plaintiff's petition for writ of replevin, Van Dorple and Feeney moved to dismiss the plaintiff's remaining Fifth Amendment claim on the ground that the claim was barred under the doctrine of collateral estoppel. See Def.'s Mem., King Decl., Ex. 17 (Order, Lewis v. United States, No. 95-580-CIV-T-24(E) (M.D.Fla. July 15, 1997)) at 1. The plaintiff did not file an opposition to their motion, see id., and the court granted the motion, concluding that "[t]he issues raised by Plaintiff's instant Fifth Amendment due process claim relating to the alleged personal property contained in his two seized vehicles were adjudicated in Case No. 93-249-Cr-T-21B,. . . [and the] Plaintiff is therefore barred from relitigating those issues here," id. at 2-3. The plaintiff did not appeal the ruling. Lewis v. Feeney, No. 98-2328, Slip Op. at 5, 194 F.3d 1322 (11th Cir. Aug. 31, 1999) (per curiam).
*158 D. The Plaintiff's Complaint In This Case
The plaintiff summarizes the grounds for this action and the relief he demands as follows:
This is a civil action pursuant to the Administrative Procedure Act (APA) against the [DEA] for illegally, unlawfully, arbitrarily, capriciously, maliciously, and as a result of fraud and fraudulent concealment, seiz[ing] and administratively forfeit[ing his] property. . . . The [p]laintiff seeks judicial review of the DEA's administrative seizure and forfeiture of his property in equity as an independent action[, and he asks] the court to hold that the DEA's seizure and forfeiture . . . was erroneous and unlawful, then set aside the agency's action.
Compl. at 1. As a result of the DEA's actions, the plaintiff asserts that he "has suffered the loss of his property [and] loss of his property interest [in] violation of his Fourth Amendment right," and in "violation of his protected liberty interest" under the Fifth Amendment. Id. ¶ 29.[6]
The plaintiff's Fourth Amendment claim arises from the DEA's seizure of the De-Ville and the Blazer and their contents, and the administrative forfeiture of the vehicles, on the ground that the agency "lacked jurisdiction and authority" to conduct the seizure "without first obtaining a transfer and/or takeover order from the State court which allegedly issued seizure warrants." Compl. ¶ 30(A). The plaintiff further asserts that the DEA "lacked probable cause to seize and attempt forfeiture proceedings" due to the absence of "evidence or facts to support that the plaintiff's property was derived from, associated with, or used for any illegal activity, or failing to show a nexus between the plaintiff's property and illegal narcotics activity in a drug case." Id. ¶ 30(B).[7] He also contends that the DEA violated his Fifth Amendment right to due process because it "failed to provide notice to the plaintiff and an opportunity to contest the seizure and forfeiture of his [vehicles]." Id. ¶ 30(C). Lastly, the plaintiff contends that the DEA "committed fraud and fraudulent concealment" in effecting this "unlawful seizure and forfeiture." Id. ¶ 30(D).
The plaintiff demands declaratory judgment and injunctive relief. Compl. ¶ 31.[8] In addition, he demands compensatory damages of $50,000.00 for the vehicles and their contents, id. ¶ 31(C)(1), and punitive damages totalling $3,000,000.00 to redress the alleged violations of his Fourth and Fifth Amendment rights, id. ¶ 31(C)(2), the "loss of the plaintiff's business interest" in and the sentimental value of the vehicles, id. ¶ 31(C)(3), and for the "emotional distress, anxiety, discomfort, and vexation [he] has suffer[e]d in attempting to have his vehicles and the contents of his vehicles returned to him," id. ¶ 31(C)(4).
II. DISCUSSION
A. Dismissal Under Rule 12(b)(6)[9]
*159 A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests whether the plaintiff properly has stated a claim upon which relief may be granted. See, e.g., Woodruff v. DiMario, 197 F.R.D. 191, 193 (D.D.C.2000). For a complaint to survive a Rule 12(b)(6) motion, it need only provide "a short and plain statement of the claim showing that the pleader is entitled to relief," FED.R.CIV.P. 8(a)(2), in order to "give the defendant fair notice of what the claim is and the grounds on which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007) (citation omitted). "Although detailed factual allegations are not necessary to withstand a Rule 12(b)(6) motion to dismiss, to provide the grounds of entitlement to relief, a plaintiff must furnish more than labels and conclusions or a formulaic recitation of the elements of a cause of action." Hinson ex rel. N.H. v. Merritt Educ. Ctr., 521 F. Supp. 2d 22, 27 (D.D.C. 2007) (quoting Twombly, 550 U.S. at 555, 127 S. Ct. 1955) (internal quotation marks omitted). Or, as the Supreme Court more recently stated, "[t]o 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, ___ U.S. ___, ___, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009) (quoting Twombly, 550 U.S. at 570, 127 S. Ct. 1955). The complaint must be construed in the light most favorable to the plaintiff and "the court must assume the truth of all well-pleaded allegations." Warren v. Dist. of Columbia, 353 F.3d 36, 39 (D.C.Cir.2004). Generally, on a Rule 12(b)(6) motion, the Court is limited to considering "only the facts alleged in the complaint, any documents either attached to or incorporated in the complaint and matters of which we may take judicial notice." EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624 (D.C.Cir.1997).
The Federal Rules of Civil Procedure provide that a party may assert an affirmative defense by motion in its initial response to a complaint. FED.R.CIV.P. 12(b). Res judicata and collateral estoppel are affirmative defenses. Blonder-Tongue Labs., Inc. v. Univ. of Illinois Found., 402 U.S. 313, 350, 91 S. Ct. 1434, 28 L. Ed. 2d 788 (1971); Stanton v. Dist. of Columbia Court of Appeals, 127 F.3d 72, 76 (D.C.Cir. 1997) ("Res judicata is an affirmative defense that may be lost if not pleaded in the answer[.]"); Nat'l Treasury Emps. Union v. Internal Revenue Serv., 765 F.2d 1174, 1176 n. 1 (D.C.Cir.1985) ("Issue preclusion is an affirmative defense [which] may be expressly waived or forfeited through failure to raise it at a proper time." (internal citations omitted)). These defenses may be raised by motion under Rule 12(b)(6) where they "can either be established from the face of the complaint, matters fairly incorporated within it, and matters susceptible to judicial notice." Felter v. Salazar, 679 F. Supp. 2d 1, 4 (D.D.C.2010) (internal quotation marks and citation omitted); Sheppard v. Dist. of Columbia, ___ F.Supp.2d ___, ___ n. 3, 2011 WL 710211, at *4 n. 3 (D.D.C. Feb. 22, 2011) ("Res judicata may be raised in a Rule 12(b)(6) motion to dismiss for failure to state a claim when the defense appears on the face of the complaint and any materials of which the court may take judicial notice."). The court may take judicial notice of public records from other court proceedings. See Covad Commc'ns Co. v. Bell Atl. Corp., 407 F.3d 1220, 1222 (D.C.Cir.2005).
*160 B. Claim Preclusion and Issue Preclusion
The defendant moves to dismiss the complaint in its entirety on the grounds that the claims "against the DEA regarding the alleged improper seizure and forfeiture of [the plaintiff's] property . . . have already been litigated," Def.'s Mem. at 11, and that the issues presented "have already been decided by a court of competent jurisdiction," id. at 13.
1. Res Judicata (Claim Preclusion)
"Res judicata plays a central role in advancing the `purpose for which civil courts have been established, the conclusive resolution of disputes within their jurisdictions.'" Apotex, Inc. v. FDA, 393 F.3d 210, 217 (D.C.Cir.2004) (quoting Montana v. United States, 440 U.S. 147, 153, 99 S. Ct. 970, 59 L. Ed. 2d 210 (1979)). Res judicata (claim preclusion) bars a subsequent lawsuit "if there has been prior litigation (1) involving the same claims or cause of action, (2) between the same parties or their privies, and (3) there has been a final, valid judgment on the merits, (4) by a court of competent jurisdiction." Porter v. Shah, 606 F.3d 809, 813-14 (D.C.Cir.2010) (citations and internal quotation marks omitted). Essentially, the doctrine "prevents a party from filing a new civil action which is based on the same operative facts as underlay a previously-litigated civil action." Morton v. Locke, 387 Fed.Appx. 1, 1 (D.C.Cir.2010) (per curiam) (citations omitted). "Whether two cases implicate the same cause of action turns on whether they share the same `nucleus of facts.'" Drake v. FAA, 291 F.3d 59, 66 (D.C.Cir.2002) (citing Page v. United States, 729 F.2d 818, 820 (D.C.Cir. 1984)). In determining whether two cases share a nucleus of facts, courts consider "whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage." Apotex, 393 F.3d at 217 (citations and internal quotation marks omitted).
The defendant contends that the plaintiff's "claims against the DEA regarding the alleged improper seizure and forfeiture of his property must be dismissed under the doctrine of res judicata because such claims have already been litigated against Defendant . . . before the [United States] District Court for the Middle District of Florida." Def.'s Mem. at 11. The plaintiff counters that "the present civil action does not contain claims [or] defendants that were contained in the previous civil action." Plaintiff's Arguments with Points and Authorities in Support of Opposition to the Defendant's Motion to Dismiss ("Pl.'s Opp'n") at 13. Rather, he contends, he brings this action "against the DEA, the agency," while the "Fourth and Fifth Amendment claims raised in the . . . previous civil action were against the United States, DEA agents and the prosecuting attorney." Id. Further, the plaintiff purports to raise for the first time in this action new claims, specifically, the DEA's "lack[] [of] jurisdiction and authority to seize and forfeit his vehicles and property," its alleged "fraud and fraudulent concealment in establishing probable cause to seize and forfeit" the vehicles and their contents, and its "fail[ure] to comply with the requirements of Title 19 U.S.C. § [§] 1602-1604 prior to the seizure and forfeiture of the plaintiff's vehicles." Pl.'s Opp'n at 14.[10] For these reasons, the plaintiff argues that his claims are not barred under the doctrine of res judicata. Id. He is mistaken.
*161 The current civil action and the prior action in the Middle District of Florida involve the same cause of actionthe operative facts are those arising out of the August 17, 1993 seizure of the DeVille, the Blazer, and the property contained in those vehicles, as well as the subsequent administrative forfeiture of the vehicles and their contents by the DEA. Moreover, there can be no doubt that the United States District Court for the Middle District of Florida, the same district where the plaintiff was arrested and where the seizure and forfeiture occurred, is a court of competent jurisdiction which decided the merits of the plaintiff's prior challenges to the seizure and forfeiture of his property.
Although the plaintiff names as the defendant in this action a party not named in the prior action, the DEA is in privity with the defendants sued in the prior action. "[F]or purposes of res judicata, privity exists between officers of the same government," Lindsey v. Dist. of Columbia, 609 F. Supp. 2d 71, 77 (D.D.C.2009) (citing Sunshine Anthracite Coal v. Adkins, 310 U.S. 381, 402, 60 S. Ct. 907, 84 L. Ed. 1263 (1940)), and the prior rulings in favor of the United States and DEA Special Agents Feeney and Van Dorple are binding as to the DEA itself. See Sunshine Anthracite Coal, 310 U.S. at 402-03, 60 S. Ct. 907 ("[A] judgment in a suit between a party and a representative of the United States is res judicata in relitigation of the same issue between that party and another officer of the government."); Mervin v. Fed. Trade Comm'n, 591 F.2d 821, 830 (D.C.Cir.1978) (concluding that the plaintiff was barred from pursuing the same reduction-in-force claim before the Federal Trade Commission that he had pursued previously against the Civil Service Commission). The defendants named in the two actions, then, are considered the same parties.
The plaintiff cannot avoid the preclusive effect of the Florida district court's rulings in the prior action by presenting in this action new legal theories for relief. "[R]es judicata ... bars relitigation not only of matters determined in a previous litigation but also ones that [the plaintiff] could have raised." Natural Res. Def. Council, Inc. v. Thomas, 838 F.2d 1224, 1252 (D.C.Cir.1988); Tutt v. Doby, 459 F.2d 1195, 1197 (D.C.Cir.1972) ("If the doctrine of res judicata applies, both parties are concluded, not only as to things which were determined but as to all matters which might have been determined as well."); Middlebrooks v. Medstar Health, Inc., No. 10-1519, 2010 WL 5373939, at *2 (D.D.C. Dec. 22, 2010) (finding no significance in the fact that the plaintiff's prior cases in the Superior Court of the District of Columbia asserted claims under the District of Columbia Human Rights Act and the current case includes a claim under 42 U.S.C. § 1981 because the plaintiff was "barred from litigating not only claims that were actually litigated but also those that could have been litigated in the first action"). The fact that the plaintiff did not present his additional legal theories in the prior suit is immaterial. "Under the doctrine, the parties to a suit and their privies are bound by a final judgment and may not relitigate any ground for relief which they already have had an opportunity to litigate even if they chose not to exploit that opportunity whether the initial judgment was erroneous or not." Hardison v. Alexander, 655 F.2d 1281, 1288 (D.C.Cir. 1981) (emphasis added).
For all of the reasons set forth above, the Court concludes that the plaintiffs claims in this case are barred by the doctrine of res judicata.[11]
*162 2. Collateral Estoppel (Issue Preclusion)
"Along with the doctrine of claim preclusion or res judicata, issue preclusion aims to avert needless relitigation and disturbance of repose, without inadvertently inducing extra litigation or unfairly sacrificing a person's day in court." Otherson v. Dep't of Justice, 711 F.2d 267, 273 (D.C.Cir.1983). Under the doctrine of collateral estoppel (issue preclusion), "once a court has decided an issue of fact or law necessary to its judgment, that decision may preclude relitigation of the issue in a suit on a different cause of action involving a party to the first case." Allen v. McCurry, 449 U.S. 90, 94, 101 S. Ct. 411, 66 L. Ed. 2d 308 (1980). In Yamaha Corp. of Am. v. United States, 961 F.2d 245, 254 (D.C.Cir.1992), cert. denied, 506 U.S. 1078, 113 S. Ct. 1044, 122 L. Ed. 2d 353 (1993), the District of Columbia Circuit sets forth the following standard for establishing the preclusive effect of a prior holding:
First, the same issue now being raised must have been contested by the parties and submitted for judicial determination in the prior case. Second, the issue must have been actually and necessarily determined by a court of competent jurisdiction in that prior case. Third, preclusion in the second case must not work a basic unfairness to the party bound by the first determination. An example of such unfairness would be when the losing party clearly lacked any incentive to litigate the point in the first trial, but the stakes of the second trial are of a vastly greater magnitude.
Id. (internal citations and footnote omitted).
The defendant argues that "the issues raised in Plaintiff's Complaint have already been decided by a court of competent jurisdiction and therefore this Court is barred from deciding them under the doctrine of collateral estoppel." Def.'s Mem. at 13. The plaintiff counters that "the present civil action does not contain claims []or defendants that were contained in the previous civil action filed in the Middle District of Florida," Pl.'s Opp'n at 14, pointing to the new defendant, the DEA, and his new legal theories offered as the basis for the relief he is seeking, to support his argument that collateral estoppel does not bar this action. See id. at 14-15. Again, the plaintiff is mistaken.
The Florida district court described the issues presented by the plaintiff in the prior civil action as follows:
Regarding the seizures, Plaintiff makes three claims. First, he claims that his property was seized in violation of the Fourth Amendment, stating in support that he never saw a warrant for the seizure of the items. Second, Plaintiff claims that his property was seized without adequate due process, in contravention of the Fifth Amendment. Third, Plaintiff asserts a federal tort claim of deprivation of his property based upon a state law claim of conversion.
Def.'s Mem., King Decl., Ex. 15 (Order, Lewis v. United States, No. 95-580-CIV-T-24E (M.D.Fla. Aug. 22, 1996)) at 6. The court then construed the claims "as under Bivens ... and as pursuant to the [FTCA]." Id. at 6-7.
The Florida district court then determined that the United States was not liable under the FTCA for any injury arising from the seizure of the plaintiff's vehicles. Id. at 7. Because the FTCA "exempts any claim based on the detention of goods by any federal law enforcement officer, [and] extends to officers in other agencies performing their proper duties," the court deemed the plaintiff's FTCA claim to be "without merit, and the United States *163 [was] dismissed as a Defendant in [that] action." Id.
In resolving the Bivens claims brought against DEA Special Agents Van Dorple and Feeney, and their qualified immunity defense, the Florida district court found it "clear from the record that a warrant to search Plaintiff's premises was validly issued," id. at 9, thus resolving his Fourth Amendment claim based on the lack of probable cause or the absence of a warrant, id. at 10. Further, that Florida district court found not only that the plaintiff "raise[d] no meritorious due process claims regarding the forfeiture of his vehicles," id. at 11, but also that his claims against the agents with respect to the contents of the vehicles were barred under the doctrine of collateral estoppel based on Judge Nimmons' earlier determination, following an evidentiary hearing, that the agents neither removed nor stole any of the items allegedly found in the vehicles at the time of their seizure, Def.'s Mem., King Decl., Ex. 17 (Order, Lewis v. United States, No. 95-580-CIV-T-24E (M.D.Fla. July 15, 1997)) at 2. In short, the Florida district court determined that no violation of the plaintiff's Fourth or Fifth Amendment rights occurred. The plaintiff cannot avoid the consequences of the Florida district court's rulings by raising new legal theories in a subsequent lawsuit where, as here, he could have raised such theories in the prior action. See Hall v. Clinton, 285 F.3d 74, 81 (D.C.Cir.2002).
A plaintiff can avoid the preclusive effect of an earlier judicial decision if he can demonstrate that preclusion would "work a basic unfairness" on him, or that he "lacked any incentive to litigate the [issues] in the [prior proceedings]," or that he was otherwise denied a full and fair opportunity to litigate these issues previously. Yamaha, 961 F.2d at 254. However, the plaintiff presents no such arguments, and given his persistence in seeking the return of his property, both in the criminal proceedings and subsequent civil proceedings in the Middle District of Florida, coupled with the rulings rendered in those proceedings, the Court finds that invoking the preclusive impact of collateral estoppel in this case is not at odds with the limitations articulated in Yamaha. The Court therefore concludes that the issues presented in this civil action are barred by the doctrine of collateral estoppel.
III. CONCLUSION
The Court concludes that the doctrines of res judicata and collateral estoppel bar relitigation of the claims and issues presented in this case due to the proceedings that were conducted in the United States District Court for the Middle District of Florida.[12] Accordingly, the Court grants the defendants' motion to dismiss and denies the plaintiff's motion for injunctive relief.[13]
NOTES
[1] Under the APA, "[a] person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof." 5 U.S.C. § 702 (2006).
[2] Remote access to documents filed in criminal cases in the United States District Court for the Middle District of Florida prior to November 1, 2004, is not available. With one exception [# 228], docket entries in the plaintiff's criminal case prior to July 23, 1997, do not appear on the court's electronic docket. A docket entry dated August 12, 1993 [# 502] notes that the first 278 docket entries, including the criminal complaint against the plaintiff [# 1], minutes of the sentencing [# 13], and the judgment [# 14], appear on the original paper docket sheet, but does not indicate the dates on which these documents were filed.
[3] The defendant represents that the plaintiff's property was seized and forfeited in accordance with the administrative forfeiture procedures set forth in 19 U.S.C. § 1607 (2006), rather than the provisions of the Civil Asset Seizure Reform Act of 2000, see 18 U.S.C. § 983 (2006), which applies to forfeiture proceedings initiated after August 23, 2000, Def.'s Mem. at 1 n. 1.
Generally, all vehicles "which are used, or are intended for use, to transport, or in any manner to facilitate the transportation, sale, receipt, possession, or concealment of" controlled substances or raw materials intended for illegal drug trade are subject to forfeiture. 21 U.S.C. § 881(a) (2006). Under the earlier forfeiture statute, which governs the forfeiture in this case, if the value of a seized vehicle does not exceed $500,000, the following provision applies:
[T]he appropriate . . . officer shall cause a notice of the seizure of such [vehicle] and the intention to forfeit and sell or otherwise dispose of the same according to law to be published for at least three successive weeks in such manner as the Secretary of the Treasury may direct. Written notice of seizure together with information on the applicable procedures shall be sent to each party who appears to have an interest in the seized [vehicle].
19 U.S.C. § 1607(a) (2006). DEA Special Agents "are authorized and designated to seize such property as may be subject to seizure." 21 C.F.R. § 1316.72.
[4] The DeVille and the Blazer already had been forfeited, and the United States took the position that "the only remaining issue for evidentiary hearing . . . would be limited to the personal property contained within the vehicle[s]." Def.'s Mem., King Decl., Ex. 16 (Response to Lewis' Petition for Writ of Replevin and United States of America's Request for an Evidentiary Hearing, United States v. Lewis, No. 93-249-CR-T-21 (B) (M.D.Fla. Sept. 13, 1996)) at 2.
[5] The plaintiff alleges that he had filed two motions for return of property in his criminal case, one on June 9, 1994 and another on July 7, 1994, Compl. ¶ 19, and that both motions were denied, id. ¶ 20. It is not clear from the record whether the second motion was also addressed at the January 30, 1997 hearing.
[6] The plaintiff also alleges violations of federal statutory law and Florida law. Compl. ¶ 29.
[7] According to the plaintiff, the vehicles were used "for advertisement purposes and other matters associated with [his] family's business," Compl., Ex. B (Pl.'s Aff.) ¶ 8, an auto body repair shop, id. ¶ 7.
[8] The plaintiff numbered two paragraphs of the complaint as paragraph 31, one beginning on page 11 (requesting declaratory judgment), and another beginning on page 14 (requesting injunctive relief).
[9] Ordinarily, if "matters outside the pleadings are presented to and not excluded by the court" on a Rule 12(b)(6) motion, "the motion must be treated as one for summary judgment under Rule 56." FED. R. CIV. P. 12(d). The Court need not convert the defendants' motion to dismiss in this case, however, because the materials on which the Court relies either are referred to in the complaint itself or are matters of which the Court may take judicial notice.
[10] The plaintiff numbered two pages as page 14. The Court's citation is to the first of those two pages.
[11] The plaintiff's FTCA claim, see Compl. ¶ 27 & Ex. L (Claim for Damage, Injury or Death dated October 4, 2004), also is barred by the doctrine of res judicata.
[12] In light of these rulings, the Court will not address the defendants' alternative arguments for dismissal.
[13] This Memorandum Opinion accompanies the Order issued on March 31, 2011, and the Final Order issued contemporaneously, granting the defendant's motion to dismiss and denying the plaintiff's motion for injunctive relief. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1362362/ | 783 F. Supp. 519 (1991)
Robert Burdett BUTLER, Petitioner,
v.
George W. SUMNER and Brian McKay, Attorney General, Respondents.
No. CV-N-88-0001-ECR.
United States District Court, D. Nevada.
November 21, 1991.
Brian McKay, Atty. Gen., Carson City, Nev., for petitioner.
ORDER
EDWARD C. REED, Jr., Chief Judge.
Petitioner Robert Burdett Butler filed a Petition for Writ of Habeas Corpus pursuant *520 to 28 U.S.C. section 2254. In our order dated July 18, 1991 (document # 64), this Court disposed of all claims except the claim of ineffective assistance of counsel at sentencing. We found that petitioner's sentencing counsel "was not functioning as the `counsel' guaranteed the defendant by the Sixth Amendment." Strickland v. Washington, 466 U.S. 668, 687, 104 S. Ct. 2052, 2064, 80 L. Ed. 2d 674 (1984). We reserved ruling on whether the inadequate assistance prejudiced the petitioner until a hearing could be held. Counsel was appointed for petitioner and the hearing was held on October 25, 1991. The issue is now ready for resolution by this Court.
In 1980, Petitioner Robert Burdett Butler was charged with one count of Lewdness with a Minor, one count of Infamous Crimes Against Nature and twenty counts of Sexual Assault.
Petitioner's crimes stem from his relationship with a young boy between 1977 and 1979. Petitioner instructed the boy, who was ten to eleven years old, in acrobatics over this two-year period. Petitioner also rented a room at the boy's home. The victim testified at trial that petitioner sodomized and fellated the boy and had the boy fellate him during the time that petitioner lived in his house. The victim also testified that petitioner often talked with him about homosexuality and showed him books about homosexual behavior. In addition, evidence of petitioner's prior convictions and sexual advances to other boys he was training was admitted.
Petitioner was convicted of all counts. At sentencing, the prosecutor did not make a specific recommendation, but urged the judge to exceed the Department of Parole and Probation's recommendation and impose "enough consecutive life terms ... so that this vermin will not crawl out from under his rock again." The prosecutor also compared the petitioner to Attila the Hun and reiterated petitioner's long history of sexual offenses. See Exhibits in Support of Answer to Petition (hereinafter "Record"), Exhibit O at 310-12.
Petitioner's sentencing counsel, who had just been retained, was completely unprepared for the sentencing hearing. He did not meet with petitioner or trial counsel before sentencing. He was granted a two-day continuance to prepare and was told that no other continuances would be granted. Record, Exhibit O at 331-32. Nevertheless, he appeared on the day of sentencing and requested a continuance because he had not yet met with petitioner or reviewed the pre-sentence report with petitioner himself. The request was denied. Record, Exhibit O at 309.
Counsel proceeded to present an argument which the Nevada Supreme Court found "tentative and unconvincing." Record, Exhibit M at 2-3. He was unfamiliar with the events at trial and unable to argue on petitioner's behalf. In fact, the judge corrected the limited comments counsel did make regarding petitioner's background. Record, Exhibit O at 313-14. Counsel gave a five-sentence argument, telling the judge that prison was not the place for petitioner, "but I don't know what choice the Court has." Id. at 312.
The probation and parole report recommended that petitioner receive a term of five years on the lewd conduct charge and three consecutive life sentences on the remaining charges. Petitioner was sentenced to the maximum term on all counts: ten years on the lewdness count, life with possibility of parole (minimum five years) on the infamous crime count, and life with the possibility of parole (minimum ten years) on each of the sexual assault counts, for a total of twenty-one life sentences plus ten years. All sentences are to run consecutively.
To sustain a claim of ineffective assistance of counsel, petitioner must establish both that his counsel's performance at sentencing fell below an objective standard of reasonableness and that petitioner was prejudiced by the deficient performance. Strickland, 466 U.S. at 687-88, 104 S.Ct. at 2064-65. We previously determined that sentencing counsel's performance was deficient. The sole remaining issue is whether petitioner was prejudiced as a result.
The test for determining prejudice is whether there is "a reasonable probability *521 that, but for counsel's unprofessional errors, the result of the proceeding would have been different. A reasonable probability is a probability sufficient to undermine confidence in the outcome." Id. at 694, 104 S.Ct. at 2068.
Petitioner presents several arguments that he contends could have been made by competent counsel at sentencing. First, petitioner argues that sentencing counsel should have emphasized the parole and probation department's recommendation of three life sentences. According to petitioner, these recommendations are often followed by courts and sentencing counsel should have stressed the department's methods and rationale in arriving at this recommendation.
Petitioner also argues that sentencing counsel should have presented comparative arguments relating to sentences given for similar crimes and for more serious crimes. Petitioner contends that such a comparison would have demonstrated that the maximum sentence in this case would far exceed sentences given for more violent crimes and crimes involving more than one victim. Petitioner notes that the fact that his crimes involved only one victim and did not involve force or physical injury could have been emphasized to argue for concurrent, rather than consecutive, sentences.
In addition, petitioner notes that sentencing counsel did not mention any mitigating factors, such as petitioner's talent and reputation in his community. Although some character witnesses testified at trial on behalf of petitioner, other former students and associates would have been available for the sentencing hearing. Neither did sentencing counsel mention petitioner's age as a possible mitigating factor.
Respondents argue that because the judge based his sentence primarily on petitioner's prior history and the nature of his crimes, no argument that counsel might have presented would have resulted in a more lenient sentence. This argument would be persuasive had counsel presented any argument to the sentencing court. We are not faced with a situation in which an attorney did not make all the arguments he could have, or did not make the arguments his client later wishes had been presented. Here, counsel essentially made no argument on behalf of his client, and petitioner subsequently received the harshest sentence possible, a sentence which no one had recommended.
In evaluating ineffective assistance of counsel claims in similar cases, courts have emphasized the role of the sentencing proceeding in focusing on the individual defendant. In Deutscher v. Whitley, the Ninth Circuit Court of Appeals held that the petitioner was prejudiced by his counsel's ineffective performance at the sentencing hearing. 884 F.2d 1152, 1161 (9th Cir.1989), vacated on other grounds sub nom., Angelone v. Deutscher, ___ U.S. ___, 111 S. Ct. 1678, 114 L. Ed. 2d 73 (1991), on remand, Deutscher v. Whitley (Deutscher II), 946 F.2d 1443, 1447 (9th Cir.1991).
In Deutscher, counsel did not prepare for sentencing and did not consider putting on evidence of petitioner's mental problems or any other mitigating evidence. The Court noted that counsel's failure to produce any mitigating evidence at the penalty phase denied petitioner the chance to ever have "a jury, Nevada's death penalty arbiter, fully consider mitigating evidence in his favor." Deutscher, 884 F.2d at 1161. The Court of Appeals reversed this Court's finding of no prejudice and remanded for resentencing. Deutscher II, 946 F.2d at 1447.
Similarly, in Armstrong v. Dugger, the petitioner's counsel failed to prepare for sentencing and did not present mitigating evidence or character witnesses on petitioner's behalf. The state argued that much of the evidence was either presented to the jury during the trial or would have been perceived as aggravating rather than mitigating. 833 F.2d 1430, 1433 (11th Cir. 1987). The court disagreed with the state's conclusion that petitioner was not prejudiced. The court found that counsel's failure to produce evidence at the sentencing stage prevented the jury from having the necessary information to focus on the particularized characteristics of the defendant. Id.
*522 The Eleventh Circuit Court of Appeals has found prejudice where counsel fails to present mitigating character evidence even though that evidence may have elicited negative testimony as well. Blake v. Kemp, 758 F.2d 523, 534-35 (11th Cir.), cert. denied, 474 U.S. 998, 106 S. Ct. 374, 88 L. Ed. 2d 367 (1985). There, the court found that the mitigating evidence could have provided some counterweight to the aggravating evidence presented. The court held that counsel's deficient performance prejudiced the petitioner even though the jury may have imposed the death sentence anyway. Id.
One court has found that counsel's failure to speak on his client's behalf at sentencing or to provide any assistance in preparing for sentencing constituted constructive denial of counsel sufficient to raise a presumption of prejudice. Gardiner v. United States, 679 F. Supp. 1143, 1147 (D.Me.1988). While the case at bar does not warrant this presumption, we find the court's comments regarding sentencing illuminating:
Prejudice is almost certain to occur when counsel declines to speak for his client at sentencing, for without knowing what reasonably competent counsel might have said and how he or she would have said it, the Court cannot tell what its reaction would have been to the presentation.
Id. at 1147 n. 7.
Here, counsel's unprofessional performance denied the court the opportunity to focus on the particular circumstances of petitioner's case. We recognize the terrible nature of petitioner's crimes and his long criminal history. It is possible that petitioner would have received the same sentence had his counsel performed competently. We also recognize, however, our duty to uphold the Constitution of the United States and to insure its uniform application. Counsel's complete failure to present any argument or evidence that might have persuaded the judge to temper the severity of his sentence is sufficient to undermine our confidence in the outcome.
We find that there is a reasonable probability that the outcome of the sentencing would have been different had petitioner been represented by competent counsel. Petitioner has met both prongs of the Strickland test and has established that he was denied his Sixth Amendment right to effective assistance of counsel at sentencing.
It is hereby ORDERED that petitioner's Second Amended Petition for Writ of Habeas Corpus (document # 34) shall be GRANTED unless the State of Nevada resentences petitioner within ninety (90) days.
It is so ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1820845/ | 300 F. Supp. 834 (1969)
Wm. F. deHAAS, and Colorado International Corp., a Colorado corporation, Plaintiffs,
v.
EMPIRE PETROLEUM COMPANY, a Colorado corporation, Eugene M. Stone and American Industries, Inc., a Nevada corporation, Defendants.
Civ. A. No. 66-C-167.
United States District Court D. Colorado.
June 26, 1969.
*835 James W. Heyer, Denver, Colo., for plaintiffs.
Holmes Baldridge and Arlen S. Ambrose, Denver, Colo., for defendants.
MEMORANDUM OPINION AND ORDER
WILLIAM E. DOYLE, District Judge.
This is the final chapter in complex litigation which has concerned the validity of disputed mergers brought about by the defendants Stone and Empire Petroleum Company. There have been numerous hearings and a lengthy trial. The charges have revolved around the validity of these mergers under Rule 10b-5 of the Securities and Exchange Commission. The original and amended and supplemental complaints describe a series of transactions culminating in the merger of American Industries, Inc. and Inland Development Corporation which occurred in 1962, and allege that this was a fraudulent scheme to deceive and injure the shareholders of American. These issues were tried to a jury which returned the following verdicts:
(1) $10,000.00 on the first claim to compensate for losses suffered by American in the 1962 merger;
(2) $50,000.00 on the second claim to compensate for the interest paid on bogus debt obligations thrust on American in 1962;
(3) $5,000.00 exemplary damages against Stone on the second claim; and
*836 (4) in favor of defendants on the third claim for recovery of salary.
The amended complaint contained a fifth and sixth claim, both of which sought equitable relief. These allege that the 1966 merger of American and Empire Crude Oil Company was also the result of a fraudulent scheme which is in violation of Rule 10b-5. 17 C.F.R. § 240.10b-5 (1968). We have held a hearing on the plaintiff's motion for the claimed relief. We have reviewed the briefs, the exhibits, have heard oral arguments and determined at the conclusion of this hearing that the plaintiff was not entitled to a rescission of this 1966 merger. Separate findings and conclusions cover this determination.
Plaintiff failed to prove that the information provided to the public shareholders of American regarding the 1966 merger plan was incomplete or fraudulently deceptive.[1] The public shareholders were given three lengthy letters discussing in depth the pros and cons of the proposed merger: (1) Stone's letter of August 3, 1966, which outlined the merger and its advantages from management's viewpoint;[2] (2) the letter of August 22, 1966, from the Stockholder's Committee, American Industries, Inc., which set forth the arguments against the merger and liquidation of American, many of which were presented at our recent hearing; and (3) Stone's letter of September 14, 1966, which explained the postponement of the vote of the merger and included a copy of the original complaint filed in this action.[3] Our examination of these letters convinces us that they adequately disclosed all the relevant and material facts to the public shareholders of American before the plan of reorganization was submitted for shareholder consideration. There is no other evidence of deception by the defendants with respect to this merger, and therefore, we must conclude that equitable relief is not justified under Rule 10b-5.
At the June 2nd hearing we reserved for later decision the question of whether including a fraudulent liability in the valuation of American used in the computation of the 1966 merger exchange ratio justified additional equitable relief. American incurred a $259,000.00 debt acquiring Mutual Supply Company from Empire Petroleum as part of the 1962 scheme which the jury found to be fraudulent. This debt was cancelled by court order during trial and the jury returned a verdict of $50,000.00 *837 to compensate American for the interest it paid on this liability.
There is no evidence in the record showing that either Stone or Empire Petroleum participated in this aspect of the valuation of American beyond their roles in the creation of the fraudulent liability in 1962. The exchange ratio used was based in part on an analysis prepared by Philip Arterburn & Company, Certified Public Accountants. The Arterburn report was submitted on September 30, 1965, and it gave American an asset value per share of $2.054 as compared to an asset value per share for Empire Petroleum of $0.9393. The market quotations for shares of Empire Petroleum and American were also considered in the final ratio of one and one-half shares of Empire Petroleum for each share of American.[4]
As indicated above, the remaining question is whether there was a constructive fraud under Rule 10b-5 based upon the merger exchange ratio being palpably unfair and unreasonable. Weisman v. M C A Inc., 45 F.R.D. 258, 264 (D.Del.1968); Knauff v. Utah Construction & Mining Co., 277 F. Supp. 564, 579 (D.Wyo.1967); Voege v. American Sumatra Tobacco Corp., 241 F. Supp. 369, 375-376 (D.Del.1965). We have concluded, of course, that the evidence fails to establish extrinsic fraud and have reserved the very narrow question whether the merger itself was so intrinsically unfair and unjust that it can give rise to a conclusion that it is intrinsically or constructively fraudulent. Knauff v. Utah Construction & Mining Co., 277 F. Supp. 564, 577 (D. Wyo.1967).[5]
This remaining issue is one of fact, and all of the surrounding circumstances are relevant in assessing the fairness of the merger terms. See, e.g., Hottenstein v. York Ice Machinery Corp., 136 F.2d 944, 953 (3d Cir. 1943); Clarke v. Gold Dust Corp., 106 F.2d 598, 603 (3d Cir. 1939); MacCrone v. American Capital Corp., 51 F. Supp. 462, 466 (D.Del.1943). Furthermore, all relevant value figures including book value, net asset value, going concern value and market value are pertinent to the issue of the fairness of a merger exchange ratio. See Sterling v. Mayflower Hotel Corp., 33 Del. Ch. 20, 89 A.2d 862, 863, 867, aff'd, 33 Del. Ch. 293, 93 A.2d 107, 38 A.L.R. 2d 425 (1952); See generally 38 A.L.R.2d 442-454 (1954).
From an examination of the factual record with these general principles in mind, we must determine that the exchange ratio of one and one-half shares of Empire Petroleum for one share of *838 American was not so unfair and unreasonable so as to require avoidance. The Arterburn report in addition to overstating American's liabilities by $259,000.00 also innocently and substantially over-valued American's assets by a comparable sum. The uncontroverted testimony of Mr. Milton Levenfeld, tax counsel for Empire Petroleum, indicated that the Arterburn report overstated American's ownership in two oilfields by $375,000.00. Apparently Arterburn credited American with full ownership of these fields valued at $750,000.00 whereas American and Empire each owned a half interest in them at the time the Arterburn report was prepared. Therefore, any undervaluation of American that resulted from the $259,000.00 error was amply offset by the $375,000.00 mistaken in American's favor.
Plaintiff argues that the only fair method of valuing American was an appraisal of American's assets "from the standpoint of their intrinsic value, not on the basis of cost less accumulated depreciation." Plaintiff's Brief in Support of Motion for Equitable Relief, p. 18. However, we are bound by the facts and are not justified in taking a special method of evaluation which might lead to a result desired by plaintiff. See David J. Greene & Co. v. Dunhill International, Inc., 249 A.2d 427, 433 (Ch.Ct. Del.1968). Our duty is rather to determine on the record before us whether the merger ratio used is fair under all the circumstances. It is our opinion that the 1966 merger ratio of one and one-half shares of Empire Petroleum for one share of American was fair, and hence, any residue of the 1962 fraud which may have been involved was legally immaterial.
We also determined at the June 2nd hearing that the damages awarded by the jury should be subject to an equitable lien running only to the public shareholders of American and excluding the interests of American owned by Stone and Empire Petroleum. It would serve no useful purpose to order a corporate recovery because the victimized corporation no longer exists. In addition, a traditional corporate recovery would enable the wrongdoers to profit from their wrongdoing. If defendants Stone and Empire Petroleum are allowed to share in the damages as shareholders of American, they would be in effect reducing the amount of damages assessed against them. Such a result is obviously undesirable and inconsistent with the purpose of Rule 10b-5. Vine v. Beneficial Finance Co., 374 F.2d 627, 637 (2d Cir. 1967); see Knauff v. Utah Construction & Mining Co., 277 F. Supp. 564, 577 (D.Wyo.1967); Liken v. Shaffer, 64 F. Supp. 432, 440-441 (N.D.Iowa 1946).
This equitable lien will be implemented in the following manner. The defendants will pay the amount of the judgment against them to the Clerk of this Court, and the Clerk will distribute the fund to the public shareholders of American in an appropriate proportion to their ownership interests.
Finally, we have sought to extend to the plaintiffs every possible opportunity to prove their allegations. No doubt they were disappointed in the verdicts of the jury. However, they had full opportunity to obtain compensation for the injustices which grew out of the Inland-American merger. Indeed we allowed plaintiffs to amend at the close of all the evidence so that there would be full opportunity to try the case on its merits. They have had a fair trial and the results are now in. All litigation matters must finally come to an end, and this one is no exception. Subject, therefore, to the entry of formal findings and conclusions with respect to the fourth and fifth claims, the matter is now terminated.
NOTES
[1] A claim for relief under Rule 10b-5 must prove some type of deception. Schoenbaum v. Firstbrook, 405 F.2d 200, 211 (2d Cir. 1968); Pappas v. Moss, 393 F.2d 865, 869 (3d Cir. 1968); Vine v. Beneficial Finance Co., 374 F.2d 627, 635 (2d Cir. 1967); O'Neill v. Maytag, 339 F.2d 764, 767 (2d Cir. 1964); Condon v. Richardson, 275 F. Supp. 943, 947 (S.D. Ill.1967); Globus, Inc. v. Jaroff, 266 F. Supp. 524, 529-531 (S.D.N.Y.1967); Simon v. New Haven Board & Carton Co., 250 F. Supp. 297, 299 (D.Conn.1966); Parker v. Baltimore Paint & Chemical Corp., 244 F. Supp. 267, 270 (D.Colo. 1965); Hoover v. Allen, 241 F. Supp. 213, 227 (S.D.N.Y.1965); Trussell v. United Underwriters, Ltd., 228 F. Supp. 757, 772 (D.Colo.1964). The deception may be either a misstatement of material fact or the omission to state a material fact. See, e. g., Stevens v. Vowell, 343 F.2d 374, 379 (10th Cir. 1965); Miller v. Steinbach, 268 F. Supp. 255, 279 (S.D.N. Y.1967); Barnett v. Anaconda Co., 238 F. Supp. 766, 775 (S.D.N.Y.1965).
[2] Plaintiff bases most of his fraud allegations on this letter asserting that it "failed to reveal the nature of the pendency of this derivative action" and that it contained "material nondisclosures and misleading statements, and misrepresentations." Amended and supplemental complaint, p. 18, para. 38. However, Stone's subsequent letter sufficiently set the record straight, so to speak, and clarified any ambiguities present in the August 3, 1966 letter. Cf. General Time Corp. v. Talley Industries, Inc., 283 F. Supp. 832, 835 (S.D.N.Y.1968).
[3] The sixth claim of the original complaint accurately predicted the 1966 merger and asked that "defendants Stone and Empire * * * be enjoined from merging, consolidating or attempting to merge or otherwise dispose of any assets of American;" Original complaint, p. 21.
[4] Stone's letter of August 3, 1966, gave this explanation of the procedures used in formulating the ratio:
[A]t no time during the last year has the market quotation on the shares of American Industries, Inc. exceeded $1.00 per share. During that time, the market quotations on Empire Petroleum Company stock was varied from approximately 40 cents to $1.00 per share. On one basis, [the Arterburn report] the exchange ratio could be slightly more than two shares of Empire Petroleum for each share of American Industries, Inc. and on another basis, it could be on a ratio of one share for one share. Therefore, it was decided by Directors, with the assistance of legal counsel, that an intermediate ratio would be more likely to be correct and a ratio of one and one-half shares of Empire Petroleum Company for each share of American Industries, Inc. was approved by the Directors of Empire Crude Oil Company and American Industries, Inc. Letter of August 3, 1966, from Stone to the stockholders of American Industries, Inc., p. 3 (plaintiff's exhibit 54.)
[5] The inquiry in common-law suits to enjoin a proposed merger is whether the terms of the merger are fair to all shareholders. See, e. g., Hottenstein v. York Ice Machinery Corp., 45 F. Supp. 436, 438 (D.Del.1942), aff'd, 136 F.2d 944, 953 (3d Cir. 1943); David J. Greene & Co. v. Dunhill International, Inc., 249 A.2d 427, 432 (Ch.Ct.Del.1968); Rutman v. Kaminsky, 226 A.2d 122, 126 (S.Ct.Del. 1967). This test has apparently been adopted by courts reviewing exchange ratios incident to mergers under Rule 10b-5. Knauff v. Utah Construction & Mining Co., 277 F. Supp. 564, 579 (D.Wyo. 1967). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2482933/ | 152 F. Supp. 2d 42 (2001)
Samson OMOSEFUNMI, Petitioner,
v.
The ATTORNEY GENERAL OF THE COMMONWEALTH OF MASSACHUSETTS, Respondent.
No. CIV.A. 99-CV-12495-RGS.
United States District Court, D. Massachusetts.
May 31, 2001.
*43 *44 *45 Samson Omosefunmi, Batavia, NY, petitioner pro se.
Elizabeth K. Frumkin, Assistant Attorney General, Criminal Bureau, Boston, MA, for Commonwealth of Mass, respondent.
ORDER
STEARNS, District Judge.
On April 30, 2001, Magistrate Judge Bowler submitted a Report recommending that Samson Omosefunmi's petition for writ of habeas corpus be dismissed. On May 14, 2001, the Massachusetts Attorney General filed a limited objection to the Report. After review of the Report and the objection, I will ADOPT the Magistrate Judge's Recommendation. The petition is hereby DISMISSED.
SO ORDERED.
*46 REPORT AND RECOMMENDATION RE: MOTION TO DISMISS PETITION FOR WRIT OF HABEAS CORPUS (DOCKET ENTRY # 16)
BOWLER, United States Magistrate Judge.
Pending before this court is a motion to dismiss (Docket Entry # 16) filed by respondent the Attorney General for the Commonwealth of Massachusetts ("respondent"). Respondent moves to dismiss the above styled petition for writ of habeas corpus filed pro se by petitioner Samson Omosefunmi ("petitioner") because: (1) petitioner is not "in custody" within the meaning of 28 U.S.C. § 2241(c)(3) and section 2254; (2) petitioner fails to exhaust state court remedies and, in particular, fails to present federal constitutional claims to the Massachusetts Supreme Judicial Court ("SJC"); and (3) certain claims in the petition do not raise a federal or constitutional issue.[1]
Even if an evidentiary hearing is not barred under 28 U.S.C. § 2254(e)(2) ("section 2254(e)(2)") of the Antiterrorism and Effective Death Penalty Act of 1996 ("the AEDPA"),[2] at the present time petitioner has no right to an evidentiary hearing on the issues raised by respondent under the pre-AEDPA standard, assuming, arguendo, its applicability after the AEDPA's enactment. See Edwards v. Murphy, 96 F. Supp. 2d 31, 49-50 (D.Mass. 2000) (setting forth relevant standards and recognizing dispute as to whether standard for conducting evidentiary hearing set forth in Townsend v. Sain, 372 U.S. 293, 83 S. Ct. 745, 9 L. Ed. 2d 770 (1963), as modified by Keeney v. Tamayo-Reyes, 504 U.S. 1, 112 S. Ct. 1715, 118 L. Ed. 2d 318 (1992), remains applicable after AEDPA's enactment); see also Fryar v. Bissonnette, 113 F. Supp. 2d 175, 179-180 (D.Mass.2000) (the petitioner did not negligently fail to develop record under section 2254(e)(2) and could, therefore, only obtain hearing if he satisfied Townsend standard); Marshall v. Hendricks, 103 F. Supp. 2d 749, 770 (D.N.J.2000) (same).
The facts regarding exhaustion and the character of the arguments presented to the state courts are contained in the state court records. The only dispute, which would not change the result of the exhaustion analysis, involves whether petitioner filed a notice of appeal on October 23, 1992. Petitioner submits that he filed such an appeal. He also contends that, after the appellate court dismissed the appeal for want of prosecution, he filed a motion for reconsideration of the dismissal which, after requiring additional filings, the appellate court allowed on January 6, 1997.[3]
Respondent submits that petitioner only filed an appeal of the trial court's denial of the motion to withdraw the guilty plea. Respondent notes that the appellate court permitted petitioner to reinstate this appeal on February 20, 1998.
*47 A close examination of the state court records in the file demonstrates that petitioner filed a notice of appeal dated October 23, 1992, but not with respect to indictment 30070. Rather, petitioner filed an appeal of indictments 30069 and 30287 to 30290. The incomplete copy of the appellate court docket sheet for the appeal (No. 94-P-001714) reflects the filing of the appeal, the February 1995 dismissal of the appeal, petitioner's November 1995 motion for reconsideration of the dismissal and the appellate court's December 1, 1995 direction to file additional papers detailing why the brief was not timely filed. In addition to petitioner's motion for reconsideration, the record contains: (1) petitioner's motion to reinstate the appeal dated December 6, 1996, in compliance with the appellate court's instructions; and (2) a file stamped copy of petitioner's motion to amend the appeal to include indictment 30070 filed in the trial court in February 1997 and allowed on March 21, 1997.
Consequently, petitioner's factual scenario appears more accurate than respondent's. In any event, the record contains only one appellate brief filed in No. 94-P-001714 with the date stamp November 18, 1998, and one application for further appellate review filed in No. 94-P-001714 with a date of August 15, 1999. As discussed infra, these are the critical papers for purposes of analyzing respondent's failure to exhaust state court remedies argument. Hence, an evidentiary hearing is not necessary to resolve the immaterial factual discrepancy with respect to exhaustion.
The facts with respect to petitioner's "in custody" status, including respondent's April 27, 2001 submission, are also contained in the record. The motion to dismiss (Docket Entry # 16) is therefore ripe for review.
BACKGROUND
As presented in the petition,[4] petitioner challenges his October 1992 conviction, after a plea of guilty, of four counts of larceny in violation of section 30 of Massachusetts General Laws chapter 266 (Indictment 30070).[5] He seeks habeas relief on the basis that: (1) he made an involuntary guilty plea without knowledge of the nature of the charges because he was not informed of the facts and circumstances surrounding his arrest, indictment and crimes, particularly the failure of the grand jury minutes to name or charge him with a crime;[6] (2) trial counsel rendered *48 ineffective assistance of counsel[7] because he failed to alert petitioner that the grand jury minutes did not name or charge him with a crime;[8] (3) the grand jury minutes were defective because they failed to name or charge petitioner with a crime as to warrant indictment and conviction;[9] and *49 (4) the conviction was obtained in violation of the privilege against self-incrimination because petitioner questioned the relevance of introducing certain items of evidence and the Commonwealth based its evidence "on information from liars and crooks."[10]
*50 On February 25, 1992, the grand jury heard testimony from a present or former conciliator of the Massachusetts Department of Industrial Accidents. A conciliator meets with employees who file workmen's compensation claims, their attorneys and representatives of the insurance carrier to resolve claims before referring them to a state court judge. The conciliator testified about two individuals, Festus Omosefumni,[11] a male, and Olutoyin Friday, a female. Under various names, these individuals met with the conciliator at different times posing as injured employees of various businesses. The conciliator testified about the amount of workmen's compensation payments these individuals received and how the male, under various names, always used the same address. The conciliator did not, however, identify the male as Samson Omosefunmi. Similarly, the heading of the grand jury minutes names "John Doe" as opposed to Samson Omosefunmi.
On the same day, the grand jury indicted Samson A. Omosefumni[12] for four counts of larceny (Indictment 30070) and four counts of false representations (Indictment 30069). On October 8, 1992, with the assistance of counsel, petitioner pled guilty to these charges.
At the October 8, 1992 guilty plea hearing, petitioner swore under oath to the accuracy of the facts presented by the Commonwealth except for his ownership of certain motor vehicles. The Commonwealth identified Olutoyin Friday as the mother of petitioner's children. Petitioner was identified as holding excess assets, owning a home and also owning a business while receiving federal assistance. For example, petitioner held joint bank accounts with Friday with assets and five figure deposits during the relevant time period. Petitioner nevertheless reported no income or assets. He also admitted that he "cheated welfare."
Before accepting the pleas, the trial judge informed petitioner that, by pleading guilty, he was giving "up [his] absolute right to have a fair and impartial trial with or without a jury to determine [his] guilt or innocence." (Docket Entry # 18, Tr. 5-6). The trial judge also advised petitioner that by pleading guilty he was giving up the right to face his accusers and to question them and to introduce evidence on his behalf. In response to questions, petitioner denied being under the influence of drugs, medication or alcohol. Petitioner replied affirmatively to the trial judge's question about whether he had enough time to fully discuss the case and the consequences of pleading guilty with his attorney. Petitioner agreed that trial counsel had acted in his best interest and *51 had fairly represented him. As required under state law, the trial judge also informed petitioner of the indirect deportation consequences of his plea.
In written factual findings, the trial judge found that petitioner's plea of guilty was made voluntarily of his own free will and with full knowledge of the consequences.[13] Accordingly, the trial judge accepted the plea.
The trial judge then sentenced petitioner to a term of three to five years on the larceny counts, each count to run concurrently. He suspended the sentence and placed petitioner on probation for the five year term with an order of restitution in the amount of $29,322.29.
Petitioner submitted a notice of appeal dated October 23, 1992. After the appellate court dismissed the appeal for want of prosecution, petitioner moved for reconsideration of the dismissal. After requiring additional filings, the appellate court reinstated the appeal.
Meanwhile, on October 5, 1993, petitioner was found to be in violation of probation and the suspended larceny sentence was invoked. Petitioner began serving the three to five year concurrent sentence on October 5, 1993, with an effective date of September 6, 1993.
In May 1996 petitioner filed a pro se motion to withdraw the guilty plea and for a new trial. The one paragraph motion sought relief based on a supporting affidavit.[14] In the motion, petitioner argued that his plea "was not voluntary or done in an understanding manner" and that he received ineffective assistance of counsel. An Associate Justice of the Superior Court Department who was not the trial judge denied the motion in a three page written decision in September 1996. In particular, she rejected petitioner's supporting affidavit as "nonsensical" and "incredible on its face."[15] Petitioner filed a notice of appeal from the denial of the new trial motion on September 23, 1996.
Petitioner's appellate brief raised five arguments. First, petitioner argued that he was under the influence of drugs when he pleaded guilty. Second, petitioner alleged that he received ineffective assistance of trial counsel because trial counsel should have been aware that petitioner was under the influence of drugs and that petitioner was not named or charged with any crime in the grand jury minutes. Third, petitioner maintained that the grand jury minutes were defective because they did not name or charge him with any crime. Fourth, petitioner challenged the guilty plea as not being voluntary and intelligent. Fifth, petitioner contended that the evidence was based on "liars and crooks."
On August 9, 1999, the appellate court affirmed the judgment for the reasons set forth in the Commonwealth's brief. On August 15, 1999, petitioner filed the ALOFAR with the SJC. The ALOFAR raised the following arguments: (1) ineffective assistance of trial counsel because he *52 should have been aware that the grand jury minutes did not name or charge petitioner with a crime; (2) defective grand jury minutes which did not name or charge petitioner with a crime; and (3) the Commonwealth based its case on information from "liars and crooks." On October 25, 1999, the SJC summarily denied the ALOFAR.
On July 15, 1994, petitioner was sentenced on insurance fraud charges for a minimum period of two years and six months and a maximum period of five years. The effective date of this sentence was "F & A # 1." (Docket Entry # 20, Ex. B; Docket Entry # 38, Ex. 2). Sentence number one is the larceny sentence. The maximum date for the larceny sentence is September 4, 1998. The larceny sentence therefore expired no later than September 4, 1998. Inasmuch as the July 1994 insurance fraud sentence ran from and after the larceny sentence, this court concludes that the July 1994 insurance fraud sentence was consecutive to the October 1992 larceny sentence. See Mass. Gen.L. ch. 279, § 8A.
On July 1, 1996, petitioner was released on parole on both sentences. Although the larceny sentence expired no later than September 1998, petitioner remained on parole on the insurance fraud sentence after the larceny sentence expired. The maximum sentence date for the insurance fraud sentence is June 29, 2001. Ordinarily, when the committed portion of an earlier sentence of a from and after sentence ends and the prisoner is released on parole, the later sentence commences. See Crooker v. Massachusetts Parole Board Chairman, 38 Mass.App.Ct. 915, 645 N.E.2d 698, 699 (Mass.1995); Delisle v. Commonwealth, 416 Mass. 359, 622 N.E.2d 601, 603 (1993).
Significantly, however, petitioner received statutory and earned good time credits of 637 days. Deducted from the latest maximum sentence date of the from and after insurance fraud sentence (June 29, 2001), the parole discharge date for this sentence was October 1, 1999. The from and after insurance fraud sentence therefore expired on October 1, 1999.
Petitioner filed an application to proceed in forma pauperis on November 29, 1999. It is dated November 19, 1999. The accompanying initial petition is signed and dated by petitioner on November 18, 1999.[16] The district court allowed the in forma pauperis application on December 8, 1999. The clerk docketed the petition on December 8, 1999. To state the obvious, none of these dates falls on or before the October 1, 1999 expiration of the insurance fraud sentence.
The Immigration and Naturalization Service ("INS") lodged a detainer against petitioner in September 1993 as a result of the October 1992 conviction. On September 30, 1999, the INS released petitioner on bail. He later returned to INS custody at an undetermined date. An order of deportation to Nigeria issued against petitioner in December 1999. INS intends to execute the outstanding deportation order against petitioner on or after May 2, 2001.
DISCUSSION
I. In Custody
Section 2254(a) directs a district judge to entertain section 2254 petitions *53 only for persons "in custody pursuant to the judgment of a State court." 28 U.S.C. § 2254(a); see also 28 U.S.C. § 2241(c)(3). The "in custody" determination is made at the time the section 2254 petition is filed. Carafas v. LaVallee, 391 U.S. 234, 238, 88 S. Ct. 1556, 20 L. Ed. 2d 554 (1968); United States v. Brown, 1999 WL 1269197 at * 2 (N.D.Ill.Dec. 23, 1999) ("Supreme Court has repeatedly" stated habeas statute requires the petitioner to "be `in custody' when the application for habeas corpus is filed"). Significantly, the Supreme Court interprets this statutory language as requiring that, at the time [a] petition is filed, the petitioner must be `in custody' pursuant to the conviction or sentence he seeks to attack. Young v. Vaughn, 83 F.3d 72, 73 (3rd Cir.1996). With few exceptions inapplicable to the case at bar, a petitioner cannot lodge a direct attack on an expired conviction and sentence simply because he remains in custody under an enhanced sentence. See Maleng v. Cook, 490 U.S. 488, 489-490, 109 S. Ct. 1923, 104 L. Ed. 2d 540 (1989); see also Lackawanna County District Attorney v. Coss, 531 U.S. 923, ___ _ ___, 121 S. Ct. 1567, 1572-73, 149 L. Ed. 2d 608 (2001).
It is true that parole as well as pretrial release on personal recognizance constitute sufficient restraints on a person's liberty to satisfy the "in custody" requirement of section 2254. Lefkowitz v. Fair, 816 F.2d 17, 19 (1st Cir.1987). Petitioner mailed and filed the initial petition, however, after the September 4, 1998 expiration of the larceny sentence. Moreover, the insurance fraud sentence cannot satisfy the "in custody" requirement. Although the Supreme Court views "consecutive sentences in the aggregate" for purposes of an "in custody" analysis,[17]Garlotte v. Fordice, 515 U.S. 39, 45-47, 115 S. Ct. 1948, 132 L. Ed. 2d 36 (1995), petitioner mailed and filed the initial petition after the October 1, 1999 discharge of his parole on the insurance fraud sentence.
The INS, however, is actively attempting to deport petitioner because of the October 1992 conviction. Such attempts constitute a sufficient restraint on petitioner's liberty to satisfy the "in custody" requirement. See Hurtado v. Tucker, 245 F.3d 7, 2001 WL 290343 at * 1 n. 2 (1st Cir. March 29, 2001). Respondent's custody argument is therefore unavailing.
II. Exhaustion and Independent and Adequate State Grounds
Respondent next submits that the petition is mixed, see Rose v. Lundy, 455 U.S. 509, 102 S. Ct. 1198, 71 L. Ed. 2d 379 (1982), inasmuch as part of ground two is the only exhausted ground in the petition.
Exhaustion, a matter of comity, requires the petitioner to fairly present "`the substance of his federal habeas claim to the state court before seeking federal review.'" Martens v. Shannon, 836 F.2d 715, 717 (1st Cir.1988). The burden the petitioner bears in fairly and recognizably presenting the factual and legal bases of his federal claim to the state courts is "heavy." Adelson v. DiPaola, 131 F.3d 259, 262 (1st Cir.1997); see Scarpa v. DuBois, 38 F.3d 1, 6 (1st Cir.1994) ("a petitioner must inform the state court of both the factual and legal underpinnings of the claim"). Petitioner must not only present the factual and legal underpinnings of the federal claim to the state's highest court, *54 Adelson v. DiPaola, 131 F.3d at 263; Mele v. Fitchburg District Court, 850 F.2d 817, 820 (1st Cir.1988); Burbank v. Maloney, 47 F. Supp. 2d 159, 161 (D.Mass.1999), i.e., the SJC,[18] but he must do so "`in such a way as to make it probable that a reasonable jurist would have been alerted to the existence of the federal question.'" Casella v. Clemons, 207 F.3d 18, 20 (1st Cir.2000).
The federal claim or "question must be plainly defined." Martens v. Shannon, 836 F.2d at 717. The correct focus "is one of probability; the trappings of a federal claim must be likely to put a reasonable jurist on notice of the claim." Casella v. Clemons, 207 F.3d at 21. Such "`trappings,'" Adelson v. DiPaola, 131 F.3d at 262, include: "`(1) citing a specific provision of the Constitution; (2) presenting the substance of a federal constitutional claim in such a manner that it likely alerted the state court to the claim's federal nature; (3) reliance on federal constitutional precedents; and (4) claiming a particular right specifically guaranteed by the Constitution.'" Scarpa v. DuBois, 38 F.3d at 6 (quoting Gagne v. Fair, 835 F.2d 6, 7 (1st Cir.1987)). Merely alleging lack of a fair trial or invoking the phrase "due process" without further explanation will not satisfy the fourth trapping without greater specificity. See Nadworny v. Fair, 872 F.2d 1093, 1097 (1st Cir.1989); see also Adelson v. DiPaola, 131 F.3d at 263. Finally, the fewer the trappings, the lower the probability that the petitioner will have alerted the reasonable jurist to the presence of a federal claim. See Adelson v. DiPaola, 131 F.3d at 262.
A fifth means of adequate presentment is to present the SJC with a state claim that is functionally equivalent to a federal claim. Scarpa v. DuBois, 38 F.3d at 7 (citing Nadworny v. Fair, 872 F.2d at 1097-1098). It is, however, "the petitioner [who] has the burden of demonstrating the clonal relationship of the federal and state claims which would have likely alerted the state tribunal to the federal nuances." Nadworny v. Fair, 872 F.2d at 1100.
In cases not involving first degree murder indictments, see Commonwealth v. Burke, 414 Mass. 252, 607 N.E.2d 991, 995 (1993) (employing more deferential ineffective assistance of counsel standard than that imposed by Sixth Amendment when reviewing first degree murder case), the standard of ineffective assistance of counsel in Massachusetts case law parallels the standard set forth under the Sixth Amendment. See Scarpa v. DuBois, 38 F.3d at 7 & n. 4 (finding ineffective assistance of counsel claim under Massachusetts law functionally equivalent to claim under federal law as set forth in three Massachusetts cases).
Ground two in the petition complains about the same deficiency of trial counsel as alleged in the ALOFAR, to wit, trial counsel's failure to advise petitioner that the grand jury minutes did not name or charge him with a crime. As explained in footnote number eight, petitioner fairly presented the federal nature of this claim to the SJC. Like the petitioner in Scarpa, petitioner sufficiently alerted the SJC to the factual and legal underpinnings of his constitutional ineffective assistance of *55 counsel claim. See, e.g., Scarpa v. DuBois, 38 F.3d at 6-7. With the exception of the allegation that the conviction was obtained by a coerced confession,[19] ground two is exhausted. For reasons stated below, however, the SJC and appellate court's decisions did not result in a decision that was "contrary to" or involved an "unreasonable application" of clearly established federal law under 28 U.S.C. § 2254(d) ("section 2254(d)").
Similarly, with respect to ground three, the ALOFAR presents the claim in such a way as to alert a reasonable jurist on the SJC to the existence of a federal question. Petitioner presents the same factual underpinnings, to wit, failure of the grand jury minutes to name or charge him with a crime. Although the legal underpinnings of ground three are not entirely clear, as discussed in footnote number nine, this court construes ground three to raise the same legal claim petitioner presented to the appellate court and to the SJC given the similarity of language and petitioner's pro se status.[20] As presented to both the appellate court and the SJC and in ground three of the petition, petitioner claims that the grand jury minutes were defective because they did not name petitioner as Samson Omosefunmi or charge him with a crime sufficient to warrant an indictment thereby leading to his unlawful arrest and conviction in violation of the Fourth and Fifth Amendments. Ground three is therefore exhausted.
As discussed infra and in footnote number nine, however, the appellate court's decision rests on an independent and adequate state law ground. In addition, if the SJC reached the merits of the federal constitutional claim, its decision was not "contrary to" or an "unreasonable application" of clearly established federal law.
Turning to ground one in the petition, petitioner completely omitted this ground from the ALOFAR. The fact that a similar ground is contained in the appellate brief does not suffice for exhaustion purposes. See, e.g., Mele v. Fitchburg District Court, 850 F.2d at 822-823; see also Scarpa v. DuBois, 38 F.3d at 7 n. 3 (distinguishing Mele). Accordingly, ground one is not exhausted. In the alternative, for reasons stated infra, the trial judge's decision that the plea was knowing and voluntary did not result in a decision that was "contrary to" or involved an "unreasonable application" of clearly established federal law under section 2254(d).[21]
Likewise, ground four remains unexhausted. Petitioner did not present the legal underpinnings of the claim in such a way as to make it probable that a reasonable jurist would be alerted to the federal constitutional nature of the claim. The ALOFAR's reference to two constitutional buzzwords, fair trial and due process, is insufficient. See Adelson v. DiPaola, 131 F.3d at 263 ("we have regularly held ... that the mere incantation of constitutional buzzwords, unaccompanied by any federal constitutional analysis, does not" constitute fair presentment). The ALOFAR did not cite to the Constitution or to any of its provisions. It also failed to rely on any federal cases or state cases presenting federal constitutional law. No mention is made of the privilege against self-incrimination. Ground four is not exhausted.
In the alternative, even assuming that petitioner presented a federal constitutional *56 claim to the appellate court and to the SJC through the allegation of being denied a "fair trial," which this court doubts, the claim rests on an independent and adequate state law ground.[22] The SJC denied the ALOFAR and the appellate court affirmed the trial court for reasons stated in the Commonwealth's brief. The reasons stated in the Commonwealth's brief relative to this ground are that petitioner's "arguments are conclusory and he does not cite appropriate legal authority. Commonwealth v. Taylor, 32 Mass.App.Ct. 570, 580, 591 N.E.2d 1108 (1992). In addition, there is a lack of reasoned theory in [petitioner's] claims." (Docket Entry # 18, Ex. 3; citation of SJC case omitted). Both these state court cases stand for the principle that conclusory arguments raised in an appellate brief are waived under Rule 16(a)(4) ("Rule 16(a)(4)"), Mass.R.App.P. Massachusetts courts consistently reject conclusory arguments as waived under Rule 16(a)(4). See, e.g., Kelley v. Neilson, 433 Mass. 706, 716, 745 N.E.2d 952, 960 (2001) (vague references in appellate brief considered waived under Rule 16(a)(4)); Vakil v. Anesthesiology Associates of Taunton, Inc., 51 Mass.App.Ct. 114, 744 N.E.2d 651, 656 (2001) (failure to include argument in appellate brief constitutes waiver under Rule 16(a)(4)); Commonwealth v. Lameire, 50 Mass.App.Ct. 271, 737 N.E.2d 469, 475 (2000), review denied, 433 Mass. 1102, 742 N.E.2d 81 (2001); Commonwealth v. Russo, 49 Mass.App.Ct. 579, 731 N.E.2d 108, 113 (2000) (speculative and conclusory allegations rejected under Rule 16(a)(4)), review denied, 432 Mass. 1108, 737 N.E.2d 468 (2000).
A long standing rule bars federal courts from reviewing state court decisions that rest on "independent and adequate state ground[s]." Trest v. Cain, 522 U.S. 87, 118 S. Ct. 478, 139 L. Ed. 2d 444 (1997); see also Torres v. Dubois, 174 F.3d 43, 45-46 (1st Cir.), cert. denied, 528 U.S. 898, 120 S. Ct. 231, 145 L. Ed. 2d 194 (1999). Stated otherwise, federal habeas review is generally precluded "when a state court has reached its decision on the basis of an adequate and independent state-law ground." Burks v. Dubois, 55 F.3d 712, 716 (1st Cir.1995). Independent and adequate state grounds exist where "the state court declined to hear [the federal claims] because the prisoner failed to meet a state procedural requirement." Brewer v. Marshall, 119 F.3d 993, 999 (1st Cir.1997). In such a case, "[c]onsiderations of comity and federalism bar the federal court's review." Brewer v. Marshall, 119 F.3d at 999.
Petitioner can avoid dismissal in one of three ways. First, there is a presumption of waiver where the state decision "fairly appears to rest primarily on federal law or to be interwoven with such law, and when the adequacy and independence of any possible state law ground is not clear from the face of the opinion." Coleman v. Thompson, 501 U.S. 722, 735, 111 S. Ct. 2546, 115 L. Ed. 2d 640 (1991). The presumption, however, "does not apply where, as here, there is no `clear indication that the state court rested its decision on federal law.'" Brewer v. Marshall, 119 F.3d at 1000 (internal bracket omitted); Coleman v. Thompson, 501 U.S. at 739-740, 111 S. Ct. 2546. The appellate court stated that it was affirming the judgment for reasons stated in the Commonwealth's brief which, in turn, relied exclusively on state law.
*57 Second, petitioner can demonstrate there was "cause" for the default and "actual prejudice as a result of the alleged violation of federal law." Coleman v. Thompson, 501 U.S. at 750, 111 S. Ct. 2546. "Faced by a state-court judgment that rests upon an adequate and independent state ground, a habeas petitioner has the burden of proving both cause and prejudice." Burks v. Dubois, 55 F.3d at 716. As to cause, ordinarily the petitioner must "show that some objective factor external to the defense impeded counsel's efforts to comply with the State's procedural rule."[23]Murray v. Carrier, 477 U.S. 478, 488, 106 S. Ct. 2639, 91 L. Ed. 2d 397 (1986); accord Burks v. Dubois, 55 F.3d at 716-717 (citing Murray v. Carrier, 477 U.S. at 488, 106 S. Ct. 2639); Magee v. Harshbarger, 16 F.3d 469, 471 (1st Cir.1994) (quoting Murray v. Carrier, 477 U.S. at 488, 106 S. Ct. 2639). No external or objective factor prevented petitioner from providing a more specific and coherent explanation of the argument. Petitioner fails in his burden of showing cause. Inasmuch as petitioner fails to show cause, this court need not address the prejudice prong. See Magee v. Harshbarger, 16 F.3d at 472 (declining to address prejudice prong "[b]ecause the cause and prejudice requirement is conjunctive"); see also Burks v. Dubois, 55 F.3d at 716 n. 3 (not addressing prejudice prong because court found no cause).
Third, notwithstanding the absence of cause, a federal habeas court may proceed to address the merits and grant the writ "where a constitutional violation has probably resulted in the conviction of one who is actually innocent." Murray v. Carrier, 477 U.S. at 496, 106 S. Ct. 2639; see Burks v. Dubois, 55 F.3d at 717-718. Petitioner's assent to the accuracy of the facts presented by the Commonwealth at the guilty plea hearing as well as his admission that he "cheated welfare" belie any showing of actual innocence. Moreover, a defendant cannot challenge a grand jury indictment on the basis of insufficient evidence. See Costello v. United States, 350 U.S. 359, 361-362, 76 S. Ct. 406, 100 L. Ed. 397 (1956). "[N]either the Fifth Amendment nor any other constitutional provision prescribes the kind of evidence upon which grand juries must act." Costello v. United States, 350 U.S. at 362, 76 S. Ct. 406. "[A]n indictment valid on its face is not open to challenge on the ground that the grand jury acted on the basis of inadequate or incompetent evidence or even on the basis of information obtained in violation of a defendant's Fifth Amendment privilege against self-incrimination." United States v. Calandra, 414 U.S. 338, 345, 94 S. Ct. 613, 38 L. Ed. 2d 561 (1974) (citation omitted). Petitioner's reliance on the deficiencies of the grand jury minutes is misplaced and he fails in his burden of demonstrating a miscarriage of justice. Ground four is subject to dismissal.
The same is true with respect to ground three. As discussed in footnote nine, the appellate court's decision rests on an independent and adequate state law ground. There is no presumption that the court reached the federal issue because the Commonwealth's brief, which the appellate court relied on for its reasons, does not mention or even allude to federal constitutional law. Petitioner fails to show "cause" as to why he could not have raised the issue of the deficiencies of the grand jury minutes as a basis for dismissing the indictment in a pretrial motion. Indeed, *58 petitioner or his trial counsel received a copy of the grand jury minutes prior to the plea changes. Furthermore, "trial counsel inadvertence does not constitute `cause.'" Tart v. Commonwealth of Massachusetts, 949 F.2d 490, 497 (1st Cir.1991). Finally, there is no miscarriage of justice. As already discussed, "[N]either the Fifth Amendment nor any other constitutional provision prescribes the kind of evidence upon which grand juries must act." Costello v. United States, 350 U.S. at 362, 76 S. Ct. 406. To the extent the SJC's decision does not rest on independent and adequate state law grounds,[24] it fails on the merits under section 2254(d).
III. Section 2254(d)
Turning to grounds one, two and three, section 2254(d) bars federal habeas relief. Section 2254(d)(1)[25] establishes "two categories of cases in which a state prisoner may obtain federal habeas relief with respect to a claim adjudicated on the merits in state court." Williams v. Taylor, 529 U.S. 362, 404, 120 S. Ct. 1495, 146 L. Ed. 2d 389 (2000). Under the first category, a federal court may grant the writ if the relevant state court decision was "`contrary to clearly established Federal law, as determined by the Supreme Court of the United States.'" Williams v. Taylor, 529 U.S. at 404, 120 S. Ct. 1495 (quoting statute with ellipses omitted). Under the second category, the federal court may grant the writ if the relevant state court decision "`involved an unreasonable application of clearly established Federal law, as determined by the Supreme Court of the United States.'" Williams v. Taylor, 529 U.S. at 405, 120 S. Ct. 1495 (quoting statute with ellipses omitted).
A state court decision is "contrary to" clearly established federal law as determined by the Supreme Court, if the decision "applied a rule that contradicts the governing law set forth in the [Supreme] Court's cases." Mountjoy v. Warden, New Hampshire State Prison, 245 F.3d 31, 35 (1st Cir.2001). A state court decision is also "contrary to the [Supreme] Court's clearly established precedent if the state court confronts a set of facts that are materially indistinguishable from a decision of the [Supreme] Court and nevertheless arrives at a result different from our precedent." Hurtado v. Tucker, 245 F.3d 7, 15-16 (1st Cir.2001) (internal bracket omitted). Thus, a state court decision is contrary to "clearly established federal law if it applies a legal rule that contradicts" the "prior holdings" of the Supreme Court "or if it reaches a different result from" a Supreme Court case "despite confronting indistinguishable facts." Ramdass v. Angelone, 530 U.S. 156, 165, 120 S. Ct. 2113, 147 L. Ed. 2d 125 (2000); accord Williams v. Taylor, 529 U.S. at 405-406, 120 S. Ct. 1495 (contrary decision occurs where state court "applies a rule that contradicts the governing law set forth in [Supreme Court] cases" or "confronts a set of facts that are materially indistinguishable from a decision of this Court and nevertheless arrives at a result different from our precedent"). In short, a petitioner "may succeed under the `contrary to' clause only if Supreme Court caselaw directly governs the claim and the state court got it wrong." Vieux v. Pepe, 184 F.3d 59, 63 (1st Cir. 1999), cert. denied, 528 U.S. 1163, 120 S. Ct. 1178, 145 L. Ed. 2d 1086 (2000).
Under the second prong, the court determines whether the state court decision *59 was "an unreasonable application of clearly established Supreme Court jurisprudence." O'Brien v. Dubois, 145 F.3d at 25. The "touchstone [is] `objective unreasonableness.'" Ballinger v. Byron, 98 F. Supp. 2d 119, 126 (D.Mass.2000) (discussing Taylor). Thus, in "making the `unreasonable application' inquiry," a federal habeas court "should ask whether the state court's application of clearly established federal law was objectively unreasonable." Williams v. Taylor, 529 U.S. at 365, 120 S. Ct. 1495. An "unreasonable application" of clearly established federal law as determined by the Supreme Court occurs where "`the state court identifies the correct governing legal rule from [the Supreme Court's] cases but unreasonably applies it to the facts of the particular state prisoner's case,' or `if the state court either unreasonably extends a legal principle from [Supreme Court] precedent to a new context where it should not apply or unreasonably refuses to extend that principle to a new context where it should apply.'" Mountjoy v. Warden, New Hampshire State Prison, 245 F.3d 31, 35 (1st Cir. 2001).
An objectively unreasonable application of the relevant jurisprudence, however, differs from an incorrect or erroneous application of such jurisprudence. Williams v. Taylor, 529 U.S. at 365, 120 S. Ct. 1495. Under the unreasonable application prong, the "habeas court may not issue the writ simply because that court concludes in its independent judgment that the relevant state-court decision applied clearly established federal law erroneously or incorrectly. Rather, that application must also be unreasonable." Williams v. Taylor, 529 U.S. at 365, 120 S. Ct. 1495 (emphasis added); see Mountjoy v. Warden, New Hampshire State Prison, 245 F.3d 31, 2001 WL 303059 at * 3 (1st Cir. April 3, 2001) (distinguishing unreasonable application from incorrect application); Williams v. Matesanz, 230 F.3d 421, 425 (1st Cir.2000).
Applying this standard to the first ground in the petition and the trial judge's determination that the plea was "made voluntarily of the defendant's free will and with full knowledge of its consequences," (Docket Entry # 18, Findings on Plea of Guilty), petitioner is not entitled to habeas relief. In order for a plea to satisfy the Constitution, the plea must be voluntary and intelligent. See Boykin v. Alabama, 395 U.S. 238, 242, 89 S. Ct. 1709, 23 L. Ed. 2d 274 (1969) (reversible error for "trial court to accept petitioner's guilty plea without an affirmative showing that it was intelligent and voluntary"). A plea is not voluntary "unless the defendant received `real notice of the true nature of the charges against him.'" Henderson v. Morgan, 426 U.S. 637, 645, 96 S. Ct. 2253, 49 L. Ed. 2d 108 (1976). To constitute a voluntary guilty plea, the defendant must also be "`fully aware of the direct consequences'" of the plea. Brady v. United States, 397 U.S. 742, 755, 90 S. Ct. 1463, 25 L. Ed. 2d 747 (1970).
In the case at bar, the trial judge correctly gaged the relevant rule given his use of the words "voluntarily" and "with full knowledge." He also correctly applied this standard by finding that petitioner's plea was knowing and voluntary. The trial judge informed petitioner of the direct consequences of the plea as well as the indirect immigration consequences of the plea. He inquired about petitioner's state of mind and whether he had taken any medications, drugs or alcohol prior to the proceeding. The trial judge implicitly concluded there was a sufficient basis for the larceny indictment. The fact that the trial judge did not inform petitioner that the grand jury minutes did not name or charge him with a crime is, simply put, not *60 an "unreasonable application" of this federal law as determined by the Supreme Court.
Turning to the second ground in the petition and the alleged ineffective assistance of counsel, petitioner's appellate brief argued, in part, that trial counsel's performance fell below a level of competence normally demanded of criminal defense attorneys because the grand jury minutes did not name or charge petitioner with a crime. The appellate court affirmed the judgment based on the Commonwealth's brief and the SJC denied the ALOFAR.
Neither the appellate court's decision nor the decision of the SJC was "contrary to" clearly established federal law as determined by Supreme Court cases. The rule set forth in Strickland v. Washington, 466 U.S. 668, 104 S. Ct. 2052, 80 L. Ed. 2d 674 (1984), qualifies as clearly established law as determined by the Supreme Court. See Phoenix v. Matesanz, 233 F.3d 77, 81 (1st Cir.2000) (quoting Williams v. Taylor, 529 U.S. at 390, 120 S. Ct. 1495). It also applies to plea proceedings. See Hill v. Lockhart, 474 U.S. 52, 57, 106 S. Ct. 366, 88 L. Ed. 2d 203 (1985). The Strickland test has two components.
First, the defendant must show that counsel's performance was deficient. This requires showing that counsel made errors so serious that counsel was not functioning as the "counsel" guaranteed the defendant by the Sixth Amendment. Second, the defendant must show that the deficient performance prejudiced the defense. This requires showing that counsel's errors were so serious as to deprive the defendant of a fair trial, a trial whose result is reliable.
Phoenix v. Matesanz, 233 F.3d at 81 (1st Cir.2000) (quoting Williams v. Taylor, 529 U.S. at 390, 120 S. Ct. 1495, quoting Strickland, 466 U.S. at 687, 104 S. Ct. 2052). "To establish ineffectiveness, a `defendant must show that counsel's representation fell below an objective standard of reasonableness.'" Phoenix v. Matesanz, 233 F.3d at 81 (quoting Williams v. Taylor, 529 U.S. at 390-391, 120 S. Ct. 1495, quoting Strickland, 466 U.S. at 688, 104 S. Ct. 2052). In the context of plea proceedings, the prejudice component requires the defendant to "show that there is a reasonable probability that, but for counsel's errors, he would not have pleaded guilty and would have insisted on going to trial." Hill v. Lockhart, 474 U.S. at 59, 106 S. Ct. 366.
The Commonwealth's brief argued that petitioner failed to demonstrate that trial counsel was ineffective or that his conduct fell measurably below the behavior expected from an ordinary fallible lawyer.[26] The appellate court's decision affirming the judgment and the SJC's denial of the ALOFAR were not "contrary to" the first component of Strickland. Trial counsel's performance did not fall below an objective standard of reasonableness. As already explained, the fact that the grand jury minutes did not name or charge petitioner with a crime does not provide petitioner with a defense or warrant dismissal of the indictment. See United States v. Calandra, 414 U.S. at 345, 94 S. Ct. 613; Costello v. United States, 350 U.S. at 362, 76 S. Ct. 406. Consequently, trial counsel's failure to inform petitioner of the "deficiencies" of the grand jury minutes does not constitute ineffective assistance of counsel under the Sixth Amendment. The appellate court's determination as well as the SJC's denial of the ALOFAR was constitutionally correct. Neither decision was *61 "contrary to" the Strickland standard or an "unreasonable application" of the Strickland standard.
Turning to the third ground in the petition, the SJC denied the ALOFAR and rejected the argument therein that the grand jury minutes did not name or charge petitioner with a crime requiring dismissal of the indictment as in violation of the Fourth and Fifth Amendments. The SJC's decision was neither "contrary to" or an "unreasonable application" of clearly established federal law as determined by the Supreme Court. First, it was clearly established law that the Fourth Amendment's exclusionary rule did not extend to grand jury proceedings and that a grand jury could receive hearsay evidence. See United States v. Williams, 504 U.S. 36, 50, 112 S. Ct. 1735, 118 L. Ed. 2d 352 (1992) (discussing United States v. Calandra, 414 U.S. at 349, 94 S. Ct. 613). Second, it was readily apparent that petitioner had no claim under the Fifth Amendment. Under the Fifth Amendment, "An indictment returned by a legally constituted and unbiased grand jury, like an information drawn by a prosecutor, if valid on its face, is enough to call for trial of the charge on the merits. The Fifth Amendment requires nothing more." Costello v. United States, 350 U.S. at 362, 76 S. Ct. 406; accord United States v. Williams, 504 U.S. at 49, 112 S. Ct. 1735; United States v. Calandra, 414 U.S. at 345, 94 S. Ct. 613. The SJC, in rejecting petitioner's Fourth and Fifth Amendment arguments, did not apply a rule that contradicted the aforementioned well-established law regarding grand jury proceedings. Nor is the SJC's decision, to the extent the SJC applied these governing rules regarding grand juries, an unreasonable application of this law. To the contrary, the decision was entirely correct.
CONCLUSION
In accordance with the foregoing discussion, this court RECOMMENDS[27] that the motion to dismiss (Docket Entry # 16) be ALLOWED and that the petition be dismissed.
April 30, 2001.
NOTES
[1] A motion to dismiss is an "appropriate vehicle for challenging" a petitioner's claims in a proceeding under 28 U.S.C. § 2254. Killela v. Hall, 84 F. Supp. 2d 204, 208 (D.Mass.2000).
[2] Section 2254(e)(2) creates a bar to conducting an evidentiary hearing in federal court. If the petitioner fails to develop the facts within the meaning of the first clause of section 2254(e)(2), this court cannot hold an evidentiary hearing unless the petitioner "meets the other conditions of § 2254(e)(2)." Williams v. Taylor, 529 U.S. 420, 430, 120 S. Ct. 1479, 146 L. Ed. 2d 435 (2000). Under the first clause of section 2254(e)(2), "a failure to develop the factual basis of a claim is not established unless there is a lack of diligence, or some greater fault, attributable to the prisoner or the prisoner's counsel." Williams v. Taylor, 529 U.S. at 430, 120 S. Ct. 1479.
[3] Petitioner did not submit a brief to the appellate court until November 1998.
[4] On April 24, 2000, this court issued a Procedural Order stating that it would consider both the initial petition, filed on December 8, 1999, and the subsequently filed petition submitted on the proper form as the governing petition. (Docket Entry # 8).
[5] The petition also cites to the grand jury's indictment of petitioner on four counts of false representation to the Massachusetts Department of Welfare ("the welfare department") in violation of section 5B of Massachusetts General Laws chapter 18 (Indictment 30069). Petitioner pled guilty to this indictment at the October 8, 1992 hearing. The trial judge then placed the indictment on file with petitioner's consent.
The petition additionally cites to indictment 30287 for false representation, indictment 30288 for conspiracy to make false representations, indictment 30289 for larceny and 30290 for conspiracy to commit larceny. On October 8, 1992, the trial judge conducted the requisite colloquy regarding the guilty pleas to indictments 30069 and 30070. After accepting petitioner's guilty pleas to these charges, he ordered indictment 30290 placed on file with petitioner's consent and stated that the remaining charges in indictments 30287, 30288 and 30289 would be nolle prossed.
[6] The appellate brief filed in support of the direct appeal raises a similar ground but challenges the guilty plea on the basis that petitioner was under the influence of drugs. The application for further appellate review ("ALOFAR") filed with the SJC, however, completely omits any reference to this claim.
[7] Mindful of petitioner's pro se status, this ground of relief is presented in the supporting facts section of ground one and the heading and supporting facts sections of ground two. It also appears in paragraph 12 of the initial petition. The supporting facts section of ground one contains the statement that petitioner was denied effective assistance of counsel under the Sixth and Fourteenth Amendments because he was never informed that the grand jury minutes did not name or charge him with a crime. Ground two elaborates and repeats this claim. Respondent's argument that petitioner does not present this claim as a violation federal constitutional law is therefore an overly narrow view of the petition which focuses solely on paragraph 12(B) of the petition.
[8] The appellate brief also alleges that petitioner was deprived of effective assistance of counsel in violation of the Sixth and Fourteenth Amendments. The brief cites the primary Supreme Court case in this area, Strickland v. Washington, 466 U.S. 668, 104 S. Ct. 2052, 80 L. Ed. 2d 674 (1984), and asserts that counsel was ineffective because he allowed petitioner to pled guilty while under the influence of drugs and failed to properly investigate the case by determining that the grand jury minutes never named petitioner or charged him with violating any crimes.
The ALOFAR likewise raises an ineffective assistance of counsel claim in violation of the Sixth and Fourteenth Amendments. The basis for trial counsel's deficient performance, as presented to the SJC, is that trial counsel failed to alert petitioner that the grand jury minutes did not name or charge him with a crime. Although petitioner also raised an ineffective assistance of counsel claim based on state law, the standard is essentially the same. See Scarpa v. DuBois, 38 F.3d 1, 7 & n. 4 (1st Cir.1994) (finding ineffective assistance of counsel claim under Massachusetts law functionally equivalent to claim under federal law as set forth in three Massachusetts cases). Indeed, while addressing the argument, the ALOFAR cites to one of the Massachusetts cases, Commonwealth v. Satterfield, 373 Mass. 109, 364 N.E.2d 1260 (1977), which the First Circuit in Scarpa characterizes as "reminiscent of the federal constitutional standard." Scarpa v. DuBois, 38 F.3d at 6-7.
The heading of ground two, however, also refers to the conviction being "obtained by use of coerced confession." To the extent petitioner is attempting to assert that he was coerced into pleading guilty and confessing to the facts represented by the Commonwealth at the October 8, 1992 guilty plea proceeding, such a claim is not exhausted.
[9] Respondent's interpretation of this ground of relief focuses exclusively on the heading in ground three which reads that petitioner's "conviction [was] obtained by use of evidence obtained pursuant to an unlawful arrest." As stated in the April 24, 2000 Order, however, the petition includes both the initial petition and the subsequently filed petition on the proper form. Paragraph 13 of the initial petition as well as the supporting facts to ground three in the subsequently filed petition uniformly challenge the deficiencies of the grand jury minutes. The heading in 12(C) is essentially petitioner's way of arguing that he was arrested and convicted on the basis of grand jury minutes which did not name or charge him with a crime.
The ALOFAR alerts the SJC to the nature of a similar claim on pages seven through eight. Therein, petitioner argues that the grand jury minutes did not name or charge him with a crime as to warrant an indictment. Petitioner complains that all that can be gleaned from the grand jury minutes is that a number of individuals using names other than Samson Omosefunmi engaged in insurance fraud. He claims that the indictment must be dismissed as in violation of the Fourth and Fifth Amendments. Petitioner therefore fairly presented the claim in ground three based on federal constitutional law to the SJC in the ALOFAR. Citing a federal case, petitioner also notes that the grand jury minutes did not sufficiently inform him of the nature of the charges against him. It is worth noting, however, that before pleading guilty in October 1992, petitioner received a copy of the grand jury minutes dated February 25, 1992, copies of all the indictments, a copy of a report of a "Special Federal Agent" with an accompanying affidavit and a report by a special investigator.
The petition, however, fails to cite to the Constitution, to any constitutional right or to any federal cases relying on federal constitutional law in support of ground three. It is therefore unclear whether petitioner is claiming a violation of state law, as argued by respondent, or a violation of federal constitutional law. Given petitioner's pro se status and the fact that he uses the same language in the ALOFAR to describe the claim as he uses in the supporting facts of ground three, this court will construe the petition as alleging a Fourth and Fifth Amendment violation notwithstanding respondent's argument to the contrary.
With respect to ground three, the appellate court affirmed the judgment for the reasons stated in the Commonwealth's brief. The Commonwealth made two arguments, both grounded in state law. First, citing Commonwealth v. Taylor, 32 Mass.App.Ct. 570, 591 N.E.2d 1108, 1115 (1992), as well as the waiver rule in Mass.R.Crim.P. 30, the Commonwealth asserted that petitioner did not raise the issue in a timely and proper manner. As discussed in Taylor, in order to seek dismissal of an indictment, the defendant must present the argument first to the trial judge "and any ground then known to the defendant must be deemed waived unless the trial judge for cause grants relief." Commonwealth v. Taylor, 591 N.E.2d at 1115. Massachusetts courts consistently enforce this rule which is embodied in Mass.R.Crim.P. 13(a)(2). See, e.g., Commonwealth v. Mayfield, 398 Mass. 615, 500 N.E.2d 774, 779 n. 4 (1986).
Second, the Commonwealth argued that the "John Doe" investigation was proper under Massachusetts General Laws chapter 277, section 19. This statute provides, in pertinent part, that, "if the name of an accused person is unknown to the grand jury, he may be described by a fictitious name or by any other practicable description with an allegation that his real name is unknown." Mass.Gen.L. ch. 277, § 19.
Because the appellate court affirmed the judgment based on the Commonwealth's brief, it did not reach the Fourth and Fifth Amendment arguments. In other words, there is no indication that the appellate court "researched, examined in depth, or intended to rely upon, federal law." Puleio v. Vose, 830 F.2d 1197, 1202 (1st Cir.1987); accord Tart v. Commonwealth of Massachusetts, 949 F.2d 490, 496 (1st Cir.1991). Thus, the appellate court did not waive the independent and adequate state law ground for affirming the judgment. Accordingly, absent cause and prejudice or additional circumstances which, as discussed infra, petitioner fails to establish, federal habeas relief is barred because the appellate court "reached its decision on the basis of an adequate and independent state-law ground." Burks v. Dubois, 55 F.3d 712, 716 (1st Cir.1995).
The SJC summarily denied the ALOFAR. It is therefore unclear whether the SJC reached the federal constitutional argument. The ALOFAR made no argument based on state law. Rather, petitioner alleged that the failure of the grand jury minutes to name or charge him with a crime as to warrant indictment violated the Fourth and Fifth Amendments. The Commonwealth's brief in opposition to the ALOFAR is not contained in the record. To the extent the SJC's decision, in light of the argument made in the ALOFAR, fairly appears to rest on federal law, see Brewer v. Marshall, 119 F.3d 993, 999-1000 (1st Cir. 1997), the decision denying relief was not "contrary to" or an "unreasonable application of" clearly established federal law as determined by the Supreme Court. To the extent it is not reasonably clear that the SJC's reasons for denying the ALOFAR rest upon its view of federal law, see Tart v. Commonwealth of Massachusetts, 949 F.2d at 496, ground three is barred from federal habeas review because of the independent and adequate state law ground that petitioner waived the argument by not raising it before the trial judge.
[10] The supporting facts set forth in part 12(D) of ground four contain the same sentence as paragraph 14 of the initial petition. Thus, this court reads paragraph 14 together with ground four.
The ALOFAR contains a similar ground of relief. Therein, petitioner presents an argument entitled "Evidence" based on the Commonwealth's presentation of a case based on "information from liars and crooks." The ALOFAR notes that petitioner questioned the relevance of introducing certain items of evidence and that the grand jury minutes did not name or charge petitioner with any crime. Thus, the ALOFAR raises the same factual basis as that presented in ground four. The legal basis for the claim in the ALOFAR, however, remains unclear. There is no reference to the privilege against self-incrimination. Rather, after noting that the Commonwealth based its case on information from biased individuals who lacked credibility and that the grand jury minutes did not name or charge petitioner with a crime, the ALOFAR summarily refers to "fair play as the essence of due process" and that the prosecutors only alleged proof by a preponderance of the evidence.
[11] Spelling is taken directly from the grand jury transcript.
[12] The spelling is taken directly from the indictments. The appellate court's August 6, 1999 decision notes the spelling discrepancy.
[13] Petitioner fails to rebut this factual finding by clear and convincing evidence. See 28 U.S.C. § 2254(e)(1).
[14] In the affidavit, petitioner avers that his plea was not voluntary and that he did not understand the nature of the charges against him. The affidavit also states that the recitation of facts by the Commonwealth was not accurate and that he blindly followed the instructions of trial counsel. Petitioner further attests that he was misinformed about the possible sentence he could receive and was under the influence of drugs.
[15] Petitioner fails to rebut this factual finding by clear and convincing evidence. See 28 U.S.C. § 2254(e)(1). To the contrary, the transcript of the October 8, 1992 hearing fully supports the Associate Justice's finding.
[16] The address petitioner supplies at the time of filing is a street address in New Bedford, Massachusetts. Hence, it appears that petitioner was not incarcerated at the time he filed the initial petition. In any event, even applying the mailbox rule, the larceny and insurance fraud sentences had expired before petitioner signed the application and initial petition and deposited them in a prison mailbox.
[17] Respondent's attempts to limit the reach of the from and after larceny sentence on the basis that state law treats the sentences as consecutive simply for the purpose of holding a single parole hearing is unconvincing. The sentences are consecutive under federal law within the meaning of Garlotte and its progeny.
[18] The ALOFAR therefore becomes the critical document for exhaustion analysis. See Adelson v. DiPaola, 131 F.3d at 263 ("the decisive pleading is the application for further appellate review"). "[A]n appealed issue cannot be considered as having been fairly represented to the SJC for exhaustion purposes unless the applicant has raised it within the four corners of the ALOFAR." Mele v. Fitchburg, 850 F.2d at 820. Nevertheless, exclusive focus on the ALOFAR is, at times, inappropriate. See Scarpa v. DuBois, 38 F.3d at 7 n. 3.
[19] See footnote number eight.
[20] See footnote number nine.
[21] This court may recommend denial of the petition "on the merits, notwithstanding the failure of the applicant to exhaust the remedies available in the courts of the State." 28 U.S.C. § 2254(b)(2).
[22] It is permissible to address procedural default sua sponte. See Ortiz v. Dubois, 19 F.3d 708, 714-715 (1st Cir.1994). Respondent raises the defense in its answer but not in the motion to dismiss.
[23] For example, two such objective impediments consist of "showing that the factual or legal basis for the claim was not reasonably available to counsel or that some interference by officials made compliance impracticable." Murray v. Carrier, 477 U.S. at 488, 106 S. Ct. 2639 (citations and internal quotation marks omitted).
[24] See footnote number nine.
[25] Section 2254(d)(2) provides an alternate avenue for obtaining habeas relief but does not apply to the framework-type claims raised by petitioner.
[26] As previously noted, the state standard for ineffective assistance of counsel generally parallels the Strickland standard. See Scarpa v. DuBois, 38 F.3d at 7 & n. 4.
[27] Any objections to this Report and Recommendation must be filed with the Clerk of Court within ten days of receipt of the Report and Recommendation to which objection is made and the basis for such objection. Any party may respond to another party's objections within ten days after service of the objections. Failure to file objections within the specified time waives the right to appeal the order. United States v. Escoboza Vega, 678 F.2d 376, 378-379 (1st Cir.1982); United States v. Valencia-Copete, 792 F.2d 4, 6 (1st Cir.1986). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2128988/ | 518 F. Supp. 2d 422 (2007)
UNITED STATES of America, Plaintiff,
v.
INTERNATIONAL LONGSHOREMEN'S ASSOCIATION, et al., Defendants.
No. 05-CV-3212.
United States District Court, E.D. New York.
November 1, 2007.
*423 *424 Kathleen Anne Nandan, Richard K. Hayes, Zachary A. Cunha, Assistant United States Attorneys, United States Attorneys Office, Brooklyn, NY, for the Plaintiff, for the United States of America.
Howard W. Goldstein, Fried Frank Harris Shriver & Jacobson, LLP, New York, NY, for the Defendants, for International Longshoremen's Association, AFL-CIO.
Don D. Buchwald, Kelley Drye & Warren, New York, NY, for John Bowers, Horace T. Alston, Jorge L. Aponto Figueroa, John D. Baker, Timothy Brown, James A. Campbell, Ronald Capri, Charles Chillemi, Raymond Desgagnes, Michael Dickens, Stephen Knott, John H. Mackey, Louis Pernice, Raymond Sierra, Harrison Tyler, and Reuben Wheatley.
Francis John Murray, Murray & McCann, Rockville Centre, NY, for Robert E. Gleason.
Mala Ahuja Harker, Paul J. Fishman, Vanessa Richards, Friedman Kaplan Seiler *425 & Adelman LLP, New York, NY, for Benny Holland, Jr.
Thomas R. Ashley, Newark, NJ, for Gerald Owens.
George T. Daggett, Daggett, Kraemer, Elliades, Vander Wiele & Ursin, Sparta, NJ, for Harold J. Daggett.
Michael G. Considine, Terence Joseph Gallagher, III, Day Pitney LLP, Stamford, CT, for Edward L. Brown, Sr., Clyde Fitzgerald, Perry C. Harvey, James T. McCleland, Jr., James H. Paylor, Jr., Kenneth Riley, and Richard Hughes.
Gerald J. McMahon, Law Office of Gerald J. McMahon, New York, NY, Thomas Aloysius Tormey, Jr., Law Offices of Thomas A. Tormey Jr., New York, NY, for Arthur Coffey.
Donato Caruso, James Robert Campbell, The Lambos Firm, Kevin Marrinan, John P. Sheridan, Gleason & Matthews New York, NY, for Management-International Longshoremen's Association Managed Health Trust Fund, Board of Trustees of the Management-International Longshoremen's Association Health Care Trust Fund.
James P. Corcoran, Victor J. Rocco, Heller Ehrman LLP, New York, NY, for Metropolitan Marine Maintenance Contractors Association, Board of Trustees of the Metro-ILA Fringe Benefit Fund.
Victor J. Rocco, Heller Ehrman LLP, New York, NY, for Metro-ILA Fringe Benefit Fund, Metro-ILA Individual-Account Retirement Fund, Board of Trustees of the Metro-ILA Individual-Account Retirement Fund.
Robert Henry Bogucki, Robert H. Bogucki, P.C., Garden City, N.Y., Victor J. Rocco, Heller Ehrman LLP, New York, NY, for Metro-ILA Pension Fund, Board of Trustees of the Metro-ILA Pension Fund.
John R. Wing, Lee Renzin Lankier Siffert & Wohl LLP New York, NY, for John Bowers.
MEMORANDUM AND ORDER
GLASSER, Senior District Judge.
In this civil Racketeer Influenced and Corrupt Organizations Act of 1970 ("RICO") action, the defendants identified in the margin[1] have, moved to dismiss the Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) ("Rule 12(b)(6)") for failure to state a claim on which relief can be granted.[2] The ILA *426 also moves, pursuant to Federal Rule of Civil Procedure 12(f) ("Rule 12(f)"), to strike certain allegedly immaterial historical allegations from the Amended Complaint, a motion in which some other defendants join. The defendants raise a number of challenges to the sufficiency of the Amended Complaint, arguing primarily that the Government has failed to adequately plead the necessary elements of a civil RICO conspiracy in several ways, including failure to allege a cognizable association-in-fact RICO enterprise and failure to adequately allege the predicate acts of extortion, mail fraud, and wire fraud. For the reasons stated below, the ILA's motion to dismiss the Amended Complaint pursuant to Rule 12(b)(6) is granted. All other pending motions are denied as moot.
BACKGROUND
I. Allegations in the Amended Complaint
This action is the latest episode in a decades-long effort by the United States to curtail the influence of the La Cosa Nostra organized crime families over the vehicles of interstate commerce operating along the waterfront areas in the Port of New York and New Jersey and the Port of Miami.[3] The Government's prolix, 85-page Amended Complaint, with its hundreds of pages of attached exhibits, alleges in essence that from 1995 onward, the Genovese and Gambino crime families conspired with their associates occupying high-ranking positions in legitimate Waterfront operations, particularly the ILA and several associated labor organizations, to extend and maintain the influence of organized crime through a pattern of racketeering activity including extortion, money laundering, and mail and wire fraud. The Amended Complaint is burdened with lengthy discussions of the history and operations of La Cosa Nostra generally, as well as discussions of Government investigations and prosecutions of organized crime activity on the Waterfront going back several decades. While the Government argues that all of this historical material is necessary to place the allegations regarding the charged conspiracies in their proper context, the Court shall ignore much of this material and focus its discussion of the relevant facts on the allegations comprising the charged offenses as well as the relatively recent related civil and criminal litigation that directly preceded this action.[4]
*427 A. The Defendants
The Amended Complaint separates the numerous defendants into three classifications: the Nominal Defendants, who are not charged with wrongdoing but are named as defendants, presumably pursuant to Federal Rule of Civil Procedure 19(a) ("Rule 19"),[5] "for purposes of effecting the full relief sought in this action," Gov. Mem. at 4, the ILA Officer Defendants, and the La Cosa Nostra ("LCN") Defendants. The ILA Officer Defendants and the LCN Defendants, who are alleged to have conspired together to conduct the pattern of racketeering activity set forth in the Amended Complaint, are sometimes referred to collectively as the "Racketeering Defendants." Before proceeding to recount the factual allegations underlying the Government's claims, it shall be useful to provide an overview of the numerous defendants identified in this action.
1. The Nominal Defendants
The International Longshoremen's Association is a labor union that represents approximately 59,000 longshoremen and other laborers working in ports around the United States.[6] Am. Compl. ¶ 15. The ILA is divided into two regions, the Atlantic Coast District and the South Atlantic & Gulf Coast District, each of which is comprised of an unspecified number of local unions. Id. Each ILA local and district organization is governed by a group of officers, and the entire organization is governed by the ILA Executive Council, which is comprised of the President, Secretary-Treasurer, Executive Vice-President, General Vice-President, General Organizer, Assistant General Organizer, and twenty-six Vice-Presidents. Id. ¶¶ 15-16. Executive Council Members are elected at the ILA's Conventions, which occur every four years; if a vacancy occurs on the Executive Council during a non-Convention year, the remaining Executive Council members elect an individual to occupy the vacant position until the next Convention, either from the general ILA member population, if the vacant position is not the Presidency, or from the remaining Executive *428 Council members, if the President is being replaced. Id. ¶¶ 95-96.[7] The duties of these positions are generally self-evident, so the Court shall not dwell on their descriptions except to note that the Executive Vice President "shall act on behalf of the President whenever the International President shall be ill, absent, incapacitated, or unable to serve," and that the General Organizer, Assistant General Organizer, and the Vice-Presidents "shall . . . assist [the International President] during the session of the Convention and in other such manner and form as the International President may . . . request or direct. . . ." Am. Compl. ¶ 16 (quoting ILA Constitution Article IX, §§ 2, 4). The Executive Council possesses the ultimate authority to impose disciplinary measures, ranging from fines to the suspension or cancellation of individual membership or an organizational charter, upon all ILA members and subordinate labor organizations. Id. ¶ 16 (citing ILA Constitution Art. XVIII).[8] The top six Executive Council officers i.e., the President, Secretary-Treasurer, Executive Vice President, General Vice President, General Organizer, and Assistant General Organizer are well-compensated: in 2004, the annual salaries associated with those positions ranged from $257,120 for the General Vice-President to $413,556 for the President. Am. Compl. ¶ 17.[9] In addition, Executive Council members typically hold office at the local or district level and receive a salary associated with that office as well. Id.
The Management-International Longshoremen's Association Managed Health Care Trust Fund ("MILA") is a benefit fund that provides health insurance nationally for ILA members. MILA was established by the ILA and companies employing ILA labor ("Management") in 1996, pursuant to a Master Contract between the ILA and Management providing for health benefits for longshoremen on the Atlantic and Gulf Coasts. Id. ¶¶ 115-116. MILA provides health care benefits, including prescription drug coverage and mental health benefits, to the majority of ILA Members. Id. ¶ 120. MILA is governed by its Board of Trustees ("MILA Board"), id. ¶¶ 27-28, which is comprised of 18 ILA representatives and 18 Management representatives, and has two Co-Chairmen. Id. ¶¶ 117-118.
The Metropolitan Marine Maintenance Contractors' Association ("METRO") is an association of employers engaged in interstate commerce on the Waterfront, who *429 directly or indirectly employ ILA members. Id. ¶ 33. METRO and ILA Locals 1804-1 and 1814 have established three funds for the benefit of the members of those locals the METRO-ILA Fringe Benefit Fund, the METRO-ILA Pension Fund, and the METRO-ILA Individual Account Retirement Fund (collectively, the "METRO-ILA Funds"),[10] each of which are governed by a Board of Trustees. METRO, the METRO-ILA Funds, and the Board of Trustees of each METRO-ILA Fund are named as nominal defendants in this action; Locals 1804-1 and 1814 are not named. Id. ¶¶ 34-38.
Finally, the Amended Complaint names ILA Executive Vice-President Richard Hughes, General Vice-President Benny Holland, General Organizer Gerald Owens, and twenty-four Vice-Presidents[11] as nominal defendants. Id. ¶¶ 21, 24-26. Hughes, Holland, and Owens are also nominal defendants in their capacities as members of nominal defendant MILA Board. Id. ¶¶ 21, 24-25. The Amended Complaint alleges that the Vice-Presidents "`follow the lead' of the `Big Six' ILA Executive Officers in all union matters of importance." Id. ¶ 26.
2. The LCN Defendants
The Amended Complaint identities four individuals alleged to be members or associates of organized crime who were active participants in the alleged RICO conspiracies, Peter Gotti is alleged to be the boss of the Gambino organized crime family. Id. ¶ 29. Gotti has entered into a consent decree with the Government resolving the claims against him in this action, and is therefore no longer an active defendant. See Consent Degree and Judgment, dated April 11, 2006 (docket no. 79). Pursuant to that decree, Mr. Gotti is permanently enjoined from, inter alia, participating in the affairs of the ILA or the Waterfront Enterprise in any way. Id. ¶¶ 3-4. Anthony Ciccone is alleged to be a captain in the Gambino family, and Jerome Brancato is alleged to be a soldier in the same family. Am. Compl. ¶¶ 30-31, 104-105. James Cashin is a former ILA official and an alleged associate of the Genovese organized crime family. Id. ¶ 32.
3. The ILA Officer Defendants
The Amended Complaint charges several ILA Executive Council members with active participation in the alleged RICO conspiracies. Foremost among these is John Bowers, Sr., whom the Amended Complaint alleges has been President of the ILA since 1987 and was Executive Vice-President for twenty-four years before ascending to the Presidency.[12] Am. Compl. ¶ 18. The Amended Complaint further alleges that Bowers presently *430 holds or has held a number of other high-ranking offices in various ILA district and local union organizations, id., and that he was a Co-Chairman of nominal defendant MILA Board at all times relevant to this action. Id. ¶ 118. Finally, the Amended Complaint alleges that Bowers is an associate of the Genovese family, and that he was an unindicted co-conspirator in United States v. Coonan, No. 87-CR-249 (S.D.N.Y.) (WK), which involved allegations of extortion and murder of ILA Local 1909 and 1809 officials by associates of the Gambino family. Id.
The second ILA Officer Defendant identified in the Amended Complaint is Robert E. Gleason, the Secretary-Treasurer of the ILA, whom the Government alleges is a Genovese family associate and "son of former ILA President and Genovese family associate `Teddy' Gleason." Id. ¶ 19. The Government further alleges that Gleason is a member of nominal defendant MILA. Board, and has held other positions of trust within the ILA and related organizations. Id. ¶¶ 19, 118.
Harold J. Daggett is the Assistant General Organizer of the ILA,[13] as well as President of ILA Local 1804-1 and, until recently, a member of nominal defendant MILA. Board. Id. ¶¶ 22, 118. Daggett is alleged to be an associate of the Genovese family. Id. ¶ 22. In 2004, Daggett was indicted on charges of extortion conspiracy and mail and wire fraud conspiracy in United States v. Coffey, No. 04-CR-651 (E.D.N.Y.) (ILG). Mr. Daggett was tried before a jury in this Court, where he was ultimately acquitted on November 8, 2005. See Am. Compl. ¶ 22; Ex. 1-2 (Superseding Indictment and Complaint in Coffey). The details of the Coffey case are discussed in Background Part II(D), infra.
Arthur Coffey is a Vice-President of the ILA Executive Council and holds various positions in several ILA district and local organizations, including as a member of nominal defendant MILA Board.[14] Am. Compl. ¶¶ 23, 118. Coffey was indicted on charges of extortion conspiracy and mail and wire fraud conspiracy in United States v. Coffey. Id.; see also id. Ex. I, 2 (Superseding Indictment and Complaint in Coffey). He was tried jointly with Harold Daggett before a jury in this Court, and was likewise acquitted on November 8, 2005. Am. Compl. ¶ 23; see Background Part II(D), infra.
ILA Officer Defendant Albert Cernadas executed a consent decree resolving the claims against him in this action prior to the filing of the Amended Complaint. Id. ¶ 20. Prior to executing the consent decree, Cernadas was the Executive Vice-President of the ILA and, inter alia, a member of nominal defendant MILA Board. Id. ¶¶ 20, 118. Pursuant to the terms of the consent decree, Cernadas resigned from all of his ILA related positions and is permanently enjoined from holding any position in the ILA or the Waterfront Enterprise. Id.; see also Am. Compl. *431 Ex. 13 (Cernadas consent decree). Cernadas was indicted in Coffey for mail and wire fraud conspiracy in violation of 18 U.S.C. § 371, charges arising in connection with acts undertaken in his capacity as an officer of the ILA. See Am. Compl. ¶ 20, Ex. 1 (Coffey Superseding Indictment). On September 12, 2005, Cernadas pleaded guilty before this Court to the charges against him in that case. Am. Compl. ¶ 20; see Background Part II(D), infra.
B. The Alleged RICO Conspiracies
The Amended Complaint alleges two counts of RICO conspiracy conspiracy to violate 18 U.S.C. § 1962(c)[15] ("§ 1962") in violation of § 1962(d)[16] (Count 1), see Am. Compl. ¶¶ 70-83, and conspiracy to violate § 1962(b) in violation of § 1962(d) (Count 2).[17]See Am. Compl. ¶¶ 252-56. Both counts are alleged against all of the Racketeering Defendants "together with others, known and unknown," id. ¶¶ 71, 253, and rely on the same alleged predicate acts to establish the requisite patterns of racketeering. Both counts also rely on the same allegations regarding the composition and purpose of the Waterfront Enterprise. Indeed, the section of the Amended Complaint captioned "Second Claim for Relief' does little more than incorporate by reference the allegations made in earlier sections of the Amended Complaint, including the lengthy recitations of alleged predicate acts in the section captioned "First Claim for Relief," and assert that the same acts also constitute a conspiracy to violate § 1962(b). See id. ¶¶ 252-258. The Court may therefore discuss the factual allegations underlying the Government's claims without distinguishing between the two RICO conspiracy counts.
1. The Waterfront Enterprise
At the heart of the Government's theory of this case is the "Waterfront Enterprise," an alleged association-in-fact RICO enterprise that is comprised of the members of the Gambino and Genovese families operating on the Waterfront and their associates and co-conspirators in the ILA and other legitimate Waterfront organizations. The Amended Complaint defines the Waterfront Enterprise as an aggregation of
the ILA and certain of its subordinate components, namely, the Atlantic Coast District, the South Atlantic & Gulf Coast District, Locals 1, 824, 1235, 1588, 1804-1, 1814, 1922, 1922-1, and 2062; certain current and former ILA officials; certain welfare benefit and pension benefit funds managed for the benefit of ILA members, namely, MILA, the METRO-ILA Funds, the ILA Local 1922 Health and Welfare Fund, the ILA-Employers Southeast Florida Ports Welfare Fund; certain businesses operating on or about the Waterfront; an "employer association" operating on or about the Waterfront, namely METRO; certain members and associates of the Genovese and *432 Gambino crime families; and certain businesses operating in the Port of Miami. . . .
Am. Compl. ¶ 67. The Government alleges that each of the Racketeering Defendants "were leaders of the Enterprise who directed other members of the Enterprise in carrying out unlawful and other activities in furtherance of the conduct of the Enterprise's affairs." Id. ¶ 69. In a section captioned "Purpose of the Enterprise," the Government alleges that [t]he Defendants' common purpose was to exercise corrupt control and influence over labor unions and businesses operating on the Waterfront, the Port of Miami and elsewhere in order to enrich themselves and their associates. In order to achieve this objective, the Defendants have established and maintained control and influence over labor unions and businesses. To ensure the continued effectiveness of this corrupt system and as part of the overall plan and pattern of control, the Gambino and Genovese families have generally maintained and recognized their respective areas of control and domination on the Waterfront, the Port of Miami and elsewhere. Id. ¶ 68. At oral argument, counsel for the Government clarified that, notwithstanding the caption's suggestion that paragraph 68 alleges the common purpose of the enterprise, the purpose identified in paragraph 68 is alleged to be shared only by the Racketeering Defendants, and not by the nominal defendants or, presumably, any member of the Waterfront Enterprise not named as a defendant in this action. See Tr. at 101-02.
2. The Alleged Pattern of Racketeering Acts
The Government alleges fifteen acts of racketeering undertaken by some or all of the Racketeering Defendants between 1995 and 2002, which it argues establish the "pattern of racketeering" necessary for RICO liability. The Court shall briefly summarize each of the alleged acts, taking the allegations in the Amended Complaint as true.
a. Rigged Election of Harold J. Daggett and Others to High-Ranking ILA Offices[18]
The Government alleges that in June 1999, George Barone, "a Genovese family member, former ILA official, and convicted racketeer," met with ILA President John Bowers at a restaurant in Miami to discuss who would replace Bowers as ILA President upon Bowers's retirement. Am. Compl. ¶ 87. Barone had learned that Bowers favored Benny Holland as his replacement, and wanted to make it clear to Bowers that the Genovese family preferred Harold Daggett, whom Barone had placed into other ILA district and local positions and believed could be relied upon to advance Genovese family interests as ILA President. Barone arranged the meeting with Bowers through defendant Arthur Coffey, who at the time was President of ILA Locals 1922, 1922-1, and 2061, all based in Miami. During the meeting, Bowers agreed to support Daggett as his successor in exchange for a promise from Barone that Bowers's son, John Bowers, Jr., would be "taken care of by the ILA and the Genovese family following Bowers's retirement. Id. ¶ 90.
The conspiracy to place Daggett in a position to replace Bowers took a step forward in 2000, when ILA General Organizer Frank Lonardo decided to resign from his position. Because 2000 was a non-Convention year, the Genovese family *433 and its coconspirators planned to place Daggett into the vacant General Organizer position by means of an Executive Council election held in Lake Tahoe in July 2000. Placing Daggett on the Executive Council would enable him to be elevated to the position of ILA President by the Executive Council should Bowers retire in a non-Convention year. Having arranged a meeting through Arthur Coffey, Genovese family soldier Pasquale Falcetti asked George Barone to instruct Bowers to support Daggett for the vacant General Organizer position. Bowers, however, using James Cashin as an intermediary, informed Barone that he could not support Daggett for that position because he was under pressure from the ILA's black caucus to support Assistant General Organizer Gerald Owens, who is an African-American, for the General Organizer position. Barone replied through Cashin that he would support Owens for the position of General Organizer and Daggett for the position of Assistant General Organizer.[19] Ciccone then instructed ILA Vice-President Frank Scollo, with whom he had a longstanding acquaintance, to ensure that Daggett was placed in the Assistant General Organizer position.[20]
On July 19, 2000, the ILA Executive Council held its non-Convention election in Lake Tahoe, at which Daggett was elected to the position of Assistant General Organizer. Immediately after the election, Scollo called Ciccone to report the result of the election, but spoke with Cassarino because Ciccone was unavailable.
The Amended Complaint states that Ciccone and Jerome Brancato were convicted in United States v. Gotti, 02-CR-606 (E.D.N.Y.), of conspiracy to extort, extortion, and wire fraud in connection with the scheme to rig the election of Harold Daggett to the ILA Executive Council, thereby presumably alleging that the allegations in the Amended Complaint regarding that scheme state the same predicate acts. See Background Part II(A), infra.
b. Scheme to Rig the MILA PBM Contract[21]
On or about May 7, 1997, MILA sent a Request for Proposal to approximately 21 vendors, seeking bids on a contract for a Pharmacy Benefit Manager ("PBM") to administer its prescription drug plan. Sixteen vendors responded, and MILA eventually narrowed the field to two finalists Express Scripts, Inc. ("Express Scripts"), and GPP/VIP, Inc. ("GPP/VIP"). Express Scripts was "a large, full-service company serving millions of individuals and managing billions in annual drug expenditures." Id. ¶ 125. GPP/VIP, on the other hand, was a start-up owned by Joel Grodman, *434 the president of General Prescription Programs, Inc. ("GPP"), and Dr. Vincent Nasso, an account executive employee of GPP who ran his own mail order facility called Value Integrated Pharmacy Services, Inc. ("VIP"). Grodman and Nasso created GPP/VIP specifically for the purpose of providing PBM service to MILA using GPP's retail network as a subcontractor.
Despite its smaller size and relative lack of experience, GPP/VIP had one substantial advantage over Express Scripts in the competition for the MILA PBM contract: Vincent Nasso was an associate of Anthony Ciccone, and had agreed to pay Ciccone $400,000 for the selection of GPP/VIP as the MILA PBM. In his efforts to rig the PBM contract bidding in favor of GPP/ VIP, Ciccone once again conspired with the Genovese family, which had made plans through its own network of members and associates to influence the contract award. Genovese family member Larry Ricci had asked George Barone to persuade Harold Daggett, in his capacity as a MILA, Trustee, to vote for whichever PBM candidate Albert Cernadas supported; Ricci planned to use his own influence over Cernadas to award the contract to a company favorable to the Genovese family's interests. Barone agreed and instructed both Daggett and Arthur Coffey to support whichever PBM candidate that Cernadas supported. Ciccone then paid $75,000 to the Genovese family, and Cernadas "was the most vocal proponent of GPP/ VIP" at the MILA deliberations, swaying the ILA Trustees in GPP/VIP's favor notwithstanding the fact that the Management Trustees and their actuarial consultants preferred Express Scripts. The ILA Trustees and the Management Trustees ultimately reached a compromise, appointing GPP/VIP as the MILA PBM for the North Atlantic ports from Boston to Hampton Roads, Virginia, and Express Scripts as PBM for the South Atlantic ports from North Carolina to the Mexican border. After obtaining the MILA PBM contract for the northern ports, GPP/VIP continued to conspire with organized crime and its associates on the MILA Board to expand the scope of its lucrative arrangement with MILA. Its opportunity to do so arose when, despite Express Scripts's having received better service reviews from MILA plan members than GPP/VIP, MILA terminated Express Scripts's contract, effective January 1, 2000, and placed GPP/VIP as PBM for the entire range of ports, because Express Scripts resisted a full-scale audit by MILA.
In June 2001, GPP/VIP sent a letter to MILA's Pharmacy Resource Committee in which it requested premium increases amounting to an additional 65 cents per member per month, stating that it had "severely underestimated and did not anticipate the cost of handling all the unique aspects of the MILA program. . . ." Id. ¶ 136. Shortly thereafter, in August 2001, MILA sent out a new Request for Proposals, in anticipation of the expiration of GPP/VIP's contract on December 31, 2001. Ciccone favored renewing GPP/VIP's contract, and communicated with MILA Trustee Frank Scollo, both directly and through Prinio Cassarino, and with MILA Executive Director Louis Valentino for the purpose of influencing the decision. Scollo advised Ciccone that GPP/VIP would need to submit a new proposal in response to MILA's request. Ultimately seven vendors, including GPP/VIP and Advance PCS, the largest private PBM in the United States, submitted proposals for the MILA contract. Because Advance PCS's proposal would save MILA approximately $4 million over 3 years in comparison to GPP/VIP, the MILA Board initially voted unanimously to award the PBM contract to Advance PCS. However, during subsequent negotiations with Advance PCS, the *435 ILA Trustees, particularly Albert Cernadas, raised objections to some of Advance PCS's demands, particularly its desire for brand-to-brand switches[22] and the exclusive right to select its auditor. Although Advance PCS eventually withdrew the demands to which the ILA Trustees objected, the ILA Trustees withdrew their support of Advance PCS and supported a renewal of GPP/VIP's contract. Due to the impasse between the Management Trustees and the ILA Trustees over which vendor to select, GPP/VIP's PBM contract was extended from December 31, 2001, through June 2002. Ultimately the matter was submitted for arbitration, which resulted in the award of the MILA PBM contract to Advance PCS.
The Amended Complaint states that Ciccone was convicted in United States v. Gotti, 02-CR-606 (E.D.N.Y.), of conspiracy to extort, extortion, and wire fraud in connection with the scheme to rig the award of the MILA PBM contract in favor of GPP/VIP, thereby presumably alleging that the allegations in the Amended Complaint regarding that scheme state the same predicate acts. See Background Part 11(A), infra.
c. Scheme to Rig the MILA Mental Health Benefits Contract[23]
The Amended Complaint also alleges that organized crime conspired with the MILA Trustees to influence the award of the MILA mental health and substance abuse plan contract. In late 1998, MILA solicited bids for the contract from seven companies, including Health Management Center, Inc. ("HMS"), which paid James Cashin as a consultant. Cashin had obtained permission from George Barone to obtain the MILA mental health benefits contract and to inform the MILA Trustees that Barone had given him such permission, though the Amended Complaint does not allege that Cashin actually informed any of the MILA Trustees of that fact.
Before the MILA mental health contract was awarded, however, a dispute developed between Cashin and HMS regarding Cashin's compensation. Cashin's relationship with HMS was therefore terminated, and in early 1999, Cashin entered into a consulting relationship with another mental health services company called Compsych, which paid Cashin $5,000 per month for his services. Compsych then submitted a bid for the MILA mental health contract, which Robert Gleason asked the MILA Board to consider at a January 29, 1999 meeting. One of the MILA Board's actuarial consultants, Actuarial Sciences Associates, rated Compsych's bid noncompetitive. The other consultant, The Segal Company, indicated that it had not been aware that the Compsych bid would be discussed at the meeting, but nevertheless rated the bid competitive. Compsych resubmitted its bid in April 1999, and the MILA Board deemed it competitive. MILA awarded the mental health benefits contract to Compsych in August 1999.[24]
The Amended Complaint further alleges that when Compsych's contract was due for renewal in 2001, the ILA Trustees, especially Bowers, Cernadas, and Daggett, were "particularly vocal" in their support for renewing Compsych's contract, despite *436 the fact that it had requested a 5 percent increase in fees. Id. at 161. MILA ultimately renewed the contract.
The Amended Complaint does not state, expressly or implicitly, which type of racketeering act the Government believes its allegations regarding the rigging of the MILA mental health benefit plan constitute. However, in its memorandum of law in opposition to the defendants' motions, the Government identifies several mailings that it alleges were made pursuant to the MILA mental health care scheme, thereby apparently suggesting that these allegations constitute mail fraud. See Gov. Mem. at 99-100.
d. Fund Investment Advisor Kickback Scheme[25]
The Amended Complaint alleges three schemes by organized crime to interfere with the service contract selection process of the METRO-ILA Funds, and to defraud the beneficiaries of those funds, by awarding lucrative service contracts to associates of organized crime. The first of these involves a conspiracy among Peter Tarangelo and Thomas Cafaro, both associates of the Genovese Family, Liborio Bellomo, acting boss of the Genovese family, and Harold Daggett to influence the METRO-ILA Funds' selection of an investment advisor. In October or November of 1995, Cafaro and Bellomo advised Tarangelo that if he could identify someone who could act as an investment advisor to the METRO-ILA Funds, they would use their influence over the METRO-ILA Trustees to ensure that Tarangelo's hand-picked advisor would receive the fund advisement contract. In return, Bellomo, Cafaro, and Tarangelo would receive a kickback from the advisor's fee. In order to assist Tarangelo in his efforts, Cafaro and Bellomo gave him a list of ILA locals over which the Genovese family had influence, which included Local 1804-1, and told him to send solicitations to the unions.
Tarangelo eventually identified Wall Street Capital Management as his investment advisor of choice, and between November 1995 and approximately February 1996, proposals on Wall Street Capital Management's letterhead were sent to the contacts on the list that Bellomo and Cafaro provided to Tarangelo. Cafaro and Bellomo arranged for Tarangelo to meet with Harold Daggett, then the Secretary-Treasurer of Local 1804-1, on May 23, 1996, in a Newark hotel where Local 1804-1 was having a meeting.[26] During the meeting, Tarangelo provided Daggett with a copy of the Wall Street Capital Management Proposal, and Daggett asked Tarangelo to say "hello" to Daggett's "friend," which the Government alleges was a reference to Bellomo. The same day, Tarangelo met with METRO President Joseph Barbera at METRO's offices in New Jersey; shortly thereafter, in May or June 1996, Tarangelo attended another meeting with Barbera, Genovese soldier Pasquale Falcetti, and a representative of Centurion Capital Management, which was an affiliate of Wall Street Capital Management.
Until Bellomo was arrested in June 1996, Tarangelo understood that the METRO-ILA Funds would award the investment advisement contract to Wall Street *437 Capital Management. Several months after Bellomo's arrest, however, Tarangelo was informed that Wall Street Capital Management would not receive the contract.
The Amended Complaint does not state, expressly or implicitly, which type of racketeering act the Government believes its allegations regarding the conspiracy to rig the METRO-ILA Funds investor advisement scheme constitute. However, in its memorandum of law in opposition to the defendants' motions, the Government identifies several mailings that it alleges were made pursuant to that scheme, thereby apparently suggesting that these allegations constitute mail fraud. See Gov. Mem. at 97-98.
e. Rigged METRO-ILA Welfare Fund PBM Contract[27]
On or about June 30, 1998, the Board of Trustees of the METRO-ILA Welfare Fund awarded its PBM contract to GPP/ VIP the same company that was awarded the MILA PBM contract at about the same time. Despite the fact that the METRO-ILA Welfare Fund had previously used Diversified Pharmaceutical Services as its PBM, the change was made with little, if any, evaluation of the merits of awarding the contract to GPP/VIP, and was supported by Harold Daggett in his capacity as a Trustee of the METRO-ILA Welfare Fund. Daggett allegedly knew that GPP/VIP was associated with organized crime, but did not disclose that fact to the METRO-ILA Welfare Fund Board of Trustees, and did not disclose the fact that he supported the award of the contract to GPP/VIP because of its association with organized crime.
The Amended Complaint does not state, expressly or implicitly, which type of racketeering act the Government believes its allegations regarding the conspiracy to rig the METRO-ILA Welfare Fund PBM contract constitute. However, in its memorandum of law in opposition to the defendants' motions, the Government identifies a mailing that it alleges was made in furtherance of that scheme, thereby apparently suggesting that these allegations constitute mail fraud. See Gov. Mem. at 100-101.
f. Rigged METRO-ILA Welfare Fund Mental Health Care Benefits Contract[28]
On or about August 18, 1999, the Board of Trustees of the METRO-ILA Welfare Fund awarded its mental health care benefits contract to Compsych the same company that was awarded the MILA mental health care benefits contract at about the same time. The decision to award the mental health care benefits contract to Compsych was supported by Harold Daggett in his capacity as a Trustee of the METRO-ILA Welfare Fund because of James Cashin's consulting relationship with Compsych.[29] Daggett allegedly knew that Cashin and Compsych were associated with organized crime, but did not disclose that fact to the METRO-ILA Welfare Fund Board of Trustees, and did not disclose the fact that he supported the *438 award of the contract to Compsych for that reason.
The Amended Complaint does not state, expressly or implicitly, which type of racketeering act the Government believes its allegations regarding the conspiracy to rig the METRO-ILA Welfare Fund PBM contract constitute. However, in its memorandum of law in opposition to the defendants' motions, the Government identifies several mailings that it alleges were made in furtherance of that scheme, thereby apparently suggesting that these allegations constitute mail fraud. See Gov. Mem. at 101.
g. Fraud on the Local 1922 and Southeast Florida Ports Welfare Funds[30]
In 1999, at approximately the same time MILA and the METRO-ILA Welfare Fund awarded their mental health care benefits contracts to Compsych, the Local 1922 Health and Welfare Fund and the ILA-Employers Southeast Florida Ports Welfare Fund also awarded mental health care benefits contracts to Compsych. The Government alleges that Arthur Coffey, in his capacity as a Trustee of both funds, supported awarding the contracts to Compsych at the direction of George Barone. Barone ordered Coffey to support Compsych because of the company's relationship with James Cashin. Coffey did not inform the Board of Trustees of either fund of his own association with organized crime, or that he supported Compsych at the direction of a Genovese family soldier who favored Compsych because of its relationship with Cashin.
The Amended Complaint refers to the scheme to rig the Florida funds' mental health benefits contracts in favor of Compsych as a "fraud," but does not clarify which type of predicate racketeering act the Government believes its allegations regarding that scheme constitute. However, in its memorandum of law in opposition to the defendants' motions, the Government identifies one mailing and one facsimile transmission that it alleges were made in furtherance of that scheme, thereby apparently suggesting that these allegations constitute mail fraud and wire fraud. See Gov. Mem. at 102. The Court notes that both the mailing and facsimile transmission identified in the Government's memorandum of law were allegedly made in furtherance of the scheme to award the Local 1922 benefits contract to Compsych; the Government does not identify any use of the mails or wires made in furtherance of the scheme to award the ILA-Employers Southeast Florida Ports Welfare Fund to Compsych.
h. Control Over Local 1[31]
The Amended Complaint recounts various acts of extortion and fraud performed by Anthony Ciccone for the purpose of establishing and maintaining organized crime control over ILA Local 1, all of which involve Ciccone's intimidation of and interference with Louis Saccenti, a delegate for ILA Local 1. The Government alleges that by undertaking these acts, Ciccone "conspired to deprive the union membership of its democratic rights and its right to loyal representation by Saccenti." Am. Compl. ¶ 187.
In the summer of 2000, Louis Saccenti decided to fill a temporarily vacant shop steward's position at the Red Hook Terminal in Brooklyn, New York, without consulting Ciccone. The shop steward's position *439 had been held by Joseph Pimpinella, the brother of former ILA General Organizer and Gambino family associate Anthony Pimpinella. Joseph Pimpinella was going on vacation, and Saccenti placed an individual named Ronnie Doyle in the shop steward's position in Pimpinella's absence. Local 1814 President Frank Scollo reported this development to Primo Cassarino, for the purpose of notifying Ciccone. Both Scollo and Ciccone were concerned that they would lose power if Saccenti were permitted to replace Pimpinella; Ciccone was also concerned that Saccenti was conspiring against him with ILA Local 1 President Stephen Knott. Ciccone therefore directed Knott not to fill the shop steward's position until he heard from Ciccone, and instructed Scollo to speak to Knott and to stop Saccenti from putting Doyle in the shop steward's position. The Amended Complaint does not indicate how this situation was resolved.
The Government also alleges a second conflict between Ciccone and Saccenti, which arose from Saccenti's efforts to change the work rules at two marine terminals in Brooklyn at which workers represented by ILA Local 1 were employed. ILA Local 1 represents "checkers" individuals who check cargo containers that pass through the Howland Hook terminal in Staten Island, New York, and the Red Hook Terminal in Brooklyn, New York. In 2000 and 2001, Saccenti attempted to make changes in work rules at those terminals that Scollo deemed "detrimental" to the interests of Local 1814. Am. Compl. ¶ 190. Scollo contacted Cassarino on several occasions, seeking Ciccone's assistance in dealing with Saccenti. At Ciccone's direction, Scollo informed August Decrezenso, a Local 1 Shop Steward, that Ciccone's orders were that Saccenti was to make no rule changes without first notifying Ciccone. Saccenti defied Ciccone's efforts to control him, continuing to make rule changes and at one point announcing that "all bets are off." Id. ¶ 192. Ciccone then directed Cassarino and Gambino family soldier Richard Bondi to go to Saccenti's home for the purpose of intimidating Saccenti. The Amended Complaint does not indicate whether the efforts to intimidate Saccenti were successful, or how the conflict was ultimately resolved.
The Amended Complaint states that Ciccone was convicted in United States v. Gotti, 02-CR-606 (E.D.N.Y.),[32] of conspiracy to extort, extortion, and wire fraud in connection with his efforts to control ILA Local 1, thereby presumably alleging that the allegations in the Amended Complaint regarding that scheme state the same predicate acts.
i. Fraud on the Local 1814 Membership[33]
Ciccone and Scollo's joint efforts to exercise control over ILA officials were not limited to Local 1. In 2000 and 2001, Scollo enlisted Ciccone's assistance in resolving a problem with another ILA Local 1814 official, Philip Scala. At the time, Scala was an ILA representative and a Local 1814 delegate. Following the ILA special elections in July 2000, Scala had repeatedly failed to report to work; Scollo believed that this was because Scala was angry that he had not been elected to a position on the Executive Board of the Atlantic Coast District. Council. Seeking permission to fire Scala, Scollo contacted Cassarino and Ciccone, who suggested that Scala, Scollo, and Ciccone meet to discuss the situation. The meeting that took place did not resolve Scala's grievances, and Scala eventually *440 resigned from the ILA, leaving the position of Local 1814 delegate open. Primo Cassarino recommended that Scollo appoint Patsy Pozzolano, the brother-in-law of Gambino family associate Anthony Pansini, to the position; however, Scollo, despite being the Local 1814 President, could do so only if Ciccone approved Pozzolano's appointment. Ciccone demanded to meet with Pozzolano and eventually approved him, at which point Pozzolano became the Local 1814 delegate.
The Amended Complaint states that Ciccone was convicted in United States v. Gotti, 02-CR-606 (E.D.N.Y.),[34] of wire fraud in connection with his involvement with Local 1814, thereby presumably alleging that the allegations in the Amended Complaint regarding that scheme states the same predicate act.
j. Extortion of Howland Hook Container Terminal, Inc.[35]
The Howland Hook Marine Terminal on Staten Island, New York, is a major facility for loading and unloading cargo. In 1996, the facility was operated by Howland Hook Container Terminal, Inc., which was managed by its CEO, Carmine Ragucci. In or about 1997, Ragucci began making payments to Ciccone to buy "labor peace" at the terminal. Am. Compl. ¶ 216. Ciccone instructed Scollo to accept the payments from Ragucci and deliver them to Ciccone, in exchange for which Scollo was to comply with Ragucci's wishes regarding labor issues at the terminal. Scollo complied with these instructions, collecting envelopes containing the payments from Ragucci on a periodic basis and delivering them either to Ciccone or to Anthony Pimpinella. Beginning in about 1998, Scollo also sometimes delivered the payments to Primo Cassarino. Ragucci continued to make payments on a roughly quarterly basis until June or July of 2001, when he left his position at the Howland Hook Marine Terminal.
The Amended Complaint states that Ciccone was convicted in United States v. Gotti, 02-CR-606 (E.D.N.Y.),[36] of conspiracy to extort and extortion in connection with his extortion of Howland Hook Container Terminal, Inc., thereby presumably alleging that the allegations in the Amended Complaint regarding that scheme state the same predicate acts.
k. Extortion of Bridgeside Draydage[37]
In 1994 and 1995, Carmine Ragucci entered into a contract with Frank Molfetta pursuant to which Molfetta would perform truck broker-dispatcher services at the Howland Hook Marine Terminal beginning when the terminal was operational in 1996. The contract promised to give Molfetta's company, Bridgeside Draydage, exclusive broker-dispatcher rights at the Howland Hook terminal, in exchange for $150,000 upfront and $100,000 to be paid later. Molfetta paid $150,000 to Ragucci in 1994, and Bridgeside Draydage began operating at Howland Hook in 1996. However, Molfetta refused to pay the additional $100,000 because, contrary to the terms of the contract, Ragucci did not grant Bridgeside Draydage exclusive broker-dispatcher rights.
In or about late 1999, Ragucci informed Molfetta that Anthony Ciccone wished to meet with him. At that meeting, Molfetta described the terms of his contract with *441 Ragucci to Ciccone, and Ciccone instructed him not to pay Ragucci. Molfetta understood from that meeting that he would subsequently be making payments to Ciccone. At a later meeting in 1999, Molfetta and Ciccone settled on a $1,500 monthly payment, which commenced in January 2000.
The Amended Complaint states that Ciccone was convicted in United States v. Gotti, 02-CR-606 (E.D.N.Y.),[38] of conspiracy to extort and extortion in connection with his extortion of Bridgeside Draydage, thereby presumably alleging that the allegations in the Amended Complaint regarding that scheme state the same predicate acts.
l. Money Laundering and Money Laundering Conspiracy[39]
The Government alleges that between September 2000 and November 2001, defendants Peter Gotti, Anthony Ciccone, and Jerome Brancato laundered and conspired to launder the proceeds of the kickback schemes involving MILA and GPP/ VIP and the extortion schemes involving Howland Hook and Bridgeside Draydage. The Amended Complaint further notes that all three defendants were convicted of money laundering and money laundering conspiracy in United States v. Gotti, 02-CR606.[40]
m. Extortion of Right to Employment of Hiring Agent[41]
Beginning in 1996, Thomas Ragucci, the brother of Carmine Ragucci, was the hiring agent for Howland Hook Container Terminal, Inc., in which capacity he was responsible for hiring longshoremen to load and unload ships at the terminal. In approximately July 2001, Carmine Ragucci sold his ownership interest in Howland Hook Container Terminal, Inc., and resigned as CEO of the company. Between July 1 and October 1, 2001, Frank Scollo discussed the possibility of removing Thomas Ragucci from his position has hiring agent with Anthony Ciccone and Primo Cassarino. Ciccone wished to replace Thomas Ragucci with Robert Anastasio, nephew of Gambino family member Anthony "Todo" Anastasio. Ciccone instructed Scollo to speak with Ragucci about leaving the terminal; Scollo did so, informing Ragucci that Scollo's "boss" wanted Ragucci to leave his position. Ragucci knew that Ciccone was a member of the Gambino family and was intimidated by Scollo's message, believing that Ciccone might retaliate if Ragucci refused to resign.
The Amended Complaint does not allege how this situation was resolved, but it notes that Ciccone was convicted in United States v. Gotti, 02-CR-606 (E.D.N.Y.),[42] of conspiracy to extort and attempted extortion, rather than actual extortion, with respect to the scheme to remove Thomas Ragucci from his position at the Howland Hook terminal, thereby presumably alleging that the allegations in the Amended Complaint regarding that scheme state the same predicate acts.
n. Extortion of Leonardo Zinna[43]
The Amended Complaint alleges quite simply that "[i]n or about 2001, the Defendant *442 Anthony Ciccone, together with others, conspired to extort money from Leonardo Zinna, a longshoreman." Am. Compl. ¶ 246 (capitalization omitted). The Amended Complaint further states that Ciccone was convicted in United States v. Gotti, 02-CR-606 (E.D.N.Y.),[44] of conspiracy to extort Leonardo Zinna, thereby presumably alleging that the allegations in the Amended Complaint regarding that scheme state the same predicate act.
o. Extortion of Nicola Marinelli[45]
The Amended Complaint alleges a second conspiracy to extort an individual longshoreman that is equally devoid of details, stating only that "[i]n and about or between January 2001 and January 2002 . . . Defendant Anthony Ciccone and others, conspired to extort money from the settlement of a claim for compensation for an injury of Nicola Marinelli, a longshoreman." Am. Compl. ¶ 249 (capitalization omitted). The Amended Complaint further states that Ciccone was convicted in the Gotti prosecution[46] of conspiracy to extort and extortion of Nicola Marinelli, thereby presumably alleging that the allegations in the Amended Complaint regarding that scheme state the same predicate acts.
II. Prior Proceedings
The Government attached as exhibits to the Amended Complaint various pleadings and other documents filed in three prior criminal actions United States v. Bellomo, 02-CR-140 (E.D.N.Y.); United States v. Gotti, 02-CR-606 (E.D.N.Y.); and United States v. Coffey, 04-CR-651 (E.D.N.Y.) and two prior civil actions United States v. Local 1804-1, Int'l Longshoremen's Assoc., 90-CV-963 (S.D.N.Y.), and United States v. Bellomo, 03-CV-1683 (E.D.N.Y.) all of which involved many of the same defendants and factual allegations at issue in this case. In opposition to the defendants' motions to dismiss the Amended Complaint due to its alleged failure to plead certain essential elements of several of the predicate acts, the Government argues that it has satisfied the applicable pleading requirements by incorporating by reference the factual allegations contained in the exhibits. In order to place this litigation in its proper historical context and to grasp the foundation of the Government's arguments regarding the Amended Complaint's pleading of the predicate acts, it is necessary to examine the allegations and outcome in each of these prior actions in some detail.
A. United States v. Gotti
In 2002, the United States unsealed an indictment charging several members and associates of the Gambino crime family, including, inter alia, Peter Gotti, Anthony Ciccone, and Jerome Brancato, all of whom are defendants in this action, as well as Frank Scollo, Primo Cassarino, and Vincent Nasso, who are not named as defendants in this action but are identified as uncharged participants in one or more of the alleged predicate acts, with many of the racketeering acts that are alleged in this action. See Indictment in United States v. Gotti, 02-CR-606 (E.D.N.Y.), attached to the Amended Complaint as Exhibit 6 ("Gotti Indictment" or "Gotti Ind."). Scollo eventually pleaded guilty to RICO conspiracy in connection with his involvement in a number of the racketeering schemes alleged in Gotti, and Nasso pleaded *443 guilty to three counts of wire fraud in connection with the rigging of the MILA PBM contract. All of the other Gotti defendants mentioned in this action i.e., Peter Gotti, Anthony Ciccone, Jerome Brancato, and Primo Cassarino were found guilty at trial of RICO conspiracy, substantive RICO violation, and various acts of extortion, wire fraud, and money laundering that were co-extensive with the predicate acts alleged in the RICO counts.
Although the Gotti Indictment charges many of the same defendants with many of the same acts alleged in this case, it takes a markedly different position with respect to the ILA, its officers and subordinate organizations, and the other nominal defendants. The Gotti Indictment identifies the relevant RICO enterprise as the Gambino crime family, and identifies all of the defendants in that case as members or associates of the Gambino family. See Gotti Ind. ¶¶ 1-16. Counts One and Two of the Gotti Indictment allege substantive RICO violation and RICO conspiracy, respectively, and identify 33 predicate racketeering acts, many of which are identical to the offenses alleged as predicate acts undertaken by the Waterfront Enterprise in this action. Specifically, the Gotti Indictment identifies the following schemes alleged as predicate acts in this action as acts attributable to the Gambino family enterprise: the rigged election of Harold Daggett and others to high-ranking ILA offices;[47] the scheme to rig the award of the MILA PBM contract in GPP/VIP's favor;[48] the extortion of ILA Local 1 delegate Louis Saccenti;[49] the fraud on the Local 1814 membership involving the resignation of Philip Scala and appointment of Patsy Pozzolano as union delegate;[50] the extortion of Howland Hook Container Terminal, Inc.;[51] the extortion of Bridgeside Draydage;[52] money laundering and money laundering conspiracy;[53] attempted extortion of Howland Hook Marine Terminal, Inc.'s right to employ Thomas Ragucci as a hiring agent;[54] the extortion of Leonardo Zinna;[55] and the extortion of Nicola Marinelli.[56] Except with respect to the allegations regarding Frank Scollo's participation in the schemes of his Gambino family compatriots, however, the Gotti Indictment generally characterizes the, ILA and its officials and subordinate labor unions *444 as victims of, rather than participants in, the Gambino family's efforts to expand its influence on the Waterfront. For example, the section of the Gotti Indictment describing the scheme to elect Harold Daggett to the ILA Executive Council is captioned "Conspiracy to Extort the ILA," and alleges that Ciccone, Cassarino, Brancato, and Scollo "agreed to obtain property of ILA union members" by extortionate means. Gotti Indictment ¶ 27. Likewise, the scheme to rig the MILA PBM contract is captioned "Conspiracy to Extort MILA., "and again alleges only that Gambino family members and associates were involved in the conspiracy. Id. at 13-14. All of the charged racketeering acts are attributed to the Gambino family enterprise, as the Waterfront Enterprise alleged in the Amended Complaint in this case is not mentioned in the Gotti Indictment.
B. United States v. Bellomo Criminal Case
On February 2, 2002, the United States indicted eight members and associates of the Genovese crime family Liborio Bellomo, Thomas Cafaro, Pasquale Falcetti, Andrew Gigante, Vincent Gigante, Ernest Muscarella, Michael Ragusa, and Charles Tuzzo on charges of, inter alia, racketeering, racketeering conspiracy, extortion, mail fraud, and money laundering.[57]See Superseding Indictment (S-2) in United States v. Bellomo, 02-CR-140 (ILG), attached to the Amended Complaint as Exhibit 3 ("Bellomo Indictment" or "Bellomo Ind."). In Bellomo, like Gotti, the Government charged some of the racketeering acts now alleged as RICO predicates in this action, but did not ascribe them to the Waterfront Enterprise or assert that they were jointly undertaken by the Genovese and Gambino families in conjunction with other co-conspirators. Rather, the Bellomo Indictment identifies the relevant RICO enterprise as the Genovese crime family, and charges that enterprise and its members and associates with responsibility for all of the illegal acts alleged therein. See id. ¶¶ 1-16. Like the Gotti Indictment, the charges in the Bellomo Indictment that pertain to the issues raised in this action portray the ILA and other Waterfront entities as the victims of organized crime, rather than co-conspirators with the Genovese family. For example, Racketeering Act 1 of Counts 1 (substantive RICO violation) and 2 (RICO conspiracy) charges that the Bellomo defendants conspired to obtain money from Waterfront business as well as ILA labor union positions, and the salaries and benefits associated with those positions, by extortionate means. Id. ¶ 19. Racketeering Act 2 charges that several of the defendants extorted money from an unidentified owner of a business operating on the Waterfront. Racketeering Act 3 charges Bellomo, Cafaro, Falcetti, and Ragusa with mail fraud and money laundering in connection with the METRO-ILA Funds investment advisor scheme, but unlike the Amended Complaint, it does not identify Harold Daggett or METRO President Joseph Barbera as co-conspirators.[58]Bellomo Ind. ¶¶ 21-23. In keeping with its general depiction of the *445 ILA and related associations, including the METRO-ILA Funds, as victims rather than participants in organized crime's efforts to control the Waterfront, Racketeering Act 3 also alleges that the same defendants conspired to launder the proceeds of embezzlement from the METRO-ILA Pension and Welfare Benefit Funds allegations that are not made in the Amended Complaint in this action. Id. ¶ 23.
On April 7, 2003, all of the Bellomo defendants pleaded guilty before this Court to one or more of the charges alleged in the Bellomo Indictment. Bellomo, Cafaro, Falcetti, Muscarella, and Ragusa pleaded guilty to violating RICO, Andrew Gigante and Tuzzo pleaded guilty to extortion conspiracy, and Vincent Gigante pleaded guilty to one count of obstruction of justice.
C. United States v. Bellomo Civil Case
On April 7, 2003, the same day that the Bellomo defendants pleaded guilty to the criminal charges contained in the Bellomo Indictment, the Government filed a civil complaint against seven of those defendants all except Vincent Gigante, who was identified as an uncharged co-conspirator alleging a single claim of racketeering conspiracy in violation of 18 U.S.C. § 1962(d), which incorporated by reference all of the alleged predicate acts stated in the Bellomo Indictment. See United States v. Bellomo, 03-CV-1683 (ILG) (E.D.N.Y.), Complaint ¶ 27, attached as Exhibit 4 to the Amended Complaint ("Bellomo. Complaint" or "Bellomo Compl."). Unlike the criminal indictment in Bellomo, the Bellomo Complaint identifies the relevant RICO enterprise as being comprised of not only the Genovese crime family, but also the ILA, its affiliated locals in New York, New Jersey, and Miami, individual officers, employees, agents, and representatives of the ILA and its affiliated entities, and the ILA's affiliated employee benefit plans,[59]Bellomo Compl. ¶ 22, and alleged that each of the defendants "sought to control and dominate the Waterfront and the Florida Ports, as well as other businesses and unions operating elsewhere, and conduct and participate in the conduct in the affairs of the Enterprise" through the pattern of racketeering alleged in the Bellomo Indictment. Id. ¶ 29. Although the enterprise in the Bellomo civil action was defined to include the ILA and related organizations and individuals, the Bellomo complaint nevertheless depicts the Waterfront businesses and organizations, including the ILA, as victims of, rather than co-conspirators with, the agents of organized crime operating on the Waterfront. For example, the Bellomo Complaint alleges that Gambino and Genovese families "have shared control of the Waterfront," which is defined to include the ILA and its subordinate labor organizations, see id. ¶ 1, "through the use of actual and threatened force, violence and fear, exercising influence over labor unions and businesses at commercial shipping terminals in New York and New Jersey," id. ¶ 4, and further alleges that the Government commenced that action "to enjoin the Defendants from engaging in a pattern of racketeering activity which would enable *446 them to continue their criminal control over the Waterfront and the Florida Ports, the businesses and labor unions operating on the Waterfront and in the Florida Ports. . . ." Id. ¶ 6.[60]
On May 27, 2003, all of the defendants in the Bellomo civil case entered into a Consent Judgment and Decree with the Government for the purpose of settling that action. See Am. Compl. Ex. 5 ("Bellomo Consent Decree"). Pursuant to the terms of the Bellomo Consent Decree, the Bellomo defendants are permanently enjoined, inter alia, from engaging in any activity whatsoever involving the ILA or any of its locals or other constituent labor organizations, and from engaging in any commercial activity in the New York/New Jersey Waterfront and the Port of Miami or having any legal or beneficial interest in any entity that does business in those areas. Id.; see also Am. Compl. ¶ 45.
D. United States v. Coffey
Although Frank Scollo was named in the Gotti Indictment, the Government did not pursue criminal charges against any other ILA official with respect to the alleged acts underlying the Amended Complaint in this action until 2004, when, in United States v. Coffey, 04-CR-651 (ILG) (E.D.N.Y.), it filed a sealed criminal complaint and ultimately obtained an indictment, in 2005, charging Arthur Coffey, Harold Daggett, Arthur Cernadas, and Lawrence Ricci with extortion conspiracy and mail fraud in connection with their involvement in the schemes to award PBM contracts to GPP/VIP and mental health care contracts to Compsych discussed above. See Superseding Indictment (S-2) in United States v. Coffey, 04-CR-651 (E.D.N.Y.) ("Coffey Indictment"), attached to the Amended Complaint as Exhibit 1; see also Complaint in United States v. Coffey ("Coffey Complaint"), attached to Amended Complaint as Exhibit 2. The Coffey Indictment charged that each defendant was a member or an associate of the Genovese family and alleged that Coffey, Cernadas, and Daggett had abused their positions as Trustees in one or more of the benefit funds associated with the ILA to rig the award of service contracts in favor of GPP/VIP and Compsych. The Coffey Indictment did not charge a RICO violation, and therefore did not allege the existence of a RICO enterprise.
Cernadas pleaded guilty to the Coffey Indictment on September 12, 2005, and was ultimately sentenced to two years' probation by this Court on February 22, 2006. The other three defendants pleaded not guilty and went to trial, which commenced on September 19, 2005. Coffey and Daggett were ultimately acquitted of all charges by the jury. Midway through the trial, Ricci failed to appear; his body was subsequently discovered in the trunk of a car approximately two weeks after the trial concluded. Am. Compl. ¶ 40(j).
E. United States v. Local 1804-1, Int'l Longshoremen's Assoc., AFL-CIO
Although the civil and criminal actions in Gotti and Bellomo are the direct predecessors to this action in terms of the identity of the defendants and the specific claims alleged, the closest parallel to the theory of the Government's case and the types of relief it seeks in this case is the civil action in United States v. Local 1804-1, Int'l Longshoremen's Assoc., AFL-CIO, 90-CV-963 (LBS) (S.D.N.Y.) ("ILA Local Civil RICO Case"). In that case, the Government filed a civil RICO complaint charging *447 a number of ILA locals, the then-current and certain former members of their executive boards, and various ILA employees and organized crime figures, including many of the Racketeering Defendants in this case,[61] with four counts of substantive RICO violation and RICO conspiracy. The predicate acts alleged in the ILA Local Civil RICO Case are different in the details than the predicate acts alleged in this action, but similar in the overall picture they convey of the Waterfront unions and businesses having been infiltrated by agents of organized crime for the purpose of pressing those legitimate businesses and organizations into service as "cash cows" for the Mafia. The ILA Local Civil RICO Complaint alleged the existence of a "Waterfront Enterprise" that was comprised of Waterfront businesses and organizations as well as organized crime families and their agents; however, that complaint defined the Waterfront Enterprise somewhat differently than does the Amended Complaint in this case. The ILA Local Civil RICO Complaint defined the Waterfront Enterprise as being comprised of
certain members and associates of the Genovese and Gambino Families, the *448 Genovese and Gambino Families themselves, acting through those members and associates, ILA Locals 1804-1, 1588, 1814, 1809, 1909, 824, certain other ILA locals, and certain of their respective Executive Board and their related labor councils, and their Pension, Welfare, and Benefit Funds, certain present and former ILA International and local officials and employees, and certain businesses and employer associations operating on or about the Waterfront. . . .
ILA Local Civil RICO Compl. ¶ 69. The common objective of the defendants as stated in that complaint was "the corrupt control and influence of Waterfront industry and labor unions in order to enrich themselves and their associates." Id. ¶ 70. Although a substantial degree of overlap exists between the Waterfront Enterprise as defined in the 1990 action and the enterprise alleged in the Amended Complaint in this action, the 1990 version of the Waterfront Enterprise included ILA Locals 1809 and 1909, which, are not alleged in the Amended Complaint to be a part of the relevant RICO enterprise for purposes of this action; conversely, the Amended Complaint here identifies the ILA International; ILA Atlantic Coast District and South Atlantic & Gulf Coast District; Locals 1922, 1922-1, and 2062; and the ILA Local 1922 Health and Welfare Fund and the ILA-Employers Southeast Florida Ports Welfare Fund, none of which were identified as part of the Waterfront Enterprise as defined in the ILA Local Civil RICO Case, as part of that enterprise in this action. Compare id. with Am. Compl. ¶ 67.
In the ILA Local Civil RICO Case, the Government sought preliminary and permanent injunctions against the defendants, the primary effects of which would be to: (1) enjoin the organized crime defendants and any other; defendant found to have participated in racketeering activity from participating in any way in the management of the ILA Locals or any Waterfront business entity or organization; (2) enjoin the ILA officials and Executive Boards from committing any act of racketeering activity or associating with any member of La Cosa Nostra; (3) order that new elections be held for the ILA Local Executive Boards named in the complaint, which would be overseen by a court-appointed trustee and conducted in such a manner as to ensure that they were not vulnerable to intimidation or other improper influences; and (4) appoint an administrator, who would remain in place "until such time as the Waterfront and the ILA Locals are free of the corruption, domination, control, and infiltration by La Cosa Nostra," to oversee the operations of the Waterfront, including but not limited to the ILA Locals and the Waterfront employers named in the complaint, for the purpose of preventing racketeering activity. ILA Local Civil RICO Compl. at 123 (Demand for relief subpart (e)). All of the ILA Locals named in the ILA Local Civil RICO Complaint eventually signed consent decrees with the Government settling the case against them. Each ILA Local agreed to an injunction prohibiting all of its present or future agents, employees, and members from committing any racketeering activity and from associating with any member or associate of organized crime. Most of the ILA Locals also agreed to the imposition of a court-appointed monitor, and three Locals 824, 1809, and 1909 agreed to supervision of their upcoming elections by the United States Department of Labor. See Am. Compl. Ex. 9-11 (consent decrees in ILA Local Civil RICO Case). Several defendants and uncharged co-conspirators in the present action, including John Bowers, Sr., Harold Daggett, Robert Gleason, George Barone, James Cashin, Anthony Ciccone, and Louis Pernice, *449 signed the consent decrees in their individual and official capacities as officers of one or more of the ILA Locals named in the 1990 action; other defendants failed to appear in that action and default judgments were entered against them. See id.; see also Am. Compl. ¶ 55.
Trial in the ILA Local Civil RICO Case commenced on April 15, 1991, against the four defendants Donald Carson, Anthony Gallagher, George Lachnicht, and Venero Mangano who had neither settled nor defaulted. Following a ten-week bench trial that took place over the course of eleven months, Judge Sand of the Southern District of New York issued a written opinion in which he found each of those defendants liable for the civil RICO violations at issue in that litigation. See United States v. Local 1804-1, Int'l Longshoremen's Assoc., 812 F. Supp. 1303 (S.D.N.Y.1993). Most significantly for purposes of this action, Judge Sand found that the Waterfront' Enterprise alleged in the ILA Local Civil RICO Complaint was a cognizable RICO enterprise, and that the Government had established a pattern of racketeering activity sufficient to establish its RICO claims. Regarding the existence of the Waterfront Enterprise, Judge Sand acknowledged that the court's analysis of that issue was complicated by the fact that none of the defendants had challenged the Government's pleading or evidence in support of the existence of the Waterfront Enterprise at trial because most of the defendants, including all of the ILA Locals and the other institutional defendants, had settled the case or defaulted before trial, and the remaining defendants "took a position which assumed the existence" of that enterprise. Id. at 1310. Nevertheless, the court concluded that it could adequately assess the existence of the Waterfront Enterprise by making "independent inquiries into the evidence presented by the government . . . [and] careful scrutiny of the government's case." Id. at 1311. Surveying much of the same historical information regarding the Genovese and Gambino families' efforts to infiltrate and corrupt Waterfront labor unions and business for the purpose of extending organized crime's influence over Waterfront commerce that is recounted in the Amended Complaint in this action, Judge Sand found that "the piers of New York arid New Jersey have been fertile ground for organized crime for the better part of this century, and that control of union locals has been an integral part of organized crimes schemes to exploit the Waterfront." Id. at 1312. Finding that the Waterfront Enterprise was an "integrated market" that had historically been subject to Mafia infiltration and control, Judge Sand concluded that "there is sufficient evidence of the existence of an association in fact among the ILA, the ILA locals, the Waterfront employers, and members of the Gambino and Genovese crime families so that the `Waterfront' can properly be characterized as a RICO enterprise." Id. at 1315. Judge Sand further found that the Government had "clearly sustained its burden of demonstrating `a pattern of racketeering activity,'" reviewing the familiar elements of relatedness and continuity. Id. at 1316. He found that the alleged predicate acts were related by the "common thread" of "exploitation of the Waterfront enterprise by LCN figures and their ILA confederates through control of ILA Local 1588," id., and that the threat of continuity was established by virtue of the fact that "[i]n in context of organized crime enterprises, the Second Circuit has noted that `continuity' may virtually be presumed." Id. (citing United States v. Indelicato, 865 F.2d 1370, 1383-84 (2d Cir.1989)). The court then proceeded to determine that, each of the defendants on trial were, liable for violating RICO by committing at least two *450 of the alleged predicate acts, the details of which are not relevant for present purposes.
DISCUSSION
I. Standard of Review
A. Government's Argument that Defendants' Motions be Treated as Constructive Motions for Summary Judgment
Before it can determine the appropriate standard of review to be applied to the defendants' motions, the Court must decide whether to treat those motions as motions to dismiss under Rule 12(b)(6) or motions for summary judgment under Rule 56(b). The Government, taking note of the fact that many of the defendants attached documents to their memoranda of law in support of their motions to dismiss that are not attached as exhibits to the Amended Complaint, argues that the defendants' purported 12(b)(6) motions "are actually motions for summary judgment only feebly disguised as motions to dismiss." Gov. Mem. at 132; see also id. at 166 n. 82 (arguing that "a number of defendants, the ILA prominent among them, have constructively moved for summary judgment."). The Government therefore urges the Court to construe the defendants' motions as motions for summary judgment under Rule 56(b), and to deny the motions as inappropriate at this point in the proceedings because the Government has not yet had an opportunity to conduct, testimonial discovery. Aside from defendant Gleason, who expressly moved for summary judgment but withdrew that motion at oral argument, the defendants deny that their 12(b)(6) motions are constructive summary judgment motions, and argue that the documents attached to their motion papers may be considered by the Court on a 12(b)(6) motion under the applicable legal standards.
Rule 12(b) provides that, on a motion arising under Rule 12(b)(6),
[i]f . . . matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.
"As indicated by the word `shall,' the conversion of a Rule 12(b)(6) motion into one for summary judgment under Rule 56 when the court considers matters outside the pleadings is `strictly enforce[d]' and `mandatory.'" Global Network Commc'ns, Inc. v. City of New York, 458 F.3d 150, 155 (2d Cir.2006) (quoting Amaker v. Weiner, 179 F.3d 48, 50 (2d Cir.1999); Goldman v. Belden, 754 F.2d 1059, 1066 (2d Cir.1985)). In Global Network Communications, the Second Circuit recognized that the 12(b)(6) conversion rule furthers the purposes of Rule 12(b)(6) and Rule 56, and "also solves the major problem that arises when a court considers matters extraneous to a complaint, namely, the lack of notice to the plaintiff that outside matters would be examined." 458 F.3d at 155. However, a district court is not obliged to convert a 12(b)(6) motion to one for summary judgment in every case in which a defendant seeks to rely on matters outside the complaint in support of a 12(b)(6) motion; it may, at its discretion, exclude the extraneous material and construe the motion as one under Rule 12(b)(6). See Friedl v. City of New York, 210 F.3d 79, 83 (2d Cir.2000) ("`[W]hen matters outside the pleadings are presented in response to a 12(b)(6) motion,' a district court must either `exclude the additional material and decide the motion on the complaint alone' or `convert the motion to one for summary *451 judgment under Fed.R.Civ.P. 56 and afford all parties the opportunity to present supporting material." (emphasis added) (quoting Fonte v. Bd. of Managers of Cont'l Towers Condo., 848 F.2d 24, 25 (2d Cir.1988)); see generally 5C Wright & Miller, Federal Practice and Procedure: Civil 3d § 1366 (2004)). In this case; the Court chooses not to convert the defendants' pending motions to motions for summary judgment, for two reasons. First, some of the extraneous material to which the Government objects falls into one of the exceptions to the general rule that a district court cannot consider matters outside the pleadings on a 12(b)(6) motion, so that the Court can consider it without converting the motions. Second, while many of the exhibits and arguments that the defendants put forth are in fact inappropriate for consideration on a 12(b)(6) motion, the Court finds that even after excluding such material, the pending challenges to the sufficiency of the Amended Complaint raise substantial issues that should be considered before allowing this action to proceed further. Having decided against converting the pending 12(b)(6) motions to Rule 56(b) motions, the Court must determine which, if any, of the exhibits attached to the defendants' moving papers may be considered by the Court in resolving these motions.
The Government objects to the following defendants' exhibits as exceeding the scope of a 12(b)(6) motion: ILA Exhibits A, B, C, J, K, and L;[62] MILA Exhibits 1-3;[63] Gleason Exhibits D, E, and F;[64] and Bowers Exhibit 1.[65] Although, as a general matter, the court must rely only on the facts alleged in the Amended Complaint and accept those facts as true for purposes of resolving a Rule 12(b)(6) motion, see Discussion Part I(B), infra, in some cases it may consider documents outside the complaint, including documents attached to a defendant's 12(b)(6) motion papers. The Second Circuit has recognized that "the problem that arises when a court reviews statements extraneous to a complaint [in adjudicating a 12(b)(6) motion] generally is the lack of notice to the plaintiff that they may be so considered," and that in some circumstances where this problem is not present, the district court may consider documents outside the complaint in resolving a 12(b)(6) motion to dismiss. Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2d Cir.1991). "Where plaintiff has actual notice of all the information in the movant's papers and has relied upon these documents in framing the complaint the necessity of translating a Rule 12(b)(6) motion into one under Rule 56 is largely dissipated." Id. For that reason, in resolving a 12(b)(6) motion the district court's "consideration is limited to the factual allegations in plaintiffs' amended complaint, which are accepted as true, to documents attached to the complaint as an exhibit or incorporated in it by reference, to matters of which judicial notice may be taken, or to documents either in plaintiffs' possession or of which plaintiffs *452 had knowledge and relied on in bringing suit." Brass v. American Film Techs., Inc., 987 F.2d 142, 150 (2d Cir.1993).[66] The last category noted in Brass was abrogated somewhat by the Second Circuit's subsequent clarification "that a plaintiffs reliance on the terms and effect of a document in drafting the complaint is a necessary prerequisite to the court's consideration of the document on a dismissal motion; mere notice or possession is not enough." Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir.2002) (emphasis in original). Moreover, the Second Circuit has held that an extraneous document is not incorporated by reference into the complaint where "[t]he amended complaint merely discussed these documents and presented short quotations from them. `[L]imited quotation does not constitute incorporation by reference.'" Cosmos v. Hassett, 886 F.2d 8, 13 (2d Cir. 1989) (quoting Goldman v. Belden, 754 F.2d 1059, 1066 (2d Cir.1985)). With these principles in mind, the Court must examine each of the exhibits attached to the defendants' motion papers to which the Government objects in order to determine which, if any, of those exhibits may be considered on a 12(b)(6) motion.
ILA Exhibit A is a copy of a New York Daily News article, dated June 16, 2004, regarding the sentencing of Anthony Ciccone. The ILA quotes a portion of this article in its memorandum in support of its argument that, contrary to the Government's assertions in the Amended Complaint, organized crime no longer enjoys the dominion over Waterfront operations that existed at the time of the prior prosecutions and investigations cited in the Amended Complaint.[67] The ILA argues that the Court can refer to this document for "background" without converting the ILA's 12(b)(6) motion into a motion for summary judgment, citing the Second Circuit's ruling in Hayden v. County of Nassau, 180 F.3d 42, 54 (2d Cir.1999), that the court need not convert a 12(b)(6) motion into a summary judgment motion when "the court simply refers to supplementary materials, but does not rely on them or use them as a basis for its decision." The problem with the ILA's argument is that it did not submit the Daily News article as mere "background," but rather for the purpose of challenging the factual accuracy of the Amended Complaint's allegations regarding the ongoing influence of organized crime on the Waterfront. ILA Exhibit A falls within none of the categories of documents outside the complaint that may be considered in a 12(b)(6) motion identified by the Second Circuit in Bright, and the Court therefore shall not consider it in ruling on the ILA's 12(b)(6) motion.
ILA Exhibit B is a copy of the ILA's 2004 Form LM-2, an annual report that it is required to file with the Department of Labor. The ILA cites this document for the proposition that "[t]he ILA represents approximately 59,000 members," ILA Mem. at 5, and argues that it is entitled to introduce this document because it was cited in the Amended Complaint. ILA Mem. at 5 n. 3 (citing Nasik Breeding & Research Farm Ltd. v. Merck & Co., Inc., 165 F. Supp. 2d 514, 525 n. 7 (S.D.N.Y.2001) (district court could consider several documents *453 submitted by the defendants which were "referenced in the Amended Complaint, incorporated therein, or which were clearly in Nasik's possession and relied on by Nasik in filing suit.")); see also ILA Reply Mem. at 4. The ILA is correct. Paragraph 17 of the Amended Complaint refers to the ILA's "most recent annual filing with the Department of Labor," and reproduces salary information for six ILA Defendants contained in that report. Although the Government's limited quotation of the ILA's 2004 Form LM-2 might not rise to the level of incorporation by reference, the Government clearly possessed and relied on this document in drafting the Amended Complaint, and the Court may consider it for purposes of the presently pending motions.
ILA Exhibit C is a copy of the ILA's Constitution, as amended in July 2003. The ILA relies on this document to correct what it sees as an inaccuracy in the Amended Complaint regarding the replacement of ILA Executive Council officers in nonconvention years. The Amended Complaint asserts that "[i]n a non-Convention year, vacancies on the ILA Executive Council are filled by the Executive Council from the membership of the Executive Council." Am. Compl. ¶ 96. The ILA argues that the Government's characterization is incorrect, noting that under its Constitution, "only the President's position is filled from existing members of the Executive Council; any ILA member can be appointed to the other positions." ILA Mem. at 6 (citing ILA Constitution, Art. VIII, § 7). The ILA argues that its Constitution is incorporated into the Amended Complaint by reference. ILA Reply Mem. at 4. Whether the Amended Complaint's use of the ILA Constitution rises to the level of incorporation by reference is a close question, but at a minimum, the Government possessed and relied on the ILA Constitution in drafting the Amended Complaint. For example, paragraphs 95 and 96 of the Amended Complaint, which describe the procedure for Executive Council elections and replacement of Executive Council members in non-convention years, necessarily rely on the terms or effects of the ILA Constitution. The Court can conceive of no good faith basis upon which the Government could make assertions of fact regarding the ILA's election procedures without relying on the ILA Constitution. Moreover, Paragraph 16 of the Amended Complaint quotes extensively from the ILA's Constitution in describing the positions of the ILA Executive Council members and the authority of the Executive Council. The Court therefore finds that it may consider the ILA Constitution in resolving the pending 12(b)(6) motions. It further finds that paragraph 96 of the Amended Complaint is inaccurate, insofar as it represents that replacements for Executive Council members, other than the President, in non-convention years must be drawn from the ranks of present Executive Council members.[68]
ILA Exhibit J is a copy of the ILA's Code of Ethics, dated January 1, 2004, and ILA Exhibit K is a letter from attorney Joseph D. McCann to AUSA Richard Hayes, dated June 30, 2005. The Court shall discuss the two exhibits together because of the substantial overlap in the *454 subject matter to which they relate. The ILA relies on the Code of Ethics for various factual propositions in support of its arguments that 1( the equitable relief sought by the Government against the ILA is unwarranted, and 2) the Amended Complaint fails to establish open-ended continuity of the pattern of racketeering acts because the ILA has taken steps to eliminate the risk of ongoing Mafia influence over its operations. Of particular significance, the ILA asserts on the basis of these exhibits that the Government's allegation in paragraph 64 of the Amended Complaint that the ILA's Ethical Practices Counsel, a position created by Article VIII of the Code of Ethics, "has no authority to take disciplinary action" against ILA members found to be involved in organized crime, but may only "recommend that the ILA Executive Council take action," and that members of the Executive Council therefore "have the sole right to determine whether they may be subject to discipline," is inaccurate. The ILA further asserts that any decision by the Executive Council not to take disciplinary action against an ILA member, including an Executive Council member, would be appealable to the ILA's independent Appellate Officer, whose decision would be final. ILA Mem. at 52. In support of the latter assertion, the ILA does not cite any provision of its Constitution or Code of Ethics, but rather cites only the letter from McCann to Hayes in which Mr. McCann informs Hayes that
[t]he permanent position of an independent Appellate Officer has been created. This Appellate Officer will serve for the same term as the Ethical Practices Counsel, and will have jurisdiction to hear appeals from decision of the ILA Executive Council on matters brought before it by the Ethical Practices Counsel. Notably, the Appellate Officer will also have the authority to hold de novo hearings and his/her decision would constitute the final decision of the ILA.
ILA Ex. K at 2.
The Court finds that the Amended Complaint, which cites the ILA's Code of Ethics as the basis of its allegations regarding the effectiveness of the ILA's reform efforts, necessarily relies upon the Code of Ethics, and that the Court may therefore consider the contents of that document for purposes of resolving this motion. However, most of the ILA's reliance on the Code of Ethics is not for the purpose of correcting the Government's supposed misrepresentations about the terms of the that document, but rather for the purpose of arguing, as a factual matter, that the ILA's adoption of the Code of Ethics eliminates the ongoing threat of organized crime activity on the Waterfront that is alleged in the Amended Complaint. See ILA Mem. at 17-18 (section headed "The Relief Requested is Duplicative," which argues that the Government "fails to credit that the ILA took action prior to the filing of the Complaint" by adopting the Code of Ethics "to address the issues now raised in the Government's Complaint"); id. at 51 (arguing that the Government has not established open-ended continuity because "any Government theory about future organized crime involvement in the ILA is made even more speculative by the affirmative steps taken by the ILA to eradicate corruption," referring specifically to the adoption of the Code of Ethics). Even though the Court is permitted to consider the contents of the Code of Ethics, it is nevertheless bound to accept the factual allegations in the Amended Complaint including the allegations regarding the risk of ongoing organized crime involvement in the ILA notwithstanding the adoption of the Code of Ethics for purposes of this motion. It therefore declines to consider the ILA's factual argument that the Code *455 of Ethics is more effective at eliminating corruption in the ILA than the Amended Complaint suggests. The Court further finds that the Government's allegation that the ILA Ethical Practices Counsel lacks authority to take disciplinary action, but can only recommend to the Executive Council that action be taken, is a fair inference drawn from the terms of the Code of Ethics and the ILA Constitution, to which the Government is entitled at this stage of the proceedings. Am. Compl. ¶ 64; see ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir.2007) (Rule 12(b)(6) requires "accepting all factual allegations in the complaint and drawing all reasonable inferences in the plaintiff's favor.") (citing Ganino v. Citizens Utils. Co., 228 F.3d 154, 161 (2d Cir.2000)). Paragraph 5 of the Code of Ethics gives the Ethical Practices Counsel authority "to investigate and file charges against "any officer, representative, employee or member of the ILA," while Paragraph 6 states that if the Ethical Practices Counsel determines that filing a disciplinary charge is necessary, "[t]he Ethical Practices Counsel shall then file the charge in accordance with Article XVIII of the ILA Constitution." Article XVIII of the ILA Constitution provides that disciplinary charges may be filed at the local level, but vests ultimate authority to discipline an ILA member or a local governing body in the Executive Council. See ILA Ex. C, Art. VIII §§ 1(e)-(f), 2. Thus, the Government's allegation that the Ethical Practices Counsel can only "recommend" that disciplinary action be taken against an ILA member for that member's involvement in organized crime, and that the decision whether to take such action rests ultimately in the discretion of the Executive Counsel, is a reasonable inference to be drawn from the language of the documents in question, and the Court shall assume it to be true for purposes of the present motions.
The ILA also argues that the Government's characterization of the Executive Council's ultimate authority to decide disciplinary matters is factually incorrect because the ILA's Appellate Officer has jurisdiction to review disciplinary decisions by the Executive Council and to issue binding decisions. Notably, the ILA does not cite any provision of the Code of Ethics or the ILA Constitution for that proposition, but cites only the June 30, 2005, McCann letter. The McCann letter is not incorporated by reference into the Amended Complaint, and although the Government presumably possessed it at the time the Amended Complaint was filed, there is no indication that it relied on that letter in drafting the Amended Complaint. As the Second Circuit made clear in Chambers, mere possession is insufficient to permit the Court to consider the contents of a document not attached to or incorporated in the complaint; the further element of reliance must also be present. See Chambers, 282 F.3d at 153. The Court therefore shall not consider ILA Exhibit K for purposes of the present motions.
ILA Exhibit L is a joint press release of the United States Attorney for the Eastern District of New York and the Office of the Attorney General for the state of New York, which announces the indictments in the Gotti prosecution. The ILA cites this press release in support of its argument that the Government's position in Gotti and Bellomo portrayed the ILA and its officials as victims of organized crime, rather than coconspirators, and is therefore inconsistent with the position taken in this action. ILA Mem. at 24. The ILA does not argue that the press release was incorporated by reference in the Amended Complaint or relied upon by the Government in drafting that document, but simply *456 asserts that the Government's objection to the attachment of its own press release to the ILA's motion papers "is hardly well taken." ILA Reply Mem. at 4 n. 2. Well taken or not, the ILA offers no support for the proposition that a plaintiff's own prior statements that are not incorporated by or relied upon in the complaint may be considered by the Court in addressing a 12(b)(6) motion, nor is the Court aware of such a rule. The scant Second Circuit authority on this point suggests that press releases are not subject to judicial notice. See Kramer v. Time Warner Inc., 937 F.2d 767, 774 (2d Cir.1991) (in civil action for securities fraud, finding that documents required by law to be filed with the SEC are properly subject to judicial notice, but "stress[ing] that our holding relates to public disclosure documents required by law to be filed, and actually filed, with the SEC, and not to other forms of disclosure such as press releases or announcements at shareholder meetings."). The Court therefore shall not consider ILA Exhibit L in adjudicating the pending motions.
MILA Exhibit 1 is a copy of MILA's "Code of Conduct," which deals with prohibiting association or involvement with organized crime by MILA trustees, fiduciaries, employees, agents, and representatives. MILA Exhibit 2 is an Amendment to the MILA Trust and Plan that incorporates the Code of Conduct into the Trust and Plan, clarifies that MILA Trustees are subject to removal for violations of the Code of Conduct, and requires that each service contract into which MILA enters must include a provision that permits MILA to cancel the contract immediately if MILA's Ethical Practices Monitor has reason to believe that the counterparty to the agreement is associated with organized crime. MILA Exhibit 3 is an excerpt from the minutes of a MILA Board of Trustees meeting held on January 11-12, 2005, in which the MILA Board adopted a resolution to authorize MILA's Ethical Practices Monitor to investigate the finalists competing for MILA PBM health care and mental health contracts. MILA relies on all of these exhibits in support of its argument that the Government has failed to establish open-ended continuity with respect to the GPP/VIP scheme because MILA's implementation of the Code of Conduct "assure[s] a racketeer-free environment in the conduct of the affairs of MILA." MILA Mem. at 25; see also MILA Reply Mem. at 12-13 ("Well before the commencement of this action, MILA put into effect protective measures that assure a racketeer-free environment in the conduct of the affairs of MILA."). MILA makes no effort to argue that any of these exhibits are incorporated by reference or relied upon by the Government in drafting the Amended Complaint. The Court therefore shall not consider these documents, or MILA's argument that additional factual matters not stated in the Amended Complaint belie the Government's allegations, for purposes of resolving the present motions.
Gleason Exhibits D and E are excerpts of the Coffey trial transcript, and Gleason Exhibit F is a letter from attorney Francis J. Murray of Murray & McCann to AUSA Richard Hayes, dated January 12, 2006, in which Mr. Murray urges Mr. Hayes, "in light of the testimony of George Barone" in the Coffey trial, to reclassify Mr. Gleason as a nominal defendant in the Amended Complaint. Mr. Gleason does not cite Exhibits D and E for any purpose in his memorandum of law, nor did his attorney mention them at oral argument. The Court therefore need not consider those exhibits regardless of whether they could be considered under any of the exceptions noted by the Second Circuit in Brass. Mr. Gleason cites Exhibit F in support of his argument that George Barone's testimony *457 at the Coffey trial establishes that Mr. Gleason "is not an associate of the Genovese Family, and that he does not owe his positions in the ILA or its various trust and benefit funds to any organized crime influence." Memorandum of Law in Support of Defendant Robert Gleason's Motion to Dismiss the Amended Complaint, to Strike Scandalous Matter, and in the Alternative for Summary Judgment ("Gleason Mem.") at 8 (emphasis in original). The McCann letter cannot be considered by the Court for purposes of this 12(b)(6) motion for the same reasons as ILA Exhibit K, the Murray letter, discussed above. The Court shall therefore exclude it for purposes of the pending motions.
Bowers Exhibit 1 is a press release issued by the United States Attorney's Office for the Eastern District of New York on July 27, 2004, which announces the indictments of Harold Daggett and Arthur Coffey in the Coffey case. Bowers's memorandum of law quotes extensively from this press release in support of his argument that he was a victim of organized crime extortion, rather than a co-conspirator in a RICO enterprise. See Bowers Mem. at 6-7. He argues that the Court may consider the press release because it is subject to judicial notice and because the Government possessed and relied on that document in drafting the Amended Complaint. See id. at 7 n. 6 (citing Nasik Breeding, 165 F.Supp.2d at 525). However, Bowers cites no authority in support of the proposition that a Government press release is judicially noticeable, and as discussed above with respect to ILA Exhibit L, the available authority suggests that it is not. There is also no indication that the Government relied on the press release in the Amended Complaint. The Court therefore shall exclude Bowers Exhibit 1 from consideration on this motion.
Thus, in resolving the pending 12(b)(6) motions, the Court shall exclude the following exhibits: ILA Exhibits A, K, and L; MILA Exhibits 1-3; Gleason Exhibits D, E, and F; and Bowers Exhibit 1. The Court shall consider ILA Exhibits B, C, and J, and all defendants' exhibits to which the Government did not object. The Court shall also exclude in its entirety the Declaration of Kathleen A. Nandan ("Nandan Decl."), dated December 12, 2006 (docket no. 184), which was submitted by the Government in opposition to defendant Gleason's motion for summary judgment and in opposition to the other defendants' 12(b)(6) motions "to the extent that these motions rely on facts and information that are not set forth in the Complaint in this action, as amended." Nandan Decl. at 1.
B. Standard of Review for Rule 12(b)(6) Motions
A Rule 12(b)(6) motion subjects the complaint only to a superficial review, testing whether the plaintiff has stated a plausible claim of entitlement to relief without examining the evidence supporting those allegations. The Second Circuit has recognized that [t]he purpose of Rule 12(b)(6) is to test, in a streamlined fashion, the formal sufficiency of the plaintiff's statement of a claim for relief without resolving a contest regarding its substantive merits. The Rule thus assesses the legal feasibility of the complaint, but does not weigh the evidence that might be offered to support it. Global Network Communications, 458 F.3d at 155 (emphasis omitted) (citing AmBase Corp. v. City Investing Co. Liquidating Trust, 326 F.3d 63, 72 (2d Cir.2003); 5B Wright & Miller, Federal Practice and Procedure: Civil 3d § 1356 (2004)). In evaluating the Amended Complaint in light of the defendants' motions to dismiss, this Court "must accept as true all of the factual allegations set out in plaintiff's complaint, draw inferences *458 from those allegations in the light most favorable to plaintiff, and construe the complaint liberally." Gregory v. Daly, 243 F.3d 687, 691 (2d Cir.2001) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957)); see also Erickson v. Pardus, ___ U.S. ___, ___, 127 S. Ct. 2197, 2200, 167 L. Ed. 2d 1081 (2007) ("[W]hen ruling on a defendant's motion to dismiss, a judge must accept as true all of the factual allegations contained in the complaint."); Roth v. Jennings, 489 F.3d 499, 510 (2d Cir.2007) (citing Gregory).
The Court's review of the Amended Complaint, except for the allegations of mail and wire fraud,[69] is guided by the pleading standard set forth in Federal Rule of Civil Procedure 8 ("Rule 8"). Rule 8(a)(2) provides that a civil complaint "shall contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief." The Supreme Court clarified the pleading requirements imposed by Rule 8(a)(2) and the standard of review to be applied under Rule 12(b)(6) to a pleading governed by Rule 8(a)(2) in its recent decision in Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007). In Bell Atlantic, the Court held that the plaintiff's allegations o anticompetitive parallel conduct among regional telephone companies was insufficient to state a claim for antitrust conspiracy in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, because "nothing contained in the complaint invests either the action or inaction alleged with a plausible suggestion of conspiracy." 127 S. Ct. at 1971. In reaching that holding, the Court distanced itself from its oft-quoted passage in Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957), which stated that "a complaint should not be dismissed for failure to state a claim 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." The Bell Atlantic Court held that the "no set of facts" passage in Conley is "best forgotten," 127 S. Ct. at 1969, and articulated a "plausibility" standard for pleading under Rule 8(a)(2), pursuant to which "[f]actual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true. . . ." Id. at 1965 (citations omitted). The Court emphasized that the plausibility standard was not a heightened pleading requirement, explaining that "[a]sking for plausible grounds to infer an agreement does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement." Id. Later in the same Term, the Court tacitly reaffirmed its assertion that the Bell Atlantic plausibility criterion does not impose a heightened pleading standard on Rule 8(a)(2) pleadings, holding in Erickson v. Pardus, ___ U.S. ___, ___, 127 S. Ct. 2197, 2200, 167 L. Ed. 2d 1081 (2007) (per curiam), that "[s]pecific facts are not necessary" under Rule 8(a)(2), and that the complaint "need only `give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.'" Id. (quoting Bell Atlantic, 127 S.Ct. at 1964).
*459 In Iqbal v. Hasty, 490 F.3d 143, 155-56 (2d Cir.2007), the Second Circuit acknowledged that the Supreme Court's decision in Bell Atlantic created "considerable uncertainty concerning the standard for assessing the adequacy of pleadings," noting the apparent inconsistencies between the Court's articulation of the plausibility standard and its explicit abrogation of Conley, on one hand, and its insistence that it was not imposing a new or heightened specificity requirement on Rule 8 pleading, on the other. The Iqbal court rejected as "too cavalier" the suggestion that the Supreme Court intended its discussion of pleading standards in Bell Atlantic to apply only to Sherman Act § 1 cases, or only to antitrust cases, noting that the passage in Conley rejected by Bell Atlantic had been cited more than 10,000 times "in a wide variety of contexts." Id. at 157 n. 7. Iqbal concluded that the Bell Atlantic Court "is not requiring a universal standard of heightened fact pleading, but is instead requiring a flexible `plausibility standard,' which obliges a pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible." Id. at 157-58 (emphasis omitted). In the relatively short time since Bell Atlantic and Iqbal, Judge Garaufis of this District has applied the plausibility standard in the context of two civil RICO proceedings. See Republic of Colombia v. Diageo North America Inc., No. 04-CV-4372, 2007 WL 1813744, at *8-9 (E.D.N.Y. June 19, 2007); Valle v. YMCA of Greater New York, No. 06-CV-2083, 2007 WL 2126269, at *1 (E.D.N.Y. July 24, 2007).
II. Sufficiency of the Amended Complaint Under Rule 12(b)(6)
Many of the defendants moved separately under Rule 12(b)(6) to dismiss the Amended Complaint against them individually; however, the ILA's motion, in which a number of other defendants expressly joined, primarily addresses the fundamental viability of the RICO claims alleged in the Amended Complaint in toto, rather than as applied to any particular defendant. Because the shortcomings in the Amended Complaint raised by the ILA compel the Court to dismiss the Amended Complaint in its entirety, the Court need not consider the individual 12(b)(6) motions made by the other defendants.
As noted above, the Amended Complaint charges the Racketeering Defendants with two RICO violations: conspiracy to violate 18 U.S.C. § 1962(c) in violation of § 1962(d) (Count 1), and conspiracy to violate § 1962(b) in violation of § 1962(d) (Count 2). The Supreme Court has recognized that "[t]he elements predominant in a [§ 1962] subsection (c) violation are: (1) the conduct (2) of an enterprise (3) through a pattern of racketeering activity" Salinas v. United States, 522 U.S. 52, 62, 118 S. Ct. 469, 139 L. Ed. 2d 352 (1997); see also Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985), while the Second Circuit has established a more detailed test containing essentially the same elements, holding that in order to state a claim under § 1962(b) and (c), a plaintiff must "allege the existence of seven constituent elements: (1) that the defendant (2) through the commission of two or more acts (3) constituting a `pattern' (4) of `racketeering activity' (5) directly or indirectly invests in, or maintains an interest in, or participates in (6) an `enterprise' (7) the activities of which affect interstate or foreign commerce." Moss v. Morgan Stanley Inc., 719 F.2d 5, 17 (2d Cir.1983); see also Jordan (Bermuda) Inv. Co., Ltd. v. Hunter Green Invs. Ltd., 154 F. Supp. 2d 682, 690 (S.D.N.Y. 2001) (quoting Moss). In Salinas, the Court held that the Government need not prove that each defendant committed or *460 agreed to commit two specific predicate acts in order to establish liability for RICO conspiracy under 18 U.S.C. 1962(d), recognizing that "[a] conspiracy may exist even if a conspirator does not agree to commit or facilitate each and every part of the substantive offense." Salinas, 522 U.S. at 63, 118 S. Ct. 469. The Salinas Court further held that in order for liability to attach, "[a] conspirator must intend to further an endeavor which, if completed, would satisfy all of the elements of a substantive criminal offense, but it suffices that he adopt the goal of furthering or facilitating the criminal endeavor. He may do so in any number of ways short of agreeing to undertake all of the acts necessary for the crime's completion." Id. at 65, 118 S. Ct. 469.
The ILA raises a number of challenges to the sufficiency of the Amended Complaint, which fall into four broad categories: 1) challenges to the Amended Complaint's allegations of conspiracy; 2) challenges to the pleading of the Waterfront Enterprise; 3( challenges to the pleading of the predicate acts; and 4) challenges to the pleading of a pattern of racketeering. The Court finds that it need not address all of the arguments raised by the ILA, for its challenges to the Amended Complaint's pleading of the Waterfront Enterprise and the predicate acts are sufficient to require dismissal. Before proceeding to those issues, however, the Court must first examine another defect in the pleading of the Amended Complaint that became apparent in the Government's memorandum in opposition to the present motions and at oral argument.
A. Propriety of Pleading Essential Elements by Incorporation of Attached Pleadings from Prior Criminal and Civil Cases
In United States v. Private Sanitation Indus. Ass'n of Nassau/Suffolk, Inc., 793 F. Supp. 1114, 1130 (E.D.N.Y.1992) (Glasser, J.), another civil RICO action involving allegations of organized crime infiltration of a labor union and a number of corporations and individuals employing the union's members, this Court held that the "lack of clarity" created by the Government's failure to clearly allege which of the 39 defendants was responsible for each of the 195 alleged acts of racketeering "plagues almost every page of the complaint . . . [and would] have certainly required dismissal of many of the alleged racketeering acts under Rule 8(a) simply for failure to put each defendant on notice as to the claim against him" had the Court not permitted the Government to file a 70-page supplemental pleading connecting each defendant with the specific acts in which he, she, or it was allegedly involved. Regrettably, the Amended Complaint in this action suffers from a similar degree of incoherent pleading, albeit manifested somewhat differently than the Private Sanitation complaint. As noted above and set out in the margin below,[70] the Government *461 attached a total of 13 exhibits to the Amended Complaint, totaling over 400 pages and including a number of pleadings in previous civil and criminal actions going back 17 years to the ILA Local Civil RICO Case in 1990. At oral argument, in response to the Court's observation that the 85-page Amended Complaint apparently fails to plead many fundamental elements of the alleged predicate acts, including the use of threatened or actual force and the identity of the victim with respect to several of the extortion acts, or a use of the mails or wires with respect to most of the mail or wire fraud acts, counsel for the Government explained that the specific allegations regarding those acts were incorporated into the Amended Complaint by reference to the indictments and complaints in Bellomo, Gotti, and Coffey. See Tr. at 113-19; see also id. at 123-24 (use of wires incorporated by reference from the Gotti Indictment), 134 (specifics of extortion incorporated by reference to Gotti and Coffey), 164 (scheme to rig MILA PBM contract award incorporated by reference from Gotti Indictment). The Government also argued for the first time at oral argument that, notwithstanding the fact that the words "aiding and abetting" appear nowhere in the Amended Complaint, the Court should nevertheless construe that document to allege that Bowers, Daggett, and Gleason aided and abetted the commission of the alleged predicate acts of fraud and extortion that they were not personally involved in by permitting them to occur in violation of their fiduciary duties to the ILA, see id. at 138, because "in the indictments that are incorporated by reference, Section 2 of Title 18 is specifically referenced." Id. at 164. In other words, the Government would have this Court conclude that the Government is permitted under the Federal Rules of Civil Procedure to allege not only individual facts, but entire legal theories that appear nowhere on the face of the Amended Complaint, by attaching an indictment in a prior criminal case to its pleading in this action. The Court is compelled to decline the Government's request to abolish or ignore the modest pleading requirements imposed on it by Federal Rule of Civil Procedure 8(a).
As an initial matter, notwithstanding the Government's repeated assertions to the contrary at oral argument, the Court notes that nowhere in the Amended Complaint does the Government expressly incorporate by reference any portions of the attached exhibits. "Although there is no prescribed procedure for referring to incorporated matter, the references to prior allegations must be direct and explicit, in order to enable the responding party to ascertain the nature and extent of the incorporation." 5A Wright & Miller, Federal Practice & Procedure: Civil 3d § 1326 (citing, inter alia, Arce v. Walker, 139 F.3d 329, 336 n. 7 (2d Cir.1998) ("Arce argues that a host of additional abuses aggravated the hardship of his administrative segregation including verbal harassment, food tampering and destruction of legal documents. We decline to consider these abuses because they were alleged in *462 the complaint exclusively with respect to Arce's court access claim and were not incorporated or realleged in his due process claim.")); see also Clark Constr. Group, Inc. v. Modern Mosaic, No. Civ. A. MJG-00-2331, 2000 WL 34458952, at *4 (D.Md. December 01, 2000) ("For all or part of a prior pleading to be incorporated in a later pleading, the later pleading must specifically identify which portions of the prior pleading are adopted therein. A party may not be deemed to have admitted the allegations of a prior pleading merely by attaching that pleading to his own.").[71] The phrase "incorporation by reference," or any similar phrase that would give notice of the Government's intent to incorporate into the Amended Complaint some portion of an attached document, does not appear in connection with its discussion of any of the exhibits attached thereto. Each exhibit is simply noted in passing as the Amended Complaint alleges facts pertaining to it. See, e.g., Am. Compl. ¶ 20 (discussing the Coffey prosecution, then noting that "[a] copy of the [Coffey] Indictment is annexed as Exhibit 1."). The Amended Complaint thus gives the impression that the exhibits are attached simply as background to the factual allegations alleged in the Amended Complaint; it does not provide the "direct and explicit" notice necessary to incorporate extraneous matter by reference. The Government's failure to specifically identify which portions of the hundreds of pages of exhibits it intends to incorporate by reference into the Amended Complaint makes it impossible for the Court or the defendants to ascertain the nature and extent of the incorporation, and the purported incorporation is therefore invalid.[72]
*463 Putting aside the fact that the Amended Complaint does not explicitly incorporate any allegations from the prior pleadings attached as exhibits, the Government's proposed method of pleading necessary elements of its RICO claim by incorporating factual allegations contained in several prior lengthy criminal and civil RICO pleadings is, as this Court noted at oral argument,[73] a blatant violation of Rule 8(a)(2)'s direction that a civil plaintiff provide a "short and plain statement of the claim showing that the pleader is entitled to relief."[74] The Second Circuit has explained the purpose and policy underlying Rule 8(a)(2) as follows:
The statement should be plain because the principal function of the pleadings under the Federal Rules is to give the adverse party fair notice of the claim asserted so as to enable him to answer and prepare for trial. The statement should be short because unnecessary prolixity in a pleading places an unjustified burden on the court and the party who must respond to it because they are forced to select the relevant material from a mass of verbiage.
Salahuddin v. Cuomo, 861 F.2d 40, 42 (2d Cir.1988) (internal quotation marks and citations omitted). The Amended Complaint, together with its exhibits, fails to provide fair notice to the defendants of the factual underpinnings of the Government's RICO claims and certainly imposes an unduly heavy burden on their ability to adequately reply to the Government's allegations.[75] If the Government's position were *464 accepted, the defendants would be forced to respond in their Answer not only to each of the 258 paragraphs of the Amended Complaint, but also to each and every paragraph of every attached pleading, some of which, as noted above, are inconsistent with the allegations made in the Amended Complaint itself. While the precise Rule 8 issue posed by the Government's unusual pleading in this action has rarely been presented to federal courts, other courts in similar circumstances have found Rule 8 to be violated where a plaintiff seeks to incorporate factual allegations essential to its claim for relief by incorporating pleadings from prior cases. For example, in Davis v. Bifani, No. 07-CV-122-MEH-BNB, 2007 WL 1216518, at *1 (D.Colo. April 24, 2007) (Hegarty, Mag.) (slip copy), the court granted the defendant's motion to strike the portion of the complaint that incorporated the allegations in a complaint pending in Colorado state court, noting that it "does not believe that it is proper to incorporate by reference wholesale the allegations in a complaint in a completely separate action, even if that action is between the same parties," and concluding that "[s]uch a practice violates the requirements of Fed.R.Civ.P. 8(a) requiring a short and plain statement of the claim." The Davis court further commented that it "does not believe that it should be required to look to a separate complaint filed years ago in Colorado state court and determine exactly what additional claims for relief Plaintiff intends to plead in this case." Id. If Rule 8(a) implies that the Davis court should not be obliged to review a single prior complaint for the purpose of discerning the claims made in the action before it, it follows a fortiori that this Court should not be required to read through six different pleadings, stretching back some seventeen years, in addition to various peripheral documents, in order to decipher the basic elements of the Government's claim in this action, nor should the defendants be expected to undertake such an endeavor in preparing an Answer to the Amended Complaint.[76] The Government's effort to plead essential elements of the causes of action alleged in the Amended Complaint by incorporating allegations from several prior civil and criminal actions must therefore be rejected.
*465 In reaching its conclusion that the Government's effort to supplement the pleadings in its 85-page Amended Complaint with over 400 pages of attached exhibits violates Rule 8(a), the Court acknowledges that Federal Rule of Civil Procedure 10(c) ("Rule 10(c)") provides that "[s]tatements in a pleading may be adopted by reference in a different part of the same pleading or in another pleading or in any motion." Some authority suggests that the reference to "prior pleadings" in Rule 10(c) is limited to prior pleadings in the same action, not pleadings in prior actions, even those involving the same parties. For example, in Texas Water Supply Corp. v. R.F.C., 204 F.2d 190, 196 (5th Cir.1953), the Fifth Circuit held that "Rule 10(c), Federal Rules of Civil Procedure, permits references to pleadings and exhibits in the same case, but there is no rule permitting the adoption of a cross-claim in a separate action in a different court by mere reference." See also Davis, 2007 WL 1216518, at *1 (citing Texas Water Supply Corp.); but see Cooper v. Nationwide Mut. Ins. Co., No. Civ. A. 02-2138, 2002 WL 31478874, at *5 (E.D.Pa. November 7, 2002) ("Courts have historically been reluctant to allow an incorporation by reference if it fails to provide adequate notice of the incorporating party's claims, defenses, or factual allegations. But nothing in Rule 10(c) precludes a party from incorporating all of an earlier pleading.") (citations omitted). Regardless of whether Rule 10(c) would permit a plaintiff to incorporate allegations from a pleading in a previous action in some cases, such a pleading would still remain subject to Rule 8(a)'s mandate that a plaintiff provide a short and plain statement of its claim in the complaint. Thus, even if pleading a claim by incorporating matter from a pleading in a previous case is not categorically prohibited by the Federal Rules of Civil Procedure, the Government's attempt to do so in this case runs afoul of Rule 8(a)(2).
Rule 10(c) also states that "[a] copy of any written instrument which is an exhibit to a pleading is a part thereof for all purposes." Exhibits 5, 7, 9, 10, 11, and 13 the various consent decrees and the verdict sheet in Gotti arguably constitute "written instruments" and therefore form a part of the Amended Complaint; however, the various prior pleadings upon which the Government seeks to rely do not qualify as written instruments. "A `written instrument' is a document evidencing legal rights or duties or giving formal expression to a legal act or agreement, such as a deed, will, bond, lease, insurance policy or security agreement." Murphy v. Cadillac Rubber & Plastics, Inc., 946 F. Supp. 1108, 1115 (W.D.N.Y.1996) (citing Black's Law Dictionary 801, 1612 (6th ed.1990); Webster's Third New International Dictionary, 1172 (1986)). Murphy held that several exhibits, including an affidavit by the plaintiff and an attorney's affirmation, were not "written instruments" within the meaning of Rule 10(c), noting that "[t]his court can find no decision allowing a plaintiffs own supporting statements to be considered part of the pleadings on a motion to dismiss." 946 F. Supp. at 1115; see also Rose v. Bartle, 871 F.2d 331, 339 n. 3 (3d Cir.1989) (holding that the plaintiffs affidavits do not constitute "written instruments" within the meaning of Rule 10(c), and observing that "[t]o hold otherwise would . . . further blur the distinction between summary judgment and dismissal for failure to state a claim upon which relief could be granted."). In Rose, the Third Circuit recognized "that the types of exhibits incorporated within the pleadings by Rule 10(c) consist largely of documentary evidence, specifically, contracts, notes, and other writing[s] on which [a party's] action or defense is based," a class of documents that would seem to exclude prior *466 pleadings submitted for the purpose of supplementing the factual allegations in the primary complaint. 871 F.2d at 339 n. 3 (citation omitted); see also Perkins v. Silverstein, 939 F.2d 463, 467 n. 2 (7th Cir.1991) ("The newspaper articles, commentaries and editorial cartoons which Perkins attached to the complaint . . . are not the type of documentary evidence or `written instrument[s]' which Fed.R.Civ.P. 10(c) intended to be incorporated into, and made a part of, the complaint.") (citation omitted; alteration in original). The pleadings attached as exhibits to the Amended Complaint are functionally no different than the affidavits held not to be "written instruments" in Murphy and Rose they are nothing more than self-serving statements prepared by the plaintiff with no independent evidentiary value. They therefore shall not be deemed a part of the Amended Complaint pursuant to Rule 10(c). But see Amini v. Oberlin College., 259 F.3d 493 (6th Cir.2001) (in granting 12(b)(6) motion to dismiss plaintiff's Title VII claims, "the [district] court erred in failing to consider information contained in Amini's EEOC filing, a document referenced in the complaint and attached thereto.").[77]
In short, whether viewed through the lens of Rule 8(a) or Rule 10(c), the Government's attempt to plead many essential elements of the alleged RICO claims by "incorporating" hundreds of pages of prior pleadings, with no guidance as to which specific allegations are intended to be deemed incorporated, fails to satisfy even the relatively light burden that it bears under the Federal Rules of Civil Procedure to provide a "short and plain" statement of its entitlement to relief.[78] The Amended Complaint therefore must be dismissed for failure to comply with Rule 8(a). However, certain other defects in the Amended Complaint raised by the ILA compel the Court, in the interests of judicial economy, to address several other shortcomings in the Government's allegations that go deeper than the formal aspects of the Amended Complaint.
B. The Waterfront Enterprise
RICO broadly defines an "enterprise" as including "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). In United States v. Turkette, 452 U.S. 576, 580, 101 S. Ct. 2524, 69 L. Ed. 2d 246 (1981), the Supreme Court recognized that "[t]here is no restriction upon the associations embraced by the definition: an enterprise includes any union or group of individuals associated in fact," including both legitimate ventures and wholly criminal organizations. The ILA argues that the "Waterfront Enterprise" alleged in the Amended Complaint fails to constitute an association-in-fact for RICO purposes because it is "no more than a stringing together of entities and individuals *467 that have no specified relationship to one another." ILA Mem. at 30. Specifically, the ILA points out that the Waterfront Enterprise is defined to contain a number of unidentified individuals and entities whose interrelationships in an ongoing enterprise are not established by the factual allegations contained in the Complaint,[79] and argues that the Waterfront Enterprise is nothing more than an aggregation of the pattern of racketeering activity alleged in the complaint rather than a separate entity as is required under RICO. See Turkette, 452 U.S. at 583, 101 S. Ct. 2524 ("The `enterprise' is not the `pattern of racketeering activity'; it is an entity separate and apart from the pattern of activity in which it engages. The existence of an enterprise at all times remains a separate element which must be proved by the Government."). The Government concedes that Turkette requires proof of an ongoing and continuous enterprise with an internal structure distinct from the pattern of racketeering activity in which the enterprise is alleged to have engaged, but argues on the basis of a single Third Circuit case that "although the attributes of enterprise set forth in Turkette must ultimately be proved, these evidentiary details need not be pleaded in the complaint." Gov. Mem. at 67 (citing Seville Indus. Machinery Corp. v. Southmost Machinery, 742 F.2d 786, 789-90 (3d Cir.1984)) (emphasis in original). The Government also argues, presumably in the alternative to its argument that it is not required to plead these facts, that the allegations in the Complaint are sufficient to "identify the Waterfront Enterprise, state that the Enterprise operated for a common purpose, state that the Enterprise has organizational structure, and state that the Enterprise operates as an ongoing unit." Gov. Mem. at 72. The ILA disputes the Government's assertion that the Third Circuit's opinion in Seville stands for the proposition that a civil RICO plaintiff need not allege in the complaint the attributes of continuity and internal structure of an association-in-fact enterprise as distinct from the pattern of racketeering activity in which it engages. Seville does contain language to that effect,[80] but in this Court's view, Seville and the Government place too much emphasis on the Supreme Court's choice of words in Turkette, which stated that the existence of a RICO enterprise *468 "is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit," while the pattern of racketeering activity "is proved by evidence of the requisite number of acts of racketeering committed by the participants in the enterprise." Turkette, 452 U.S. at 583, 101 S. Ct. 2524. Although Turkette spike in terms of what must be proved by a RICO plaintiff in order to ultimately prevail, that case arose in the context of an appeal from a RICO conviction rather than from a motion to dismiss, so the Supreme Court's emphasis on evidentiary requirements rather than pleading standards is natural and does not suggest that the recognized sub-elements of continuity, structure, and common purpose need not be pleaded in a civil RICO complaint. In any event, more important to the resolution of the ILA's motion than the Government's frolic and detour into Third Circuit jurisprudence is the fact, unmentioned by the parties, that some district courts in this Circuit have recently questioned whether Second Circuit law "requires a RICO plaintiff to plead or prove anything more than the pattern of racketeering activity in order to establish the existence of a RICO enterprise.
1. Pleading Requirements for RICO Enterprise in the Second Circuit
Before resolving the parties' dispute as to the validity of the Amended Complaint's allegations concerning the Waterfront Enterprise, the Court must address the uncertainty that has recently arisen among the district courts in the Second Circuit regarding the pleading requirements necessary to adequately allege the existence of a RICO enterprise. In World Wrestling Entm't, Inc. v. Jakks Pacific, Inc., 425 F. Supp. 2d 484, 494 (S.D.N.Y.2006), the district court rejected the defendants' argument that the plaintiff must allege that the purported enterprise displays the traditional indicia of an association-in-fact enterprise i.e., formal or informal structure, operation as a continuous unit, and common purpose in order to state a valid RICO claim, holding that controlling Second Circuit authority supported the plaintiff's position that "an enterprise can merely be the sum of the alleged predicate acts, and that no separate, ascertainable structure is required." The crux of World Wrestling Entertainment's holding lies in what it perceived to be, albeit erroneously in this Court's view, an inconsistency between two Second Circuit opinions: United States v. Mazzei, 700 F.2d 85 (2d Cir.1983), and First Capital Asset Mgmt. Inc. v. Satinwood, Inc., 385 F.3d 159 (2d Cir.2004). In First Capital, the Second Circuit affirmed the dismissal of a civil RICO complaint alleging the existence of an association-in-fact RICO enterprise on the ground that the complaint failed to state that the purported enterprise manifested the characteristics of structure, continuity, and common purpose. 385 F.3d at 174-75. First Capital relied on this Court's holding in Bernstein v. Misk, 948 F. Supp. 228, 235 (E.D.N.Y. 1997), quoted in First Capital 385 F.3d at 175, which dismissed a civil RICO claim where the plaintiffs "indifferent attempts to plead the existence of an enterprise fall short of their goal in that they frustrate assiduous efforts to identify its membership, its structure (formal or informal) or its functional unity." In World Wrestling Entertainment, the defendants moved to dismiss the RICO complaint on the ground that it failed to allege "a RICO enterprise that has an ascertainable structure beyond the purported racketeering acts." 425 F. Supp. 2d at 494. The plaintiff conceded that the complaint failed to allege an enterprise with structure, continuity, or common purpose, but nevertheless opposed *469 the motion to dismiss, arguing that First Capital's discussion of the requirements for pleading a RICO enterprise is nonbinding dicta that conflicts with the earlier decision in Mazzei. The district court accepted the plaintiff's argument and denied the motion to dismiss, holding that Second Circuit law, as articulated by Mazzei, does not require pleading or proof of the traditional indicia of a RICO enterprise in order to state a cognizable RICO claim. Id.
In order to assess the basis of World Wrestling Entertainment's holding that Mazzei held that a RICO plaintiff need not establish the alleged enterprise as an entity separate from the pattern of predicate racketeering acts, it is necessary to examine the Mazzei opinion in some detail. Mazzei involved an appeal from a criminal conviction under § 1962(c) stemming from the Boston College point-shaving scandal in the early 1980s. In that case, Mazzei and his co-conspirators in Pittsburgh conspired with organized crime figures Henry Hill and James Burke in New York and several players on the Boston College varsity basketball team to cause Boston College to fail to beat the "point spread" in certain pre-selected basketball games, thereby ensuring that the coconspirators would win bets placed against Boston College in those games. The indictment identified the relevant RICO enterprise as "a group of individuals associated in fact and utilizing, among other things, interstate travel and facilities in interstate commerce to influence by means of bribery the outcome of basketball games involving the Boston College varsity basketball team and to profit therefrom by wagering on those games." 700 F.2d at 88. The alleged pattern of racketeering activity was identified as "the defendants' efforts during 1978 and 1979 to influence the outcome of B.C. basketball games . . . and the defendants' travel in interstate commerce with the intent to commit bribery in order to influence the outcome of B.C. basketball games. . . ." Id. On appeal from his conviction, Mazzei argued that "to establish a violation of RICO, there `must be proof that the alleged enterprise was distinct from the alleged pattern of racketeering activity," and further argued that that criterion was not satisfied in his case because "the government's indictment alleged an enterprise identical to the alleged pattern of racketeering activity, to wit, a conspiracy formed for the sole purpose of shaving points in B.C. basketball games." Id. In support of this argument, Mazzei relied principally on the Supreme Court's decision in Turkette and the Eighth Circuit's opinion in United States v. Bledsoe, 674 F.2d 647 (8th Cir.1982). In Turkette, addressing the objection that its holding interpreting RICO's definition of "enterprise" as including wholly illegitimate criminal enterprises would collapse the distinction between the enterprise and the pattern of racketeering activity in which the defendants engaged, the Court wrote:
That a wholly criminal enterprise comes within the ambit of the statute does not mean that a "pattern of racketeering activity" is an "enterprise." In order to secure a conviction under RICO, the `Government must prove both the existence of an "enterprise" and the connected "pattern of racketeering activity." The enterprise is an entity, for present purposes a group of persons associated together for a common purpose of engaging in a course of conduct. The pattern of racketeering activity is, on the other hand, a series of criminal acts as defined by the statute. The former is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit. The latter is proved by evidence of the requisite number of acts of racketeering committed *470 by the participants in the enterprise. While the proof used to establish these separate elements may in particular cases coalesce, proof of one does not necessarily establish the other. The "enterprise" is not the "pattern of racketeering activity"; it is an entity separate and apart from the pattern of activity in which it engages. The existence of an enterprise at all times remains a separate element which must be proved by the Government.
452 U.S. at 583, 101 S. Ct. 2524 (citation omitted) (emphasis added), quoted in Mazzei, 700 F.2d at 88. The Second Circuit rejected Mazzei's argument that the group of co-conspirators operating for the common purpose of fixing Boston College basketball games could not be an "enterprise" for RICO purposes under Turkette. The court acknowledged that "Turkette requires the government to prove both the existence of an `enterprise' and a `pattern of racketeering activity,'" but explained that it did not "read Turkette to hold that proof of these separate elements be distinct and independent, as long' as the proof offered is sufficient to satisfy both elements." Id. at 89. The Mazzei court noted Turkette`s observation that in cases where the alleged RICO enterprise is an illegitimate criminal organization, the evidence necessary to establish the existence of the enterprise and the pattern of racketeering activity may coalesce, and held that the evidence necessary to prove the existence of the enterprise with which Mazzei was allegedly associated and the evidence necessary to demonstrate the pattern of racketeering activity in which that enterprise engaged "coalesce comfortably in the present action. The government here proved an enterprise that was a `group of individuals associated in fact' with evidence establishing a common or shared purpose among the individuals and evidence that they functioned as a continuing unit." Id. (quoting 18 U.S.C. § 1961(4)). Although Mazzei was correct that the defendants' alleged common purpose was essentially co-extensive with the alleged pattern of racketeering activity, the court noted that "there is no language in the legislative history to indicate that the alleged enterprise must engage in activities separate and apart from illicit gambling in order to come within the purview of RICO." Id. The court further observed that "Mazzei's interpretation would lead to the anomalous result that a large scale underworld operation which engaged solely in trafficking of heroin would not be subject to RICO's enhanced sanctions, whereas small-time criminals jointly engaged in infrequent sales of contraband drugs and illegal handguns arguably could be prosecuted under RICO," and declined to "place its imprimatur on such a counterproductive interpretation." Id. at 89. The court therefore affirmed Mazzei's conviction, finding that "[t]he government's indictment alleged an enterprise, namely, a group of individuals sharing a common purpose influencing the outcome of B.C. basketball games to secure a profit. The indictment also alleged a continuing unit throughout the 1978-79 team season." Id. at 91.
With due respect to the meticulously researched and carefully crafted opinion in World Wrestling Entertainment, this Court does not read Mazzei as standing for the proposition that a plaintiff need not plead or prove the traditional indicia of an association-in-fact enterprise in order to state a cognizable civil RICO claim. The district court in World Wrestling Entertainment equated the defendants' argument that a valid RICO enterprise must display the characteristics of formal or informal structure, continuity, and common purpose, with the proposition that "the evidence necessary to establish an enterprise *471 must be distinct from that which a plaintiff must adduce to show a pattern of racketeering activity," Hansel `N Gretel Brand, Inc. v. Savitsky, No. 94-CV4027, 1997 WL 543088, at *2 (S.D.N.Y. September 3, 1997), abrogated by Blue Tree Hotels Inv. (Canada), Ltd. v. Starwood Hotels & Resorts, 369 F.3d 212, 218 (2d Cir. 2004), quoted in World Wrestling Entertainment, 425 F.Supp.2d at 494, and held that that argument is precluded by Mazzei. But those propositions are not identical. While Hansel `N Gretel addressed the issue of what evidence must be presented to the court to prove the existence of a RICO enterprise, the issue presented in World Wrestling Entertainment pertains to the factual allegations that must be pleaded in a complaint in order to state a valid claim. The passage from Turkette quoted above makes this distinction clear: the existence of an association-in-fact enterprise, comprised of individuals or entities operating as a unit toward some common purpose or goal, and the existence of a pattern of racketeering, comprised of the requisite predicate acts committed by the RICO violators, are distinct elements of a RICO claim, both of which must be established in order for liability to attach; however, where the alleged enterprise is a wholly illegitimate one that exists solely for the purpose of undertaking the criminal activities reflected in the pattern of racketeering, the evidence necessary to prove those distinct elements may coalesce so that proof of the pattern of racketeering is effectively proof of the existence of the enterprise as well. See Turkette, 452 U.S. at 583, 101 S. Ct. 2524. Mazzei endorsed this interpretation of Turkette by repeatedly acknowledging the distinction between the existence of the enterprise and the pattern of racketeering, and found that both elements were satisfied by the evidence presented at trial that the defendants cooperated in a criminal enterprise whose purpose was to make money for its members by "fixing" Boston College varsity basketball games in the 1978-79 season through a pattern of bribery and other acts of racketeering.[81]Mazzei's holding therefore does not directly implicate the issue of whether enterprise and pattern of racketeering must be alleged as separate elements in a RICO complaint,[82] nor does *472 it support Seville's argument that the defining characteristics of the enterprise must be proved at trial, but need not be pleaded in the complaint.[83]Mazzei is therefore not inconsistent with First Capital's statement that a RICO plaintiff must plead the sub-elements of continuity, structure, and purpose, which is drawn directly from the language of Turkette and enjoys broad support in Second Circuit precedent, even among cases that World Wrestling Entertainment cited in support of its view that First Capital misstated the law on this point.[84] Indeed, it is of more *473 than passing interest that neither World Wrestling Entertainment nor First Capital addressed the Second Circuit's holding in Moss v. Morgan Stanley Inc., 719 F.2d 5, 17 (2d Cir.1983) (emphasis added), which clearly stated that a civil RICO plaintiff bears a "pleading requirement" pursuant to which he must "allege the existence of seven constituent elements: (1) that the defendant (2) through the commission of two or more acts (3) constituting a `pattern' (4) of `racketeering activity' (5) directly or indirectly invests in, or maintains an interest in, or participates in (6) an `enterprise.'" First Capital does not cite Moss at all, while World Wrestling Entertainment cites it primarily for its statement that Mazzei "expressly rejected the Eighth Circuit's view that the evidence offered to prove the `enterprise' and the `pattern of racketeering' must necessarily be distinct," Moss, 719 F.2d at 22, quoted in World Wrestling Entertainment, 425 F.Supp.2d at 486. The portion of Moss quoted in World Wrestling Entertainment occurs in the context of the court's rejection of the district court's holding that the alleged enterprise must have an "independent economic significance from the pattern of racketeering activity." 719 F.2d at 22 (quoting Moss v. Morgan Stanley Inc., 553 F. Supp. 1347, 1363 (S.D.N.Y.1983)). It must therefore be read in that context and in conjunction with the court's unambiguous statement that a civil RICO plaintiff is required to plead the pattern of racketeering activity and the existence of a RICO enterprise as distinct elements of a RICO offense. Moss's articulation of the elements of a RICO action has been cited many times by subsequent courts in this Circuit, and further supports the conclusion that a RICO enterprise and the pattern of racketeering activity are conceptually distinct elements with distinct characteristics that must be alleged separately in a well-pleaded RICO complaint, notwithstanding the fact that the evidence necessary to prove those elements may in some cases overlap or coalesce. See, e.g., Revak v. SEC Realty Corp., 18 F.3d 81, 89 (2d Cir.1994); Mills v. Polar Molecular Corp., 12 F.3d 1170, 1176-77 (2d Cir.1993); Tenamee v. Schmukler, 438 F. Supp. 2d 438, 446-47 *474 (S.D.N.Y.2006); In re Gas Reclamation, Inc. Sec. Litig., 659 F. Supp. 493, 511 (S.D.N.Y.1987).
In short, this Court must respectfully depart from the holding of the Southern District of New York in World Wrestling Entertainment insofar as that case suggests that a civil RICO plaintiff need not plead any facts beyond the existence of a pattern of racketeering activity in order to adequately allege the element of a RICO enterprise.[85] In this Court's view, it remains the law in this Circuit that a RICO plaintiff alleging the existence of an association-in-fact RICO enterprise must plead and prove the existence of a group of individuals or other legal entities operating as a continuing unit with a formal or informal structure and united by some common purpose in order to state a valid claim. The fact that the evidence necessary to prove the existence of the enterprise and the pattern of racketeering activity may coalesce in some cases does not undermine the fact that enterprise and pattern of racketeering remain conceptually distinct elements of a RICO violation, each of which must be alleged in the complaint in order to survive a Rule 12(b)(6) motion to dismiss. This point is particularly important where, as here, the alleged enterprise is not a wholly illegitimate one, and the proof necessary to establish its existence cannot be expected to fully coalesce with that necessary to prove the pattern of racketeering.[86]
2. Analysis of Amended Complaint's Pleading of the Waterfront Enterprise
The ILA argues that
[t]he Waterfront Enterprise encompasses a host of unspecified individuals (i.e., "certain current and former ILA officers," and "certain members and associates *475 of the Genovese and Gambino crime families") and unspecified businesses (i.e., "certain businesses") whose operations relate in any manner to the transaction of commerce in the Ports of New Jersey, New York, Miami or elsewhere. At a minimum, without specification as to who is actually part of the enterprise, no meaningful basis exists on which to fully evaluate the formation of the group, its continuity and its structure.
ILA Mem. at 31 (citations omitted). In direct response to this passage, the Government asserts that the "Defendants' position that there are no facts which could ultimately establish the existence of the Waterfront Enterprise has no basis," Gov. Mem. at 69, recounting the Amended Complaint's allegations regarding the decades of organized crime influence over Waterfront businesses and labor unions and arguing that "[t]he notion that an enterprise which was found to have existed [in the ILA Local Civil RICO Case] from the 1950s through the 1990s simply ceased to exist thereafter defies reason." Id. at 72. The Government's rebuttal mischaracterizes the ILA's position. The ILA's argument is not that the Government may lack evidentiary support for the existence of the Waterfront Enterprise, but rather is more fundamental: that the Waterfront Enterprise, as defined in the complaint, is simply an incoherent aggregation of the various predicate acts alleged and arranged in an ad hoc manner as necessary to obtain the equitable relief the Government seeks against the various defendants and does not satisfy the definitional criteria of a RICO enterprise, rendering the question of its empirical existence simply unintelligible.[87]
The Court concludes that the ILA is correct, and that the Amended Complaint fails to plead a cognizable association-in-fact enterprise. The Amended Complaint contains virtually no allegations regarding the structure and organization of the alleged Waterfront Enterprise, and leaves a plethora of unanswered questions regarding the membership, purpose, and structure of that entity. For example, who are the unnamed "current and former ILA officials" and "certain businesses operating on or about the Waterfront" that are members of the Waterfront Enterprise? What criteria distinguish a Waterfront entity that is a member of the Waterfront Enterprise from one that is not? What is the organizational structure of the Waterfront Enterprise? Who is in charge of it? How are instructions conveyed between its members? How does one become a member of, or terminate membership in, the Waterfront Enterprise? As discussed further below, what common purpose unites the members of the Waterfront Enterprise, and what is the purpose of the enterprise itself? As this Court held in Bernstein, "[t]he indifferent attempts to plead the existence of an enterprise fall short of their goal in that they frustrate assiduous efforts to identify its membership, its structure (formal or informal), or its functional unity." 948 F. Supp. at 235; see also Moy v. Terranova, No. 87-CV-1578, 1999 WL 118773, at *5 (E.D.N.Y. March 2, 1999) (Johnson, J.) ("Plaintiffs' conclusory `naming of a string of entities' does not adequately allege an enterprise and, therefore, their RICO claims should be dismissed.") (quoting Richmond v. Nationwide Cassel, L.P., 52 F.3d 640, 646 (7th Cir.1995)). Regrettably, the same is true in this case. At best, the Amended Complaint depicts the Waterfront Enterprise *476 as a quasi-discrete commercial ecosystem, populated by various entities interconnected in a web of personal and commercial relationships that evolves organically as each entity pursues its own interests, some of which coincide with those of other denizens of the Waterfront commercial habitat and others being quite adversely aligned. The same could be said of virtually any commercial or geographic sector of this District, and simply does not rise to the level of an organized, unitary enterprise as is required under RICO.[88]
It should further be noted that, by the Government's own admission at oral argument, the Amended Complaint fails to allege any common purpose uniting the Waterfront Enterprise as an entity, as is required to plead a valid association-in-fact enterprise. See Turkette, 452 U.S. at 583, 101 S. Ct. 2524 (enterprise is "a group of persons associated together for a common purpose of engaging in a course of conduct."); First Capital 385 F.3d at 174 ("[f]or an association of individuals to constitute an enterprise, the individuals must share a common purpose to engage in a particular fraudulent course of conduct and work together to achieve such purposes.") (alteration in original) (quoting First Nationwide Bank v. Gelt Funding Corp., 820 F. Supp. 89, 98 (S.D.N.Y.1993)). Paragraph 68 of the Amended Complaint, captioned "Purpose of the Enterprise," states in relevant part that "[t]he Defendants' common purpose was to exercise corrupt control and influence over labor unions and businesses operating on the Waterfront, the Port of Miami and elsewhere in order to enrich themselves and their associates." When asked by the Court at oral argument to identify the common purpose of the Waterfront Enterprise, counsel for the Government directed the Court to the quoted language in paragraph 68.[89] However, the Government subsequently clarified that the "common purpose" identified in paragraph 68 is not intended to be attributed to the nominal defendants in this action, nor, presumably, to the non-parties that are identified as members of the Waterfront Enterprise. See Tr. at 101-05.[90] In other words, the *477 "common purpose" alleged in paragraph 68 is only the Racketeering Defendants' common purpose, not the common purpose of the Waterfront Enterprise. While the corrupt purposes of certain members of the enterprise may be relevant to the Government's allegations of RICO conspiracy, they are insufficient to establish the existence of a cohesive association-in-fact enterprise that is a necessary component of a RICO violation.
As this Court suggested at oral argument, see Tr. at 97, what the Government is really alleging in this case is an enterprise comprised of the Gambino and Genovese families, certain members and associates of those families, and a handful of coconspirators placed in key positions in the ILA and associated labor unions who together have allegedly conspired to corrupt and control interstate commerce on the New York/New Jersey Waterfront and the Port of Miami through a pattern of racketeering activity involving the infiltration and control of labor unions and businesses operating on the Waterfront. While limiting the alleged enterprise to that relatively narrow group might create potentially insurmountable obstacles to the Government's efforts to impose equitable relief on some of the nominal defendants in this action, this Court will not abet the Government's effort to stretch the concept of a racketeering enterprise beyond all recognition in order to bring various otherwise disinterested parties within its scope, even for the worthwhile purpose of combating the influence of organized crime on the Waterfront. The Court therefore holds that the Amended Complaint fails to allege a cognizable association-in-fact enterprise.[91]
C. The Predicate Acts
a. Mail and Wire Fraud
A substantial number of, the predicate acts alleged in the Amended Complaint are asserted to be violations of the federal mail and wire fraud statutes, 18 U.S.C. §§ 1341, 1343.[92] As the Second *478 Circuit has repeatedly recognized, "[t]he essential elements of a mail [or wire] fraud violation are (1) a scheme to defraud, (2) money or property [as the object of the scheme], and (3) use of the mails [or wires] to further the scheme." Fountain v. United States, 357 F.3d 250, 255 (2d Cir.2004) (alterations in original) (quoting United States v. Dinome, 86 F.3d 277, 283 (2d Cir.1996)); see also United States v. Miller, 997 F.2d 1010, 1017 (2d Cir.1993) (same); United States v. Wallach, 935 F.2d 445, 461 (2d Cir.1991) (same). The ILA argues that the Amended Complaint fails to plead the third element, in that it fails to identify any use of the mails or wires with respect to many of the alleged mail or wire fraud schemes, and in the few schemes in which it does plead some use of the mails or wires, it fails to state how the defendants' use of the mails or wires furthered the scheme at issue.[93]
"The federal mail fraud statute does not purport to reach all frauds, but only those limited instances in which the use of the mails is a part of the execution of the fraud. . . ." United States v. Altman, 48 F.3d 96, 102 (2d Cir.1995) (quoting Kann v. United States, 323 U.S. 88, 95, 65 S. Ct. 148, 89 L. Ed. 88 (1944)); see also Bernstein, 948 F.Supp. at 239 (predicate act of mail fraud not sufficiently pleaded where the plaintiffs' allegations "are wholly barren of any reference to use of the mails."). Likewise, the wire fraud statute imposes liability only on those frauds "furthered by the use of interstate wires." United States v. Pierce, 224 F.3d 158, 165 (2d Cir.2000). The Government's principal argument in opposition to this portion of the ILA's 12(b)(6) motion is that it has alleged use of the mails or wires with respect to many of the alleged mail or wire fraud schemes because the allegations regarding specific mailings or wire transmissions alleged in the criminal indictments in Bellomo, Gotti, and Coffey are incorporated into the Amended Complaint by reference. In its memorandum of law in opposition to the defendants' motions, the Government cites portions of those criminal indictments that it argues allege specific uses of the mails or wires in furtherance of the schemes alleged as predicate acts in this action. See Gov. Mem. at 96-98. As discussed above, the Government's assumption that it can satisfy its obligation under Rule 8(a)(2) to provide a "short, plain statement" of its claim to relief by attaching several hundred pages of pleadings in prior criminal and civil cases and expecting the defendants and the Court to correctly infer which of the multitude of factual allegations it intends to incorporate into the Amended Complaint in this action is woefully misguided. Although the Government *479 does attempt to identify individual paragraphs in those indictments in its memorandum of law, the ILA correctly points out that "this is an impermissible attempt to amend a pleading in opposition to a motion to dismiss." ILA Reply Mem. at 34 (citing Fonte v. Bd. of Managers of Cant? Towers Condo., 848 F.2d 24, 25 (2d Cir.1988)).
As discussed above, and contrary to its position in opposition to the pending motions, the Government did not expressly incorporate by reference any of the factual allegations contained in the criminal indictments attached to the Amended Complaint. Even if it had, and even if this Court were to conclude that such a pleading practice is consistent with Rule 8(a)(2), the bare allegations in those criminal indictments are not sufficiently specific to satisfy the heightened pleading requirement that applies to allegations of mail or wire fraud under Federal Rule of Civil Procedure 9(b) ("Rule 9(b)"). Rule 9(b) states that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity," and applies to allegations of mail or wire fraud alleged as predicate acts in a RICO complaint. See First Capital, 385 F.3d at 178 ("[A]ll allegations of fraudulent predicate acts are subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b)."); see also Bernstein, 948 F.Supp. at 239 ("When the predicate acts of a civil RICO claim are grounded in fraud, the concerns associated with pleading fraud with particularity take on even greater importance."); 5 Wright & Miller, Federal Practice & Procedure: Civil 3d § 1251.1 (2004) ("Fraud claims brought under the RICO Act such as wire fraud and mail fraud are subject to the particularity and specificity requirements of Rule 9(b) . . ."). To satisfy Rule 9(b)'s heightened pleading requirement, a complaint alleging fraud must "specify the statements it claims were false or misleading, give particulars as to the respect in which plaintiffs contend the statements were fraudulent, state when and where the statements were made, and identify those responsible for the statements." Moore v. PaineWebber, Inc., 189 F.3d 165, 173 (2d Cir.1999) (quoting McLaughlin v. Anderson, 962 F.2d 187, 191 (2d Cir.1992)); see also Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir.1989) (same). In RICO cases, "allegations of predicate mail and wire fraud acts should state the contents of the communications, who was involved, where and when they took place, and explain why they were fraudulent." Mills v. Polar Molecular Corp., 12 F.3d 1170, 1176 (2d Cir. 1993). However, the messages conveyed by use of the mails or wires need not contain false statements themselves, so long as the mails or wires are used to further the fraudulent scheme. See Schmuck v. United States, 489 U.S. 705, 714-15, 109 S. Ct. 1443, 103 L. Ed. 2d 734 (1989).
The portions of the criminal indictments cited by the Government that identify specific telephone calls or mailings purportedly made in furtherance of the alleged racketeering schemes, which simply state the dates and the identities of the participants or addressees in various alleged telephone conversations or mailings without identifying what specific statements were made or explaining how those statements furthered the allegedly fraudulent scheme or artifice, fall far short of Rule 9(b)'s pleading standard. See Bernstein, 948 F.Supp. at 239 ("Because the complaint does not delineate any of the specifics regarding the defendants' use of the mails, there can be no predicate act of mail fraud."); McCoy v. Goldberg, 748 F. Supp. 146, 154 (S.D.N.Y.1990) (the assertion of summary legal conclusions regarding *480 the use of the mails absent factual specifics is insufficient to bring the alleged behavior of defendants within the scope of the mail fraud statute). The Government's failure to satisfy Rule 9(b) with respect to the mail and wire fraud allegations provides an independent basis for dismissing the portions of the Amended Complaint relating to those claims.
Finally, the Government tacitly concedes that it has not even by reference alleged any use of the mails or wires with respect to several of the alleged mail or wire fraud schemes,[94] but asserts that "[e]vidence of mailings made in furtherance of the other fraud schemes alleged in the Complaint has been produced by the United States or is otherwise available to, or in the possession of, the Defendants." Gov. Mem. at 99; see id. at 99-103 (purportedly identifying specific uses of the mails or wires made in connection with the fraud schemes identified in note 92, supra). The Government cites no authority in support of the proposition that a RICO plaintiff can satisfy Rule 9(b)'s pleading requirement by simply asserting that evidence of wrongdoing is "available to, or in the possession of, the Defendants," and whatever scant authority may exist for that proposition does not aid the Government's opposition to the ILA's 12(b)(6) motion. In New England Data Servs., Inc. v. Becher, 829 F.2d 286, 290 (1st Cir.1987) (emphasis added and omitted), which was not cited by the Government, the First Circuit held that
in a RICO mail and wire fraud case, in regards to the details of just when and where the mail or wires were used . . . dismissal should not be automatic once the lower court determines that Rule 9(b) was not satisfied. In an appropriate case, where, for example the specific allegations of the plaintiff make it likely that the defendant used interstate mail or telecommunications facilities, and the specific information as to use is likely in the exclusive control of the defendant, the court should make a second determination as to whether the claim, as presented warrants the allowance of discovery and if so, thereafter provide an opportunity to amend the defective complaint.
The Second Circuit has never addressed the holding in Becher, but some district courts in this circuit have relied on that case to soften the impact of Rule 9(b) in situations in which the information necessary to plead mail or wire fraud with the required specificity is in the exclusive possession of the defendants.[95] While this Court would be reluctant in any case to *481 adopt a reading of Rule 9(b) that appears inconsistent with the plain text of that rule and for which no Second Circuit authority can be cited, this is not an "appropriate" case for invoking the Becher rule to excuse the Government's failure to plead the elements of mail and wire fraud with adequate specificity. Obviously, Becher does not apply to situations in which evidence of the mailings or uses of the wires in question has been produced by the United States in discovery. If the Government possesses these mailings, as it logically must in order to produce them to the defendants, then it should have no trouble conforming the allegations in the Amended Complaint to the requirements of Rule 9(b) with respect to them.[96] Moreover, even with respect to the evidence of mailings or wire transmissions that is purportedly in the possession of the defendants, the Government has failed to establish any entitlement to Rule 9(b) leniency under the Becher rule. This is not a situation in which the Government has alleged use of the mails or wires in the Amended Complaint and has shown a good-faith belief that the information necessary to state that allegation with sufficient particularity is in the exclusive control of the defendants; nor does the Government allege that the mailings and wire transmissions involved in the predicate acts at issue were not fraudulent in themselves, but were used to further a fraudulent scheme, as was the case in Tammac Corp. To the contrary, the Amended Complaint fails to make any mention whatsoever of a fundamental element of the predicate acts it purports to allege. This situation does not present a sympathetic case for bending Rule 9(b) so as to allow an almost-well-pleaded claim to proceed to discovery, and the Court declines the Government's request to do so.
The Court therefore finds that the Amended Complaint has failed to state a valid claim of mail or wire fraud with respect to any of the alleged predicate acts that allege those offenses.[97]
b. Extortion
The United States Code defines "extortion" as "the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right." 18 U.S.C. § 1951(b)(2). The ILA argues that the Government fails to adequately plead two of the purported "extortionate" acts the Daggett election scheme and the MILA PBM Contract scheme because the Amended Complaint "is entirely lacking in facts showing the use of force, violence or fear" with respect to both of those schemes. ILA Mem. at 48. With respect to the MILA PBM scheme, the ILA points out that the only allegations even suggesting the use of threats of violence are those in which "the Complaint cursorily alleges that certain LCN members instructed Cernadas, Daggett and Coffey to support a company of their choosing for the contract," but argues that those allegations are insufficient to establish extortion because "[t]he issue is *482 whether the alleged victims of the scheme (i.e., the MILA beneficiaries) were extorted instructions to Cernadas, Daggett and Coffey, who are alleged to be co-conspirators (not victims), have no bearing on that issue." ILA Mem. at 49.
The government does not expressly controvert the ILA's suggestion that the Amended Complaint does not allege the use or threat of violence with respect to the Daggett and MILA PBM schemes, but argues that the ILA's position that the Amended Complaint has not adequately pleaded extortion with respect to those schemes
directly contradicts the ruling in United States v. Gotti, 459 F.3d 296 (2d Cir. 2006), which upheld the convictions of the defendants in this case . . . for violating RICO and conspiring to violate RICO based on the very acts of extortion pleaded in the Complaint in this action. Defendants' arguments also fail to take into consideration the ruling of this Court in Coffey which denied motions by Defendants Harold Daggett and Arthur Coffey to dismiss the extortion conspiracy count in that case which was predicated on the very acts of extortion that are pleaded in this case.
Gov. Mem. at 104-05.[98] The Government also notes that it "[would] not be required to prove that the extortion schemes identified in the Complaint involved the making of a direct threat by any of the racketeering Defendants or their co-conspirators," because "[w]here a union has a long history of corruption, fear can be invoked in subtle and indirect ways.'" Id. at 105 (quoting ILA Local Civil RICO case, 812 F. Supp. at 1343).
The Government's reliance on this Court's ruling in Coffey is misplaced; In that case, the issue presented was not whether the Indictment adequately alleged the use or threat of force in the commission of the alleged extortion, but rather whether the "right to pursue lawful business" constituted a property interest that Daggett and Coffey could "obtain" from the victims of the alleged extortion scheme. Indeed, in its opinion in Coffey, this Court quoted the Indictment in that case, which alleged that "Daggett and Coffey conspired to use `actual and threatened force, violence and fear' to usurp business opportunities for the Genovese family . . . that otherwise would have been acquired by third parties who would be free from the influence of the Genovese family." United States v. Coffey, 361 F. Supp. 2d 102, 108 (E.D.N.Y.2005) (Glasser, J.) (quoting Coffey Indictment ¶ 12). Likewise, the issue presented to the Second Circuit in Gotti was whether the labor unions' rights under the Labor-Management Reporting Disclosure Act ("LMRDA"), specifically the "rights to free speech and democratic participation in union affairs as well as their LMRDA rights to loyal representation by their officers, agents, and other representatives," constituted intangible property rights that could be "obtained" even though the defendants in that case could not legally alienate those rights from the union members or legally exercise them. 459 F.3d at 325. The appellate court affirmed the extortion convictions, holding that "property can qualify as extortable property under the Hobbs Act regardless of whether its exercise, transfer, or sale would be legal." Id. Neither Coffey nor Gotti addressed the issue of whether the pleadings in those cases adequately alleged all of the elements of extortion, and even if they had, the resolution of those cases would not be dispositive of the question whether the Amended *483 Complaint in this case also alleges all of the necessary elements.
The Amended Complaint fails to state a claim of extortion with respect to the Daggett election scheme or the MILA PBM contract rigging scheme. In order to state a claim for extortion in violation of the Hobbs Act, the Government must allege that the defendants "(1) induced [the victim], with [the victim's] consent, to part with property, (2) through the wrongful use of actual or threatened force, violence or fear (including fear of economic loss), (3) in such a way as to adversely effect interstate commerce." McLaughlin v. Anderson, 962 F.2d 187, 194 (2d Cir.1992). Although the Amended Complaint alleges that the Daggett election and the MILA PBM schemes were executed through "extortionate and fraudulent means," it does not state that any defendant employed force, violence, or fear, or a threat of the same, to achieve the ends of either scheme, or who the victims of such a threat were. Am. Compl. ¶¶ 75, 76. This pleading is insufficient to establish a claim of extortion. See, e.g., Andrea Doreen Ltd. v. Building Material Local Union 282, 299 F. Supp. 2d 129, 149 (E.D.N.Y.2004) (alleged RICO predicate does not constitute extortion "because it does not involve threat of force, violence, or fear, as required under both the N.Y. Penal Law § 155.05(2)(e) and the Hobbs Act, 18 U.S.C. § 1951."). While it is true that "fear can be invoked in subtle and indirect ways," particularly where organized crime is involved, the Government cites no authority for the proposition that extortion in violation of the Hobbs Act may be pleaded without even identifying the victims of the alleged extortion and indicating that some use or threat of force, however indirect, was used to compel their consent to part with property. Local 1804-1, 812 F.Supp. at 1343 (quoting United States v. Local 560 of Int'l Bhd. of Teamsters, Chauffeurs, Warehousemen, and Helpers of America, 780 F.2d 267, 288 n. 4 (3d Cir.1985)).
III. Leave to Replead
Federal Rule of Civil Procedure 15(a) provides that "leave [to amend a pleading] shall be freely given when justice so requires." The Supreme Court has held that only "undue delay, bad faith, or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party . . . [or] futility of the amendment will serve to prevent an amendment prior to trial." Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 9 L. Ed. 2d 222 (1962). In this case, the Rule 8(a) problems with the Amended Complaint, and its failure to adequately allege the predicate acts, could be cured by amendment. The Court is less certain that the Government can adequately allege a cognizable RICO enterprise that includes all of the defendants named herein, but it grants leave to amend should the Government wish to make that attempt.
CONCLUSION
For the reasons stated above, the ILA's motion to dismiss the Amended Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) and 8(a) is hereby GRANTED. All other pending motions, including the other defendants' motions to dismiss the Amended Complaint and the ILA's motion to strike certain portions of the Amended Complaint pursuant to Federal Rule of Civil Procedure 12(f), are hereby DENIED as moot. The Government may file a Second Amended Complaint within 60 days of the date of this Order.
SO ORDERED.
NOTES
[1] The moving defendants are the International Longshoremen's Association, AFL-CIO ("ILA"); Management-ILA Managed Health Care Trust Fund and its Board of Trustees; Metropolitan Marine Maintenance Contractors Association; the METRO-ILA Fringe Benefit Fund and its Board of Trustees, the METRO-ILA Pension Fund and its Board of Trustees, and the METRO-ILA Individual Account Retirement Fund and its Board of Trustees (collectively, "METRO-ILA Funds"); John Bowers, Sr.; Robert Gleason; Gerald Owens; Harold Daggett; Anthony Ciccone; James Cashin; Richard Hughes; Horace T. Alston, Chauncey J. Baker, John D. Baker, John Bowers, Jr., Timothy Brown, James A. Campbell, Ronald Capri, Charles Chillemi, Raymond Desgagnes, Michael Dickens, Stephen Knott, John H. Mackey, Louis Pernice, Raymond Sierra, Harrison Tyler, and Reuben Wheatley (collectively, "Sixteen Nominal ILA Vice President Defendants"); Arthur Coffey; and James T. McCleland, Jr., James H. Paylor, Jr., Edward L. Brown, Sr., William R. McNamara, Perry C. Harvey, Kenneth Riley, and Clyde Fitzgerald (collectively, "MILA Trustees").
[2] In addition to moving to dismiss the Amended Complaint pursuant to Rule 12(b)(6), defendant Gleason also moved for summary judgment pursuant to Federal Rule of Civil Procedure 56(b) ("Rule 56"). However, Mr. Gleason withdrew his motion for summary judgment at oral argument, and the Court therefore need not address it. See Transcript of Oral Argument in United States v. Int'l Longshoremen's Assoc., AFL-CIO, 05-CV-3212 ("Tr."), at 120-21.
[3] The Amended Complaint defines the "Waterfront" as "the Port of New York and New Jersey and all businesses and unions involved in commerce in the Port, whether located on Port property or not, including but not limited to container repair and storage businesses, chassis repair and storage businesses, trucking businesses, trucking dispatching businesses, shipping lines and terminals, the International Longshoreman's [sic] Association, AFL-CIO and all ILA locals and other ILA subordinate labor associations," Am. Compl. ¶ 1, and defines the "Port of Miami" as the "businesses and unions involved in commerce in the Port, whether located on port property or not, including but not limited to container repair and storage businesses, chassis repair and storage businesses, trucking businesses, trucking dispatching businesses, shipping lines and terminals, the ILA and all ILA subordinate labor organizations." Id. 3. The Amended Complaint does not define the Waterfront to include the Port of Miami; however, since the Amended Complaint alleges a single RICO conspiracy to exercise control and domination over the Waterfront and the Port of Miami, the Court shall hereinafter use the term "Waterfront" to include both the Waterfront as defined in the Amended Complaint as well as the Port of Miami, as defined.
[4] Unless expressly stated otherwise, all of the statements of fact recounted herein are drawn, often verbatim, from the Amended Complaint, the allegations of which, as discussed at further length in Discussion Part I(B), infra, must be taken as true for purposes of the pending motions.
[5] Rule 19 provides that "[a] person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest." The Government does not cite a specific source of authority for naming the multitude of parties not alleged to have violated RICO as nominal defendants in this action, leaving the Court to infer Rule 19 as the only plausible source of authority for that practice. The Court briefly inquired at oral argument as to whether the nominal defendants in this action are properly named under Rule 19, but no nominal defendant has objected on the ground that its being named as a nominal defendant in this action does not fall within the proper scope of Rule 19's application, so the Court need not pursue that question further. See Tr. at 9-10.
[6] The number of workers that the ILA represents is not alleged in the Amended Complaint, but is stated in a 2004 ILA annual report form to the Department of Labor that is attached as Exhibit B to the ILA's memorandum of law in support of its motion to dismiss. As discussed in Discussion Part I(A), infra, the Court finds that this document was necessarily relied on by the Government in the Amended Complaint and that the Court can therefore consider its contents while resolving this 12(b)(6) motion.
[7] As discussed below, see infra Discussion Part I(A), Paragraph 96 of the Amended Complaint incorrectly states that the replacement for any vacancy during a non-Convention year must be drawn from the remaining Executive Council members. Because the ILA Constitution was relied upon by the Government in drafting the Amended Complaint, the Court may notice and correct that error in resolving this motion.
[8] As discussed below, see infra Discussion Part I(A), the ILA maintains that the Government's allegation that the Executive Council retains the ultimate decision-making authority with respect to disciplinary measures is inaccurate, arguing that any decision by the Executive Council is appealable to the ILA's Appellate Officer for final resolution. For the reasons stated below, the Court concludes that the evidentiary authority submitted by the ILA in support of that factual assertion cannot be considered for purposes of this 12(b)(6) motion, and that the Court must therefore assume the truth of the allegations regarding the Executive Council's authority contained in the Amended Complaint.
[9] The Amended Complaint does not allege the annual salaries for the 24 ILA Vice-Presidents, but the ILA's 2004 LM-2 report indicates that most of the Vice-Presidents earned an annual salary of $119,364, with a few earning salaries somewhat higher than that but less than $200,000 in every case. See ILA Ex. B, Schedule 9 (relied upon by the Government in drafting the Amended Complaint).
[10] The Amended Complaint alleges that each of the METRO-ILA Funds are employee funds within the meaning of the applicable section of the Employee Retirement Income Security Act ("ERISA"). Id. ¶¶ 35-37.
[11] The ILA Vice-President nominal defendants are Horace T. Alston, Jorge L. Aponto Figueroa, Chauncey J. Baker, John D. Baker, John Bowers, Jr., Edward L. Brown, Sr., Timothy Brown, James A. Campbell, Ronald Capri, Charles Chillemi, Raymond Desgagnes, Michael Dickens, Clyde Fitzgerald; Perry C. Harvey, Stephen Knott, John H. Mackey, James T. McCleland, Jr., William R. McNamara, James H. Paylor, Jr., Louis Pernice, Kenneth Riley, Raymond Sierra, Harrison Tyler, and Reuben Wheatley. Id. ¶ 26(a)-(x).
[12] At oral argument on the pending motions, counsel for the ILA informed the Court that Mr. Bowers had stepped down from the Presidency at the ILA's Convention in July 2007. See Tr. at 7. The Government did not dispute that assertion, but added that. Mr. Bowers continues to hold office as the President Emeritus of the ILA. See id. at 93-94. For purposes of the pending motions; however, the Court shall assume the tenth of the allegations in the Amended Complaint.
[13] At oral argument, AUSA Hayes asserted that Mr. Daggett is now the Executive Vice-President of the ILA, "one heartbeat away from being the President. . . ." Tr. at 111. Although none of the defendants disputed Mr. Hayes's assertion, the Court must assume the truth of the factual allegations stated in the Amended Complaint for purposes of this motion; the Government may not constructively amend those allegations at oral argument.
[14] At oral argument, counsel for the ILA asserted the Mr. Coffey no longer holds any elected position in the ILA because he was not reelected to his local posts or to his position as a Vice-President on the ILA Executive Council at the most recent ILA convention. Tr. at 9. Although the Government did not dispute that assertion, the Court will assume the truth of the factual allegations in the Amended Complaint for purposes of resolving the present motions.
[15] 18 U.S.C. § 1962(c) provides that "[i]t shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt."
[16] 18 U.S.C. § 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."
[17] 18 U.S.C. § 1962(b) provides that "[i]t shall be unlawful for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce."
[18] The factual allegations summarized in this section are stated in paragraphs 86-114 of the Amended Complaint.
[19] The Government alleges that the Genovese family's plan to place Daggett on the ILA Executive Council required an "accommodation" from the Gambino family, because outgoing General Organizer Frank Lonardo was a Gambino family associate and Gambino family captain Anthony Ciccone wished to replace him with another Gambino associate. Ciccone and Gambino family soldier Primo Cassarino reached an agreement with the Genovese family pursuant to which Daggett would be elected to the ILA Executive Council in exchange for Gambino family associate Louis Pernice's being elevated to a position on the Atlantic Coast District's Executive Council. The Government alleges that Genovese family captain Alan Longo and defendant Jerome Brancato, a Gambino family soldier, were also involved in negotiating the accommodation. Am. Compl. ¶¶ 104-105.
[20] The Amended Complaint notes that the communication between Scollo and Ciccone regarding ILA matters was in violation of the consent decrees that both had signed in the Local Civil RICO Case. Id. ¶¶ 108-109; see infra Background Part II(E).
[21] The factual allegations summarized in this section are alleged in Paragraphs 121-150 of the Amended Complaint.
[22] "[I]e., the right to provide the same type of medicine prescribed by a doctor to a member but a different brand." Id. ¶ 146.
[23] The factual allegations summarized in this section are alleged in Paragraphs 151-161 of the Amended Complaint.
[24] The Amended Complaint alleges that Cashin personally addressed the MILA Board in support of Compsych's bid, but does not clearly state whether Cashin appeared at the January 29, 1999, meeting or at some subsequent meeting. See Am. Compl. ¶ 159.
[25] The factual allegations summarized in this section are alleged in Paragraphs 164-173 of the Amended Complaint.
[26] The Government alleges that Andrew Gigante, who is the son of deceased. Genovese family boss Vincent "Chin" Gigante and is identified in the Amended Complaint as an unnamed co-conspirator and a Genovese family associate, was present at the Local 1804-1 meeting in Newark, but does not allege that Gigante attended the meeting between Tarangelo and Daggett regarding the investment advisor scheme. Am. Compl. ¶¶ 40(e), 170.
[27] The factual allegations summarized in this section are alleged in Paragraphs 174-178 of the Amended Complaint.
[28] The factual allegations summarized in this section are alleged in Paragraphs 179-182 of the Amended Complaint.
[29] Unlike the alleged rigging of the MILA health care benefits contract, the Amended Complaint does not allege that Cashin personally played an active role in pursuing the award of the METRO-ILA Welfare Fund mental health care benefits contract to Compsych, but only that Daggett favored, Compsych because he knew of Cashin s, relationship with that company.
[30] The factual allegations summarized in this section are alleged in Paragraphs 183-186 of the Amended Complaint.
[31] The factual allegations summarized in this section are alleged in Paragraphs 187-201 of the Amended Complaint.
[32] See infra Background Part II(A).
[33] The factual allegations summarized in this section are alleged in Paragraphs 202-214 of the Amended Complaint.
[34] See infra Background Part II(A):
[35] The factual allegations summarized in this section are alleged in Paragraphs 215-221 of the Amended Complaint.
[36] See infra Background Part II(A).
[37] The factual allegations summarized in this section are alleged in Paragraphs 222-33 of the Amended Complaint.
[38] See infra Background Part II(A).
[39] The factual allegations summarized in this section are alleged in Paragraphs. 234-236 of the Amended Complaint.
[40] See infra Background Part II(A).
[41] The factual allegations summarized in this section are alleged in Paragraphs 237-245 of the Amended Complaint.
[42] See infra Background Part II(A).
[43] The factual allegations summarized in this section are alleged in Paragraphs 246-248 of the Amended Complaint.
[44] See infra Background Part II(A).
[45] The factual allegations summarized in this section are alleged in Paragraphs 249-251 of the Amended Complaint.
[46] See infra Background Part II(A).
[47] See Am. Compl. ¶¶ 86-114; Gotti Ind. ¶¶ 26-32.
[48] See Am. Compl. ¶¶ 121-150; Gotti Ind. ¶¶ 33-40.
[49] See Am. Compl. ¶¶ 187-201; Gotti Ind. ¶¶ 41-47.
[50] See Am. Compl. ¶¶ 202-214; Gotti Ind. ¶¶ 48-52.
[51] See Am. Compl. ¶¶ 215-221; Gotti Ind. ¶¶ 53-55.
[52] See Am. Compl. ¶¶ 222-233; Gotti Ind. ¶¶ 56-58.
[53] See Am. Compl. ¶¶ 234-236; Gotti Ind. ¶¶ 59-61.
[54] See Am. Compl. ¶¶ 237-245; Gotti Ind. ¶¶ 66-69. The Gotti Indictment refers to Thomas Ragucci as "John Doe No. 1," but the verdict sheet in the Gotti trial, attached to the Amended Complaint as Exhibit 7 ("Gotti Verdict Sheet"), makes clear that John Doe No. 1 is Thomas Ragucci. See Gotti Verdict Sheet at 9.
[55] See Am. Compl. ¶¶ 246-248; Gotti Ind. ¶ 70. The Gotti Indictment refers to Leonardo Zinna as "John Doe No. 2," but the Gotti Verdict Sheet makes clear that John Doe No. 2 is Leonardo Zinna. See Gotti Verdict Sheet at 10.
[56] See Am. Compl. ¶¶ 249-251; Gotti Ind. ¶¶ 71-74. The Gotti Indictment refers to Nicola Marinelli as "John Doe No. 3," but the Gotti Verdict Sheet makes clear that John Doe No. 3 is Nicola Marinelli. See Gotti Verdict Sheet at 10.
[57] None of the Bellomo defendants are named as defendants in this action, but all of them are identified as uncharged co-conspirators. See Am. Compl. ¶ 40.
[58] The Bellomo Indictment does not specifically identify the vaguely-worded charges of Racketeering Act 3 as the METRO-ILA investment advisor scheme, but the Government's memorandum of law in opposition to the defendants' motions to dismiss this action indicates that Racketeering Act 3 in the Bellomo Indictment is the same scheme alleged as the METRO-ILA investment advisor scheme in the Amended Complaint. See Gov. Mem. at 97 (citing Bellomo Ind. ¶ 22).
[59] Though including the ILA and its affiliated entities and agents, the "Enterprise" alleged in the Bellomo Complaint is still substantially narrower in scope than the Waterfront Enterprise alleged in the Amended Complaint in this action. The Bellomo Enterprise does not include any members of the Gambino family, METRO, or any businesses operating on the New York/New Jersey Waterfront or the Port of Miami. Moreover, because the defendants in the Bellomo civil action quickly entered into consent decrees quickly, and did not file a 12(b)(6) motion in that action, this Court was never called upon to evaluate the sufficiency of the Bellomo Complaint's pleading of the relevant enterprise.
[60] The Bellomo Complaint contains two paragraphs numbered 6. The quoted passage is from the first one.
[61] The defendants in the ILA Local Civil RICO Case were ILA Local 1804-1 and the following members and former members of its Executive Board: Joseph C.F. Kenny (President), Harold Daggett (Secretary-Treasurer), Harry Cashin (Vice-President), Ronald Capri (Recording Secretary), Thomas Buzzanca (former President), James J. Cashin (former Secretary-Treasurer), and George Barone (former Business Agent); ILA Local 1588 and the following members and former members of its Executive Board: Blase Terraciano (President), George Lachnicht (Vice-President), Dominick Sanzo (Secretary-Treasurer and Business Agent), and Donald J. Carson (former Secretary-Treasurer); ILA Local 1814 and the following members and former members of its Executive Board: Frank Lonardo, (President), Louis Pernice (Secretary-Treasurer), Anthony Pimpinella (Executive Vice-President), Alfred Small (Vice-President), Joseph Colozza (Vice-President), Carlos Mora (Vice-President), Joseph Randazzo (Vice-President), Leroy Gwynn (Executive Board Member), Gregory Lagana (Delegate), Santo Calabrese (Executive Board Member), Ralph Perello (Executive Board Member), Richard Pierce (Executive Board Member), Anthony Ciccone (Administrator), Anthony Scotto (former President), and Anthony Anastasio (former Executive Vice-President); ILA Local 1809 and the following members of its Executive Board: John Bowers (President), Robert Gleason (Secretary-Treasurer), Thomas Ryan (Vice-President), and John Potter (Vice-President); ILA Local 824 and the following members or former members of its Executive Board: John Bowers (President), George Bradley (Secretary-Treasurer), and Thomas Ryan (Vice-President); ILA Local 1909 and the following members of its Executive Board: John Bowers (President), Thomas Ryan (Vice-President), and John Potter (Secretary-Treasurer); the following members of the Genovese Organized Crime Family, all named both individually and as class representatives of the Genovese family: Anthony Salerno, Venero Mangano, Tino Fiumara, John Barbato, Douglas Rago, James Cashin, George Barone, Thomas Buzzanca, Vincent Colucci, Donald Carson, Anthony Gallagher, Michael Coppola, Harold Daggett, Harry Cashin, Ronald Capri, and George Lachnicht; the following members of the Gambino Organized Crime Family, all named both individually and as class representatives of the Gambino family: John Gotti, Anthony Anastasio, Anthony Pimpinella, Joseph Colozza, Anthony Scotto, Anthony Ciccone, Frank Scollo, Frank Lonardo, and Gregory Lagana; the following members of the Westies Organized Crime Group, both individually and as class representatives of the Westies: James Coonan, James McElroy, Kevin Kelly, John Bowers, John Potter, and Thomas Ryan; and the following Waterfront businesses and organizations, both individually and as class representatives of employers in industries affecting Waterfront commerce: Nodar Pump Repair, Inc., Doreen Supply Company, Inc., the Metropolitan Marine Contractors' Association, and the New York Shipping Association. See Amended Complaint in ILA Local Civil RICO Case ("ILA Local Civil RICO Complaint"), attached to Amended Complaint as Exhibit 8 (emphasis added to names of parties identified as defendants or uncharged coconspirators in this case).
[62] See Declaration of Stephanie J. Goldstein, dated May 19, 2006 (docket no. 95). Exhibits to the Goldstein Declaration shall hereinafter be referred to as "ILA Exhibits."
[63] See Affidavit of Donato Caruso, dated May 15, 2006 (docket no. 93). Exhibits to the Caruso Affidavit shall hereinafter be referred to as "MILA Exhibits."
[64] See Declaration of Francis J. Murray, dated May 18, 2006 (docket no. 91). Exhibits to the Murray Declaration shall hereinafter be referred to as "Gleason Exhibits."
[65] See Affidavit of Lee Renzin in Support of Defendant John Bowers's Motion to Dismiss the Amended Complaint (docket no. 99). The exhibit to the Renzin Affidavit shall hereinafter be referred to as "Bowers Exhibit 1."
[66] Federal Rule of Evidence 201 states that judicially noticeable facts are those which are "(I) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned."
[67] The Daily News article quotes assistant police chief Kevin McGowan's statement describing Ciccone's sentencing as "the end of an era. He's the last capo on the waterfront," ILA Mem. at 2, 51 (citing Goldstein Decl. Ex. A).
[68] Article VIII, Section 7 of the ILA Constitution states that the Executive Council shall chose "from among their numbers" a replacement President if the sitting president leaves office for any reason in a non-convention year; while the Executive Council also has the authority to select replacement for other Executive Council positions in such circumstances, there is no language requiring it to select the replacement from among current Executive Council members.
[69] The portions of the Amended Complaint alleging mail and wire fraud are governed by the heightened pleading requirement of Federal Rule of Civil Procedure 9(b) ("Rule 9(b)"). See Moore v. PaineWebber, Inc., 189 F.3d 165, 173 (2d Cir.1999) ("Federal Rule of Civil Procedure 9(b) states that in averments of fraud, `the circumstances constituting fraud . . . shall be stated with particularity.' This provision applies to RICO claims for which fraud is the predicate illegal act.") (citing S.Q.K.F.C., Inc. v. Bell Atlantic Tricon Leasing Corp., 84 F.3d 629, 634 (2d Cir. 1996)).
[70] Exhibits to Amended Complaint
1. Superseding Indictment (S2) in United States v. Coffey, 04-CR-651.
2. Complaint in United States v. Coffey, 04-CR-651.
3. Superseding Indictment (S2) in United States v. Bellomo, 02-CR-140.
4. Complaint in United States v. Bellomo, 03-CV-1683.
5. Consent Decree in United States v. Bellomo, 03-CV-1683.
6. Indictment in United States v. Gotti, 02-CR-606.
7. Verdict sheet in United States v. Gotti, 02-CR-606.
8. Amended Complaint in United States v. Local 1804-1, Int'l Longshoremen's Assoc., 90-CV-963.
9. Consent decree of Local 1804-1 and its executive officers in United States v. Local 1804-1, Int'l Longshoremen's Assoc., 90-CV-963.
10. Consent decree concerning ILA Local 1814 in United States v. Local 1804-1, Int'l Longshoremen's Assoc., 90-CV-963.
11. Consent decree concerning ILA Locals 824, 1809 & 1909 in United States v. Local 1804-1, Int'l Longshoremen's Assoc., 90-CV-963.
12. Opinion & Order of Judge John Martin in United States v. Local 1804-1, Int'l Longshoremen's Assoc., 90-CV-963.
13. Consent decree of Albert Cernadas in this action.
[71] As an illustration of the Amended Complaint's failure to expressly incorporate by reference any of the provisions of the attached exhibits, it is useful to compare that document with the Government's complaint in the ILA Local Civil RICO Case, which attached as an exhibit a copy of the indictment and judgment of conviction in United States v. Barone, 78-CR-185 (S.D.Fl.). Unlike the Amended Complaint, the ILA Local Civil RICO Complaint expressly incorporated certain identified portions of the Barone indictment into the Government's civil claim. See ILA Local Civil RICO Complaint ¶ 75 ("Copies of the indictment and the judgements of conviction in [Barone] are attached to this Complaint as Exhibit B. Plaintiff incorporates by reference Counts 1 through 7, 11 through 13, 19, 25, 27, 31, 43 and 48 of that indictment and repeals and realleges those counts as if fully set forth herein.").
[72] While the Government's memorandum of law and statements at oral argument give some impression that the Government may intend to incorporate the exhibits in their entirely, doing so would render the Amended Complaint utterly incoherent. For example, as noted above, the Gotti, Bellorno, and Coffey indictments allege that the Gambino or Genovese families, not the Waterfront Enterprise, are the relevant enterprise for RICO purposes. The Coffey Complaint also clearly portrays defendant John Bowers, Sr., as a victim of, rather than a participant in, LCN extortion. For example, in a section headed "Extortion of the President of the ILA," the Coffey Complaint depicts Bowers as a victim of extortion with respect to the role he allegedly played in supporting Daggett for a position on the ILA Executive Council. See Coffey Complaint ¶¶ 16-20. The ILA argues, on the basis of this and other inconsistencies, that the Government is judicially estopped from making many of the allegations in the Amended Complaint that are inconsistent with its positions in the prior cases. The Government responds that, first, the allegations in the Amended Complaint arc not inconsistent with the charges in the prior cases, but simply broaden the scope to reveal the full extent of organized crime's influence over the Waterfront, and second, that the Government cannot be judicially estopped by its allegations in the Coffey Complaint because the Government did not prevail in that action both defendants who went to trial were acquitted. The Government is clearly correct as to the second point, and the Court finds that it is not judicially estopped from alleging that Bowers was a co-conspirator, rather than (or perhaps in addition to) a victim of extortion. The point here is a different one: if all of the allegations in the prior pleadings are deemed to be incorporated into the Amended Complaint, then the Amended Complaint would become an unintelligible morass of self-contradictory allegations. Thus, the Court must conclude that the Government did not really intend to incorporate every statement in every one of the indictments and complaints attached to the allegations though even if it did, that would in itself be grounds for dismissing the Amended Complaint pursuant to Rules 12(b)(6) and 8(a)(2).
[73] See Tr. at 84 ("When I read your complaint, I said right off the bat, it seems to me this is a clear violation of Rule 8.").
[74] None of the defendants expressly moved to dismiss the Amended Complaint for failure to comply with Rule 8(a)(2)'s mandate to provide a "short and plain" statement of entitlement to relief, but the ILA argues in its reply memorandum that "(s)imply attaching documents to the Complaint without identification of which allegations in these indictments apply to which person and for what reason does not provide the type of notice required even under Rule 8 of the Federal Rules of Civil Procedure." ILA Reply Mem. at 34. Ordinarily, a party may not raise an argument in a reply brief that was not raised in the party's moving brief. See, e.g., Coosemans Specialties, Inc. v. Gargiulo, 485 F.3d 701, 708-09 (2d Cir.2007) (citing Federal Trade Comm'n v. Verity Int'l, Ltd., 443 F.3d 48, 65 (2d Cir.2006)). In this situation, however, the ILA's Rule 8(a)(2) argument is simply the other side of the 12(b)(6) coin, and is raised as a rebuttal to the Government's argument that the Amended Complaint satisfies Rule 12(b)(6) by incorporating the voluminous factual allegations in the Gotti, Bellomo, and Coffey indictments and the complaints in the Bellomo civil case and the ILA Local Civil RICO Case.
[75] Indeed, the practice of simply incorporating factual allegations en masse into a claim for relief against numerous defendants has been held to violate Rule 8(a)(2) even where the factual allegations at issue were incorporated from an earlier portion of the complaint rather than from an external document. See, e.g., Discon Inc. v. NYNEX Corp., No. 90-CV-546A, 1992 WL 193683, at *16 (W.D.N.Y. June 23, 1992) (dismissing with leave to replead pursuant to Rule 8(a) where "none of the factual allegations contained in the beginning of the Complaint are matched to any specific claims. Each claim simply incorporates by reference all the preceding paragraphs," and noting that "[i]t is not the duty of the defendants or this Court to sift through the Complaint and guess which factual allegations support which claims."); Koch v. Hickman, No. CV F 06-171 AWI SMS P, 2007 WL 586695, at *2 (E.D.Cal. February 22, 2007) (Snyder, Mag.) (slip copy) (dismissing with leave to re-plead where "Plaintiff names eleven Defendants and lists five claims for relief, however, instead of stating the relevant facts and linking each named Defendant to an act or omission giving rise to the constitutional claim for relief, he `incorporates by reference' everything stated in the prior 40 + pages. It is not the Court's responsibility to read Plaintiff's story and then try to determine which claim goes with which facts or which facts go with which Defendant or claim. This is the Plaintiff's responsibility.").
[76] Pleading essential elements of a cause of action by purported incorporation by reference of hundreds of pages of prior pleadings in other criminal and civil cases is particularly inappropriate in a RICO case. "RICO is a specialized statute requiring a particular configuration of elements. These elements cannot be incorporated loosely from a previous narration, but must be tightly particularized and connected in a complaint." Lesavoy v. Lane, 304 F. Supp. 2d 520, 532 (S.D.N.Y.2004) (quoting Zaro Licensing, Inc. v. Cinmar, Inc., 779 F. Supp. 276, 284 (S.D.N.Y.1991)), aff'd in relevant part sub nom. Lesavoy v. Gattullo-Wilson, 170 Fed.Appx. 721 (2d Cir.2006); see also Gregoris Motors v. Nissan Motor Corp., 630 F. Supp. 902, 913 (E.D.N.Y.1986) (same); G & R Moojestic Treats, Inc. v. Maggiemoo's Int'l, LLC, No. 03-CV-10027 (RWS), 2004 WL 1110423, at *10-11 (S.D.N.Y. May 19, 2004) (quoting Lesavoy) (dismissing RICO claim where "[n]o particularized allegation is made. Instead, the factual information is incorporated by reference from the previous paragraphs in the complaint, and the enumeration of the statutory elements are conclusorily alleged.") (quotation marks and citation omitted).
[77] Even if the Court were to determine that all of the prior pleadings attached as exhibits to the Amended Complaint constitute "written instruments" within the meaning of Rule 10(c), it would have no hesitation in concluding that the resulting pleading, in excess of 500 pages and packed with redundant and to some degree mutually inconsistent factual allegations, would itself violate Rule 8(a)(2).
[78] Should the Government choose to exercise its option to re-plead the Amended Complaint, it should bear in mind that "the Court cannot serve as a repository for the parties' evidence." Hunter v. Yates, No. CV F 07 151 AWI SMS P, 2007 WL 332751, at *4 (E.D.Cal. Feb.1, 2007) (Snyder, Mag.). While the Federal Rules of Civil Procedure do not categorically bar the practice of attaching exhibits to a complaint, the Court is unable to see any value whatsoever in any of the 13 exhibits attached to the Amended Complaint in this action, including the various consent decrees.
[79] ILA Mem. at 32. ("[T]he Complaint contains no factual allegations that even remotely suggest how or when the members of the Waterfront Enterprise, identifiable or not, joined together as a group. . . . The Waterfront Enterprise includes countless people, business and unions . . . about whom no allegations in the Complaint have been, or ever could be, made, and whom [sic] are not even alleged to have any relationship with, or to, one another, to any of the Defendants, or to any of the conduct charged in the Complaint.").
[80] See Seville, 742 F.2d at 789-90 ("In [United States v. Riccobene, 709 F.2d 214 (3d Cir.)] this court stated that in order to establish the existence of an enterprise, the government must demonstrate 1) that the enterprise is an ongoing organization with some sort of framework or superstructure for making or carrying out decisions; 2) that the members of the enterprise function as a continuing unit with established duties; and finally 3) that the enterprise must be separate and apart from the pattern of activity in which it engages. The court below ruled that because Seville failed to plead these three attributes, Count One did not state a cause of action under RICO and must be dismissed. In so ruling, the district court confused what must be pleaded with what must be proved. Riccobene and Turkette certainly stand for the proposition that a plaintiff, to recover, must prove that an alleged enterprise possesses the three described attributes. But neither case speaks to what must be pleaded in order to state a cause of action. The district court erred in applying the Riccobene-Turkette proof analysis to the allegations in Seville's complaint.") (citations omitted).
[81] World Wrestling Entertainment characterizes the Second Circuit's en banc, opinion in United States v. Indelicato, 865 F.2d 1370, 1375 (1989) (en banc), as "describ[ing] (without a hint of regret) the holding in Mazzei as rejecting the contention that the enterprise and the pattern of racketeering activity must be distinct." World Wrestling Entertainment, 425 F.Supp.2d at 500. While that is a fair paraphrase of Indelicato's gloss on Mazzei, it overlooks an important nuance. Indelicato actually said: "Mazzei contended that no RICO violation had been shown because the alleged enterprise was indistinguishable from the alleged pattern of racketeering activity. We rejected this contention, ruling that the pattern and enterprise need not be totally `distinct and independent, so long as the proof offered is sufficient to satisfy both elements.'" 865 F.2d at 1375 (quoting Mazzei, 700 F.2d at 89). Thus, while Indelicato's language was less precise than might be preferred, it recognized the conceptual distinction between enterprise and pattern of racketeering activity, and correctly characterized Mazzei as holding that the evidence necessary to establish those independent elements may coalesce in cases involving wholly criminal enterprises. Indeed, elsewhere in the opinion, Indelicato cautions that the relatedness between the enterprise and pattern of racketeering elements "is not to say that one should ever view the enterprise and the pattern as the same thing, for they are not," and cites Mazzei, along with Turkette, for the proposition that "the difference in the nature of the two elements does not mean that the same piece of evidence may not help to establish both." 865 F.2d at 1384.
[82] Although the World Wrestling Entertainment opinion attached substantial significance to the fact that Mazzei expressly rejected the Eighth Circuit's holding in Bledsoe, this Court does not view Mazzei's rejection of Bledsoe as particularly relevant to the issue at hand. Bledsoe held that "the enterprise must be more than an informal group created to perpetrate the acts of racketeering," id. at 663, a principle that Mazzei recognized is "at odds" with its holding that the RICO enterprise need not engage in activities other than those charged as predicate acts. 700 F.2d at 89 (citing Bledsoe; United States v. Lemm, 680 F.2d 1193, 1198-1201 (8th Cir.1982); United States v. Anderson, 626 F.2d 1358 (8th Cir. 1980)). The Eighth Circuit's ruling in Bledsoe seems inconsistent with Turkette and does not pertain to the issue of whether the elements of enterprise and pattern of racketeering activity are conceptually distinct and must be separately pleaded in order to state a RICO claim.
[83] The distinction relied upon by Seville and by the Government in this case between elements that which must be pleaded in order to state a valid claim and that which must ultimately be proved strikes this Court as a false, or at best a misleading, one, because what is pleaded foretells what must be proved and informs the other party of what he must prepare to contest. While it is true that under the simplified pleading standard imposed by Rule 8(a), a plaintiff need not recite in mechanical detail every element of a cause of action in order to state a valid claim, see Conley, 355 U.S. at 47, 78 S. Ct. 99 ("[T]he Federal Rules of Civil Procedure do not require a claimant to set out in detail the facts upon which he bases his claim," but only to "give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests."); Bell Atlantic, 127 S.Ct. at 1964-65 ("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 entitle[ment] to relief requires more than labels and conclusions. . . .") (quotation marks and citations omitted), it remains the case that the plain tiff must set forth factual matter sufficient to put the defendants on notice of the nature of the claim and to enable them to prepare a defense. See, e.g., Iqbal, 490 F.3d at 157-58 (Rule 8(a) "obliges a pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible."); 1 Charles Alan Wright, Law of Federal Courts § 68 (5th ed. 1994) (Rule 8(a) "does contemplate the statement of circumstances, occurrences, and events in support of the claim presented, though it permits these circumstances to be stated with great generality."). The basic characteristics of an alleged RICO enterprise fall well within the class of factual allegations necessary to put a defendant on notice of the nature of the action against him. In any event, the issue of whether, as a matter of first principles, the failure to plead the elements of continuity, structure, and common purpose requires the dismissal of a civil RICO complaint is preempted by the Second Circuit's holding in First Capital, which adopted an affirmative answer to that question which is binding on this Court.
[84] For example, in United States v. Bagaric, 706 F.2d 42, 55 (2d Cir.1983), which World Wrestling Entertainment cited in support of its conclusion that Mazzei is not a mere "evidence case," 425 F. Supp. 2d at 499, the court entertained an appeal of a RICO conviction in which the issue presented was whether the principle announced in United States v. Ivic, 700 F.2d 51(2d Cir.1993), abrogated by National Organization for Women, Inc. v. Scheidler, 510 U.S. 249, 114 S. Ct. 798, 127 L. Ed. 2d 99 (1994), that the RICO enterprise or the pattern of racketeering acts must possess some financial purpose requires "that the enterprise itself, rather than the predicate acts of racketeering, must be shown to yield financial gain," a question which presumes a distinction between the enterprise and the pattern of racketeering activity. Bagaric, 706 F.2d at 55. Bagaric described Mazzei as a decision "reflect[ing] the common sense recognition that a group of individuals may join together, and therefore be `associated in fact,' . . . solely for the purpose of conducting their [racketeering] activities," adding that "it is logical to characterize any associative group in terms of what it does, rather than by abstract analysis of its structure." Id. at 56 (emphasis in original). None of this supports World Wrestling Entertainment's view that a RICO plaintiff need not allege and prove the traditional indicia of the enterprise element in order to state a claim under § 1962. Likewise, World Wrestling Entertainment cited the Second Circuit's statement in United States v. Coonan, 938 F.2d 1553, 1560 (2d Cir.1989), quoted in World Wrestling Entertainment, 425 F.Supp.2d at 496, that "we have previously indicated that proof of various racketeering acts may be relied on to establish the existence of the charged enterprise" as demonstrating that the circuit court has "reaffirm[ed Mazzei's] core holding," World Wrestling Entertainment, 425 F.Supp.2d at 496, without reconciling that assertion with the fact that Coonan affirmed the conviction at issue on that appeal on the ground that "overwhelming proof of the charged enterprise, and [the appellant's] participation in that enterprise, was presented to the jury," including, inter alia, "testimony regarding the enterprise's hierarchy, organization and activities" and the fact that the enterprise "had an informal structure based around an `inner crew' . . . that controlled most organized criminal activities in Hell's Kitchen." Coonan, 938 F.2d at 1560. The Court could offer further examples, but the point is clear: none of the cases cited by World Wrestling Entertainment support its conclusion that a RICO plaintiff is not obliged to plead and prove the existence of that enterprise by demonstrating that it has an ongoing formal or informal structure and functions as a unit united by some common purpose simply because the evidence tending to prove the charged pattern of racketeering acts will also in some cases tend to demonstrate the existence of the alleged RICO enterprise.
[85] Another district court case, JSC Foreign Economic Ass'n Technostroyexport v. Weiss, No. 06-CV-6095 (JGK), 2007 WL 1159637, at *9 (S.D.N.Y. April 18, 2007) (slip copy), purports to adopt World Wrestling Entertainment's conclusion that First Capital is inconsistent with Mazzei and therefore an invalid statement of Second Circuit law. However, JSC does not appear to accept World Wrestling Entertainment's conclusion that a plaintiff need not allege and prove the traditional indicia of enterprise in order to state a claim under RICO. In denying the defendants' motion to dismiss the § 1962(c) claim in that case, JSC found that "[w]hile no formal structure is alleged . . . the enterprise that is alleged could constitute an `association in fact'," because the alleged "`course of conduct' suggests that Weiss and Weiss & Co. may have functioned together with Reich, Jossem, and others as a `continuing unit' with the `common purpose' of concealing and laundering a large amount of funds." Id. at *10. The court therefore denied the motion to dismiss while noting that the plaintiff "will be required to prove the existence of the enterprise." Id. Other cases have acknowledged World Wrestling Entertainment's criticism of First Capital without resolving the issue. See American Med. Ass'n v. United Healthcare Corp., No. 00-CV2800 (LMM), 2006 WL 3833440, at *15 n. 15 (S.D.N.Y. December 29, 2006); Smallwood ex rel. Hills v. Lupoli, No. 04-CV-0686 (JFB)(MDG), 2007 WL 2713841, at *6 n. 5 (E.D.N.Y. September 14, 2007) (slip copy); Republic of Colombia v. Diageo North America Inc., No. 04-CV-4372 (NGG), 2007 WL 1813744, at *48 n. 18 (E.D.N.Y. June 19, 2007) (slip copy).
[86] World Wrestling Entertainment also held that First Capital's statement that a RICO plaintiff must "detail [a] course of fraudulent or illegal conduct separate and distinct from the alleged predicate racketeering acts themselves" was inconsistent with Mazzei and therefore an incorrect statement of the law. 385 F.3d at 174, quoted in World Wrestling Entertainment, 425 F.Supp.2d at 494. This Court agrees with World Wrestling Entertainment on that point the quoted portion of First Capital statement is not well-supported by Second Circuit precedent, as evidenced by the fact that First Capital cited only one district court opinion in support of it, and it is flatly inconsistent with Mazzei and Turkette.
[87] The heading to the section of the ILA's memorandum from which the above language was taken, "The Alleged Enterprise is not a Decipherable, Let Alone a Functioning, Unit," amply demonstrates this point. ILA Mem. at 30.
[88] The shortcomings of the Amended Complaint's allegations regarding the Waterfront Enterprise may be further illustrated by reference to the detailed allegations contained in the Government's pleadings in Gotti and Bellomo. The Gotti Indictment contains eight paragraphs occupying three full pages, describing in detail the Gambino family enterprise, including its internal organizational structure (i.e., the boss, underboss, consigliere, captains, and soldiers, and the operation of various crews) and its place within the larger structure of La Cosa Nostra. See Gotti Ind. ¶¶ 1-8. The Gotti Indictment further alleges a specific common purpose to the Gambino family: "The principal purpose of the enterprise was to generate money for its members and associates through crime, including extortion, wirefraud, larceny, loan-sharking, illegal gambling and witness tampering. Among the methods and means by which the members and associates of the enterprise furthered its criminal activities were threatened and actual use of physical violence, and the inducement of fear of financial and economic injury." Id. ¶ 9. The Bellomo Indictment contains similarly detailed allegations concerning the organization, structure, and purpose of the Genovese family. See Bellomo Ind. ¶¶ 1-8 (organization and structure), 9 (common purpose).
[89] See Tr. at 98, 100, 106-07.
[90] THE COURT: When in Paragraph 68 you say, the defendants' common purpose, does that include the nominal defendants as well?
MR. HAYES: It does not.
THE COURT: Or just the defendants?
MR. HAYES: Your Honor, the United States tried to take great pains in distinguishing between the ILA and the Metro Funds and MILA and people such as Mr. Daggett and Mr. Bowers and Mr. Gleason. . . .
THE COURT: So when in paragraph 68 it provides, the defendants' common purpose, that does not include the nominal defendants?
MR. HAYES: That is correct, Your Honor.
Tr. at 101-02.
[91] The Court recognizes that the definition of the Waterfront Enterprise in this action, while not precisely identical to the enterprise alleged in the ILA Local Civil RICO Case, is nevertheless quite similar to the enterprise that was held by Judge Sand to be sufficiently pleaded and proved in that case. The district court's rulings in the 1990 case are not binding on this Court, which bears a responsibility to independently assess the sufficiency of the pleadings in this action. Moreover, as Judge Sand noted in his written opinion in the ILA Local civil RICO Case, the sufficiency of the 1990 pleading with respect to the allegations pertaining to the Waterfront Enterprise was never challenged in that case. See Local 1804-1, 812 F.Supp. at 1310 ("The remaining defendants devoted their time and energy at trial, and in their post trial submissions, to disputing the government's contention that they had participated in the criminal enterprise by committing the alleged predicate acts. In essence, these defendants took a position which assumed the existence of the `Waterfront' enterprise.").
[92] Specifically, the following alleged predicate acts involve allegations of mail or wire fraud: (1) "Rigged `Election' of Harold J. Daggett and Others to High-Ranking ILA Offices" (Am. Compl. ¶¶ 86-114); (2) "Scheme to Rig the MILA PBM Contract" (Am. Compl. ¶¶ 121-150); (3) "Scheme to Rig the MILA Mental Health Benefits Contract" (Am. Compl. ¶¶ 151-161); (4) "Fund Investment Advisor Kickback Scheme" (Am. Compl. ¶¶ 164-173); (5) "Rigged PBM Contract [METRO-ILA Welfare Fund]" (Am. Compl. ¶¶ 174-178); (6) "Rigged Mental Health Care Benefits Contract [METRO-ILA Welfare Fund]" (Am. Compl, ¶¶ 179-182); (7) "Fraud on the Local 1922 and Southeast Florida Welfare Funds [rigging of mental health benefits contracts in favor of Compsych]" (Am. Compl. ¶¶ 183-186); (8) "Control Over Local 1" (Am. Compl. ¶¶ 187-201); and (9) "Fraud on the Local 1814 Membership" (Am. Compl. ¶¶ 202-214).
[93] The ILA also argues that the mail and wire fraud allegations regarding the rigged award of service contracts to GPP/VIP or Compsych fail to state a claim of conspiracy to violate § 1962(b) because the acquisition of a service contract does not constitute "the acquisition or maintenance of a property right in or control of the enterprise," which is required for liability under § 1962(b). ILA Mem. at 47 (citing United States v. Jacobson, 691 F.2d 110, 112-13 (2d Cir.1982)). The Government responds that, even if it is true as a general matter that acquisition of service contracts does not constitute the acquisition of a property right in or control over the enterprise, it does so in this case because "[t]he contracts at issue are the raison d'etre of MILA, the METRO Funds and the Florida Funds . . . In effect, [the award of service contracts for the benefit of ILA members] was and is the funds' only business, which was supposed to have been discharged with the utmost regard for the beneficiaries . . ." Gov. Mem. at 104. Because it concludes that the mail and wire fraud allegations in the Amended Complaint fail to satisfy the pleading requirements of Rule 8(a)(2) and 9(b), the Court need not address this argument.
[94] Specifically, the predicate acts involving mail or wire fraud with respect to which the Government concedes the Amended Complaint does not allege a use of the mails or wires are those identified as items (3), (5), and (7) in note 92 above. See Gov. Mem. at 99-103.
[95] In Tammac Corp. v. Williams, No. 92-CV-390S, 1993 WL 330639, at *26-27 (W.D.N.Y. August 13, 1993), the court, citing Becher, dismissed the defendant's RICO counterclaim, which failed to meet Rule 9(b)'s pleading standard with respect to allegations of mail fraud, without prejudice and with leave to re-plead that claim after deposing the plaintiff. In Jerome M. Sobel & Co. v. Fleck, 03-CV-1041, 2003 WL 22839799, at *6 (S.D.N.Y. December 1, 2003) (Gorenstein, Mag.) (emphasis added), the court cited Becher as an illustration that its holding that "[i]n cases in which the plaintiff claims that the mails or wires were simply used in furtherance of a master plan to defraud a detailed description of the underlying scheme and the connection therewith of the mail and/or wire communications, is sufficient to satisfy Rule 9(b)" was "logic[al]" and "consistent with the notice pleading philosophy enunciated in Fed.R.Civ.P. 8(a) and a plaintiff's obvious need for discovery when knowledge of the mailings is in the defendant's exclusive possession."
[96] Indeed, the Court notes that the Government spends approximately four pages of its opposition brief listing numerous mailings and wire transmissions that allegedly were made in furtherance of the predicate acts at issue, which would render any argument that it was unable to allege specific uses of the mails or wires with respect to those acts in the Amended Complaint rather implausible. See Gov. Mem. at 99-103.
[97] Some of the wire fraud schemes identified in the Amended Complaint specifically, the schemes identified as items (1), (2), and (8) in note 92 above are also alleged to involve extortion and conspiracy to extort. The discussion in this section applies only to the wire fraud aspects of those allegations, and not to the extortion and conspiracy aspects.
[98] The Government wisely refrains from arguing that the defendants are barred by res judicata from challenging the allegations of extortion in the Amended Complaint. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2115008/ | 782 F. Supp. 2d 61 (2010)
Jack SALTZ, et al., Plaintiffs,
v.
FIRST FRONTIER, LP, et al., Defendants.
No. 10 Civ. 964(LBS).
United States District Court, S.D. New York.
December 23, 2010.
*66 Bernard V. Kleinman, Law Office Bernard V. Kleinman, Alan Berlin, White Plains, NY, for Plaintiffs.
Jeffrey Q. Smith, Steven G. Brody, Bingham McCutchen LLP, Steven Michael Kaplan, Rosenfeld & Kaplan, LLP, Jeffrey A. Rosenthal, Lewis J. Liman, Cleary Gottlieb Steen & Hamilton, LLP, John H. Eickemeyer, Daniel Colin Green, Vedder Price P.C., New York, NY, David L. Comerford, *67 Jeffery Alan Dailey, Akin Gump Strauss Hauer & Feld LLP, Philadelphia, PA, for Defendants.
OPINION & ORDER
SAND, District Judge.
Plaintiffs in this case are investors in First Frontier, LP ("FF Fund"), a "subfeeder fund" that indirectly invested in Bernard L. Madoff Securities LLC ("BMIS").[1] Plaintiffs assert claims against Defendants associated with the FF Fund, its auditors, the "feeder fund" in which the FF Fund invested, and John Does 1-100.[2] Defendants have moved to dismiss the First Amended Complaint ("FAC") in its entirety. For the following reasons, the motions are granted.
I. Background
For the purposes of this proceeding, we take these facts alleged by Plaintiffs to be true. The FF Fund is a Delaware limited partnership. Defendant Frontier Capital Management, LLC ("Frontier Capital") is the General Partner of the FF Fund, and Frontier Advisors Corporation ("Frontier Advisors") is the FF Fund's Manager. Defendant Mark Ostroff is the General Manager of the FF Fund, President of Frontier Advisors, and Principal Member and Sole Manager of Frontier Capital. His spouse, "FNU" Ostroff, is the only other Member of Frontier Capital. These persons and entities are collectively referred to as the "FF Defendants."
Plaintiff Jack Saltz is the Trustee of the named Plaintiffs Susan Saltz Charitable Lead Annuity Trust, and Susan Saltz Descendants Trust. Plaintiffs invested in the FF Fund beginning in or about July 2005 and continued to make investments in subsequent years. They remained investors in the FF Fund at all times relevant to the Defendants' alleged wrongful course of conduct.
Interests in the FF Fund were offered through a Confidential Private Placement Memorandum dated January 18, 1999. FAC Ex. A ("FF PPM"). The FF Fund was to invest substantially all of the Fund's assets with a designated independent Investment Manager, identified as BMIS. Investments were to be made "pursuant to an agreement between the Partnership and the Investment Manager which provides, among other things, guidelines by which the Investment Manager will trade for the Partnership." FF PPM at 6. According to the offering materials, the General Partner "delegated to the Investment Manager sole and complete authority to manage the assets of the Partnership." FF PPM at A. Thus, it warned, "while the Investment Manager is bound by a written agreement to follow specified *68 trading strategies, it is possible that the Investment Manager could violate the agreement, which violation could result in a riskier approach that could lead to a loss of all or part of the Partnership's investment." FF PPM at 6. Frontier Advisors received a 0.125% management fee at the end of each quarter. FF PPM at B.
Although BMIS is identified in the PPM as the Investment Manager, the FF Fund did not deal directly with BMIS but rather invested in the feeder fund Beacon Associates LLC I ("Beacon Fund"), a New York limited liability company. Through Beacon, "investment decisions and strategies were made, and implemented" by Defendants Ivy Asset Management Corporation ("Ivy") and Bank of New York Mellon Corporation ("BONY"). FAC ¶ 75. Plaintiffs allege they were never informed of Beacon's or Ivy's involvement, although their existence was disclosed in the annual audited report. See Brody Decl., Ex. E at 9-10.
Plaintiffs allege they invested and lost approximately $4.2 million as a result of the FF Fund's investments in Madoff.[3] Following the revelations of Madoff's fraud, Plaintiffs received multiple communications from Defendant Mark Ostroff regarding the status of distributions from the Beacon Fund and explaining that they were expected in mid to late 2009. Plaintiffs have not yet received distributions.[4]
a. The Beacon Defendants
The Beacon Fund was a "feeder fund" in which the FF Fund's assets were invested before they were transferred to Madoff as part of a larger pool. Defendant Beacon Associates Management Corp. ("BAMC"), a New York corporation, directs the business operations and affairs of the Beacon Fund, and makes allocation and reallocation decisions concerning the Fund's assets. BAMC is wholly owned by Defendants Joel Danzinger and Harris Markhoff and their immediate families. Joel Danzinger is the President and a Director of BAMC, and Harris Markhoff is the Vice President, Secretary, Treasurer, and a Director.
On or about August 9, 2004, memberships in the Fund were offered via an Offering Memorandum ("OM"). Prior to the revelation of the Madoff fraud, as of October 20, 2008, the Net Asset Value of the Fund was approximately $560 million. On or about December 18, 2008, investors in the FF Fund received a letter from Defendant BAMC informing the affected parties of the Madoff fraud and the intention to liquidate the fund. See FAC Ex. B.
b. Ivy Defendants
Defendant Ivy is a limited liability company and wholly-owned subsidiary of Defendant BONY. Ivy is a registered Investment Advisor under the Investment Advisors Act of 1940 and a commodity trading advisor under the Commodity Exchange Act. BAMC engaged Ivy, who served as the Beacon Fund's link to Madoff, to provide it with advice regarding the selection and allocation of the Beacon Fund's assets among investment managers and investment pools.
*69 c. Auditor Defendants
The FF Defendants utilized the services of several accounting firms, including Defendant Anchin, Block & Anchin, LLP ("Anchin") and Lazar Levine & Felix LLP, now merged with Defendant ParenteBeard LLC ("ParenteBeard" and together with Anchin the "Auditor Defendants").[5] Plaintiffs allege that Anchin was an auditor for the FF Fund during the period at issue and "provided, among other things, annual reports and 10-Ks to the First Frontier clients, including the Plaitniffs." FAC ¶ 6. ParenteBeard was also retained by the FF Defendants to provide annual financial statements and auditors' reports to clients, including Plaintiffs during the relevant period.
d. John Doe Defendants
In addition to the Defendants named in the FAC, Plaintiffs assert claims against John Does 1-100, who "were in positions of ownership and/or control over the Fund, including the members of the Managing Member's Advisory Board. By virtue of their high level positions, participation in and/or awareness of the Fund's investments, they had the power to influence and control, and did influence and control, directly or indirectly, the decision-making of the Fund." FAC ¶ 108.
e. Alleged Red flags
Plaintiffs identify a number of "red flags" that were publicly available prior to the official announcement of Madoff's fraud. The alleged red flags include, among others, Madoff's consistent investment returns and the secrecy of his strategyboth written about in industry publications at the timethat Madoff's stock holdings appeared to be too small to support the size of fund he claimed, and Madoff's unusual fee structure, as well as the following: "(a) Madoff generally reported that he bought near daily lows and sold near highs with uncanny consistency; (b) Madoff always claimed to be fully invested in treasury bills at the end of each quarter, which was inconsistent with his purported strategy as it would require him to liquidate his positions even under favorable conditions; (c) a firm the size of [BMIS] was audited by an unknown two man operation, instead of one of the major accounting firms; and (d) Madoff's reported results were inconsistent with the split-strike strategy, which might reduce volatility but could not produce gains in a declining stock market." Pl. Opp. at 20; see also FAC ¶¶ 67-70. Plaintiffs note that a few other investors decided that investing with Madoff was too risky in light of the red flags, but Plaintiffs do not allege the Defendants were in contact with these investors or were otherwise aware of their decision not to invest.
II. Standard of Review
On a motion to dismiss, a court reviewing a complaint will consider all material factual allegations as true and draw all reasonable inferences in favor of the plaintiff. Lee v. Bankers Trust Co., 166 F.3d 540, 543 (2d Cir.1999). "To survive dismissal, the plaintiff must provide the grounds upon which his claim rests through factual allegations sufficient to raise a right to relief above the speculative level." ATSI Commc'ns Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 93 (2d Cir.2007) (internal quotation marks omitted). Ultimately, the plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547, 127 S.Ct. *70 1955, 167 L. Ed. 2d 929 (2007). "[A] simple declaration that defendant's conduct violated the ultimate legal standard at issue ... does not suffice." Gregory v. Daly, 243 F.3d 687, 692 (2d Cir.2001).
Allegations of fraud must meet the heightened pleading standard of Rule 9(b), which requires that the plaintiff "state with particularity the circumstances constituting fraud." Fed.R.Civ.P. 9(b). The complaint must "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir.1994). "[W]hile Rule 9(b) permits scienter to be demonstrated by inference, this must not be mistaken for license to base claims of fraud on speculation and conclusory allegations. An ample factual basis must be supplied to support the charges." O'Brien v. Nat'l Prop. Analysts Partners, 936 F.2d 674, 676 (2d Cir.1991) (internal citations omitted).
On a motion to dismiss, a court is not limited to the four corners of the complaint, but may also consider "documents attached to the complaint as an exhibit or incorporated in it by reference, ... matters of which judicial notice may be taken, or ... documents either in plaintiffs' possession or of which plaintiffs had knowledge and relied on in bringing suit." Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir.1993).
III. Discussion
a. Federal Securities Fraud Claims against the FF Defendants
Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), makes it unlawful 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 proscribe as necessary or appropriate in the public interest or for the protection of investors." 15 U.S.C. § 78j. The SEC rule implementing the statute, Rule 10b-5, prohibits "mak[ing] any untrue statement of a material fact or omit[ting] 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." 17 C.F.R. § 240.10b-5(b). To state a claim, a plaintiff must allege facts sufficient to show: "(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation." Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148, 157, 128 S. Ct. 761, 169 L. Ed. 2d 627 (2008).
Section 10(b) claims are subject to the heightened pleading requirements of Rule 9(b) and the Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C. §§ 77z-1, 78u-4. See ATSI Commc'ns, 493 F.3d at 99. Under the PSLRA, the Complaint must "specify each statement alleged to have been misleading [and] the reason or reasons why the statement is misleading," and "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind," namely, with intent "to deceive, manipulate or defraud." 15 U.S.C. §§ 78u-4(b)(1), (2). "Therefore, `[w]hile we normally draw reasonable inferences in the non-movant's favor on a motion to dismiss,' the PSLRA `establishes a more stringent rule for inferences involving scienter' because the PSLRA requires particular allegations giving rise to a strong inference of scienter." ECA, Local *71 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d 187, 196 (2d Cir.2009) (quoting Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190, 194 (2d Cir.2008)). Plaintiffs allege misrepresentations regarding the FF Fund's investment objectives and strategies, due diligence performed on investment managers, and the performance of the Partnership. The FF Defendants move to dismiss Plaintiffs' claims on the basis that they do not adequately plead scienter, an actionable misrepresentation, reasonable reliance, and loss causation.
Scienter is a "mental state embracing intent to deceive, manipulate, or defraud." Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319, 127 S. Ct. 2499, 168 L. Ed. 2d 179 (2007) (internal quotation marks and citation omitted). "[T]he facts alleged must support an inference of an intent to defraud the plaintiffs rather than some other group." ECA, 553 F.3d at 197 (quoting Kalnit v. Eichler, 264 F.3d 131, 140-41 (2d Cir.2001)). "[A]n inference of scienter must be more than merely plausible or reasonableit must be cogent and at least as compelling as any opposing inference of nonfraudulent intent." Tellabs, 551 U.S. at 314, 127 S. Ct. 2499. The Court must consider "not only inferences urged by the plaintiff, ... but also competing inferences rationally drawn from the facts alleged. An inference of fraudulent intent may be plausible, yet less cogent than other, nonculpable explanations for the defendant's conduct." Id.
Scienter can be shown by (1) demonstrating that a defendant had the motive and opportunity to commit fraud, or (2) providing evidence of conscious recklessness. See South Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98, 108-09 (2d Cir.2009). Conscious recklessness is a "state of mind approximating actual intent, and not merely a heightened form of negligence." Id. at 109 (quoting Novak v. Kasaks, 216 F.3d 300, 312 (2d Cir.2000)). Recklessness is "at the least, ... an extreme departure from the standards of ordinary care ... to the extent that the danger was either known to the defendant or so obvious that the defendant must have been aware of it." Novak, 216 F.3d at 308.
Plaintiffs allege scienter based on both conscious recklessness and motive and opportunity to commit fraud. First, as to recklessness, Plaintiffs allege the FF Defendants knew or should have known of "extremely obvious red flags" that "they had an obligation to investigate, but did not." Pl. Opp. 25. Plaintiffs contend Defendants must have known of the red flags because they "were available to the Massachusetts regulator, and other professionals, [and] were equally available to each of the Defendants." Pl. Opp. 26. Furthermore, they assert, "[b]ecause of the relationship between the First Frontier Defendants and the Beacon Defendants, [the red flags] were also known to the First Frontier Defendants."[6] Pl. Opp. 27. This theory has been routinely rejected where, as here, Plaintiffs offer no evidence Defendants were aware of most red flags, and those of which Defendants were aware, were not so serious as to infer intent to defraud. See Stephenson v. Citco Grp. Ltd., 700 F. Supp. 2d 599, 623-24 (S.D.N.Y. 2010) (finding following red flags not so obvious as to infer knowledge: "BMIS' transactions were at variance with market evidence; ... BMIS did not permit access *72 to its computers, and many of its reported trades could not have actually taken place at the prices reported; ... BMIS' independent auditor, Friehling and Horowitz, was small, not well known, and not properly certified"); Anwar v. Fairfield Greenwich Ltd., No. 09 Civ. 0118(VM), 2010 WL 3341636, at *65 (S.D.N.Y. Aug. 18, 2010) (rejecting following red flags, if known to auditor, as indicative of intent to deceive: "Madoff did not provide electronic confirmations to the Funds that he managed, and instead gave them delayed, paper confirmation of supposed trades[;] ... Madoff purport[ed] to turn consistent investment returns during good times and bad times in the market[;] ... All of the Funds' assets were managed by Madoff, who acted as investment advisor, broker-dealer, and custodian of those assetsa highly unusual arrangement with no checks and balances"); In re Tremont Secs. Law, State Law and Ins. Litig., 703 F. Supp. 2d 362, 371 (S.D.N.Y.2010) (finding no scienter where "plaintiffs do not assert that the [defendants] knew that Madoff's returns could not be replicated by others, and plaintiffs do not claim that investors who elected not to deal with Madoff informed the [defendants] of their decisions").
For twenty years, Madoff operated this fraud without being discovered and with only a handful of investors withdrawing their funds as a result of their suspicions. An inference of scienter based on publicly available red flags is simply not as cogent and compelling as the opposing inference of nonfraudulent intent. See S.E.C. v. Cohmad Sec. Corp., No. 09 Civ. 5680(LLS), 2010 WL 363844, at *2 (S.D.N.Y. Feb. 2, 2010) (rejecting scienter allegations because "the complaint supports the reasonable inference that Madoff fooled the defendants as he did individual investors, financial institutions, and regulators").
Second, Plaintiffs do not sufficiently plead motive and opportunity to defraud. "In order to raise a strong inference of scienter through `motive and opportunity' to defraud, Plaintiffs must allege that [defendant] or its officers `benefited in some concrete and personal way from the purported fraud.'" ECA, 553 F.3d at 197 (quoting Novak, 216 F.3d at 307-08). Plaintiffs allege the FF Defendants benefited because they received quarterly fees of .0125% of the FF Fund's net asset value. However, Plaintiffs fail to allege facts that demonstrate these fees are exorbitant or at all in excess of the industry standard. In fact, the fees were fully disclosed in the FF Fund offering materials. See FF PPM at B. The desire to maintain high compensation in such circumstances does not constitute motive to defraud. Acito v. IMCERA Grp., Inc., 47 F.3d 47, 54 (2d Cir.1995) (where executive compensation is dependent upon stock value, motive to keep stock price high does not give rise to strong inference of scienter); Edison Fund v. Cogent Inv. Strategies Fund, Ltd., 551 F. Supp. 2d 210, 227 (S.D.N.Y.2008) ("The desire to earn management fees is a motive generally possessed by hedge fund managers, and as such, does not suffice to allege a "concrete and personal benefit" resulting from fraud."); Stephenson, 700 F.Supp.2d at 620-21 (finding economic interest in retaining clients not probative of motive to ignore Madoff's fraud).
Accordingly, the FF Defendants' motion to dismiss Count I is granted.[7] Because *73 section 20(a) liability requires "a primary violation" under section 10(b), the section 20(a) claims against the FF Defendants (Count II) are also dismissed. See ATSI Commc'ns, 493 F.3d at 108 (holding section 20(a) requires (1) "a primary violation by the controlled person," (2) "control of the primary violator by the targeted defendant," and (3) that the "controlling person was in some meaningful sense a culpable participant in the fraud perpetrated" (internal quotation marks omitted)).
b. Federal Securities Fraud Claims against the Ivy Defendants
Secondary actors, such as accountants, lawyers, and consultants, may be held liable as primary violators of 10b-5 "if all the requirements for primary liability are met, including `a material misstatement (or omission) on which a purchaser or seller of securities relies.'" Wright v. Ernst & Young LLP, 152 F.3d 169 (2d Cir.1998) (quoting Cent. Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 191, 114 S. Ct. 1439, 128 L. Ed. 2d 119 (1994)); see also Pacific Inv. Mgmt. Co. v. Mayer Brown LLP, 603 F.3d 144, 148 n. 1 (2d Cir.2010) ("PIMCO") (identifying "parties who are not employed by the issuing firm whose securities are the subject of the allegations of fraud" as "secondary actors."). "There is no requirement that the alleged violator directly communicate misrepresentations to [investors] for primary liability to attach." Anixter, 77 F.3d at 1226. However, aiding in or even encouraging a violation, without an accompanying misstatement or omission, is not sufficient. Cent. Bank of Denver, 511 U.S. at 176-77, 114 S. Ct. 1439 (holding Section 10(b) does not impose liability for aiding and abetting securities fraud); Vosgerichian v. Commodore Int'l, 862 F. Supp. 1371, 1378 (E.D.Pa.1994) (allegations that accountant "advised" and "guid[ed]" client in making allegedly fraudulent misrepresentations insufficient). Moreover, "a secondary actor cannot incur primary liability under the Act for a statement not attributed to that actor at the time of its dissemination. Such a holding would circumvent the reliance requirements of the Act, as `[r]eliance only on representations made by others cannot itself form the basis of liability.'" Wright, 152 F.3d at 175 (quoting Anixter, 77 F.3d at 1225). "Thus, the misrepresentation must be attributed to that specific actor at the time of public dissemination, that is, in advance of the investment decision." Id.; PIMCO, 603 F.3d at 148 ("a secondary actor can be held liable in a private damages action brought pursuant to Rule 10b-5 only for false statements attributed to the secondary actor at the time of dissemination."). In reaffirming the "bright-line" attribution rule, the Court of Appeals for the Second Circuit recently held that "[t]he mere identification of a secondary actor as being involved in a transaction, or the public's understanding that a secondary actor `is at work behind the scenes' are alone insufficient" to hold a secondary actor liable under Rule 10b-5. Id. at 155 (quoting Lattanzio v. Deloitte & Touche LLP, 476 F.3d 147, 155 (2d Cir.2007)). "To be cognizable, a plaintiff's claim against a secondary actor must be based on that actor's own `articulated statement,' or on statements made by another that have been explicitly adopted by the secondary actor." Id. at 155.
Plaintiffs here do not plead any misstatement attributable to the Ivy Defendants. Of the three types of misrepresentations Plaintiffs focus on in their Opposition, the only mention of Ivy is with regard to "promised due diligence." Pl. Opp. 19. But nowhere do Plaintiffs identify *74 when or to whom Ivy promised to perform due diligence, or the extent of diligence they were to perform. Plaintiffs do not allege that the FF offering materials attributed their assessment of the Partnerships' investment objectives, strategies, and diversification to Ivy. Nor do they allege that statements were made to or relied on by First Frontier on an agency theory.[8]
To the extent Plaintiffs base their claim on omissions rather than misstatements, Plaintiffs point to no material fact that Ivy had a duty to disclose but did not disclose. While Plaintiffs argue a duty existed because Ivy "made, and implemented" investment decisions and strategies, FAC ¶ 75, they do not allege that they, or the FF Defendants acting on their behalf, had any agreement with Ivy. Nor do they allege any prior disclosures to either party that would result in a duty to update or correct. See 17 C.F.R. § 240.10b-5(b) (prohibiting "[omitting] 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"). Only Beacon is alleged to have had any communication with Ivy.
Plaintiffs were unaware that Ivy played any role at all at the time they made their investment decisions, and they do not allege the parties who had such knowledge, the Beacon and FF Defendants, relied on any misrepresentations or omissions. Plaintiffs do not sufficiently allege a violation under 10b-5; thus, Ivy's motion to dismiss is granted. Because section 20(a) liability requires a primary violation under section 10(b), the section 20(a) claims against the Ivy Defendants are also dismissed.
c. Federal Securities Fraud Claims against the Beacon Defendants
Beacon argues that Plaintiffs do not identify any misrepresentations or omissions attributable to the Beacon Defendants and that they do not adequately allege scienter and reliance. Plaintiffs allege Beacon made misstatements regarding the funds' strategies, due diligence processes, and performance. The alleged source of these statements is the Beacon OM, which Plaintiffs acknowledge they did not receive and have not read. Nor do Plaintiffs allege any misstatements made to the FF Fund. See In re Beacon Assocs. Litig., 745 F.Supp.2d at 407-10 (permitting claims of misstatements made to plaintiffs' agent to survive motion to dismiss). Rather they seem to rely on the mistaken assumption that statements made by the FF Defendants in the FF PPMthe only relevant communication received by the Plaintiffsare attributable to all Defendants involved in the overall transaction. See In re Blech Sec. Litig., 928 F. Supp. 1279, 1293 (S.D.N.Y.1996) ("The complaint may not rely upon blanket references to acts or omissions by all of the defendants, for each defendant named in the complaint is entitled to be apprised of the circumstances surrounding the fraudulent conduct with which it individually stands charged."); Manela v. Gottlieb, 784 F. Supp. 84, 87-88 (S.D.N.Y.1992) (dismissing complaint where "many of the allegations are made against multiple defendants lumped together and fail to distinguish among them").
Similarly, Plaintiffs do not allege any material fact that Beacon had a duty to disclose but did not. Nor do they allege any prior disclosures to either the Plaintiffs or the FF Fund that would result in a *75 duty to update or correct. Plaintiffs admit that the Beacon Defendants "had no direct privity with the Plaintiffs," FAC ¶ 77, and that they were unaware Beacon played any role at all at the time they made their investment decisions. Rather, the Beacon Defendants communicated only with the FF Fund of which Plaintiffs were members, and Plaintiffs do not allege that the FF Defendants relied on any omission on the part of the Beacon Defendants.[9]
Because Plaintiffs do not plead with particularity any misstatements or omissions by the Beacon Defendants on which they relied, Beacon's motion to dismiss is granted in its entirety. Because section 20(a) liability requires "a primary violation" under section 10(b), the section 20(a) claims against the Beacon Defendants are also dismissed.
d. Remaining Fraud and Gross Negligence Claims against the FF Defendants
Plaintiffs allege gross negligence (Count VIII) and two common law fraud claims against the FF Defendants, common law fraud (Count III) and fraudulent concealment (Count IV).[10] Both common law fraud and fraudulent concealment require the Plaintiff to plead scienter. Wynn v. AC Rochester, 273 F.3d 153, 156 (2d Cir.2001) (holding New York fraud claim requires "(1) a misrepresentation or omission of material fact; (2) which the defendant knew to be false; (3) which the defendant made with the intent of inducing reliance; (4) upon which the plaintiff reasonably relied; and (5) which caused injury to the plaintiff") (citing Lama Holding Co. v. Smith Barney, Inc., 88 N.Y.2d 413, 421, 646 N.Y.S.2d 76, 668 N.E.2d 1370 (1996)); TVT Records v. Island Def Jam Music Grp., 412 F.3d 82, 90-91 (2d Cir. 2005) (holding fraudulent concealment requires "proof of: (1) failure to discharge a duty to disclose; (2) an intention to defraud, or scienter; (3) reliance; and (4) damages") (citing Brass v. Am. Film Techs., 987 F.2d at 152). The scienter element for these claims is essentially the same as that under federal securities laws. See Meridian Horizon Fund, L.P. v. Tremont Grp. Holdings, 747 F. Supp. 2d 406, 414 (S.D.N.Y.2010) ("[T]he elements of Section 10(b) claims are essentially the same as those for common law fraud in New York.") (citing Fezzani v. Bear, Stearns & Co., 592 F. Supp. 2d 410, 423 (S.D.N.Y.2008)). For the reasons cited supra, Plaintiffs do not adequately plead scienter.
Gross negligence "is conduct that evinces reckless disregard for the rights of others or `smacks' of intentional wrongdoing." Colnaghi, U.S.A., Ltd. v. Jewelers Prot. Servs., Ltd., 81 N.Y.2d 821, 823-24, 595 N.Y.S.2d 381, 611 N.E.2d 282 (1993). It "represents an extreme departure from the standards of ordinary care... to the extent that the danger was either known to the defendant or so obvious that the defendant must have been aware of it." AMW Materials Testing, Inc. v. Town of Babylon, 584 F.3d 436, 454 (2d Cir.2009) (quoting Rolf v. Blyth, Eastman *76 Dillon & Co., 570 F.2d 38, 47 (2d Cir.1978)). That Plaintiffs allegations regarding Defendants' failure to discover or act on red flags are insufficient to establish such an "extreme departure" has already been discussed supra. Although gross negligence does not require the heightened pleading requirements of Rule 9(b), here, the allegations regarding the failure to discover Madoff's fraud are nonetheless insufficient as a matter of law. The FF Defendants' motion to dismiss Counts III, IV, and VIII is granted.
e. Remaining Fraud & Gross Negligence Claims against the Auditor Defendants
"For recklessness on the part of a non-fiduciary accountant to satisfy securities fraud scienter, such recklessness must be conduct that ... approximate[s] an actual intent to aid in the fraud being perpetrated by the audited company." Rothman v. Gregor, 220 F.3d 81, 98 (2d Cir.2000) (internal quotation marks omitted). Plaintiff must allege "the accounting practices were so deficient that the audit amounted to no audit at all, or an egregious refusal to see the obvious, or investigate the doubtful, or that the accounting judgments which were made were such that no reasonable accountant would have made the same decisions if confronted with the same facts." In re IMAX Secs. Litig., 587 F. Supp. 2d 471, 483 (S.D.N.Y.2008).
Plaintiffs allege that the Auditor Defendants "aided and abetted" the fund defendants by approving "inaccurate and false financial performance statements" and that they "knew, or should have known, but for their conscious avoidance, that the statements far overstated the value of each investor's account because they included the value of worthless BLMIS holdings." Pl. Opp. at 21. Plaintiffs also allege that "each of the Accounting Defendants indisputably knew [of] some red flags, and, but for their extreme recklessness, (i.e., selfish disregard for their clients interests and money) should have known of red flags, but took no action to disclose the red flags," or "failed to check information they had a duty to monitor." Pl. Opp. at 25-26 (internal citations omitted). Specifically, they allege that the Auditor Defendants disregarded "(a) the concentration of the Fund's investments in a single third party investment manager (BLMIS); (b) the materially heightened risk to the Fund's assets from such reliance on Madoff, particularly given the lack of transparency of Madoff's operations; (c) the abnormally high and stable positive investment results reportedly obtained by Madoff; and (d) the inconsistency between BLMIS's publicly available financial information concerning its assets and the purported amounts that Madoff managed for clients such as the Fund." FAC ¶ 81. These and other actions allegedly violate the Generally Accepted Auditing Standards ("GAAS"). Defendants assert that these allegations are insufficient to support finding scienter, reliance, and loss causation.
While "[a]llegations of ... GAAS violations alone are insufficient" to plead scienter, Whalen v. Hibernia Foods PLC, No. 04 Civ. 3182(HB), 2005 WL 1799370, at *3 (S.D.N.Y. Aug. 1, 2005), "[a]llegations [an auditor ignored] `red flags,' when coupled with allegations of ... GAAS violations, are sufficient to support a strong inference of scienter." In re AOL Time Warner, Inc. Sec. & "ERISA" Litig., 381 F. Supp. 2d 192, 240 (S.D.N.Y.2004). However, "only those red flags that [the auditor] is alleged to have known of, or that are so obvious that [the auditor] must have known of them, can support an inference of intent." Stephenson, 700 F.Supp.2d at 623. "[M]erely alleging that the auditor *77 had access to the information by which it could have discovered the fraud is not sufficient." In re IMAX Secs. Litig., 587 F.Supp.2d at 484.
As to the red flags of which the Auditor Defendants were allegedly aware, this Court finds them either not so obvious that an auditor must have known of them or not strong enough to support an inference of scienter. See Stephenson, 700 F.Supp.2d at 623-24 (finding red flags not so obvious that auditor must have known of them); Anwar, 728 F.Supp.2d at 452-53 (rejecting red flags, if known to auditor, as indicative of intent to deceive); In re Tremont Secs. Law, State Law and Ins. Litig., 703 F. Supp. 2d 362 (S.D.N.Y.2010) (finding that red flag allegations against auditor of Madoff feeder fund did not establish scienter).
Furthermore, Plaintiffs do not adequately allege the Auditor Defendants knew of many red flags that supposedly would have led them to discover Madoff's fraud. The more plausible competing inference is that these Defendants, like others in the industry, did not find the information available to them so disturbing as to merit further investigation. Cf. Anwar, 728 F.Supp.2d at 453 ("[I]t is a more compelling inference that the PwC Member Firms were duped by FGG or were merely negligent in the exercise of professional duties they owed to the Funds."). Such allegations do not support a strong inference that the Auditor Defendants were aware of red flags and acted with scienter. See Anwar, 728 F.Supp.2d at 453 ("As in South Cherry, the SCAC is replete with allegations that the defendants would have learned the truth as to those aspects of the funds if the defendants had performed the due diligence they promised." (internal quotation marks and alterations omitted)). They do not support an inference of an intent "approximat[ing] an actual intent to aid in the fraud being perpetrated by the audited company." Rothman v. Gregor, 220 F.3d 81, 98 (2d Cir.2000) (internal quotation marks omitted).
Because Plaintiffs do not adequately plead scienter, the common law fraud claims against Defendants Anchin and ParenteBeard are dismissed.
f. Standing to Bring State Law Claims Against All Defendants
i. Direct State Law Claims Against All Defendants
Plaintiffs bring a number of state law claims. Against the First Frontier and Auditor Defendants, Plaintiffs seek to recover directly for constructive fraud (Count V), negligent misrepresentation (Count VI), breach of fiduciary duty (Count VII), unjust enrichment (Count IX), and accountant's duty/accountant's malpractice (Count XI),[11] and seek to recover derivatively for breach of fiduciary duty and gross negligence and mismanagement (Count VIII).[12] Against the Beacon and Ivy Defendants, Plaintiffs assert gross negligence and mismanagement, unjust enrichment, and aiding and abetting breach of fiduciary duty (Count X).[13] Defendants *78 assert that these claims, including those purportedly brought directly, are derivative of the FF Fund and as such must be dismissed.[14] First Frontier is a Delaware limited partnership, thus Delaware law applies to decide if a claim is direct or derivative. Debussy LLC v. Deutsche Bank AG, No. 05 Civ. 5550, 2006 WL 800956, at *3 (S.D.N.Y. Mar. 29, 2006) (applying state law "to determine whether the suit may be brought directly on behalf of the shareholders, or whether it must be brought derivatively on behalf of the Trust").
Under Delaware law, "the determination of whether a fiduciary duty lawsuit is derivative or direct in nature is substantially the same for corporate cases as it is for limited partnership cases." Litman v. Prudential-Bache Props., Inc., 611 A.2d 12, 15 (Del.Ch.1992) ("Litman I"). The Delaware Supreme Court recently revised the standard for determining whether a claim is direct or derivative in its decision in Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del.2004); see also Albert v. Alex. Brown Mgmt. Servs., No. Civ. A. 762-N, Civ. A. 763-N, 2005 WL 2130607, at *12 (Del.Ch. Aug. 26, 2005) (noting revision).[15] The Tooley test provides that determining whether a claim is direct or derivative "turn[s] solely on the following questions: `(1) who suffered the alleged harm (the corporation or the suing stockholders, individually); and (2) who would receive the benefit of any recovery or other remedy (the corporation or the stockholders, individually).'" Tooley, 845 A.2d at 1033. "The stockholder's claimed direct injury must be independent of any alleged injury to the corporation. The stockholder must demonstrate that the duty breached was owed to the stockholder and that he or she can prevail without showing any injury to the corporation." Id. at 1039.
The Court should not merely rely on "plaintiff's characterization of his claims in the complaint, but ... must look to all the facts of the complaint and determine for itself whether a direct claim exists." San Diego Cnty. Emps. Ret. Ass'n v. Maounis, 749 F. Supp. 2d 104, 126 (S.D.N.Y.2010) (quoting Dieterich v. Harrer, 857 A.2d 1017, 1027 (Del.Ch.2004); citing In re Syncor Int'l Corp. S'holders Litig., 857 A.2d 994, 997 (Del.Ch.2004) ("[U]nder Tooley, the duty of the court is *79 to look at the nature of the wrong alleged, not merely at the form of words used in the complaint.")). However, "there is no reason that some claims arising out of a case or controversy could not be direct while other claims arising out of that case or controversy are properly derivative." Stephenson v. Citco Grp. Ltd., 700 F. Supp. 2d 599, 610 (S.D.N.Y.2010) (citing Grimes v. Donald, 673 A.2d 1207, 1212-13 (Del.1996) ("[T]he same set of facts may result in direct and derivative claims.")). Accordingly the Court addresses whether each of Plaintiff's claims is direct or derivative in turn.
Using the Tooley test, Plaintiffs' direct claims for breach of fiduciary duty, unjust enrichment, and aiding and abetting breach of fiduciary duty are derivative in nature. Each is based on the alleged mismanagement of the FF Fund through the failure to conduct adequate due diligence and to discover and act upon red flags. "A claim for deficient management or administration of a fund is `a paradigmatic derivative claim.'" Albert v. Brown Mgmt. Serv., 2005 WL 2130607, at *12-13 (holding gross negligence and failure to provide competent and active management "clearly derivative" where "[t]he gravamen of these claims is that the Managers devoted inadequate time and effort to the management of the Funds, thereby causing their large losses." (citing Kramer v. W. Pac. Indus., Inc., 546 A.2d 348, 353 (Del.1988) ("A claim of mismanagement... represents a direct wrong to the corporation that is indirectly experienced by all shareholders"))); see also Litman I, 611 A.2d at 15-16 (holding claim derivative where "[t]he gist of plaintiffs' complaint is that the general partners breached their fiduciary duties by inadequately investigating and monitoring investments and by placing their interests in fees above the interests of the limited partners").
Assuming such acts constitute a breach of duty, the continued investment of the FF Fund in Madoff's Ponzi scheme would necessarily injure the Fund. Stephenson, 700 F.Supp.2d at 610-11 ("If, as alleged, [fund and auditor] defendants breached a fiduciary duty by not discovering that [the fund's] accounts were invested in what would become the most infamous Ponzi scheme in recent history, it necessarily injured [the fund] in so doing."). The diminution in the value of partnership interests clearly is not a direct injury, because "[t]he diminution in the value of their interests flows from the damage inflicted directly on the Partnership."[16]Litman I, 611 A.2d at 16. These claims may only be brought, if at all, derivatively. As such, they are dismissed.
However, Plaintiffs' constructive fraud, negligent misrepresentation, and accountant's duty/accountant's malpractice claims against the FF and Auditor Defendants are direct to the extent they allege inducement. Stephenson, 700 F.Supp.2d at 611-612 (finding gross negligence, negligence, and fraud claims direct to the extent "that they allege (1) violation of a duty owed to potential investors at large and (2) that such violations induced plaintiff to invest in [the fund]"). "[R]ecovery on a claim based solely on inducement would only flow to those individuals, such as [Plaintiffs], who were so induced." Id.; see also Albert v. Alex Brown Mgmt. Servs., 2005 WL 2130607 at *12 (finding breach of contract and breach of fiduciary duty claims both based on failure to disclose were direct claims because holders *80 "either lost their opportunity to request a withdrawal from the Funds from the Managers, or to bring suit to force the Managers to redeem their interests"). Plaintiffs assert they relied on the FF Defendants' statements in the PPM and other documents when deciding to purchase and retain limited partnership interests in the FF Fund. Thus Plaintiffs have standing to bring the claims directly.[17]
ii. Derivative State Law Claims Against All Defendants
The question of standing to bring a derivative suit is governed by the law of the state of organization. See Halebian v. Berv, 590 F.3d 195, 204 (2d Cir. 2009) (holding demand requirement, "in delimiting the respective powers of the individual shareholder and of the directors to control corporate litigation," is a matter of "substance" and therefore governed by state law). The FF Fund is a Delaware limited partnership, and the parties agree Delaware law governs its internal affairs. Under Delaware law, the pleading standard for demand futility in the limited partner context is "substantially the same" as the standard developed in the corporate context. Gotham Partners v. Hallwood Realty Partners, L.P., No. 15754, 1998 WL 832631, at *4 (Del.Ch. Nov. 10,1998).
Because "the decision to bring a law suit or to refrain from litigating a claim on behalf of a corporation is a decision concerning the management of the corporation," Spiegel v. Buntrock, 571 A.2d 767, 773 (Del.1990), the decision belongs to the General Partner, here Frontier Capital. Thus, a limited partner may bring an action to recover a judgment in favor of the partnership if the general partner has refused to do so "or if an effort to cause those general partners to bring the action is not likely to succeed." Del.Code Ann. Tit. 6, § 17-1003 (2006). "Before limited partners may bring a derivative claim in The Court of Chancery, Delaware law requires the plaintiffs to make a demand on the general partner to bring the action or explain why they made no demand." Seaford Funding Ltd. P'ship v. M & M Assocs. II, L.P., 672 A.2d 66, 69 (Del.Ch.1995) (citing 6 Del. C. § 17-1001)[18]; Litman I, 611 A.2d at 17.
Defendants argue that Plaintiffs' derivative claims should be dismissed as to all Defendants because Plaintiffs have not made a demand, and demand is not excused. See Haber v. Bell, 465 A.2d 353, 357 (Del.Ch.1983) (holding derivative claims must be dismissed if party brings them without first making demand, and demand is not excused). Plaintiffs acknowledge that they made no pre-suit demand on Frontier Capital.
In determining the sufficiency of a complaint to withstand dismissal based on a claim of demand futility, the court must decide "(1) whether threshold presumptions of director disinterest or independence are rebutted by well-pleaded facts; and, if not, (2) whether the complaint pleads particularized facts sufficient to create a reasonable doubt that the challenged transaction was the product of a valid exercise of business judgment." Levine v. Smith, 591 A.2d 194, 205 (Del. 1991); see Litman v. Prudential-Bache *81 Props., Inc., No. Civ. A. 12137, 1993 WL 5922, at *2-3 (Del.Ch. Jan. 4, 1993) ("Litman II") (applying rationale utilized in Levine to derivative claim in partnership context). Plaintiffs' pleading burden in the demand context is "more onerous than that required to withstand a Rule 12(b)(6) motion to dismiss." Levine, 591 A.2d at 207 (citing Grobow v. Perot, 539 A.2d 180, 187 n. 6 (Del.1988)); Brehm v. Eisner, 746 A.2d 244, 254 (Del.2000) (holding plaintiffs must provide particularized allegations as to why demand would be futile to survive a motion to dismiss; conclusory allegations are not enough). Plaintiffs argue the FF Fund's General Partner, Defendant Frontier Capital, is not independent and disinterested because it benefited from the transaction at issue, and because it faces a substantial likelihood of liability.[19]
First, Plaintiffs assert Frontier Capital is interested because it profited from the transaction. See Bakerman v. Sidney Frank Imp. Co., Inc., No. Civ. A. 1844-N, 2006 WL 3927242, at *7 (Del.Ch. Oct. 16, 2006) ("Disinterested means that directors can neither appear on both sides of a transaction nor expect to derive any personal financial benefit from it in the sense of self-dealing." (internal quotation marks omitted)). However, that Defendants received "substantial commissions, fees and other payments" does not suffice to show Defendants were interested absent particularized facts demonstrating excessiveness of the fees or irregularity in their receipt. Litman II, 1993 WL 5922, at *3-4. Only when the fee at issue "becomes so lavish that a mechanical application of the presumption [of director disinterest] would be totally at variance with reality" is there a need to excuse the demand requirement. Grobow v. Perot, 526 A.2d at 923 n. 12. Plaintiffs categorically allege Defendants' fees were "excessive" but fail to plead facts demonstrating they were anything but consistent with industry practice. The cases cited by Plaintiffs, In re eBay, Inc. S'holders Litig., No. C.A. 19988-NC, 2004 WL 253521, at *2 (Del.Ch. Jan. 23, 2004) (finding demand futility where directors who had received shares of an IPO in what was alleged to be usurpation of corporate opportunity were "clearly interested"); and Bakerman v. Sidney Frank Imp. Co., 2006 WL 3927242, at *8 (finding it too early to apply weighing analysis as to defendants' benefit at the expense of the LLC where defendants appeared on both sides of a transaction because of their holdings in outside company to which funds were allocated), are inapplicable where, as here, the benefit was in the form of regular advisory fees paid to the general partner.
Plaintiffs next assert that demand should be excused because Defendants face a substantial likelihood of liability. "The mere threat of personal liability for approving a questioned transaction, standing alone, is insufficient to challenge either the independence or disinterestedness of directors." Aronson v. Lewis, 473 A.2d 805, 815 (Del.1984) (citing Gimbel v. Signal Cos., Inc., 316 A.2d 599 (Del.Ch.), aff'd, 316 A.2d 619 (Del.1974)). Rather, the transaction must "be so egregious on its face that board approval cannot meet the test of business judgment, and a substantial likelihood of director liability therefore exists." Id. Similarly, the Delaware Supreme Court *82 has rejected the notion that "approval of a challenged transaction automatically connotes `hostile interest' and `guilty participation' by directors, or some other form of sterilizing influence upon them." Aronson, 473 A.2d at 814.
The remaining claims under which the FF Defendants could potentially face liability include the derivative claim for breach of fiduciary duty and direct claims for constructive fraud and negligent misrepresentation. These claims are likely barred by the exculpatory provision contained in the FF Fund's Limited Partnership Agreement ("LPA"), which limits liability to acts of "willful misconduct, gross negligence or fraud." See Brody Decl., Ex. A at 81, § 3.04. Plaintiffs do not sufficiently plead the knowledge required to create a substantial likelihood of liability here.[20]See Wood v. Baum, 953 A.2d 136, 141 (Del.2008) (where "directors are exculpated from liability except for claims based on `fraudulent,' `illegal' or `bad faith' conduct, a plaintiff must also plead particularized facts that demonstrate that the directors... had `actual or constructive knowledge' that their conduct was legally improper" to demonstrate demand futility based on substantial likelihood of liability).
Finally, Plaintiffs allege that the decision to invest in Beacon without proper investigation could not have been a product of valid business judgment. This assertion is based on the theory that Defendants should have known or discovered that Madoff was a fraud, a theory which Plaintiffs do not adequately plead.
Because Plaintiffs do not satisfy the demand requirement, the derivative claims against all Defendants on behalf of the FF Fund are dismissed.
Plaintiffs here are not left without remedy. The FF Fund is a member of the putative class in a suit against the Beacon, Ivy, and BONY Defendants, including the individuals Danzinger, and Markhoff, which recently survived a motion to dismiss. In re Beacon, 745 F. Supp. 2d 386. Plaintiffs offer no reason why Defendant Frontier Capital could not exercise its business judgment to determine whether the Fund should continue as a class member rather than bring an independent suit.
g. Remaining State Law Claims
Direct claims for constructive fraud and negligent misrepresentation remain against the FF and Auditor Defendants. The Auditor Defendants also face a claim for breach of accountant's duty/accountant's malpractice (Count 11).
i. Additional State Law Claims Against the FF Defendants
To state a claim for negligent misrepresentation under New York law, a plaintiff must allege that (1) the parties stood in some special relationship imposing a duty of care on the defendant to render accurate information, (2) the defendant negligently provided incorrect information, and (3) the plaintiff reasonably relied upon the information given. DIMON Inc. v. Folium, Inc., 48 F. Supp. 2d 359, 373 (S.D.N.Y.1999) (citing Pappas v. Harrow Stores, Inc., 140 A.D.2d 501, 504, 528 N.Y.S.2d 404 (2d Dep't 1988)). Constructive fraud requires: (1) a fiduciary or confidential relationship between the parties; (2) a misrepresentation or omission of material fact; (3) which was made with the intention of inducing reliance; and (4) upon which the plaintiff reasonably relied; and (5) which caused injury to the plaintiff. *83 Burrell v. State Farm & Cas. Co., 226 F. Supp. 2d 427, 438 (S.D.N.Y.2002).
Defendants assert that the limitation of liability clause included in the Limited Partnership Agreement bars these claims. See Brody Decl., Ex. A at 81, § 3.04 (limiting liability to acts of "willful misconduct, gross negligence or fraud"). Delaware law authorizes limited partnerships to restrict, or even eliminate, common-law duties, including fiduciary duties, in the limited partnership agreement.[21] 6 Del.Code Ann. § 17-1101(d), (f); see, e.g., Kahn v. Icahn, No. 15916, 1998 WL 832629, at *2 (Del.Ch. Nov. 12, 1998) (partners may "agree on their rights and obligations to each other and to the partnership ... even where Delaware law might impose different rights and obligations absent such agreement"), aff'd, 746 A.2d 276 (Del.2000).
Plaintiffs argue that "the alleged misconduct falls outside the scope of the protection afforded by the exculpation clauses" because exculpatory clauses cannot shield a Defendant from liability for willful or grossly negligent acts, or violation of the duty of good faith. Pl. Opp. at 74 (citing Official Comm. of Unsecured Creditors v. Donaldson, Lufkin & Jenrette Secs. Corp., No. 00 Civ. 8688(WHP), 2002 WL 362794 at *15 (S.D.N.Y. Mar. 6, 2002); Collins & Aikman v. Stockman, No. Civ. 07-265-SLR-LPS, 2009 WL 1530120 at *20 n. 14 (D.Del. May 20, 2009)). Here, however, Plaintiffs' claims for fraud and gross negligence have already been dismissed. The remaining claims do not involve elements of willful or bad faith conduct.
ii. Additional State Law Claims Against the Auditor Defendants
Claims for negligent misrepresentation, constructive fraud, and accountant's liability each require a special relationship between the plaintiffs and defendants. Plaintiffs acknowledge that they were not in direct privity with either of the accounting firms. Pl. Opp. at 88. But under the doctrine established in Credit Alliance Corp. v. Arthur Andersen & Co., Plaintiffs say their relationship with Defendants was "near privity." 65 N.Y.2d 536, 493 N.Y.S.2d 435, 483 N.E.2d 110 (N.Y.1985). In Credit Alliance, the New York Court of Appeals set forth a three-part test to determine when parties, who are not in direct privity with the accountants, have a relationship sufficient to hold them accountable in a negligence action. See Id. The Court required:
(1) the accountants must have been aware that the financial reports were to be used for a particular purpose or purposes; (2) in the furtherance of which a known party or parties was intended to rely; and (3) there must have been some conduct on the part of the accountants linking them to that party or parties, which evinces the accountants' understanding of that party or parties' reliance.
Id. at 551, 493 N.Y.S.2d 435, 483 N.E.2d 110. Plaintiffs do not allege any facts that would support finding a relationship between the Plaintiffs and either Defendant under this test. Plaintiffs allege only that they "receive annual and quarterly financial statements," FAC ¶¶ 80, 83, and that the Auditor Defendants "knew that their *84 respective audited and other financial reports would be provided to the Fund's Members and potential investors in the Fund and would be relied on by them in making investment decisions concerning the Funds." FAC ¶ 154. This broad allegation of a duty owed to all potential investors is not sufficient to demonstrate a "near privity" relationship. Furthermore, in the case of Anchin, it is difficult to see how Plaintiffs can plausibly claim to have relied on the statements they received given that Defendants expressly disclaimed any duty to audit or otherwise verify the underlying data on which it relied. See FAC Ex. C; Pl. Opp. Ex. C.
Because Plaintiffs do not allege a confidential or fiduciary relationship, the remaining state law claims are dismissed as to the Auditor Defendants.
IV. Conclusion
For the reasons set forth herein, Defendants' motions to dismiss are granted in full.
SO ORDERED.
NOTES
[1] Madoff was a prominent and respected member of the investing community, who used his investment company BMIS to engage in a multi-billion dollar Ponzi scheme. Madoff deceived countless investors and professionals, as well as his primary regulators, the Securities and Exchange Commission ("SEC") and the Financial Industry Regulatory Authority ("FINRA"). On December 11, 2008, Madoff was arrested by federal authorities. Madoff, along with BMIS's accountant and other associates, pleaded guilty to securities fraud and related offenses arising out of the Ponzi scheme.
[2] Several other actions before this Court and other courts relate to losses sustained by sub-feeder and feeder funds that invested with Madoff. See Wolf Living Trust v. FM Multi-Strategy Inv. Fund, L.P., 09 Civ. 1540(LBS), 2010 WL 4457322 (S.D.N.Y. Nov. 2, 2010); Newman v. Family Mgmt. Corp., No. 08 Civ. 11215(LBS), 2010 WL 4118083 (S.D.N.Y. Oct. 20, 2010) (brought on behalf of investors in FM Low Volatility Fund, also managed by FMC); In re Beacon Assocs. Litig., 745 F. Supp. 2d 386 (S.D.N.Y.2010) (brought on behalf of investors in the Beacon Fund).
[3] Plaintiffs provide figures "[u]pon information and belief" that immediately prior to the revelation of the fraud perpetrated by Madoff, the total assets in the fund were $13,464,380.72, and the approximate value of the Plaintiff's investments was in excess of $5.2 million but that their investments are worth "near zero or zero at this time."
[4] The Beacon Fund's liquidation is the subject of another action before this Court and Magistrate Judge Peck. See Beacon Assocs. Mgmt. Corp. v. Beacon Assocs. LLC I, No. 09 Civ. 6910(AJP), 2010 WL 2947076 (S.D.N.Y. July 27, 2010); Rounds v. Beacon Assocs. Mgmt. Corp., No. 09 Civ. 6910(LBS), 2009 WL 4857622 (S.D.N.Y. Dec. 16, 2009).
[5] For ease of reference, Lazar Levine & Felix is referred to herein as ParenteBeard notwithstanding that it was not known as such at the time of the alleged misdeeds.
[6] Plaintiffs also focus on the carveout in the Beacon-Ivy Investment Advisory Agreements that excluded Madoff from Ivy's monitoring and evaluation function. Yet they do not allege the FF Defendants were aware of this carveout, the implications of which are addressed in related litigation. See In re Beacon Assocs. Litig., 745 F.Supp.2d at 430-31.
[7] Defendants raise serious concerns as to whether the Plaintiffs could successfully plead that Defendants made material misrepresentations given that Plaintiffs apparently knew and intended that virtually all of their assets were invested in Madoff. However, given Plaintiffs' failure to adequately plead scienter, the Court need not consider this and other challenges to the 10b-5 claims against the FF Defendants.
[8] See In re Beacon, 745 F.Supp.2d at 407-10. In fact, First Frontier is within the class of plaintiffs represented in In re Beacon, which is proceeding against both the Beacon and Ivy defendants.
[9] Such a claim is however pending on behalf of funds such as the FF Fund that invested in Beacon in the related case, In re Beacon Assocs. Litig.
[10] Plaintiffs also plead the tort of constructive fraud (Count V). Because constructive fraud does not include an element of scienter, it is discussed alongside the claim for negligent misrepresentation infra. See Burrell v. State Farm & Cas. Co., 226 F. Supp. 2d 427, 438 (S.D.N.Y.2002) (plaintiff must establish same elements as claim for fraud, "except that the element of scienter is replaced by a fiduciary or confidential relationship between the parties"); Klembczyk v. Di Nardo, 265 A.D.2d 934, 935, 705 N.Y.S.2d 743 (N.Y.App.Div. 1999) (same).
[11] Plaintiffs also bring claims for common law fraud (Count III) and fraudulent concealment (Count IV) have already been dismissed supra.
[12] Plaintiffs identify which claims are derivative and which are direct in the Complaint at ¶ 11. While the complaint does not state explicitly how they characterize the unjust enrichment claim, the pleadings identify only injury to the plaintiffs themselves, rather than the FF Fund, thus they are characterized here as direct.
[13] Although the Plaintiffs identify these claims as being direct in the Complaint, see FAC ¶ 11, they subsequently characterize them as derivative on behalf of the FF Fund. See Pl. Opp. at 86. As discussed infra, the distinction in pleading is irrelevant, as the claims would be dismissed under either theory.
[14] Beacon also contends that the state law claims may not be brought derivatively by the Plaintiffs on behalf of the FF Fund because the claims properly belong to the Beacon Fund itself. However, this point is moot given that Plaintiffs fail to meet the demand requirement. See infra.
[15] Plaintiffs suggest corporate law should not apply when the structure of a limited partnership deviates dramatically from the corporate model. While there is some support for this theory, see In re Cencom Cable Income Partners, L.P., No. C.A. 14634, 2000 WL 130629 (Del.Ch. Jan.27, 2000); Anglo American Sec. Fund, L.P. v. S.R. Global Intern. Fund, L.P., 829 A.2d 143 (Del.Ch.2003), these cases were decided before Tooley. Even assuming the cases remain good law, Plaintiffs do not adequately allege that the FF Fund differs so drastically from the corporate model. Unlike the Plaintiffs in Anglo American, all of the FF Fund's limited partners were injured in an identical way, and any potential recovery would be distributed to them on a pro rata basis. Cf. Anglo American, 829 A.2d at 152-53 (allowing claims to be brought directly because plaintiff had left the fund, and partners admitted after the reduction in value suffered no injury, thus derivative claims would "have the perverse effect of denying standing (and therefore recovery) to parties who were actually injured by the challenged transactions while granting ultimate recovery (and therefore a windfall) to parties who were not").
[16] Plaintiffs' briefing supports this finding. See Pl. Opp. at 77 (arguing Defendants have been unjustly enriched because "due to Defendants' misconduct, the Partnership is effectively out of business and its assets have been decimated").
[17] While Plaintiffs have standing to bring these claims, they are nonetheless dismissed infra.
[18] Section 17-1001 states:
A limited partner or an assignee of a partnership interest may bring an action in the Court of Chancery in the right of a limited partnership to recover a judgment in its favor if general partners with authority to do so have refused to bring the action or if an effort to cause those general partners to bring the action is not likely to succeed.
[19] Plaintiffs also assert that demand is rendered irrelevant where, as here, the ongoing enterprise effectively ends. Pl. Opp. at 82 (citing Cencom, 2000 WL 130629, at *4). In Cencom the only claims at issue in the matter were against the dissolved limited partnership, and the claims related directly to the liquidation of that partnership. That is simply not the case here, where Plaintiffs seek to recover from numerous entities besides Frontier Capital.
[20] As discussed supra, Plaintiffs claims for securities fraud, common law fraud, and gross negligence fail because Plaintiffs do not sufficiently plead intentional or reckless behavior.
[21] The parties disagree as to whether Delaware or New York law governs the agreement. Here, the distinctions are not relevant, as the agreement would bar Plaintiffs' claims under both theories. See Colnaghi, U.S.A., Ltd. v. Jewelers Protection Servs., Ltd., 81 N.Y.2d 821, 823, 595 N.Y.S.2d 381, 611 N.E.2d 282 (N.Y.1993) ("New York law generally enforces contractual provisions absolving a party from its own negligence."). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2112964/ | 796 F. Supp. 2d 796 (2011)
James ELLIOT and Dorothy Elliot, Plaintiffs
v.
AMADAS INDUSTRIES, INC., Deere & Company, and Unidentified Entities 1 Through 10, Defendants.
Civil Action No. 2:10-CV-2-KS-MTP.
United States District Court, S.D. Mississippi, Hattiesburg Division.
March 1, 2011.
*799 Francis McRae Turner, III, F.M. Turner, III, PLLC, Hattiesburg, MS, for Plaintiffs.
B. Stevens Hazard, Jason H. Strong, Michael R. Kelly, Daniel, Coker, Horton & Bell, Jackson, MS, for Defendants.
MEMORANDUM OPINION AND ORDER
KEITH STARRETT, District Judge.
The Court now addresses several motions filed by Defendants: Defendants' joint Motion to Strike Expert Testimony of Jack Sparks [44]; Defendants' joint Motion to Exclude Expert Testimony of Jack Sparks [46]; and Defendants' joint Motion for Summary Judgment [48]; Defendant Deere & Company's ("Deere") Motion for Summary Judgment [51]; Defendants' joint Motion to Exclude Certain Opinions of Lynn Esko [53].
For the reasons stated below, the Court:
1) grants in part Defendants' joint Motion to Strike Expert Testimony of Jack Sparks [44];
2) grants Defendants' joint Motion to Exclude the Expert Testimony of Jack Sparks [46];
3) grants Defendants' joint Motion for Summary Judgement [48];
4) finds as moot Defendant Deere's Motion for Summary Judgment [51]; and
5) finds as moot Defendants' joint Motion to Exclude Certain Opinions of Lynn Esko [53].
I. BACKGROUND
This product liability case arises from an accident involving a 2002 model Amadas 9900 self-propelled peanut combine. The Amadas 9900[1] functions as follows. Unearthed peanut vines are taken into the combine through the header at the front of the machine. Rotating cylinders then feed the vines into the picking chamber behind the cab. The separator mechanism is housed within the picking chamber. It is comprised of several rotating cylinders with metal teeth. When the separator is activated, these cylinders rotate at high speeds.[2] The separator removes the peanut pods from the vine and cuts the vine into small segments. The segments of vine are routed to the back of the combine by the rotating cylinders, where they are deposited on the ground. The peanut pods fall into a stemmer, which removes their stems. The harvested peanut pods are then blown up into the basket, which rests on top of the picking chamber and behind the cab.
Plaintiff James Elliot was a farm worker at M & M Farms. On September 13, 2007, he and his employer, Joe Morgan, were repairing an Amadas 9900 combine. In order to access the part which needed to be repaired, Morgan and Elliot had raised the basket. It was also necessary for them to stand inside the picking chamber, on top of the separator cylinders. After they had finished their repairs, Morgan entered the combine's cab. Elliot alleges that Morgan entered the cab to turn the engine off, as it had been idling while they made their repairs. However, Morgan alleges that he entered the cab to turn the engine on, to observe their repairs as the engine idled. Regardless, there is no dispute that Morgan entered the cab and activated the combine's separator while Elliot was standing on the cylinders. Elliot was pulled into the separator mechanism and seriously injured, resulting in the amputation *800 of both of his legs below the knees, a full loss of vision in one eye, and a partial loss of vision in the other eye, among other injuries.
Plaintiffs filed their Complaint in the Circuit Court of Forrest County, Mississippi, on September 11, 2009. Therein, they alleged both strict liability and negligence theories under the Mississippi Products Liability Act ("MPLA"). They further claimed that Defendants breached express and implied warranties. Finally, they asserted warning and design defect claims. Defendants removed the case to this Court on January 4, 2010[1].
II. MOTION TO STRIKE EXPERT TESTIMONY OF JACK SPARKS [44]
A. Background
The Court entered a Case Management Order on March 4, 2010[9], ordering that Plaintiffs were to designate their experts on or before September 2, 2010; that Defendants were to designate their experts on or before October 1, 2010; and that all discovery was to be completed by December 1, 2010. On September 2, 2010their designations deadlinePlaintiffs filed a Motion to Extend the Expert Designation Deadlines [25]. Therein, Plaintiffs represented that their experts required additional time to complete their investigations and prepare their reports. Plaintiffs requested that the Court extend their designations deadline to October 1, 2010, and extend the Defendants' designations deadline to November 1, 2010. However, Plaintiffs failed to disclose to the Court that their counsel had only just retained Jack W. Sparks as an expert in this matteron the same day they requested the extension.
On September 3, 2010, the Court granted Plaintiffs' extension via text order. Plaintiffs filed their Initial Designation of Experts [27] on October 1, 2010. Plaintiffs identified Jack W. Sparks as one of their experts. They represented that he was expected to testify concerning the design, manufacture, and operating controls of the combine involved in the accident, as well as the operating instructions and warnings given by Defendants, and they attached his "Preliminary Report" [27-2].
It is undisputed that Sparks did not inspect the combine prior to the submission of the preliminary report attached to Plaintiffs' designations. Sparks examined Plaintiffs' Complaint, Defendants' Answer, the parties' pre-discovery disclosures, Plaintiffs' discovery responses, Plaintiffs' medical records, and photographs of the combine at issue in preparing the preliminary report. Sparks additionally examined operating manuals and other documents relating to combine models other than the one involved in this case.
On November 1, 2010, Defendants filed their Designation of Experts [32]. Therein, they identified Stanley Brantley, President of Defendant Amadas Industries, Inc. ("Amadas"). Defendants asserted that they may call Brantley as an expert witness as to a variety of issues concerning the Amadas 9900 combine. Defendants also identified Charles F. Brundage as a potential expert witness in the areas of engineering, mechanical design analysis, operation, warnings and safety regarding agricultural combines and the combine involved in this case. Among other issues, Defendants expected both Brantley and Brundage to specifically address the opinions of Plaintiffs' expert, Sparks.
On November 12, 2010, Defendants filed their Emergency Motion to Compel Deposition of Jack Sparks [33]. Defendants asserted that they had e-mailed Plaintiffs' counsel on October 12 and 18, 2010, to request deposition dates for Sparks. Plaintiffs' counsel advised that Sparks was out of town until November. Defendants' counsel sent e-mails on November 3 and 9, 2010, but they received no reply. Therefore, *801 as the discovery period was set to expire December 1, 2010, and the motions deadline was set for December 15, 2010, Defendants requested that the Court order Plaintiffs to immediately provide dates in November on which Defendants could depose Sparks.
The Court conducted a telephonic motion hearing for November 17, 2010. On that same day, the Court extended the discovery deadline to December 31, 2010, to allow the parties to schedule and complete depositions of designated experts [34]. The Court explicitly ordered that the discovery deadline was not extended for any other purpose. The Court also extended the motions deadline to January 14, 2010, for dispositive motions and Daubert motions. On November 19, 2010, Defendants noticed the deposition of Sparks for December 20, 2010[35].
Sparks testified that he contacted Plaintiffs' counsel to arrange for an inspection of the combine within the two weeks prior to his deposition. He inspected the combine at issue on December 18, 2010two days prior to the deposition. He prepared a supplementary report [45-11] on December 19, 2010, and he was deposed on December 20, 2010 [45-7]. It is undisputed that Defendants did not receive Sparks' supplemental report until his deposition on December 20, 2010over two months after Plaintiffs' designation deadline, and almost three weeks after the discovery deadline had passed.
B. Discussion
Defendants argue that the opinions expressed in Sparks' supplemental report are untimely. Therefore, Defendants request that the Court strike his expert testimony in whole. Alternatively, they request that the Court strike the untimely portions of his testimony. Plaintiffs respond that Sparks' supplemental report is not untimely insofar as it does not contradict his preliminary report, withdraw any portion of the preliminary report, or include any opinion not previously disclosed in the preliminary report. Plaintiffs further argue that Defendants have not shown that they would be prejudiced if the Court allowed the disputed expert testimony.
The Court must first determine whether Plaintiffs complied with the Court's scheduling orders. Then, in the event that they did not, the Court must determine whether striking Sparks' testimony is an appropriate sanction. As always, the Court possesses broad, substantial discretion in discovery-related matters. Sierra Club, Lone Star Chapter v. Cedar Point Oil Co., 73 F.3d 546, 569 (5th Cir. 1996). Indeed, the Court has the power to control its docket "by refusing to give ineffective litigants a second chance to develop their case." Reliance Ins. Co. v. La. Land & Exploration Co., 110 F.3d 253, 258 (5th Cir.1997) (citing Turnage v. Gen. Elec. Co., 953 F.2d 206, 208-09 (5th Cir.1992)).
1. The Supplemental Report's Timeliness
The Court must first determine whether Sparks' supplemental report was timely. Rule 26 provides that "a party must disclose to the other parties the identity of any witness it may use at trial to present" expert testimony. FED.R.CIV.P. 26(a)(2)(A). "Unless otherwise stipulated or ordered by the court, this disclosure must be accompanied by a written reportprepared and signed by the witnessif the witness is one retained or specially employed to provide expert testimony in the case. . . ." FED.R.CIV.P. 26(a)(2)(B). The report must contain the following:
(i) a complete statement of all opinions the witness will express and the basis and reasons for them;
*802 (ii) the facts or date considered by the witness in forming them;
(iii) any exhibits that will be used to summarize or support them;
(iv) the witness's qualifications, including a list of all publications authored in the previous 10 years;
(v) a list of all other cases in which, during the previous 4 years, the witness testified as an expert at trial or deposition; and
(vi) a statement of the compensation to be paid for the study and testimony in the case.
FED.R.CIV.P. 26(a)(2)(B)(i)-(vi). "A party must make these disclosures at the times and in the sequence that the court orders." FED.R.CIV.P. 26(a)(2)(D).[3] Local Rule 26 provides that a "party must make full and complete disclosure as required by FED. R.CIV.P. 26(a) and L.U.Civ.R. 26(a)(2)(D) no later than the time specified in the case management order." L.U.Civ.R. 26(a)(2).
Additionally, "[t]he parties must supplement these disclosures when required under Rule 26(e)." FED.R.CIV.P. 26(a)(2)(E). "[A] party is required to supplement its expert disclosures if the court so orders or if `the party learns that in some material respect the information disclosed is incomplete or incorrect and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing.'" Sierra Club, 73 F.3d at 570 n. 42 (quoting FED.R.CIV.P. 26(e)(1)). "[T]he party's duty to supplement extends both to information included in the report and to information given during the expert's deposition. Any additions or changes to this information must be disclosed by the time the party's pretrial disclosures under Rule 26(a)(3) are due." FED.R.CIV.P. 26(e)(2). While Rule 26(a)(3) provides that pretrial disclosures must be made at least thirty days before trial, it adds the following caveat: "[u]nless the court orders otherwise. . . ." FED.R.CIV.P. 26(a)(3). Local Rule 26 provides that a "party is under a duty to supplement disclosures at appropriate intervals under FED.R.CIV.P. 26(e) and in no event later than the discovery deadline established by the case management order." L.U.Civ.R. 26(a)(5) (emphasis added).
Plaintiffs argues that their supplement was timely insofar as it does not contain any opinions that were not contained in the preliminary report. Plaintiffs characterize the supplemental report as a more specific, targeted version of the preliminary report. Of course, Defendants disagree, arguing that the opinions expressed within the supplement can not fairly be characterized as within the scope of the original report. However, the Court is not required to resolve this dispute, as the supplemental report is untimely in either case.
If the supplemental report is comprised of new, previously undisclosed opinions, it was due on October 1, 2010Plaintiffs' designations deadline. FED.R.CIV.P. 26(a)(2)(D); L.U.Civ.R. 26(a)(2). If the supplemental report is truly a supplement, it was due by the discovery deadline. FED. R.CIV.P. 26(a)(3); L.U.Civ.R. 26(a)(5); see also Previto v. Ryobi N. Am., Inc., No. 1:08-CV-177-HSO-JMR, 2010 U.S. Dist. LEXIS 133421, at *4 (S.D.Miss. Dec. 16, 2010); *803 Cooper Tire & Rubber Co. v. Farese, No. 3:02-CV-SA-JAD, 2008 WL 5104745, at *3-4, 2008 U.S. Dist. LEXIS 96729, at *10-*11 (N.D.Miss. Nov. 26, 2008). The discovery deadline was December 1, 2010as established in the Court's Case Management Order of March 4, 2010[9]. On November 17, 2010, the Court extended the discovery deadline to allow the parties to schedule and complete depositions of designated experts [34]. The Court explicitly stated that the discovery deadline was not extended for any other purpose. Therefore, whether characterized as a new report or as a supplement, Sparks' supplemental report was untimely.[4]
2. Appropriate Sanctions
Defendants request that the Court strike Sparks' expert testimony in whole, or, alternatively, strike the testimony contained within the supplemental opinions. Plaintiffs argue that such a harsh sanction is not merited, and that, alternatively, the Court should only strike the supplemental report and allow Sparks to testify within the scope of his timely preliminary report.
Rule 37 provides: "If a party fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at trial, unless the failure was substantially justified or is harmless." FED.R.CIV.P. 37(c)(1). When determining whether to strike an expert's testimony for a party's failure to properly and timely disclose required information, the Court considers the following factors:
(1) the importance of the witnesses' testimony;
(2) the prejudice to the opposing party of allowing the witnesses to testify;
(3) the possibility of curing such prejudice by a continuance; and
(4) the explanation, if any, for the party's failure to comply with the discovery order.
Sierra Club, 73 F.3d at 572 (citing Bradley v. United States, 866 F.2d 120, 125 (5th Cir.1989)); see also Reliance Ins. Co., 110 F.3d at 257 (citing Geiserman v. MacDonald, 893 F.2d 787, 791 (5th Cir.1990)).
As for the first factor, Sparks' expert testimony is undoubtedly important to Plaintiffs' case. See Hammond v. Coleman Co., Inc., 61 F. Supp. 2d 533, 542 (S.D.Miss.1999) (without expert testimony, plaintiff failed to offer proof on a matter which he bears the burden of proof at trial); Forbes v. GMC, 935 So. 2d 869, 877 (Miss.2006) ("It is true that we have frequently relied on expert testimony in deciding fault in products liability cases."); Brown v. GMC, 4 So. 3d 400 (Miss.Ct.App. 2009) (where plaintiff failed to provide any expert testimony in support of her design and manufacturing defect claims, the trial court properly granted summary judgment in favor of the manufacturer). Indeed, as there is no dispute as to the importance of the testimony, "so much more the reason to be sure its introduction was properly grounded." Geiserman, 893 F.2d at 791. "[T]he claimed importance of Plaintiffs' expert testimony merely underscores the need for Plaintiffs to have complied with the court's deadlines or at least informed the judge in advance if good faith compliance was not possible." Barrett v. Atl. Richfield Co., 95 F.3d 375, 381 (5th Cir. 1996). "Even granting that the expert testimony was significant `the importance of such proposed testimony cannot singularly override the enforcement of local rules and scheduling orders.'" Id. (citing *804 Geiserman, 893 F.2d at 792); see also Hamburger v. State Farm Mut. Auto. Ins. Co., 361 F.3d 875, 883 (5th Cir.2004).
With respect to the second factor, even a minor delay in complying with disclosure requirements may disrupt an opponent's preparation for trial. See Geiserman, 893 F.2d at 791 (a two-week delay in designating an expert witness was sufficient to disrupt the court's discovery schedule and opponent's preparation for trial). Plaintiffs argue that Defendants would not be prejudiced by introduction of Sparks' supplementary report insofar as they are already in possession of expert testimony by Brantley. Indeed, in addition to being Defendants' expert witness in this matter, Brantley is the President of Defendant Amadas Industries. However, the Court does not believe this fact to be as significant as Plaintiffs believe it is. While Defendants "might not suffer the degree of unfair surprise associated with the last-second designation of an unscheduled witness," the Court nonetheless believes there is some prejudice inherent to being forced to make late adjustments in trial preparation, and the Court has the discretion to "control discovery abuses and cure prejudice by excluding improperly designated evidence." Id.
To allow Plaintiffs to supplement their first report would require Defendants to prepare supplemental expert testimony to rebut Plaintiffs' untimely testimony. See Reliance Ins. Co., 110 F.3d at 257-58. The final pretrial conference in this matter is scheduled for April 14, 2011, and the trial is scheduled to begin on May 2, 2011. Allowing Plaintiffs to supplement Sparks' report at this juncture would prejudice Defendants' trial preparation and could potentially disrupt the Court's scheduling orders. See Id. at 257-58 (where plaintiff attempted to supplement an expert's report two months from the final pretrial conference, the district court had the discretion to deny the request to supplement); Sierra Club, 73 F.3d at 573 (where party who had not complied with Rule 26 provided more detailed information in a supplemental report approximately two months before trial, the delay would have likely prejudiced the opposing party).
While a continuance may cure the above-cited prejudice, it would also result in additional delay, increase the expense incurred by all parties to this lawsuit, and require the expenditure of further Court resources. Hamburger, 361 F.3d at 883 (citing Geiserman, 893 F.2d at 792); see also Barrett, 95 F.3d at 381. More importantly, Plaintiffs have not given the Court any reason to believe that a continuance would deter such dilatory behavior in the future. See Barrett, 95 F.3d at 381. Indeed, "a continuance does not in and of itself, `deter future dilatory behavior, nor serve to enforce local rules or court imposed scheduling orders.'" Id. (citing Geiserman, 893 F.2d at 792); see also Sierra Club, 73 F.3d at 573 (quoting Bradley, 866 F.2d at 126). Chief among the reasons that the Court believes a continuance would serve little purpose is that Plaintiffs have offered no legitimate reason for their delay. Indeed, Plaintiffs failed to offer any explanation for the supplement's untimeliness in their briefing on Defendants' Motion to Strike.
Sparks testified that his inspection of the combine was delayed by confusion as to its location, but the record reveals that Deere, in its initial disclosures of February 26, 2010, notified Plaintiffs of its present owner's contact information. Further, the Court finds it significant that Plaintiffs filed a motion for an extension of their designations deadline on the date the designations were due, represented that their experts required additional time to complete investigations and prepare reports, while Plaintiffs' counsel first retained Sparks in this matter on the same day *805 Plaintiffs requested the extension. Sparks did not even inspect the combine until December 18, 2010two days prior to his deposition, almost seven weeks after Plaintiffs' extended designation deadline, and almost three weeks after the discovery deadline. Sparks testified that he had to contact Plaintiffs' counsel to arrange the inspection, rather than Plaintiffs' counsel arranging for him to inspect the combine. Any potential argument by Plaintiffs that compliance with the Court's scheduling orders was impossible is belied by the above record. See Sierra Club, 73 F.3d at 571 n. 46, 573 (where it was known that a particular element of harm would be an issue since the action was filed, and the party had over nine months to solicit experts and prepare reports by the designations deadline, they should have produced more detailed disclosures, despite their claim that compliance was "impossible" under the circumstances).
The balance of the factors cited above favors striking the untimely disclosures. Accordingly, the Court grants in part Defendants' Motion to Strike Expert Testimony of Jack Sparks [44]. The Court will not strike all of Sparks' expert testimony, as his preliminary report was timely disclosed. Rather, the Court only strikes Sparks' supplemental report as untimely.
III. MOTION TO EXCLUDE EXPERT TESTIMONY OF JACK SPARKS [46]
A. Daubert Standard
Defendants also filed a Motion to Exclude the Expert Testimony of Jack Sparks [46]. As the Court granted Defendants' Motion to Strike Sparks' supplemental report, this motion only concerns Sparks' preliminary report.
Federal Rule of Evidence 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 based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.
FED.R.EVID. 702. Expert testimony "serves to inform the jury about affairs not within the understanding of the average man." United States v. Moore, 997 F.2d 55, 57 (5th Cir.1993) (quoting United States v. Webb, 625 F.2d 709, 711 (5th Cir.1980)). Therefore, "[a] district court should refuse to allow an expert witness to testify if it finds that the witness is not qualified to testify in a particular field or on a given subject." Wilson v. Woods, 163 F.3d 935, 937 (5th Cir.1999) (citing Holbrook v. Lykes Bros. Steamship Co., Inc., 80 F.3d 777, 781 (3d Cir.1996)). "Whether a witness is qualified to testify as an expert is left to the sound discretion of the trial judge, who is in the best position to determine both the claimed expertise of the witness and the helpfulness of his testimony." Sullivan v. Rowan Cos., 952 F.2d 141, 144 (5th Cir.1992) (quoting Gideon v. Johns-Manville Sales Corp., 761 F.2d 1129, 1135 (5th Cir.1985)).
"[W]hen expert testimony is offered, the trial judge must perform a screening function to ensure that the expert's opinion is reliable and relevant to the facts at issue in the case." Watkins v. Telsmith, Inc., 121 F.3d 984, 988-89 (5th Cir.1997) (citing Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 589, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993)). In Daubert, the Supreme Court provided a nonexclusive list of "`general observations' intended to guide a district court's evaluation of scientific evidence," including: "`whether [a *806 theory or technique] can be (and has been) tested,' whether it `has been subjected to peer review and publication,' the `known or potential rate of error,' and the `existence and maintenance of standards controlling the technique's operation,' as well as `general acceptance.'" Id. at 989 (quoting Daubert, 509 U.S. at 593-94, 113 S. Ct. 2786, 125 L. Ed. 2d 469). The Fifth Circuit Court of Appeals has observed:
Not every guidepost outlined in Daubert will necessarily apply to expert testimony based on engineering principles and practical experience, but the district court's "preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid and of whether that reasoning or methodology properly can be applied to the facts in issue" is no less important.
Id. at 990-91 (quoting Daubert, 509 U.S. at 592-93, 113 S. Ct. 2786).
This Court's responsibility is "to make certain than an expert, whether basing testimony upon professional studies or personal experience, employs in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field." Kumho Tire Co. v. Carmichael, 526 U.S. 137, 152, 119 S. Ct. 1167, 143 L. Ed. 2d 238 (1999). While the Court must "ensure expert witnesses have employed reliable principles and methods in reaching their conclusions," it does not judge the proposed experts' conclusions. Guy v. Crown Equip. Corp., 394 F.3d 320, 325 (5th Cir.2004). Indeed, "[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." United States v. 14.38 Acres of Land, 80 F.3d 1074, 1078 (5th Cir.1996). "As a general rule, questions relating to the bases and sources of an expert's opinion affect the weight to be assigned that opinion rather than its admissibility and should be left for the jury's consideration." Id. at 1077 (quoting Viterbo v. Dow Chem. Co., 826 F.2d 420, 422 (5th Cir.1987)). Nonetheless, "[t]he proponent of expert testimony . . . has the burden of showing that the testimony is reliable," United States v. Hicks, 389 F.3d 514, 525 (5th Cir.2004), and must establish the admissibility requirements "by a preponderance of the evidence." United States v. Fullwood, 342 F.3d 409, 412 (5th Cir.2003).
B. Discussion
Defendants argue that Sparks' opinions are unreliable because 1) he lacks sufficient knowledge to testify as to whether his design suggestions would impair the desirability, utility, usefulness, and practicality of the combine; and 2) his reasoning and methodology do not withstand scrutiny under the Daubert factors.[5] In response, Plaintiffs explicitly represent that they do not intend to elicit testimony from Sparks regarding the operating effectiveness of the peanut combine.[6] Further, *807 Plaintiffs argued that Sparks would apply generally accepted engineering principles to the combine to show that the alternative designs he proposes would have prevented the harm to Elliot. They also cite OSHA standards for agricultural equipment which require similar safeguards.
Sparks' preliminary report contains a wide variety of statements and opinions. However, during his deposition, Sparks testified that his proposed expert testimony in this matter could be reduced to the following four opinions:
The combine design should have incorporated a lockout mechanism on the separator activation switch. If such a mechanism were implemented, someone performing maintenance in the picking chamber would have to unlock the activation switch before the person in the cab could activate the separator.
The combine design should have incorporated a delay and alarm, such that once the basket is raised, the separator would activate only after a three to five second delay and alarm period. This delay and alarm would not repeat after the initial separator activation, as long as the combine's engine was not cut off or the basket was not lowered. If the engine were cut off or the basket lowered, the delay and alarm would repeat before the separator could be activated again.
There should have been written warnings inside the picking chamber advising that the separator could be activated while the basket was raised.
There should have been written warnings in the cab advising the operator to make sure no one was in the picking chamber before activating the separator.
Sparks testified that, in his opinion, incorporation of the lockout and delay/alarm mechanisms in the combine's design would have prevented the accident at issue in this case. He further testified that, in his opinion, the written warnings he proposed could have prevented the accident.[7] After thoroughly examining Sparks' preliminary report, deposition testimony, affidavit testimony, and other record evidence, the Court finds that Plaintiffs have failed to establish the reliability of his expert testimonya decision based on multiple factors.
First, Sparks' opinions are not based upon sufficient facts or data. He based the opinions in his report on the following sources of information: the pleadings, discovery requests, and discovery responses in this case; Elliot's medical records; photographs of the combine at issue; operating manuals and parts catalogs for combine models not at issue in this case; a combine "Quickstart Guide;" "Service School" documents for a combine model not at issue in this case; and OSHA regulations. When asked why he had not examined documents specific to the model of combine involved in this action, Sparks testified that he did not know the specific model of combine involved in the accident when he prepared the preliminary report.
*808 Further, at the time Sparks prepared his report, he had not inspected the combine. Indeed, during his depositiontwo days after the inspection, and almost two months after the disclosure of this preliminary reportSparks testified that he had needed to inspect the combine to confirm whether the separator's activation switch could be designed with a lockout mechanism. He further testified that he had wanted to see whether there were warnings in the cab about activating the separator when someone was in the picking chamber, and whether there were warnings within the picking chamber or underneath the basket about the potential activation of the separator while the machine was idling. Therefore, according to Sparks' own testimony, he decided that a lockout mechanism was necessary before he even knew whether it could be incorporated into the combine's design. Furthermore, he decided that additional warnings were necessary before he even knew what warnings were already on the combine at the time of the accident.
Expert witnesses "suggest an appropriate inference to be drawn from facts in evidence if the expert's specialized knowledge is helpful in understanding the facts." United States v. Willey, 57 F.3d 1374, 1389 (5th Cir.1995). "Where an expert's opinion is based on insufficient information, the analysis is unreliable." Paz v. Brush Eng'red Materials Inc., 555 F.3d 383, 388 (5th Cir.2009). In the present case, Sparks had little to nothing in the way of facts when he formed his opinions. He did not have a design schematic, operator's manual, or parts catalog for the combine model at issue. He had not even personally inspected the combine. When directly asked for the factual basis of his opinion that Defendants should have foreseen an accident of this sort, Sparks replied that the only basis he had was his own experience and the fact that the accident happened. The Court does not suggest that any one of these issues is, by itself, dispositive as to the reliability of his expert testimony. However, it is clear that Sparks formed his opinions before he had sufficient facts or data.[8]See FED.R.EVID. 702 (expert testimony must be "based upon sufficient facts or data"); Paz, 555 F.3d at 388-90 (district court did not abuse discretion by excluding expert testimony based on insufficient and/or incorrect information); Seaman v. Seacor Marine L.L.C., 326 Fed.Appx. 721, 725-26 (5th Cir. 2009) (doctor did not rely on sufficient data concerning plaintiff's exposure to alleged carcinogen to sustain her opinions under Daubert or Rule 702).
Second, in a product liability case, a proposed expert must "be able to independently establish the technical basis for the utility and safety of the proposed alternative designs." Watkins, 121 F.3d at 993. Sparks has not provided any technical basis for his proposed alternative designs. His preliminary report contains a cursory reference to standards promulgated by OSHA and the American National Standards Institute ("ANSI"), but he failed to provide any specific citations to such standards or an explanation as to how the combine failed to comply with them. To the extent that Sparks later identified a specific OSHA standard at his deposition, the supplement was untimely, and the Court granted Defendants' Motion to Strike with respect to it.[9]
*809 Furthermore, in a section of the preliminary report titled "Basis of Opinions," Sparks merely related his professional qualifications and stated, "These opinions are based upon a reasonable degree of accepted standards of engineering analysis and certainty"without providing the alleged "standards of engineering analysis and certainty." He included no specific citations to engineering or manufacturing standards, no explanation for how the machine's design failed to comply with those standards, and no explanation for why his alternative design did comply with them.
The Court is not required to merely accept a proposed expert's assertion that his opinions derive from accepted industry standards. See GE v. Joiner, 522 U.S. 136, 146, 118 S. Ct. 512, 139 L. Ed. 2d 508 (1997) ("[N]othing in Daubert or the Federal Rules of Evidence requires a district court to admit opinion evidence which is connected to existing data only by the ipse dixit of the expert. A court may conclude that there is simply too great an analytical gap between the data and the opinion proffered."). Sparks admitted that he was not aware of any other agricultural equipment which utilized a lockout mechanism as he proposed. He further admitted that he has no knowledge regarding agricultural industry standards regarding the use of such lockout mechanisms. In summary, Sparks failed to disclose any industry standards which governed the piece of machinery at issue or provided the process by which he reached his opinions, despite claiming that such standards supported his conclusions. See Moore v. Ashland Chem. Inc., 151 F.3d 269, 277-79 (5th Cir.1998) (it was within district court's discretion to find an "analytical gap" between expert's opinion and the data available to him in support of the opinion).
Finally, Sparks has "not tested his proposed alternative design in order to determine whether, to a reasonable probability, it `would have . . . prevented the harm without impairing the utility, usefulness, practicality or desirability of the product to users or consumers,' as is required under Mississippi law." Vandiver v. The Ohio River Co., 174 Fed.Appx. 206, 207-08 (5th Cir.2006). While "[t]esting is not an `absolute prerequisite' to the admission of expert testimony on alternative designs,. . . Rule 702 demands that experts `adhere to the same standards of intellectual rigor that are demanded in their professional work.'" Watkins, 121 F.3d at 990 (quoting Cummins v. Lyle Indus., 93 F.3d 362, 369 (7th Cir.1996)). During his deposition, Sparks testified as to the importance of testing equipment to make sure it performed as it was designed to perform. He further testified that the effectiveness of warnings should be tested before implementation. Despite these statements supporting the testing of proposed mechanical designs, he failed to conduct his own tests *810 before concluding that his alternative designs were superior.
Indeed, the MPLA requires that an injured party prove, by a preponderance of the evidence, that "there existed a feasible design alternative that would have to a reasonable probability prevented the harm." MISS.CODE. ANN. § 11-1-63(f). "A feasible design alternative is a design that would have to a reasonable probability prevented the harm without impairing the utility, usefulness, practicality or desirability of the product to users or consumers." MISS.CODE ANN. § 11-1-63(f)(ii). "The proper methodology for proposing alternative designs includes more than just conceptualizing possibilities." Guy, 394 F.3d at 327 (quoting Watkins, 121 F.3d at 992).
Sparks testified that he had not designed, built, tested, repaired, or serviced a peanut combine or any other agricultural combinewith or without his proposed alternative safety features. He further testified that he had not written or tested any warnings for a combine, prepared any design drawings for a combine that incorporate his proposed safety features, sought out the advice of anyone with combine design experience, or conducted feasibility studies or any other research to determine the impact his alternative design would have on the utility of the combine. Additionally, none of his alternative design concepts have been published or peer-reviewed.
The Court does not suggest that any one of these issues is dispositive as to the reliability of Sparks' testimony. However, in the aggregate, they clearly indicate that there is no basis for his assurance that his proposed alternative designs and warnings would have, to a reasonable probability, prevented the injury to Elliot without impairing the utility, usefulness, practicality or desirability of the combine. See Vandiver, 174 Fed.Appx. at 207-08 (proposed expert's failure to test his proposed alternative design to determine whether it would impair the utility of the product was a factor in excluding his testimony); McSwain v. Sunrise Med., Inc., No. 2:08-CV-136-KS-MTP, 2010 U.S. Dist. LEXIS 7223, at *21-*22 (S.D.Miss. Jan. 14, 2010) (where proposed expert's alternative design lacked a proper foundation, his opinion as to its feasibility was excluded).
All of the issues cited above contribute to the Court's conclusion that Sparks' proposed testimony lacks the requisite indicia of reliability demanded by Daubert. This is not a situation where "[v]igorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof" can alleviate the deficiencies in proposed expert testimony. 14.38 Acres of Land, 80 F.3d at 1078. Beyond Sparks' own assurance, Plaintiffs have failed to provide the Court with any evidence that his testimony in this matter is reliable. Accordingly, the Court grants Defendants' Motion to Exclude the Expert Testimony of Jack Sparks [46].
IV. DEFENDANTS' JOINT MOTION FOR SUMMARY JUDGMENT [48]
A. Summary Judgment Standard
Rule 56 provides that "[t]he court shall 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); see also Sierra Club, Inc. v. Sandy Creek Energy Assocs., L.P., 627 F.3d 134, 138 (5th Cir.2010). "Where the burden of production at trial ultimately rests on the nonmovant, `the movant must merely demonstrate an absence of evidentiary support in the record for the nonmovant's case.'" Cuadra v. Houston Indep. Sch. Dist., 626 F.3d 808, 812 (5th Cir.2010) (quoting Shields v. Twiss, 389 F.3d 142, 149 (5th Cir.2004)). The nonmovant "must come forward with specific *811 facts showing that there is a genuine issue for trial." Id. (punctuation omitted). "An issue is material if its resolution could affect the outcome of the action." Sierra Club, Inc., 627 F.3d at 138 (quoting Daniels v. City of Arlington, Tex., 246 F.3d 500, 502 (5th Cir.2001)). "An issue is `genuine' if the evidence is sufficient for a reasonable jury to return a verdict for the nonmoving party." Cuadra, 626 F.3d at 812 (quoting Hamilton v. Segue Software, Inc., 232 F.3d 473, 477 (5th Cir.2000)).
The Court is not permitted to make credibility determinations or weigh the evidence. Deville v. Marcantel, 567 F.3d 156, 164 (5th Cir.2009). When deciding whether a genuine fact issue exists, "the court must view the facts and the inference to be drawn therefrom in the light most favorable to the nonmoving party." Sierra Club, Inc., 627 F.3d at 138 (quoting Daniels, 246 F.3d at 502). However, "[c]onclusional allegations and denials, speculation, improbable inferences, unsubstantiated assertions, and legalistic argumentation do not adequately substitute for specific facts showing a genuine issue for trial." Oliver v. Scott, 276 F.3d 736, 744 (5th Cir.2002).
B. Design Defects
Defendants argue that Plaintiffs can not meet their burden of proof without the expert testimony of their only expert, Jack Sparks. Defendants further argue that Plaintiffs have no evidence that the combine was unreasonably dangerous, that this accident was reasonably foreseeable, or that there exists a feasible design alternative that would not impair the usefulness or utility of the combine.
Plaintiffs respond that Sparks' testimony proves that the combine was unreasonably dangerous insofar as a user could engage the separator while another person was in the picking chamber. Plaintiffs also argue that the combine lacked sufficient warnings of the danger of activating the separator while another person was in the picking chamber, and that a delay and alarm system would allow a worker to escape the chamber before the separator is engaged. Plaintiffs assert that Defendants knew of the danger and claim that Sparks designed a feasible alternative which incorporates safety features which would have prevented the accident.
To make out a design defect claim under the MPLA, a plaintiff must "prove by the preponderance of the evidence that at the time the product left the control of the manufacturer . . . [t]he product was designed in a defective manner;" that "[t]he defective condition rendered the product unreasonably dangerous to the consumer;" and that "[t]he defective and unreasonably dangerous condition of the product proximately caused the damages for which recovery is sought." MISS.CODE ANN. § 11-1-63(a)(i)-(iii). "A product is not defective in design . . . if the harm. . . was caused by an inherent characteristic of the product which is a generic aspect of the product that cannot be eliminated without substantially compromising the product's usefulness or desirability and which is recognized by the ordinary person with the ordinary knowledge to the community." MISS.CODE ANN. § 11-1-63(b). The MPLA further provides:
[T]he manufacturer . . . shall not be liable if the claimant does not prove by the preponderance of the evidence that at the time the product left the control of the manufacturer . . .:
(i) The manufacturer ... knew, or in light of reasonably available knowledge or in the exercise of reasonable care should have known, about the danger that caused the damage for which recovery is sought; and
(ii) The product failed to function as expected and there existed a feasible *812 design alternative that would have to a reasonable probability prevented the harm. A feasible design alternative is a design that would have to a reasonable probability prevented the harm without impairing the utility, usefulness, practicality or desirability of the product to users or consumers.
MISS.CODE ANN. § 11-1-63(f).
As the Court has excluded the testimony of Plaintiffs' proposed expert, Plaintiffs have not presented any evidence whatsoever to support their design defect claim. They have not provided any evidence that the alleged defect rendered the product unreasonably dangerous; that the alleged defect can be eliminated without substantially compromising the combine's usefulness or desirability; or that a feasible design alternative existed at the time of the accident that would have prevented the harm without impairing the utility, usefulness, practicality, or desirability of the combine. Accordingly, the Court grants Defendants' Motion for Summary Judgment as to Plaintiffs' design defect claim.[10]
C. Warning Defects
Defendants argue that Plaintiffs can not prove that an ordinary user of the combine would not know that the separator could be engaged while the basket was raised. Defendants also contend that the danger was open and obvious to Elliot, Morgan, and the ordinary user of such combines. Finally, Defendants argue that Plaintiffs can not prove that further warning would have prevented the accident. In response, Plaintiffs offer Sparks' testimony that further warnings would have prevented the accident.
To make out a cognizable warning defect claim under the MPLA, a plaintiff must prove by a preponderance of the evidence "that at the time the product left the control of the manufacturer . . . it failed to contain adequate warnings or instructions;" that this "defective condition rendered the product unreasonably dangerous to the consumer;" and that this "defective and unreasonably dangerous condition of the product proximately caused the damages for which recovery is sought." MISS. CODE ANN. § 11-1-63(a)(i)-(iii). The MPLA further provides:
In any action alleging that a product is defective because it failed to contain adequate warnings or instructions . . ., the manufacturer . . . shall not be liable if the claimant does not prove by the preponderance of the evidence that at the time the product left the control of the manufacturer . . ., the manufacturer . . . knew or in light of reasonably available knowledge should have known about the danger that caused the damage for which recovery is sought and that the ordinary user or consumer would not realize its dangerous condition.
MISS.CODE ANN. § 11-1-63(c)(i). Also:
An adequate product warning or instruction is one that a reasonably prudent person in the same or similar circumstances would have provided with respect to the danger and that communicates sufficient information on the *813 dangers and safe use of the product, taking into account the characteristics of, and the ordinary knowledge common to an ordinary consumer who purchases the product. . . .
MISS.CODE ANN. § 11-1-63(c)(ii). Finally:
[T]he manufacturer . . . shall not be liable if the danger posed by the product is known or is open and obvious to the user or consumer of the product, or should have been open and obvious to the user or consumer of the product, taking into account the characteristics of, and the ordinary knowledge common to, the persons who ordinarily use or consume the product.
MISS.CODE ANN. § 11-1-63(e).
As the Court excluded the testimony of Plaintiffs' expert, they have not presented any evidence whatsoever that the combine's purported lack of warnings caused the accident. Furthermore, they have not presented any evidence that a reasonable person would have provided additional warnings, that Defendants should have known about the danger posed by the combine, or that its average user would not realize said danger. Plaintiffs have not presented any evidence to rebut Morgan's testimony that he fully appreciated the danger in starting the combine while another person stood in the picking chamber or Elliot's own testimony that he knew the separator could be engaged while the basket was raised. Finally, Defendants have presented undisputed evidence that the combine had warnings affixed at more than one location which warned users to stay clear of moving parts. Accordingly, the Court grants Defendants' Motion for Summary Judgment as to Plaintiffs' warning defect claim.[11]
D. Remaining Claims
The MPLA addresses breaches of express warranties, but Plaintiffs failed to address that claim in their briefing. See MISS.CODE ANN. § 11-1-63(a)(i)(4). In any event, Plaintiffs failed to present any evidence that Defendants made an express representation about the combine, or that they relied on such information. See McSwain v. Sunrise Med., Inc., 689 F. Supp. 2d 835, 848 (S.D.Miss.2010). Therefore, there is no factual basis for a breach of express warranty claim under the MPLA, and Defendants' Motion for Summary Judgment is granted as to that claim.
Plaintiffs likewise failed to address their claims for breach of implied warranties of merchantability and fitness for a particular purpose. The MPLA did not abrogate these common law torts. McSwain, 689 F.Supp.2d at 849 (citing Bennett v. Madakasira, 821 So. 2d 794, 808 (Miss.2002)). However, breaches of these implied warranties are committed by merchantsnot manufacturers. See Fed. Ins. Co. v. GE, No. 2:08-CV-156-KS-MTP, 2009 U.S. Dist. LEXIS 112931, *38-*39 (S.D.Miss. Dec. 3, 2009) (citing MISS.CODE *814 ANN. §§ 75-2-314(1), 75-2-315); Watson Quality Ford, Inc. v. Casanova, 999 So. 2d 830, 833-34 (Miss.2008). Therefore, they are inapplicable to the present case. Accordingly, the Court grants Defendants' Motion for Summary Judgment as to Plaintiffs' breach of implied warranty claims.
To the extent that Plaintiffs plead any further negligence claims, they are mere restatements of the MPLA claims. Therefore, the Court grants Defendants' Motion for Summary Judgment as to them also. See McSwain, 689 F.Supp.2d at 844-45 (negligence claims failed because they were mere restatements of MPLA claims, which failed).
V. CONCLUSION
For the reasons stated above, the Court:
1) grants in part Defendants' joint Motion to Strike Expert Testimony of Jack Sparks [44];
2) grants Defendants' joint Motion to Exclude the Expert Testimony of Jack Sparks [46];
3) grants Defendants' joint Motion for Summary Judgement [48];
4) finds as moot Defendant Deere's Motion for Summary Judgment [51]; and
5) finds as moot Defendants' joint Motion to Exclude Certain Opinions of Lynn Esko [53].
Accordingly, this case is closed.
NOTES
[1] Various photographs of the peanut combine may be found in the record at Documents 27-2, pp. 3-9; 49-2; 49-3, pp. 37-39; 49-4; 49-5; 49-10; 49-11; 49-12; and 49-13.
[2] Photographs of the exposed picking chamber may be found in the record at Document 49-5.
[3] The Advisory Committee's Notes to Rule 26 of the Federal Rules of Civil Procedure provide that expert witnesses "must prepare a detailed and complete written report, stating the testimony the witness is expected to present during direct examination, together with the reasons therefor." FED.R.CIV.P. 26 advisory committee's note; see also Sierra Club, 73 F.3d at 571. "These Notes also explain that the purpose of the reports is to avoid the disclosure of `sketchy and vague' expert information, as was the practice under the former rule." Sierra Club, 73 F.3d at 571.
[4] Stanley Brantley, Defendants' expert witness, was deposed on December 13, 2010, a week prior to Sparks' deposition. Plaintiffs do not argue that Sparks' supplemental report was intended to rebut Brantley's testimony. Likewise, nothing in the supplemental report suggests that it was intended as a rebuttal to Brantley's testimony.
[5] Defendants also argue that Sparks is not qualified to offer expert testimony in this case. As the Court finds merit in Defendants' argument concerning the reliability of Sparks' testimony, it is not necessary for the Court to address his qualifications. But see Smith v. Goodyear Tire & Rubber Co., 495 F.3d 224, 227 (5th Cir.2007) (expert in polymer science who had no experience in applying polymer science to tires was not qualified to provide expert testimony); Hammond, 61 F.Supp.2d at 541 (where expert had no experience in manufacturing, designing, or testing lanterns; had conducted no tests on the specific lantern involved in the case or any other lanterns; and had never testified in a lantern case, his proffered testimony "probably should be excluded").
[6] Despite this representation on the second page of their response brief, Plaintiffs later argued that the alternative designs proposed by Sparks would not impair the utility, usefulness, practicality, or desirability of the peanut combine. Furthermore, Sparksin his affidavit in support of Plaintiffs' response brief explicitly makes the same assertion. Regardless of this incongruence, the Court finds it unlikely that Plaintiffs do not intend to elicit expert testimony from Sparks as to the feasibility, utility, usefulness, or practicality of the combine's design or his proposed alternative designs, as they are required to put on such evidence to make out a prima facie design defect claim under the MPLA. See MISS.CODE ANN. § 11-1-63(b), (f)(ii).
[7] The Court will not address whether the four opinions Sparks identified as the crux of his proposed expert testimony are within the scope of his preliminary report. For the sake of addressing Defendants' Daubert motion, the Court will assume they were timely disclosed in the preliminary report.
[8] To the extent that Plaintiffs rely on Sparks' experience as imbuing his opinions with sufficient reliability, the Court notes that Sparks explicitly admitted that he had no previous experience with peanut combines or any agricultural combine beyond seeing them in a field from a roadway.
[9] Without explicitly addressing the issue, the court questions whether the OSHA regulations would even be as beneficial to Plaintiffs' case as they suggest. In Taylor v. United Techs. Corp., 117 Fed.Appx. 961, 963 (5th Cir.2004), the Fifth Circuit held that a manufacturer "should not be expected to `reasonably anticipate' that users of its products would fail to properly" abide by ANSI and OSHA maintenance standards. The OSHA regulation which Sparks untimely disclosed requires that employers instruct employees "in the safe operation and servicing of all covered equipment with which he is or will be involved. . . ." 29 C.F.R. § 1928.57(a)(6). Among other safe operating practices, employers are required to instruct their employees "as to all steps and procedures which are necessary to safely service or maintain the equipment." 29 C.F.R. § 1928.57(a)(6)(iii). Manufacturers have "every reason to anticipate that anyone repairing" their products will "adhere to the ANSI and OSHA guidelines and take common sense safety measures" to avoid injury. Taylor, 117 Fed.Appx. at 963. Therefore, even if the Court agreed that the OSHA regulation in question set a standard which manufacturers are required to meet, it is clear that it would also create a standard of behavior which manufacturers may assume employers and employees will follow when using their products.
[10] See Smith, 495 F.3d at 228 (without excluded expert's testimony as to causation, defendant's expert was uncontroverted and grant of summary judgment was proper); Guy, 394 F.3d at 324 (plaintiff must present evidence of a feasible design alternative to prove that a design defect rendered a product unreasonably dangerous); Williams v. Chrysler LLC, 310 Fed.Appx. 747, 747-48 (5th Cir. 2009) (district court's grant of summary judgment for lack of genuine issue of material fact was correct where it had excluded the testimony of plaintiff's experts); Brown, 4 So.3d at 402 (where record was devoid of evidence in support of MPLA claim, trial court correctly granted summary judgment against plaintiff).
[11] See Austin v. Will-Burt Co., 361 F.3d 862, 869-70 (5th Cir.2004) (where product contained warnings which specifically addressed the adverse affect of which plaintiff complained, summary judgment was appropriate); 3M Co. v. Johnson, 895 So. 2d 151, 166 (Miss.2005) (where plaintiffs failed to prove that some other warning would have given them information they did not already know and that they would have acted upon that information in a manner that would have avoided injury, manufacturer was entitled to judgment as a matter of law); Hobson v. Waggoner Eng'g, Inc., 878 So. 2d 68, 79 (Miss. Ct.App.2003) (where evidence indicated that warning was sufficient and that the dangerous nature of the product was open and obvious to the user, summary judgment was appropriate); Wolf v. Stanley Works, 757 So. 2d 316, 322-23 (Miss.Ct.App.2000) (where plaintiff failed to present evidence that her desired warning would have had any causative impact, summary judgment in favor of manufacturer was appropriate). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2470094/ | 763 F. Supp. 2d 303 (2011)
UNITED STATES of America
v.
Vincent BASCIANO, Defendant.
No. 05-CR-060 (NGG).
United States District Court, E.D. New York.
January 12, 2011.
*309 MEMORANDUM & ORDER
NICHOLAS G. GARAUFIS, District Judge.
Defendant Vincent Basciano ("Basciano") is charged in a superseding indictment with various crimes stemming from his alleged participation in the activities of the Bonanno organized crime family. (See S-9 Superseding Indictment ("S-9 Indictment") (Docket Entry # 464).)[1] The Government seeks the death penalty. On June 26, 2009, the court heard five-and-a-half-hours of oral argument on the dozens of pretrial motions made by the Defendant. (See ("Arg. Tr.") Docket Entry # 723.) The motions fall into three broad categories: general pretrial motions, discovery motions, and penalty-phase specific motions.[2] As set forth below, Basciano's motions *310 are granted in part and denied in part.
I. BACKGROUND
For the purpose of these motions, the current criminal action against Basciano is referred to as "Basciano II." United States v. Basciano, 05-CR-060 (NGG) (E.D.N.Y.). Basciano was also a defendant in an earlier criminal action before this court, which is referred to throughout this opinion as "Basciano I." United States v. Basciano, No. 03-CR-929 (NGG) (E.D.N.Y.). The fact that Basciano was previously tried and convicted in Basciano I is relevant to a number of the Basciano II motions addressed herein.
In the current operative indictment, the S-9 Indictment, Basciano is charged with numerous criminal acts arising from his actions as the "acting boss" of the Bonanno organized crime family. (See S-9 Indictment.) The charges in the S-9 Indictment relate to Basciano's continued involvement in the Bonanno crime family during his incarceration, following his arrest in Basciano I on November 19, 2004. (See Memorandum & Order of Oct. 14, 2008 ("Double Jeopardy Order") (Docket Entry # 540) at 6, 2008 WL 4596215.)
In Basciano I, Basciano was twice tried and convicted by jury. The charges in that case stemmed from his participation in the Bonanno organized crime family from 1979 through 2004. (See Double Jeopardy Order at 2-3.) On May 9, 2006, a jury found Basciano guilty of a racketeering conspiracy in violation of 18 U.S.C. § 1962(d), including predicate acts of illegal gambling and the attempted murder of David Nunez. (See Jury Verdict, Basciano I (Docket Entry # 749).) Under a superseding indictment, Basciano was re-tried on charges for which no verdict had been reached in the first trial. A second jury found him guilty of substantive racketeering, including predicate acts of illegal gambling, conspiracy to distribute marijuana, solicitation to murder Salvatore Vitale and Dominick Martino, and conspiring to murder and murdering of Frank Santoro. (See Basciano I, Jury Verdict (Docket Entry # 981).) The jury also found Basciano guilty of three counts of illegal gambling and one count of conspiracy to distribute marijuana. (Id.) The various charges in the indictments in Basciano I related to Basciano's "expansive involvement in the livelihood of the Bonanno organization." (See Double Jeopardy Order at 11; see also id. at 2-3.) On April 7, 2008, the court entered judgment against Basciano, sentencing him to a term of life imprisonment. (See Basciano I, Docket Entry # 1073.) Basciano is designated by the Bureau of Prisons to serve his life sentence in the Administrative Maximum Facility of the Florence Federal Correctional Complex ("Florence Supermax"). (Docket Entry # 889.) The Second Circuit has thus far upheld Basciano's conviction. See United States v. Basciano, 384 Fed.Appx. 28 (2d Cir.2010); (Basciano I, Docket Entry # 1075, 1164).
*311 Here, in Basciano II, the indictment was first filed on January 26, 2005. (Indictment (Docket Entry # 1).) Over the course of this case, the indictment has been superseded several times. The current operative indictment, the S-9 Indictment, charges Basciano with four separate crimes. Counts Three and Four of the S-9 Indictment charge Basciano with allegedly conspiring to murder and murdering Randolph Pizzolo in aid of racketeering in violation of 18 U.S.C. § 1959(a). (Id. ¶¶ 52-56.) Pizzolo was killed on or about November 30, 2004. (Id. ¶ 56.) The Government has filed a Notice of Intent to Seek the Death Penalty ("Notice of Intent") against Basciano, should he be convicted of murdering Pizzolo in aid of racketeering under Count Four.[3] (See Docket Entries # # 284, 294, 938; S-9 Indictment ¶¶ 73-74.) The Eighth Superseding Indictment ("S-8 Indictment"), which was filed on November 15, 2007, was the first indictment to include the Notice of Special Findings, which sets forth the Statutory Aggravators and Gateway Factors that must be found by the jury at the penalty phase of the capital trial. (Docket Entry # 358.) Count Five charges Basciano with knowingly and intentionally possessing a firearm in relation to the crimes of violence charged in Counts Three and Four, in violation of 18 U.S.C. § 924(c). (See S-9 Indictment ¶ 57.) Finally, Count Nine charges Basciano with conspiring to murder Patrick DeFilippo in aid of racketeering in violation of 18 U.S.C. § 1959(a)(5). (See id. ¶¶ 63-64.)[4]
Basciano previously moved to dismiss several of the charges against him in this case on double jeopardy grounds, claiming that they "constitute a second prosecution for offenses already tried by the Government" in Basciano I. (See Double Jeopardy Order at 1.) On October 14, 2008, the court denied Basciano's motion, concluding that "double jeopardy does not raise a bar" to the charges in this case. (Id.) The court later denied Basciano's motion to reconsider its decision (see Docket Entry # 607), and Basciano took an interlocutory appeal to the Second Circuit. (See Docket Entry # # 612, 613; United States v. Basciano, No. 09-0281-cr (2d Cir.).) Basciano subsequently cited this appeal as a basis for postponing his trial date in this matter, which was scheduled to begin in September 2009. (See Order of Apr. 24, 2009 (Docket Entry # 671) at 1, 3.) To avoid "dual jurisdiction" between this court and the Court of Appeals, the court granted Basciano's continuance request and postponed the trial until "no sooner than 30 days after a decision by the Second Circuit in the pending appeal." (Order of June 4, 2009 ("June 4 Order") (Docket Entry # 708) at 1, 3.)[5] The Court of Appeals affirmed this court's denial of Basciano's motion to dismiss Counts Three and Nine of the S-9 Indictment (conspiracy to commit murder in aid of racketeering) but reversed this court's denial of dismissal of *312 Count One of the S-9 Indictment (charging substantive racketeering), finding it to be barred on double jeopardy grounds. See United States v. Basciano, 599 F.3d 184 (2d Cir.2010).
II. GENERAL PRETRIAL MOTIONS
The motions addressed in this section cover five challenges made by Basciano: (1) the disqualification of the United States Attorney's Office for the Eastern District of New York, and various other issues relating to alleged prosecutorial misconduct; (2) issues relating to the inclusion of the "AUSA Andres solicitation" in the S-9 Indictment; (3) Basciano's request to admit evidence relating to a list of names he wrote (the "List"); (4) a request to suppress conversations and tapes of conversations between Basciano and former Bonanno family crime boss Joseph Massino; and (5) renewed requests relating to the conditions of Basciano's confinement. The court addresses each issue in turn.
A. Alleged Prosecutorial Misconduct
Several of the issues raised by Basciano are based on what the court previously referred to as "free-wheeling theories of sinister prosecutorial motives." (See Double Jeopardy Order at 13-14 n. 4.) The following facts are essential to understanding Basciano's prosecutorial misconduct arguments.
In Basciano I, Assistant United States Attorney Greg Andres ("AUSA Andres") served as the lead prosecutor. The court takes judicial notice that over the course of Basciano I and much of the history of Basciano II, AUSA Andres served in senior positions in the United States Attorney's Office for the Eastern District of New York (the "Office"), including Chief of the Criminal Division. The reason that AUSA Andres is relevant to these motions is that prior to Count One of Basciano II being stricken from the Indictment on double jeopardy grounds, Basciano was charged with a racketeering predicate act of solicitation to murder AUSA Andres. (S-9 Indictment ¶ 32.) The alleged solicitation to murder AUSA Andres occurred on or about November 23, 2004, following Defendant's November 19, 2004 arrest in Basciano I. (Id. ¶¶ 20, 22, 32.) Then, in May 2006, the Government alleges, though it did not charge Basciano in any version of the Basciano II indictment, that Basciano authored the List in prison which contained my name, the name of AUSA Andres, and the names of three cooperating witnesses. The Government asserts that the List was a hit list, and that Basciano had solicited the murder of those named on the list. Basciano claims that it was a "Santeria" list. Basciano's prosecutorial misconduct arguments rely upon these facts to challenge the impartiality of the Office and the role AUSA Andres played in the Basciano II prosecution.
1. Request to the Disqualify U.S. Attorney's Office
Basciano moves for the court to disqualify the Office from prosecuting this case. (See Def.'s Mem. in Support of Pretrial Motions ("Def. Pretrial Mem.") (Docket Entry # 631) at 14-18.) Defendant argues that the entire Office is not disinterested and has "an axe to grind" with him because of the "untested allegation of Joseph Massino that Basciano solicited" the murder of AUSA Greg Andres, one of "their own." (Def. Pretrial Mem. at 14-15.) Basciano argues that every Assistant United States Attorney ("AUSA") in the Office "is subordinate to Andres and under his influence." (Def. Pretrial Mem. at 14.) Further, Basciano attempts to show the "untoward interest" of the Office's prosecutors, "their overly zealous pursuit of the death penalty against" him, by alleging various improprieties. (Def. *313 Pretrial Mem. at 15-18.) Basciano contends that the "appearance of partiality and lack of disinterestedness on the part of [the Office] require their removal." (Def. Pretrial Mem. at 18.) The Government opposes this motion and rebuts Basciano's various claims of misconduct on the part of the Office. (See Gov't's Mem. in Opp. to Def.'s Pretrial Motions ("Gov. Pretrial Opp.") (Docket Entry # 668) at 20-33.)
The primary asserted basis for disqualifying the Office is that Basciano was, until the Second Circuit's double jeopardy decision, charged in this case with a substantive racketeering predicate of soliciting the murder of a member of the Office, AUSA Andres. Basciano's argument for recusal of the Office is similar to his multiple arguments for my recusal which have been repeatedly rejected by both this court and the Court of Appeals.[6]See United States v. Basciano, 384 Fed.Appx. 28, 32-34 (2d Cir.2010); In re Basciano, 542 F.3d 950, 956-58 (2d Cir.2008).
The Office has repeatedly represented that AUSA Andres has not participated in Basciano II. The disqualification of the entire U.S. Attorney's Office because AUSA Andres was the target of a crime would compromise the efficient administration of justice. See Grand Jury Subpoena of Ford v. United States, 756 F.2d 249, 254 (2d Cir.1985) ("[I]f the disqualification of one government attorney could serve as the predicate for the disqualification of the entire United States Attorney's Office, the administration of justice would be irreparably damaged."). In fact, the overwhelming weight of authority counsels against disqualification of an entire U.S. Attorney's Office.[7] "[E]very circuit court that has considered the disqualification of an entire United States Attorney's office has reversed the disqualification." United States v. Bolden, 353 F.3d 870, 879 (10th Cir.2003) (internal citations and quotation omitted); see also United States v. Hasarafally, 529 F.3d 125, 128 (2d Cir.2008) ("While a private attorney's conflict of interest may require disqualification of that attorney's law firm in certain cases, such an approach is not favored when it comes to the office of a United States Attorney, or, a fortiori, to the Department of Justice as a whole.") (internal citations omitted); Cope v. United States, 272 Fed.Appx. 445, *314 449 (6th Cir.2008) (rejecting ineffective assistance of counsel claim for failure to move to recuse prosecutor's office after murder threat against prosecutor, explaining that "[d]isqualifying an entire United States Attorney's office is almost always reversible error, regardless of the underlying merits of the case") (quoting Bolden, 353 F.3d at 876).) This strongly counsels against disqualification in this case.
An entire U.S. Attorney's Office should only be disqualified, if ever, when special circumstances demonstrate that the interest of justice could only be advanced by this drastic remedy. Basciano argues that special circumstances exist here, listing instances of purported Government misconduct and suggesting that these instances were motivated by the Office's belief that Basciano attempted to murder AUSA Andres. (See Def. Pretrial Mem. at 15-18; Transcript of Oral Argument on June 26, 2009 ("Arg.Tr.") at 24-37.) The court does not set out Basciano's various challenges to the Government's conduct here, but having reviewed them carefully, the court finds that none of them assert any particular act of bad faith or unethical conduct. They fail to rise to the level of creating the special circumstances required for recusal. Basciano has not shown that the Office possesses anything more than "the appropriate interest that members of society have in bringing a defendant to justice with respect to the crime with which he is charged." Wright v. United States, 732 F.2d 1048, 1056 (2d Cir.1984). In this case, the drastic remedy of disqualifying an entire prosecutor's office is not justified.[8] Accordingly, Basciano's motion is DENIED.
2. Motion to Dismiss Indictment or to Compel Production of Grand Jury Minutes
Basciano argues that the grand jury proceedings were tainted by Government misconduct. (Def. Pretrial Mem. at 19-20.) Basciano asserts that because of this alleged Government misconduct it is appropriate for the court to review the minutes of the grand jury proceedings or to dismiss the S-9 Indictment. (Def. Pretrial Mem. at 19-20.)
Basciano alleges three different acts of Government misconduct before the grand jury. First, Basciano contends that because AUSA Andres had an interest in the prosecution, it is likely that he must have been involved in pursuing the indictment and presenting it to the grand jury. (Id. at 31-33.) Second, Basciano alleges that the grand jury to which AUSA Andres presented Basciano I was the same grand jury that indicted Basciano on charges in Basciano II. (Def.'s Mem. in Support of Motion to Suppress the "Massino" Tapes and to Dismiss the Indictment ("Def.'s Massino Suppression Motion") (Docket Entry # 502) at 33-36.) Because this indictment *315 included the charge of soliciting the murder of AUSA Andres, Basciano argues that the grand jury, who may have developed a working relationship with AUSA Andres, may have been impermissibly prejudiced against Basciano. (Id.) Third, Basciano asserts that the Government Government may have "impermissibly" presented evidence of the List to the grand jury, in obtaining at least some of the Superseding Indictments in this case. (Def. Pretrial Mem. at 19-20.) Basciano contends that if the Government presented the List and argued that Basciano intended to have a federal judge and AUSA Andres killed, this would inflame the grand jury and cause prejudice. (Id.)
In response, the Government contends that Basciano's motion is based entirely on speculation about what may have occurred before the grand jury. (Gov't's Mem. in Opp. to Def.'s Motion to Suppress the "Massino Tapes" and Dismiss the Indictment ("Gov. Massino Suppression Opp.") (Docket Entry # 516) at 15-19.) It also asserts that it erected a conflict wall between the prosecution teams in Basciano I and Basciano II. (Id. at 4-5, 16.) Further, the Government argues that it had no obligation to impanel a new grand jury to hear the Basciano II indictments, and that no basis has been provided to disclose the minutes of those grand jury proceedings. (Id. at 17-19.) Finally, the Government argues that Basciano offers nothing more than speculation that the List was actually shown to the grand jury, or that doing so would have been improper. (Gov. Pretrial Opp. at 33-35.)
The record does not make clear whether, in fact, the same grand jury heard both cases. Even if the Government presented both cases to the same grand jury, this in no way resolves the issue of whether the grand jury minutes should be produced or the indictment should be dismissed.
"It is axiomatic that `grand jury proceedings are accorded a presumption of regularity, which generally may be dispelled only upon particularized proof of irregularities in the grand jury process.'" United States v. Tranquillo, 606 F. Supp. 2d 370, 381 (S.D.N.Y.2009) (quoting United States v. Mechanik, 475 U.S. 66, 75, 106 S. Ct. 938, 89 L. Ed. 2d 50 (1986)). "Also clear is the principle that `an indictment valid on its face is not subject to challenge on the ground that the grand jury acted on the basis of inadequate or incompetent evidence.'" Id. (quoting United States v. Calandra, 414 U.S. 338, 345, 94 S. Ct. 613, 38 L. Ed. 2d 561 (1974)). There is "a tradition in the United States," codified by Federal Rule of Criminal Procedure 6, "that proceedings before a grand jury shall generally remain secret." In re Petition of Craig, 131 F.3d 99, 101 (2d Cir.1997). Under that rule, a court may order disclosure of grand jury materials to a criminal defendant "who shows that a ground may exist to dismiss the indictment because of a matter that occurred before the grand jury." Fed.R.Crim.P. 6(e)(3)(E)(ii). To make this showing, the defendant "must demonstrate a `particularized need' for the materials." United States v. Ordaz-Gallardo, 520 F. Supp. 2d 516, 519 (S.D.N.Y. 2007) (citing United States v. Moten, 582 F.2d 654, 662 (2d Cir.1978)). This is a heavy burden, since the "review of grand jury minutes is rarely permitted without specific factual allegations of government misconduct." United States v. Torres, 901 F.2d 205, 232 (2d Cir.1990). Furthermore, "as a general matter, a district court may not dismiss an indictment for errors in grand jury proceedings unless such errors prejudiced the defendants." id. at 233 (quoting Bank of Nova Scotia v. United States, 487 U.S. 250, 254, 108 S. Ct. 2369, 101 L. Ed. 2d 228 (1988)). "[D]ismissal of the indictment is appropriate only if it is established that the violation substantially *316 influenced the grand jury's decision to indict, or if there is grave doubt that the decision to indict was free from the substantial influence of such violations." Bank of Nova Scotia, 487 U.S. at 256, 108 S. Ct. 2369 (internal quotation marks omitted).
Basciano's allegations of "government misconduct" before the grand jury are insufficient to require dismissal of the S-9 Indictment or disclosure of the grand jury minutes because they are based entirely on speculation rather than fact. As a purported example of government misconduct, Basciano speculates that AUSA Andres might also have been involved in supervising the presentation of the Government's case to the grand jury in Basciano II. In lieu of factual support for this allegation, Basciano makes a number of unfounded assumptions and provides a series of conjectural statements about Andres's possible role in Basciano II. (Def.'s Massino Suppression Motion at 30-31.) This conjecture about AUSA Andres's role in the presentation of Basciano II is based almost entirely upon speculation about what it is "natural to assume" given Defendant's characterization of the workings of the U.S. Attorney's Office and AUSA Andres's interest in this prosecution. (Id. at 32.)
Basciano's argument is entirely speculative and thus is insufficient to satisfy the particularized showing required to overcome grand jury secrecy, let alone to require the dismissal of the indictment. See Ordaz-Gallardo, 520 F.Supp.2d at 519-20 ("Defendants offer little more than speculation that some impropriety may have occurred before the grand jury that would require this case to be dismissed. Such speculation falls well short of the `particularized need' Defendants must show to obtain disclosure of grand jury materials."). The Government has repeatedly stated that AUSA Andres has not participated in Basciano II (see, e.g., Gov. Massino Suppression Opp. at 15-17, 15 n. 2; Arg. Tr. at 38), and the Defendant has failed to make any showing sufficient for the court to reject the Government's representation. Accordingly, there are insufficient grounds to dismiss the charges or grant access to grand jury materials.
Basciano also argues that the indictment must be dismissed because the grand jury would have been biased by the introduction of evidence of the solicitation to murder Andres in Basciano II, because Andres had presented Basciano I to that same grand jury. (Def.'s Massino Suppression Motion at 33-34.) Without citing any authority for the proposition, Basciano argues that the indictment should be dismissed because the "Eastern District prosecutors failed in this obligation when, instead of impaneling a separate grand jury to consider the charges ultimately brought in the `05 case, they presented the evidence relating to the Andres matter . . . to the same grand jury that had returned the indictment in the `03 case." (Def.'s Massino Suppression Motion at 33-36.) The court finds no support for the proposition that dismissal of the indictment is required under the circumstances.
Here the Andres murder solicitation was only one predicate act included in one count of S-9 indictment, which alleges numerous serious crimes. Defendant has failed to establish a reasonable basis from which this court could conclude that, in light of the vast evidence of the Defendant's criminal activity that must have been considered by the grand jury, that presentation of the evidence of the Andres murder solicitation "substantially influenced the grand jury's decision to indict, or [that] there is grave doubt that the decision to indict was free from the substantial influence of such violations." Bank of Nova Scotia, 487 U.S. at 256, 108 *317 S.Ct. 2369 (internal quotation marks omitted). Moreover, in light of the fact that the substantive racketeering charge containing the solicitation to murder Andres has been dropped from the indictment, see Basciano, 599 F.3d 184, the concerns that prejudice infected the S-9 Indictment is further minimized.
Finally, Basciano's argument that the possible presentation of the List to the grand jury requires the court to dismiss the S-9 Indictment or inspect the grand jury minutes is similarly unavailing. Basciano speculates that the Government presented evidence of the List to the grand jury, thereby impermissibly prejudicing him. (Def. Pretrial Mem. at 19-20.) For support, Defendant points to the fact that the Government relied upon evidence of the List in seeking a Special Administrative Measures detention order against Basciano, and that the Government "presumably" relied upon it in deciding to seek the death penalty. (Id. at 19.) But Basciano does not explain how these other uses of the List lead to his conclusion that "it is reasonable to assume that the prosecutors deemed it important enough to present it to the grand jury that was being asked to return not only the latest superseding indictments. . . but also the special findings necessary for a death verdict." (Id. at 19-20.) Just because the Government may have deemed the List relevant in determining the appropriate conditions of confinement for Basciano, or as a factor supporting the decision to pursue the death penalty, it does not necessarily follow that the Government also must have presented the List to the grand jury.[9]
Basciano concedes that the List was discovered after the grand jury had already charged him with every count and every predicate he is currently facing under the S-9 Indictment. (Def. Pretrial Reply at 15.) The List, therefore, could not have affected the grand jury's determination on the substantive charges. The only part of the S-9 indictment that Basciano claims is affected by the possible introduction of the List is the "Notice of Special Findings" included in the S-8 and S-9 Indictments. (Id.)[10] These Findings relate exclusively to *318 the Pizzolo murder, charged in Count Four, and Basciano's past conviction of crimes "involving the use or attempted or threatened use of a firearm against another person. (S-9 Indictment ¶¶ 73-74.) Basciano, therefore, offers wholly insufficient support for his assertion that the Government must have presented the List. The court declines to examine the grand jury minutes based upon speculative theories of government overreaching. Ordering the extraordinary remedy of inspecting the minutes of the grand jury proceedings, or the more extreme remedy of dismissing the S-9 Indictment, on the basis of mere speculation about the use of the List is not warranted in this case. Further, even if the List were presented to the grand jury, Defendant could not establish that it "substantially influenced the grand jury's decision to indict." Bank of Nova Scotia, 487 U.S. at 256, 108 S. Ct. 2369 (internal quotation marks omitted).
For the foregoing reasons, Basciano's motion is DENIED.
3. Motion to Strike Charges and Death Penalty Notice
Basciano argues that the S-9 Indictment should be dismissed because the Government improperly manipulated the charges against him in Basciano I and Basciano II. Specifically, he claims that the Government brought a separate indictment in Basciano I charging him with murdering Santoro, even though the Government could have included that charge in Basciano II, which was already pending at the time. (Def. Pretrial Mem. at 12.) This charging decision, according to Basciano, enabled the Government to use the conviction for Santoro's murder in Basciano I as a death penalty aggravator in Basciano II. (Id.) Basciano refers to this as a "stepladder prosecution." (Id.) Basciano argues that, as part of this manipulation, the Government delayed trial in Basciano II until after obtaining a conviction for the Santoro murder in Basciano I. (Id.)
Basciano has previously offeredand the court has rejectedsimilarly broad-brushed theories of prosecutorial manipulation. (See Double Jeopardy Order at 13-14 n. 4.) As a factual matter, Basciano's theory of manipulation is not plausible because the timeline of events contradicts it. The Government charged Basciano with Santoro's murder in Basciano I on November 18, 2004; Pizzolo was not killed until November 30, 2004. (See Gov. Pretrial Opp. 2-4; see also Basciano I, S-2 Superseding Indictment of Nov. 18, 2004 ("Basciano I S-2 Indictment") (Docket Entry # 165) ¶¶ 43-45 (including murder of Santoro); S-9 Indictment ¶ 56 (charging Pizzolo murder as occurring on or about November 30, 2004).) Therefore, when the Government charged Basciano with the Santoro murder, it could not have made a decision to delay the prosecution of the death-eligible Pizzolo murder, because Pizzolo was still alive. Accordingly, Basciano is asking the court to conclude that "the government charged the Santoro murder to create an aggravator for a death-eligible murder that had not yet occurred." (Gov. Pretrial Opp. at 3.) The court rejects Basciano's illogical argument.
Basciano also argues that once the Government had sufficient evidence on which to charge the Pizzolo murder, it should have prosecuted that murder as part of its case for Basciano I, rather than as a separate case under Basciano II. Alternatively, he argues that the Government should *319 have included the Santoro murder as part of Basciano II. These arguments are essentially identical to the argument in his double jeopardy challengethat the two cases are actually one case, and that the Government impermissibly split the charges into two indictments. This court previously rejected that argument, the Court of Appeals has ruled on the double jeopardy challenges to the indictment, and the court will not disturb those rulings here. See Basciano, 599 F.3d 184. The court will not invade the Government's prosecutorial discretion by interfering with its decisions to separately charge conduct that is distinct. The Government was within the bounds of its discretion to try the Santoro murder as part of Basciano I.
Furthermore, as a legal matter, Basciano fails to cite any authorityand this court can find none for the proposition that a "stepladder" prosecution strategy, even if proven, would provide a basis for dismissal of claims. Defendant attempts to distinguish this case from United States v. Scarpa, 913 F.2d 993, 1013-14 (2d Cir. 1990), where the Court of Appeals for the Second Circuit rejected a challenge to this form of prosecutorial conduct. The Scarpa court rejected the defendants' arguments under two separate frameworks: double jeopardy and prejudicial preindictment delay. Any possible double jeopardy concerns in the present case have been fully resolved by the Court of Appeals in Basciano, 599 F.3d 184, so they need not be addressed here.
In regard to preindictment delay, the court in Scarpa held that to "[t]o establish denial of due process based on excessive pre-indictment delay [a defendant] bears the heavy burden . . . of showing not only that he was prejudiced by the delay but that it was so unfair as to violate fundamental concepts of fair play and decency, such as would occur if the prosecutor deliberately used the delay to achieve a substantial tactical advantage." 913 F.2d at 1014. Prejudice in this context requires a showing of the "sort of deprivation that impairs a defendant's right to a fair trial. This kind of prejudice is commonly demonstrated by the loss of documentary evidence or the unavailability of a key witness." United States v. Cornielle, 171 F.3d 748, 752 (2d Cir.1999). For the tactical advantage to be impermissible it must be "a course intentionally pursued by the government for an improper purpose." Id. Basciano fails to provide any support for his claim that the Government has proceeded with a deliberate strategy of delay, let alone one pursued for an improper purpose. (Def. Pretrial Mem. at 13-14.) Indeed, this court has presided over this case for several years and observes that there has not been any delay on the part of the Government that could give rise to an inference of strategic manipulation. Basciano has been responsible for a significant portion of the delay in bringing this case to trial. Furthermore, Basciano has failed to establish that his right to a fair trial has been prejudiced by the Government's delay. Even if the Government did intentionally separate the charges for a tactical advantage, the conspiracy to murder and murder of Frank Santoro was found beyond a reasonable doubt by a jury in Basciano I. (Basciano I, Jury Verdict (Docket Entry # 981).) It is unclear how use of this prior conviction at the present trial is impermissible or would prejudice Basciano's right to a fair trial.
Consequently, Basciano's motion to dismiss the case or, alternatively, to strike the Notice of Intent to Seek the Death Penalty is DENIED.
B. Issues Relating to the Indictment
1. Motion to Strike Surplus from the Indictment
Basciano argues that the court should strike the allegations against his co-defendants, *320 as well as the introductory language relating to the solicitation to murder AUSA Andres, from the S-9 Indictment. (Def. Pretrial Mem. at 6-8.) Basciano argues that this material is "surplusage" that the court may strike pursuant to Federal Rule of Criminal Procedure 7(d). See Fed. R.Crim.P. 7(d) ("Upon the defendant's motion, the court may strike surplusage from the indictment or information."). The Government does not oppose Basciano's request and has stated that it will "return a superseding indictment eliminating the objected to introductory language and the reference to other defendants who have pleaded guilty" or redact the S-9 indictment with Basciano's consent. (Gov. Pretrial Opp. at 14 n. 2; Arg. Tr. at 60.)
The motion is GRANTED as unopposed.
2. Request to Sever Count One for Separate Trial
Basciano asks the court to sever Count One from the S-9 Indictment and to try that charge separately from the other counts pending in the Indictment. (See Def. Pretrial Mem. at 1-5.) As discussed above, the Court of Appeals ordered Count One, the substantive racketeering charge, dismissed based on double jeopardy grounds. Basciano, 599 F.3d 184. Consequently, this motion is DENIED as moot.
C. Evidence of the List
As discussed above, in or around May 2006 Basciano authored a list including the names of five individuals: me, AUSA Andres, and three cooperating witnesses who had testified against Basciano in his 2006 trial. See, e.g., Basciano v. Lindsay, 530 F. Supp. 2d 435, 439 (E.D.N.Y.2008) ("Basciano Habeas"). According to the Government, Basciano provided the List to another inmate because he wanted the five individuals murdered. See, e.g., Id.[11] Basciano contends that the List was actually a Santeria list (see, e.g., Arg. Tr. at 97), meaning that Basciano wrote the names down as part of ritual stemming from the religious tradition of Santeria. (See, e.g., Andres Disqualification Order at 3) ("Basciano claimed that he was told to write the May 2006 list, place it in his right shoe and stamp five times every day during the trial.") (internal quotation marks omitted).) Basciano seeks to introduce evidence concerning the List in the guilt phase of the proceedings.
1. Request to Admit the List at the Guilt Phase
Basciano seeks "an in limine ruling to allow [him] to introduce evidence relating to the [List] and the government's investigation of it in the guilt phase." (Def. Pretrial Mem. at 60.) Basciano argues that the List should be admitted to show his state of mind (see, e.g., Def. Response at 57) and to show that the Government's investigation of him was tainted by the Government's willingness to accept the story of an allegedly unreliable witness, Joseph Massino. (See Def. Pretrial Mem. *321 at 59-65.) Basciano argues that "[t]he list and surrounding events are relevant as part of the defense to the alleged solicitation to murder Andres, and an attack on the thoroughness and good faith of the government's investigation . . . an investigation that relied on unreliable informants whose unreliability the government either failed to recognize, ignored or consciously avoided." (See Def. Pretrial Mem. at 60.) Defendant argues that discrediting the quality of the Government's investigation is a valid defense tactic. (See Def. Pretrial Mem. at 61-65.) In response, the Government argues that the List is hearsay, that it is not relevant to the charged crimes, and that, even if it were relevant, it would cause jury confusion and would unduly prejudice Basciano. (See Gov. Pretrial Opp. at 35-37.) The Government does not plan to introduce the List at the guilt phase. (See id.)
The court finds that admission of the List at the guilt phase is inappropriate. Basciano asserts that the List is relevant to the formerly charged solicitation to murder AUSA Andres in November 2004, which Government seeks to introduce as an uncharged crime admissible under Federal Rule of Evidence 404(b) and as direct evidence of the charged crimes. (See Def. Pretrial Mem. at 60; see also S-9 Indictment ¶ 32.; Gov't's Motion In Limine to Admit Certain Evidence and to Preclude Certain Evidence and Arguments at Trial ("Gov. In Limine") (Docket Entry # 945).) Yet, the List was authored by Basciano in approximately May 2006 nearly eighteen months after the alleged solicitation to murder AUSA Andres. (See, e.g., Andres Disqualification Order at 3.) The government has not charged Basciano with any crime relating to the creation of the List, nor does the government intend to introduce the List at the guilt phase of the trial. (See Gov. In Limine) Its creation, therefore, is conduct that is not charged and is not at issue in this case.
Basciano, nonetheless, argues that the List is relevant to his "state of mind" in soliciting the murder of AUSA Andres eighteen months earlier, because it shows that his intent was actually to perform a religious ritual. (See, e.g., Attorney's Supporting Declaration of Aug. 19, 2009 ("Goltzer Reyes Decl.") (Docket Entry # 770) ¶ 16.) This argument is without merit. Whether Basciano intended to practice a Santeria ritual involving five individuals, including Andres, in the middle of 2006 does not tend to prove or disprove anything about his state of mind when he allegedly solicited the murder of AUSA Andres in 2004, in a conversation with another inmate. Nor does evidence of the Government's investigation techniques in 2006 tend to prove or disprove whether the Government was using proper investigative techniques in 2004. Consequently, the List evidence is not relevant to the crimes at issue in this case. See Fed.R.Evid. 401.
In any event, any relevance this evidence has to the alleged AUSA Andres solicitationwhether for state of mind or otherwiseis far outweighed by the significant probability that it could cause confusion of the issues at trial, mislead the jury, and cause undue delay by creating a protracted side trial. See United States v. Aboumoussallem, 726 F.2d 906, 912 (2d Cir.1984) ("[R]elevant evidence may be excluded under Rule 403 if its probative value is substantially outweighed by `the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay.'") (quoting Fed.R.Evid. 403). Evidence relating to the List could improperly confuse the jury's consideration of the serious charges of murder, solicitation, and attempt that are actually at issue in this case. Moreover, *322 should Basciano attempt to prove that the List is not a "hit list" but, rather, a Santeria list and that the Government did not investigate the List in good faith, the proceedings would almost certainly turn into a trial within a trial about the circumstances surrounding the List's creation and whether Basciano intended to solicit the killing of the individuals on the list or perform a religious ceremony. Accordingly, the court declines to allow the diversion Basciano's introduction of the List would create.
Basciano's motion to admit evidence of the List at the guilt phase is DENIED.
2. Request to Grant Immunity to Danny Reyes
Following oral argument, Basciano requested that the court compel the Government to grant immunity to Danny Reyes ("Reyes") so that he might "provide critical defense testimony to contradict the notion that the [List] was a `hit list' as alleged by the government." (Goltzer Reyes Decl. ¶ 14; see also Def.'s Letter of Sept. 16, 2009 (Docket Entry # 785).) He asserts that Reyes would provide testimony showing that the List was actually a Santeria list. (See, e.g., Goltzer Reyes Decl. ¶ 15.) Basciano argues that if Reyes does not testify, Basciano "will be unable to fairly demonstrate that an alleged `hit' list was nothing more than an innocent piece of paper to be utilized in a Santeria ritual." (Def.'s Mem. in Support of His Motion to Compel Immunity for D. Reyes ("Def. Reyes Immunity Motion") (Docket Entry # 770) at 2.)
On May 5, 2009, the court granted Basciano's request to depose Reyes. (See Order (Docket Entry # 682).) On May 18, 2009, the parties were present for the deposition, but Reyes invoked his Fifth Amendment right against self-incrimination in response to defense counsel's questioning. (See Minute Entry of May 18, 2009 (Docket Entry # 699).) Defense counsel objected to this invocation of the privilege, challenging it as an invalid assertion of the Fifth Amendment. (See, e.g., id.; Def.'s Letter of May, 19, 2009 (Docket Entry # 689).) On May 21, 2009, the court held a conference with the parties to discuss the issue of Reyes's invocation of the Fifth Amendment privilege. (See Minute Entry of May 21, 2009 (Docket Entry # 700).) Reyes's counsel was present. (See id.)
The court conducted an in camera, ex parte hearing with Reyes and his counsel, on May 21, 2009, to determine whether his invocation of the privilege had been valid. The in camera hearing was sealed and assigned a miscellaneous docket number. See In re Reyes, No. 09-Misc-0280 (NGG) (E.D.N.Y.). The court announced in open court its conclusion that Reyes's invocation of the Fifth Amendment had been valid, and subsequently filed an Order memorializing its decision. (See Order of May 26, 2009 (Docket Entry # 697).) A supplemental memorandum was filed in the sealed case that further elaborated the court's reasons for its conclusion. (See id. at 3.) Basciano's motion to compel the Government to grant immunity to Reyes followed.
"[T]he fifth amendment does not require that defense witness immunity must be ordered whenever it seems fair to grant it." United States v. Bahadar, 954 F.2d 821, 825 (2d Cir.1992) (internal citation and quotation marks omitted). "The government is under no general obligation to grant use immunity to witnesses the defense designates as potentially helpful to its cause but who will invoke the Fifth Amendment if not immunized." United States v. Ebbers, 458 F.3d 110, 118 (2d Cir.2006). Moreover, decisions regarding immunity have long been considered "preeminently a function of the Executive *323 Branch." Bahadar, 954 F.2d at 825 (internal citation and quotation marks omitted). Accordingly, a trial court should order a prosecutor to grant a defense witness immunity "only in extraordinary circumstances." Blissett v. Lefevre, 924 F.2d 434, 441 (2d Cir.1991).
The Second Circuit has ruled that such extraordinary circumstances exist only when a defendant can show that: "(1) the government has engaged in discriminatory use of immunity to gain a tactical advantage or, through its own overreaching, has forced the witness to invoke the Fifth Amendment"; and "(2) the witness' testimony will be material, exculpatory and not cumulative and is not obtainable from any other source." Ebbers, 458 F.3d at 118 (quoting United States v. Burns, 684 F.2d 1066, 1077 (2d Cir.1982)). The Second Circuit, however, has never found a case in which such extraordinary circumstances existed so as to require a court to compel the Government to grant immunity. See Gordon Mehler, John Gleeson & David C. James, Federal Criminal Practice: Second Circuit Handbook, 414 (2010).
As set forth above, the evidence of the List will not be permitted at the guilt phase. Because the List and related evidence is being excluded in the guilt phase, Reyes's testimony about the List's creation is not material to any question at issue in the guilt phase. Accordingly, Basciano fails to make the showing required under Ebbers to compel the Government to grant immunity.
To the extent Reyes's testimony could be used at the penalty phase or for another purpose such as showing that "during the time period that Basciano is speaking over a recorded prison phone call with Ms. Kalb regarding his animus towards AUSA Andres, he is engaging in Santeria practice to ward off negativity; not solicitation to murder," (Def.'s Letter of Sept. 16, 2009 (Docket Entry # 785) at 3), his request must also be denied. Even assuming Reyes's testimony would be relevant, Basciano has not met his burden under the Second Circuit's test for compelled immunity. He has made no showing that the Government engaged in the "discriminatory use of immunity to gain a tactical advantage" or that the Government has improperly "forced [Reyes] to invoke the Fifth Amendment." Ebbers, 458 F.3d at 118. Instead, it appears simply that Basciano would like Reyes to testify about the List, but that, on advice of counsel, Reyes has declined to do so in fear of self-incrimination. No discriminatory or manipulative actions by the Government are presented, let alone manipulative actions that approach the standard set forth by the Second Circuit. These circumstances do not justify the extraordinary measure of forcing the Government to grant him immunity.
Basciano's motion to compel the immunity of Danny Reyes at any stage of the trial is DENIED.
D. Massino
"While in prison awaiting trial in [Basciano I] and after being found guilty in a prior case before this court, Joseph Massino, the then-head of the Bonanno crime family, agreed to become a government informant and taped conversations in prison that he had with Basciano." (Basciano I, Memorandum & Order of Dec. 12, 2005 ("Basciano I December Order") (Docket Entry # 389) at 4 (internal citation omitted). Basciano spoke with Massino on multiple occasions between the November 23, 2004 and January 6, 2005. The first two conversations that Massino had with Basciano in prison were not recorded (the "Massino Conversations"). The Massino Conversations "have been identified by Basciano as taking place in the bullpen of *324 the U.S. Marshal detention facility at the Brooklyn federal courthouse on November 23, 2004, and during a co-defendant meeting on December 3, 2004." (Basciano I, Memorandum & Order of Jan. 3, 2006 (Docket Entry # 420) ("Basciano I January 2006 Order"), at 5 n. 5; see also Def.'s Mem. in Support of Motion to Supplement Motion to Suppress ("Def. Suppression Supp. Motion Mem.") (Docket Entry # 576) at 1.) Later, Basciano and Massino had conversations which were recorded by Massino (the "Massino Tapes"). "Joseph Massino recorded two January 2005 conversations he had with Basciano in the Metropolitan Detention Center, where they both were held awaiting trial in [Basciano I]." Basciano I January Order 4 n. 2. These recorded conversations occurred on January 3, 2005 and January 7, 2005. (S-9 Indictment) at 21.)
In this case, Basciano moves to suppress the Massino Conversations and the Massino Tapes. He argues that Massino was acting as a government agent and that these statements were obtained in violation of his Fifth and Sixth Amendment rights. (See Def. Pretrial Mem. at 8-11.) Basciano presents his arguments in a variety of briefs, and, indeed, some of these arguments were previously made and ruled upon in Basciano I.[12]
1. The Massino Conversations
Under Massiah v. United States, 377 U.S. 201, 84 S. Ct. 1199, 12 L. Ed. 2d 246 (1964), "the Sixth Amendment right to counsel is violated when a private individual, acting as a government agent, `deliberately elicits' incriminating statements from an accused in the absence of his counsel." United States v. Miller, 116 F.3d 641, 665 (2d Cir.1997) (quoting Massiah, 377 U.S. at 206, 84 S. Ct. 1199). "The primary concern of the government informant rule is to avoid secret interrogation by investigatory techniques that are the equivalent of direct police interrogation." United States v. Birbal, 113 F.3d 342, 346 (2d Cir.1997) (internal citation and quotation marks omitted). In Basciano I, Basciano requested a Massiah hearing "to determine whether Joseph Massino's testimony about unrecorded jailhouse conversations [was] admissible at trial, or whether the admission of such testimony [would] violate[] Basciano's Sixth Amendment right to counsel." (Basciano I January 3006 Order at 7-8.)
The court found that a Massiah hearing was warranted to determine "whether Joseph Massino was a government agent at the time of his unrecorded jailhouse conversations with Basciano." Id. at 10. The conversations "took place less than a month before the Government claims that Massino agreed to record conversations with Basciano, and more than three months after Massino began to talk with the Government." (Basciano I January 2006 Order at 10.) The court held the Massiah hearing in Basciano I on January 17-18,2006. (See Gov't's Letter of June 29, 2009 (Docket Entry # 715) (attaching hearing transcript ("Massiah Tr.")).) Following the hearing, the court announced its decision in open court:
As I ruled in my memorandum and order on January 3, 2006, Mr. Basciano *325 met the burden to be afforded a M[a]ssiah hearing on the issue of whether Mr. Massino's testimony at trial about two unrecorded conversations between Massino and Basciano would violate Mr. Basciano's Sixth Amendment right to counsel.
At that time I had before me the evidence that Joseph Massino had worn a government wire, [and had] recorded a conversation with Basciano a month after the conversations at issue. This was sufficient to raise a suggestion that Massino may have been a government agent at the time of the unrecorded conversations. I also had Mr. Basciano's affidavit that Mr. Massino had asked him questions and not merely listened during those conversations which were not recorded. There was a suggestion that Basciano and Massino would not have been placed together but for the interference of the government.
Yesterday and today, the court heard the government's presentation of its position that it had not made any efforts to place Massino and Basciano together; that Massino was not acting as a government agent at the time of the conversations, and that Massino had been instructed not to ask questions.
The government presented the testimony of FBI Special Agent Kimberly McCaffrey; of Massino's shadow counsel, Edward McDonald; of staff attorney of the Metropolitan Detention Center, Rina Desai; and Deputy U.S. Marshal John Drago.
These witnesses, along with a number of government exhibits, established neutral reasons for the two times that Massino and Basciano were able to talk with one another. They also establish that before the conversations in question, Massino had been told, on or about November 12, 2004, that there was no chance of a cooperation agreement. The only subject still open to negotiation was whether he was willing to plead guilty to the charge or murdering George Sciasca in his death penalty case in which the Attorney General had previously certified the prosecution for a possible sentence of death.
Yesterday, the government sufficiently established that Joseph Massino fit more into the model of an entrepreneurial inmate whose questions do not violate M[a]ssiah, as explained by the Second Circuit in United States v. Birbal, 113 F.3d 342, at 346.
I have been very clear from the beginning that affidavits were not sufficient for this hearing and that I wanted live testimony. The government thus has been on notice that it may need to present Joseph Massino at the hearing to testify. Nonetheless, within the Birbal analysis, it is not important what the entrepreneurial inmate said to the defendant to get a confession. Massino's testimony therefore was not vital to the court.
Basciano did not offer compelling evidence to dispute the government's case. In fact, Basciano did not offer any witnesses. Once the government had met its burden, Basciano needed to demonstrate specifically how the government was involved in the conversations, either by showing evidence that Massino was an agent of the government or by showing actions by the government to put two talkative inmates together. Basciano, instead, sought to show that the government did not do enough to prevent Massino from [asking] Basciano about crimes for which Basciano was already indicted and that Massino did in fact ask probing questions about subjects relating to Basciano's existing indictment.
*326 This alone is not sufficient to establish a violation of Basciano's Sixth Amendment right to counsel under M[a]ssiah v. United States. Because the government has shown a lack of government agency in the conversations in question and because Mr. Basciano has failed to prove any government agency, the court will admit Mr. Massino's testimony about the conversations at trial, if such testimony is offered by the government.
Massiah Tr. 272-74.
In this case, Basciano moves to suppress the statements that the court deemed admissible in Basciano I. (See Def. Suppression Supp. Motion Mem. at 1-19.) He argues that the court's determination in Basciano I was erroneous because Massino himself did not testify at the Massiah hearing. (See id. at 2-3, 15, 17.) He also argues that additional factors support suppression. In particular, he argues that the Government "must have known" in late 2004 that Massino would seek incriminating statements from Basciano; that it "must have known" that he and Massino would be together in prison; and that the Government exploited this situation, thereby rendering Massino a government agent. (See id. at 5-6, 16.) Basciano argues, moreover, that the Government's decision to seek the death penalty for Massino, coupled with its cooperation negotiations with him, intentionally put pressure on Massino to seek incriminating information from Basciano. (See id. at 4-5, 11-13.) For these reasons Basciano seeks another Massiah hearing to readdress the same issues upon which that the court permitted two days of oral argument and fact finding in January 2006. (See id. at 17.)
In response, the Government notes that, in Basciano I, the court made a ruling on precisely the issues presented in this motion and argues that there is no basis for reconsideration of its decision. (See Massino Opp. at 1-5.) The Government contends that its decision not to seek the death penalty for Massino is not relevant to whether Massino was acting as an agent of the Government, and that the Government did not exploit, nor is there evidence that they did exploit, plea negotiations with Massino in order to maximize his incentive to obtain incriminating statements from Basciano. (See id. at 3-5.) Finally, the Government argues that holding another hearing at which Massino would testify would only allow defense counsel to preview Massino's testimony, which would "run afoul of the Jencks Act." (See id. at 5-6.)
"The Sixth Amendment right to counsel requires that a defendant have counsel present at interrogations by the Government after the defendant is indicted." (Basciano I December Order 15 (citing Massiah v. United States, 377 U.S. 201, 84 S. Ct. 1199, 12 L. Ed. 2d 246 (1964)).) "Once the right attaches, `the Sixth Amendment renders inadmissible in the prosecution's case in chief statements deliberately elicited from a defendant without an express waiver of the right to counsel.'" United States v. Rommy, 506 F.3d 108, 135 (2d Cir.2007) (quoting Michigan v. Harvey, 494 U.S. 344, 348, 110 S. Ct. 1176, 108 L. Ed. 2d 293 (1990)). "[D]eliberate elicitation under the Sixth Amendment `covers only those statements obtained as a result of an intentional effort' on the part of government officials to secure incriminating statements from the accused." United States v. Rommy, 506 F.3d 108, 135 (2d Cir.2007) (quoting United States v. Stevens, 83 F.3d 60, 64 (2d Cir.1996)).
In considering whether there has been deliberate elicitation, the intentional actions of a government agent are attributable to the government for the purposes of the Sixth Amendment. United States v. Pannell, 510 F. Supp. 2d 185, 189 (E.D.N.Y. *327 2007). An informant becomes a government agent, however, "only when the informant has been instructed by the police to get information about the particular defendant." Id. (quoting Birbal, 113 F.3d at 346). "The Sixth Amendment rights of a talkative inmate are not violated when a jailmate acts in an entrepreneurial way to seek information of potential value, without having been deputized by the government to question that defendant." Birbal, 113 F.3d at 346. "[T]o treat every inmate who hopes to cut some future deal as a `government informant' is to extend the idea behind Massiah far beyond its natural reach, and that we are not willing to do." Stevens, 83 F.3d at 64.
In Basciano I, this court ruled that "the government [had] shown a Jack of government agency in the conversations in question." (Massiah Tr. at 274.) Following a hearing, at which the court took live testimony over the course of two days and considered arguments from Basciano and the Government, the court found, under Birbal, that "Joseph Massino fit more into the model of an entrepreneurial inmate whose questions do not violate Massiah." Id. at 273. The precise issue that was before the court during that hearing is before the court in the instant application. Basciano has offered neither new evidence nor new argument that would compel a different result. All the arguments that Basciano presents in his motion either were made to the court before its ruling in Basciano I or were available to Basciano at that time.
Basciano also argues that the Government paid Massino's shadow counsel, Edward McDonald, and that Massino and Mr. McDonald were, therefore, government agents. (See Def. Suppression Supp. Motion Mem. at 7, 9-10, 12, 14-15, 17, 18-19.) The Government states that Massino's counsel was retained by Massino, and, in any case, that defense counsel had the opportunity to explore the circumstances of his representation at the Massiah hearing. (See Massino Opp. at 3-4.) At the Massiah hearing in Basciano I, defense counsel contended that McDonald was working "in conjunction with the government," but I explained that "I appointed him to represent Massino, not to represent the government." (Massiah Tr. at 233-34.) The court appointed Mr. McDonald from a list of names provided by the Government. (See id. at 149-50; Arg. Tr. at 41-42.) Mr. McDonald's testimony at the Massiah hearing does not support a conclusion that he was acting as a Government agentrather than simply as Massino's attorneynor has Basciano presented any other evidence suggesting that he was. (See id. at 141-62, 207-42 (Mr. McDonald's testimony); see also id. at 269-71.)
Further, Basciano argues that the Government took intentional steps to encourage Massino to elicit information from Basciano. Yet, the Government's responsibility for Massino's activities when he elicited statements from Basciano in November 2004 was precisely the issue before the court in Basciano I. The court held a two-day hearing with testimony from several witnesses, and Basciano had a full opportunity to develop the factual record. The court found that, based on the evidence, the Government had not taken intentional steps to elicit information from Basciano. Having reviewed the transcript and the parties' arguments, the court rejects Basciano's arguments for the reasons set forth in its decision in Basciano I. Furthermore, even if Massino were acting as a government agent, which the court finds he is not, his testimony for the purposes of Basciano II would not be barred by Massiah for the reasons set forth below relating to the Massino Tapes.
*328 Basciano's motion to suppress the Massino Conversations is DENIED.
2. The Massino Tapes
Basciano has also moved to suppress the Massino Tapes. The Massino tapes were recorded on January 3, 2005 and January 7, 2005. (S-9 Indictment at 21.) At this time, Basciano was under indictment and had been arrested in Basciano I, and the Basciano I S-2 Indictment was the operative indictment. Basciano had not yet been indicted in Basciano II. The Basciano II indictment was filed on January 26, 2005. (Indictment (Docket Entry # 1).)
Basciano argues that his taped statements were made about events concerning Basciano I and, thus, violate his Sixth Amendment right to counsel in this case. He argues that the rule articulated by the Supreme Court in Texas v. Cobb, 532 U.S. 162, 121 S. Ct. 1335, 149 L. Ed. 2d 321 (2001)that the right to counsel does not attach for offenses that are separate from charged offensesdoes not apply to the present case where "the right to counsel had attached to the subject matter of the Massino interrogation by virtue of the nature of the grand jury's conspiracy charge leveled against Basciano before the interrogation." (Def. Supp. Pretrial Mem. at 7.) He argues, for example, that the Massino Tapes address matters that pertain equally to both Basciano I and Basciano II, and because the offenses in Basciano I and Basciano II are so intertwined, the court should not separate them for the purposes of Sixth Amendment attachment. (Def.'s Massino Suppression Motion at 5-10.) He further argues that the Massino Tapes should be suppressed pursuant to Disciplinary Rule 7-104(A)(1) of the New York Code of Professional Responsibility, which prohibits communications with persons known to be represented. (See id. at 15-19.)
In response, the Government argues that Basciano ignores Cobb's holding that the Sixth Amendment does not attach when offenses are separate. (Gov. Massino Suppression Opp. 7-12.) It further argues that Disciplinary Rule 7-104 was not violated because, as the rule contemplates, "a prosecutor is `authorized by law' to employ legitimate investigative techniques in conducting or supervising criminal investigations, and the use of informants to gather evidence against a suspect will frequently fall within the ambit of such authorization." (Id. at 13 (quoting United States v. Hammad, 858 F.2d 834, 839 (2d Cir.1988)).)
The Sixth Amendment is "`offense specific' which means that it cannot be invoked once for all future prosecutions." United States v. Mills, 412 F.3d 325, 328 (2d Cir.2005). It "does not attach until a prosecution is commenced, that is, at or after the initiation of adversary judicial criminal proceedingswhether by way of indictment or information." Id.; see also Rothgery v. Gillespie County, 554 U.S. 191, 198, 128 S. Ct. 2578, 171 L. Ed. 2d 366 (2008). Accordingly, "incriminating statements pertaining to pending charges are inadmissible at the trial of those charges," while "[i]ncriminating statements pertaining to other crimes, as to which the Sixth Amendment right has not yet attached, are. . . admissible at a trial of those offenses." Maine v. Moulton, 474 U.S. 159, 180 n. 16, 106 S. Ct. 477, 88 L. Ed. 2d 481 and accompanying text (1985). This rule recognizes that "to exclude evidence pertaining to charges as to which the Sixth Amendment right to counsel had not attached at the time the evidence was obtained, simply because other charges were pending at that time, would unnecessarily frustrate the public's interest in the investigation of criminal activities." Id. at 180, 106 S. Ct. 477.
*329 In Texas v. Cobb, the Supreme Court "held that the Sixth Amendment right to counsel does not extend to uncharged crimes unless they are the `same offense' as the charged crime." United States v. Mills, 412 F.3d 325, 329 (2d Cir. 2005). There is "no constitutional difference between the meaning of the term `offense' in the contexts of double jeopardy and of the right to counsel. Accordingly. . . when the Sixth Amendment right to counsel attaches, it does encompass offenses that, even if not formally charged, would be considered the same offense under the Blockburger test." Cobb, 532 U.S. at 173, 121 S. Ct. 1335. 121. Accordingly, the Sixth Amendment does not apply to incriminating statements obtained by the Government from a defendant relating to charges for which no criminal prosecution has commenced, nor does it apply to statements obtained when charges have been brought, so long as those charges are not for the "same offense." See, e.g. United States v. Mir, 525 F.3d 351, 355-56 (4th Cir.2008) ("[T]he conversations whose admission [the defendant] so vigorously challenges here were part of the government's investigation of a completely different offense for which no charges had yet been filedand therefore for which no Sixth Amendment right had attached."). Furthermore, "[t]he Supreme Court in Cobb made clear that there is no exception to the offense-specific nature of the Sixth Amendment for uncharged offenses that are `factually related' or `inextricably intertwined with' a charged offense." Mir, 525 F.3d at 356.
It is not relevant to the analysis that the conduct charged in Basciano I, for which Basciano was under indictment at the time of the recordings, relates in some way to the charges in Basciano II. Furthermore, to accept Basciano's argument that Cobb does not apply to the specific facts of this case because here "the right to counsel had attached to the subject matter of the Massino interrogation by virtue of the nature of the grand jury's conspiracy charge leveled against Basciano before the interrogation," (Def. Supp. Pretrial Mem. at 7), would require this court to ignore the unambiguous holding of Cobb that the Sixth Amendment right attaches only to conduct that is the "same offense" as the charged conduct, as that term is defined under Double Jeopardy case law. Mills, 412 F.3d at 329.
The Cobb rule is clear, and it does not permit for the case-specific exception that Basciano seeks here. "The deciding factor as to whether the right to counsel applies is whether an offense has yet been charged, not whether a later offense is somehow related to an earlier charge." United States v. Awan, 06-CR-0154 (CPS), 2006 WL 3207858, at *6 (E.D.N.Y. Nov. 6, 2006). The Court of Appeals' double jeopardy ruling struck the substantive racketeering count but affirmed this court's ruling that Counts Three and Nine of the S-9 indictment do not violate double jeopardy. See Basciano, 599 F.3d 184. Thus, it has been definitively resolved that none of the charges still pending in Basciano II are the "same offense" for which Basciano's Sixth Amendment rights had attached in Basciano I at the time the Massino Tapes were made. See, Basciano, 599 F.3d 184. Therefore, Basciano's Sixth Amendment rights, as they apply to the introduction of statements in Basciano II, had not attached in Basciano II at the time of the Massino Conversations. Accordingly, Massiah and its progeny do not require exclusion of any of the contents of the Massino Tapes or the Massino Conversations from Basciano II.
Basciano's arguments that the statements are barred by Disciplinary Rule 7-104(A)(1), are similarly unavailing. *330 Disciplinary Rule 7-104(A)(1) provides that a lawyer representing a client shall not "communicate or cause another to communicate on the subject of the representation with a party the lawyer knows to be represented by a lawyer in that matter unless the lawyer has the prior consent of the lawyer representing such other party or is authorized by law to do so." While Disciplinary Rule 7-104(A)(1) has now been replaced by Rule 4.2 of the New York Rules of Professional Conduct, since the two rules are identically worded, and much of the case law refers to Disciplinary Rule 7-104(A)(1), the court will refer to the old rule, Disciplinary Rule 7-104(A)(1), here.
Disciplinary Rule 7-104(A)(1) "does apply to criminal prosecutions." U.S. v. DeVillio, 983 F.2d 1185, 1192 (2d Cir. 1993). However, "[u]nder DR 7-104(A)(1), a prosecutor is `authorized by law' to employ legitimate investigative techniques in conducting or supervising criminal investigations, and the use of informants to gather evidence against a suspect will frequently fall within the ambit of such authorization." Id. (quoting Hammad, 858 F.2d at 839). "The Hammad court based its finding of an ethical violation principally on the use of the bogus subpoena and cautioned `restraint in applying the rule to criminal investigations to avoid handcuffing law enforcement officers in their efforts to develop evidence,' with district courts assumed to exercise their discretion `cautiously and with clear cognizance that suppression imposes a barrier between the finder of fact and the discovery of truth.'" United States v. Rahman, 93-CR-181 (MBM), 1994 WL 388918, at *6 (S.D.N.Y. July 22, 1994) (quoting Hammad, 858 F.2d at 838, 834). Here, Defendant has failed to establish that the Government's use of recordings were not "legitimate investigative techniques" that were "authorized by law" under Disciplinary Rule 7-104(A)(1). As in United States v. Devillio, 983 F.2d 1185, 1192 (2d Cir.1993), there is "no evidence of any violation rising to the level of the one [] considered in Hammad" and, thus, the extreme remedy of suppression is not appropriate.
Basciano's motion to suppress the Massino Tapes is DENIED.
3. Compelled Confession
Finally, Basciano argues that his statements made to Massino in prisonboth the Massino Conversations and the Massino Tapeswere compelled by the Government and that their introduction would therefore violate his right to remain silent under the Fifth Amendment. (See Def. Pretrial Mem. at 8-11.) He asserts that the Government strategically took advantage of the fact that Massino was the "ruthless boss of the Bonanno crime family" since the Government knew that Basciano would feel compelled to answer Massino's questions. (See id. at 11.) Because his statements were "compelled" by Massino, Basciano argues that they cannot be admitted in this case. In response, the Government points to Illinois v. Perkins, 496 U.S. 292, 110 S. Ct. 2394, 110 L. Ed. 2d 243 (1990), in which the Supreme Court rejected the defense theory of "strategic deception" by a government agent. (Gov. Pretrial Opp. at 15-20.)
Under Perkins,
[t]he essential ingredients of a `police-dominated atmosphere' and compulsion are not present when an incarcerated person speaks freely to someone whom he believes to be a fellow inmate. . . . Questioning by captors, who appear to control the suspect's fate, may create mutually reinforcing pressures that the Court has assumed will weaken the suspect's will, but where a suspect does not know that he is conversing with a government *331 agent, these pressures do not exist.
496 U.S. at 296-97, 110 S. Ct. 2394. The coercive atmosphere required for a prisoner's statements to be considered compelled is absent "when an inmate speaks to someone he considers to be a fellow inmate." Birbal, 113 F.3d at 346. Basciano's reliance on Justice Brennan's concurrence in Perkins in which Brennan found the deceptive investigative practices may violate the Due Process, see Perkins, 496 U.S. at 300-03, 110 S. Ct. 2394 (Brennan, J. concurring), is unavailing because Basciano can point to no case that supports a finding that due process prohibits the form of investigative practices used in this case.
Furthermore, despite Basciano's argument that his confession was coerced because Massino was a ruthless person and the former leader of the Bonanno organized crime family, the facts do not indicate that Basciano, who was found in Basciano I to also have held a senior position in the Bonanno crime family and to have similarly acted ruthlessly, spoke to Massino under conditions which were sufficient to "overbear [his] will to resist and bring about confessions not freely self-determined." Rogers v. Richmond, 365 U.S. 534, 544, 81 S. Ct. 735, 5 L. Ed. 2d 760 (1961). Accordingly, the case law forecloses Basciano's argument that there was the necessary compulsion here.[13]
Basciano's motion to suppress the Massino Tapes and the Massino Conversations on compulsion grounds is DENIED.
E. Pretrial Detention Conditions
Basciano has bombarded[14] the court with arguments as to why the court should order Basciano moved from the Metropolitan Correctional Center ("MCC") to the Metropolitan Detention Center ("MDC") and lift the Special Administrative Measures ("SAMS") order. Defendant's pretrial detention has already been exhaustively litigated. See Basciano Habeas, 530 F. Supp. 2d 435; Basciano v. Martinez, 316 Fed.Appx. 50 (2d Cir.2009). The Court of Appeals for the Second Circuit found that,
"In light of the extensive evidence that Petitioner violated prison communications restrictions, engaged in criminal activity from jail, and tried to interfere with his own trial, we hold that his conditions of confinement were not intended to punish, but rather were rationally connected to the penological purpose of protecting the public from a detainee facing trial. They continue to be connected to valid penological purposes, now that he has been convicted."
Basciano v. Martinez, 316 Fed.Appx. at 50-51. The court further stated that *332 "[b]ecause Petitioner has now been convicted of a series of crimes and sentenced to life in prison, his conditions of confinement should be reviewed under the standard applied to prisoners serving a sentence." Id. at 50. As this court has previously noted, in addition to being sentenced to life in prison, the Bureau of Prisons has designated Basciano to serve his life sentence in the Florence Supermax. (Docket Entry # 889.) In light of this exhaustive litigation of the issue and of Defendant's life sentence in the earlier case, this court believes that Basciano's recent claims, coming months before trial, are frivolous and this court refuses to entertain relitigation of this issue.
The court has reviewed all of Defendant's theories and, for the reasons set out above, the court only needs to address Defendant's argument that being denied contact meetings with his attorneys in the MCC violates his Sixth Amendment right to counsel. (See Def. Nov. 29, 2010 Letter.) The Supreme Court has held that "when a prison regulation impinges on inmates' constitutional rights, the regulation is valid if it is reasonably related to legitimate penological interests. In our view, such a standard is necessary if prison administrators, and not the courts, are to make the difficult judgments concerning institutional operations." Turner v. Safley, 482 U.S. 78, 89, 107 S. Ct. 2254, 96 L. Ed. 2d 64 (1987).
Judge Keenan's opinion in United States v. Kassir, 04-CR-356 (JFK), 2008 WL 2695307 (S.D.N.Y. July 8, 2008) is directly on point and this court finds it persuasive here. Kassir, like Basciano, was housed in the Tenth floor, South Wing, of the MCC ("10 South") under SAMS. Kassir, 2008 WL 2695307, at *1. Kassir, like Basciano, argued that his Sixth Amendment rights were violated by being "permitted only non-contact meetings" with his lawyers which "prevent counsel and Mr. Kassir from reviewing particular documents together." Id. at *3. The non-contact rule in the MCC was motivated by the security concerns arising from, at least in part, an incident in 2000 in which "a pretrial MCC detainee against whom a charge of providing material support to al-Qaeda was still pending, stabbed an MCC officer in the eye as part of a conspiracy to take hostages, including defense lawyers visiting clients in the prison." Id. The Kassir court found that "[n]one of this burdens the defendant's Sixth Amendment rights and to the extent the requirement of `non-contact meetings' imposes any burden on document-sharing between the defendant and his counsel, this requirement is `reasonably related' to the MCC's legitimate objective of protecting institutional security." Id. (citing Turner, 482 U.S. at 87, 96-97, 107 S. Ct. 2254).
Basciano's argues that Kassir is "quite distinguishable from Mr. Basciano's situation" because Kassir, unlike Basciano, was accused of being a terrorist, and the "MCC terrorist wing was reconfigured because of the Salim incident," which was an incident involving an alleged terrorist. (Def. Vacatur Motion at 4.) Despite the fact that the no-contact-visit rule was created in response to an incident involving an alleged terrorist, the legitimate security concerns presented by Basciano's detention, which have been exhaustively litigated, justify the determination to house Basciano under SAMS and in 10 South, regardless of the no-contact rule. In light of the MCC's security concerns, this court finds the non-contact rule is valid, as applied to Basciano, even if it does make Defendant's access to counsel more cumbersome, because "it is reasonably related to legitimate penological interests." Turner, 482 U.S. at 89, 107 S. Ct. 2254. Furthermore, Defendant has three court-appointed attorneys who have billed millions of dollars in legal *333 expenses in preparing this case over its five-year history. The court cannot conclude that Defendant's legal representation has been materially impaired by the non-contact visit policy.
Consequently, Defendant's motions relating to the conditions of his detention are DENIED.
III. DISCOVERY ISSUES
Basciano's discovery requests are voluminous and poorly organized, making it difficult for the court to determine which issues are actually presented for review. For example, in his pretrial motions Basciano incorporates at least twenty-five separate documents previously filed containing discovery-related requests which span the entire life of this five-year-old case. (Def. Pretrial Mem. at 65.) Defendant also claims to have made "more particularized requests" which include "[m]isconduct and investigative reports, visiting records, and recordings of telephone calls of government witnesses while in custody, including specifically, but not limited to" and then listing the names of ten individuals. (Def. Pretrial Mem. at 66.) This request, like many others, is far from specific, and in fact, requests evidence which goes well beyond that which a criminal defendant is entitled to under Federal Rule of Criminal Procedure 16, 18 U.S.C. § 3500 ("§ 3500"), and required by due process. See Brady v. Maryland, 373 U.S. 83, 83 S. Ct. 1194, 10 L. Ed. 2d 215 (1963); Giglio v. United States, 405 U.S. 150, 92 S. Ct. 763, 31 L. Ed. 2d 104 (1972). The Government does not oppose many of the requests, but responds that it will disclose evidentiary materials at the appropriate time under applicable rules and case law.
A. Evidence Relating to Dominick Cicale
In September 2007, defense counsel "brought to the court's attention allegations that cooperating witness [] Dominick Cicale ("Cicale") tried to frame Defendant Vincent Basciano in a `bogus' prison murder plot." (Memorandum & Order of Dec. 19, 2007 ("Cicale Order") (Docket Entry # 379) at 1, 2007 WL 4555892.) Specifically, Marco Santomaggio ("Santomaggio"), a Metropolitan Correctional Center prison guard, had informed Basciano's attorneys that Cicale solicited a prison inmate ("CW-1") to falsely claim that Basciano had asked Santomaggio to ask CW-1 to kill Cicale on Basciano's behalf. (See Basciano I, Memorandum & Order of Mar. 24, 2008 (Docket Entry # 1065) ("Basciano I March Order"), at 3, 2008 WL 794945.) The parties subsequently indicated that three cooperating witnesses in unrelated matters, including CW-1, might have information pertaining to that incident. (See Cicale Order 1.)[15]
The court notes that, while the Government has not provided Basciano with every piece of information it seeks with regard to the alleged Cicale plot, it appears that the Government has made great efforts to provide Basciano with a substantial amount of information, including the identity of CW-1, that should provide Basciano with ample evidence with which to impeach Cicale. Furthermore, as the court has noted previously, and as the Second Circuit recognized in the appeal from Basciano I, "knowledge of the bogus murder plot would not have substantially aided the jury in assessing Cicale's credibility, given the already plentiful impeachment *334 evidence offered against him." United States v. Basciano, 384 Fed.Appx. 28, 31 (2d Cir.2010). Now, unlike in Basciano I, Basciano has substantial information about the bogus murder plot to use for impeachment. The court, therefore, will not compel the Government to comply with Defendant's inexhaustible efforts to obtain yet more evidence about one particular incident pertaining to one potential Government witness. The circumstances of this case do not justify the court supervising every one of Basciano's seemingly limitless discovery requests on issues only collaterally related to his defense.
1. Request to Disclose Documentary Evidence
Basciano has requested various documents relating to Cicale's bogus murder plot, including a seven-page statement made by CW-1. (See Def. Pretrial Mem. at 66-67, 70-74.) The Government responds that it has already provided much of the material requested by Basciano, and that additional material will be provided as part of its discovery obligations. (Gov. Pretrial Opp. at 90-93.) Since the June 26, 2009 oral argument, it appears that these materials have been turned over. On July 7, 2009, the Government submitted, ex parte and under seal, in both redacted and unredacted form, several internal Bureau of Prisons documents relating to Cicale. (See Docket Entry # 722.) After reviewing them, the court ordered the Government to transmit the redacted versions of the documents to defense counsel and reserved decision on the undisclosed portions. (See Order of August 21, 2009 (Docket Entry # 767).) After that order, the Government determined that the previously undisclosed materials could be turned over to defense counsel, with only certain inmate identification and location information removed. (See Docket Entry # 783.) All of these documents have now been turned over, and the discovery dispute surrounding them is moot. (See Docket Entries # # 771, 784.)
2. Request for Material Witness Warrants
Basciano has requested that the court issue material witness warrants authorizing the arrest and continued detention pending trial of CW-1, as well as two other potential witnesses, "CW-2" and "CW-3."[16] Basciano contends, as discussed above, that CW-1 is an individual in the Witness Protection Program who Cicale solicited to claim that Santomaggio approached CW-1, at Basciano's request, about killing Cicale. (See "Stern Aff." ¶ 4.) Basciano asserts that, although he does not know their identities, CW-2 and CW-3 have knowledge about the alleged fake murder plot. (Id. ¶ 19.) Basciano intends to call CW-1, CW-2, and CW-3 at trial because he deems their testimony material to undermining Cicale's credibilityi.e., to show that Cicale is a liar who would fabricate evidence against Basciano. (Def. Witness Mem. at 3.) Basciano also argues that this testimony will impeach Cicale by showing his bias against Basciano. (See Def.'s Letter of May 31, 2009.)
According to Basciano, CW-1 is a foreign national within the Government's custody. (Stern Aff. ¶ 19.) Defense counsel is concerned that, if he is released, there is a risk that the defense will be unable to find him for trial. (Id.) Basciano asserts that the same problems securing CW-1's attendance might also apply to securing the attendance of CW-2 and CW-3. (Id.) *335 Accordingly, Basciano asserts that the court should order their detention pending trial. (Stern Aff. ¶ 19.)
In response, the Government states that it will accept the service of a trial subpoena with respect to CW-1 while he is in the Witness Security Program, and that there is no plan to release CW-1 from custody. (See Gov't's Letter of Mar. 6, 2009 ("Gov. Witness Opp.") (Docket Entry # 651) at 1.) With respect to CW-2 and CW-3, the Government argues that Santomaggio, who apparently knows their identities, has chosen on the advice of counsel not to identify them, even though the Government has authorized him to do so. (See id. at 2.) It states, therefore, that a determination of how to secure their presence at trial is not ripe because their identities are not certain. (See id.) The Government also argues that the issue of Cicale's statements to another inmate about a murder plot is not "material," as would be required for a material witness warrant, because it is collateral to the issues at trial and is cumulative of other impeachment evidence. (See id. at 2 n. 1.)
Under 18 U.S.C. § 3144, the court may order the detention of a material witness if (1) "it appears from an affidavit filed by a party that the testimony of a person is material in a criminal proceeding," and (2) "it is shown that it may become impracticable to secure the presence of the person by subpoena." United States v. Awadallah, 349 F.3d 42, 64 (2d Cir.2003). Under the Warrants Clause of the Fourth Amendment, the warrant applicant must establish probable cause for each requirement. See id.
With respect to CW-1, Basciano has, at a minimum, not made an adequate showing under the second prong of the Awadallah test. He speculates that CW-1 may become unavailable in the event that CW-1 is released from government custody. However, the Government has represented that it has no plans to release CW-1 and that a trial subpoena will be adequate to secure his presence at trial. (Gov. Witness Opp. at 1.) Based upon these representations, the court finds that Basciano has not shown probable cause that it would be impracticable to secure CW-1's presence at trial by subpoena. See United States v. Ionia Management S.A., 07-CR-134 (JBA), 2007 WL 2325199, at *3 (D.Conn. Aug. 9, 2007) (declining to find presence by subpoena "impracticable" based on counsel's representation of witnesses' availability). Should the Government's plans change with respect to CW-1, however, the Government should notify the court immediately so that this issue can be reevaluated if necessary.
With respect to CW-2 and CW-3, defense counsel points out that there is confusion surrounding their respective identities. (See Arg. Tr. at 133.) The Government's explanation at oral argument somewhat clarifies why this is the case: "Mr. Santomaggio identified by number certain individuals he said had personal knowledge about [the] allegation [relating to the Cicale bogus murder plot]. He hasn't talked to us about that, and in fact we've asked his counsel several times whether he would speak to us and he refuses to." (Id.; see also Order of Feb. 15, 2008 (Docket Entry # 423),) The Government further explained that it has been unable to determine whether anyone besides CW-1 was privy to Cicale's statements, but that it has "surmised" that a person named "Frank S." might be CW-2. (Arg. Tr. at 128, 133.) This information has been disclosed to defense counsel, and defense counsel has indicated an intention to interview Frank S. about the bogus murder plot. (Id. at 128, 131-33.)
The court concludes that Basciano has not shown probable cause that the testimony *336 of CW-2 and CW-3 will be material and that their presence by subpoena is impracticable. The identities of these potential witnesses is in considerable doubt. As a practical matter, without knowing their identities, it is impossible for the court to order a cooperating witness warrant to secure their presence at trial. Further, with the minimal amount of speculative information provided to the court about CW-2 and CW-3, the court cannot assess whether obtaining their presence by subpoena is practicable. Furthermore, even if their identities were known, there has been no showing that their testimony would be material to the case, rather than merely cumulative of CW-1's or Santomaggio's testimony or other impeachment evidence. Quite simply, too little is known about CW-2 and CW-3, by no apparent fault of any party, for the court to grant the requested relief. The court does not deem it appropriate at this time to issue a warrant securing their presence at trial.[17] For the foregoing reasons, Basciano's motion for material witness warrants is DENIED.
B. Other Evidentiary Requests
Basciano makes numerous discovery requests based upon a variety of theories in a series of disorganized paragraphs in his pretrial briefing. For example, he seeks discovery relating to Cicale's conduct in prison (see, e.g., Def. Pretrial Mem. at 67, 69, 70-71, 74, 80), Massino's cooperation (see, e.g., id. at 66, 70, 76, 77), and the investigation of the List (see, e.g., id. at 69, 79-80, 82). He seeks the early disclosure of all evidence under Giglio, Brady, and 18 U.S.C. § 3500, as well as early disclosure of evidence under Federal Rules of Evidence 404(b) and 807. (See id. at 91-95, 96-97.) In addition to these requests, Basciano has included a laundry list of nearly seventy areas about which he deems disclosure to be appropriate. (See id. at 75-80, 84-91.) It does not appear that he has even attempted to request these documents from the Government before bringing them to the court's attention. (See Gov. Pretrial Opp. at 88.) Needless to say, these scattershot discovery requests are unduly burdensome to the court and do not provide sufficiently clear or focused requests for the court to effectively *337 address any valid outstanding issues that may exist.
Since the time of briefing, the Government has made evidentiary disclosures to defense counsel (see, e.g., Arg. Tr. at 5, 21, 32), and has stated its intention to make other disclosures (see, e.g., id. at 127, 140.) The parties have reached agreement on other evidentiary requests presented in Basciano's briefing. (See, e.g., id. at 122, 132, 133-35.)[18] In light of these developments, coupled with Basciano's disorganized and voluminous briefing on discovery issues, it is not entirely clear which disputes, if any, are pending before the court. The Government's representations that it is aware of and will meet its discovery obligations, along with the fact that the Government has appeared to fully comply with its discovery obligations in good faith over the course of this case, are sufficient to deny Basciano's motions at this time. See United States v. Perez, 940 F. Supp. 540, 553 (S.D.N.Y.1996) ("Courts in this Circuit have repeatedly denied pretrial requests for discovery orders pursuant to Brady where the government . . . has made a good-faith representation to the court and defense counsel that it recognizes and has complied with its disclosure obligations under Brady.").
Furthermore, Basciano recently moved for an order compelling discovery of the Transcript of Magistrate Levy's ex parte, in camera hearing relating to Basciano's habeas motion. (Def.'s Letter of Dec. 28, 2010 (Docket Entry # 1009). To the extent that materials provided to Judge Levy are independently subject to discovery under Federal Rule of Criminal Procedure 16, and required by Brady and Giglio, the Government should provide them to Defendant at the appropriate time. However, to the extent that they are not otherwise discoverable, the court will not compel the disclosure of documents and affidavits which were prepared and provided to Magistrate Levy for sole purpose of determining whether Basciano's conditions of confinement and SAMS order were justified by legitimate security concerns. It was previously found by Magistrate Levy that revealing the details of the ex parte, under seal materials to Basciano was not appropriate in light of legitimate security concerns. (See Gov't's Letter of Jan. 5, 2011 (Docket Entry # 1013) at 3).) Nothing has changed to justify reconsideration of that determination.
Accordingly, Basciano's motions to compel disclosure of discovery are DENIED.
IV. PENALTY-PHASE ISSUES
"Under the [Federal Death Penalty Act ("FDPA")], once a defendant is found guilty of a capital offense, the jury must determine whether the defendant is eligible for the death penalty." United States v. Wilson, 493 F. Supp. 2d 364, 385 (E.D.N.Y.2006). "In this eligibility phase, the government must prove the existence of one of the four culpable mental states enumerated in 18 U.S.C. § 3591(a)(2)(A)-(D), and the existence of at least one statutory aggravating factor set forth in section 3592(c)." Id. "In the eligibility phase, these factors must be proven beyond a reasonable doubt." Id. (citing 18 U.S.C. §§ 3591(a)(2), 3593(c)). "Once the defendant *338 is found eligible to receive a sentence of death, the jury must decide whether the death penalty is justified in the particular case by making findings as to the presence of any aggravating or mitigating factors and then weighing those factors against one another." Id. (citing 18 U.S.C. §§ 3592, 3593(c)-(d)).[19]
On May 7, 2007, the Government filed a Notice of Intent to Seek the Death Penalty against Basciano. (See Notice of Intent to Seek the Death Penalty ("Notice of Intent") (Docket Entry # 294).) This Notice of Intent includes two statutory "Gateway Factors" required for death penalty eligibility under 18 U.S.C. § 3591(a)(2). These are:
Gateway Factor 1: "Intentionally Participating in an Act, Contemplating that a Life Would Be Taken" under § 3591(a)(1)(C);[20] and
Gateway Factor 2: "Intentionally [and Specifically] Engaging in an Act of Violence that Created a Grave Risk of Death" under § 3591(a)(1)(D).[21]
(Id. at 1-2.) The Notice of Intent also includes two "Statutory Aggravating Factors" under 18 U.S.C. § 3592(c). These are:
Statutory Aggravating Factor 1: "Previous Conviction of Violent Felony Involving Firearm" under § 3592(c)(2);[22] and
Statutory Aggravating Factor 2: "Substantial Planning and Premeditation" under § 3592(c)(9).[23]
(Id. at 2-3.) The Gateway Factors and Statutory Aggravating Factors are also charged as "Notice of Special Findings" in the S-9 Indictment. (See S-9 Indictment ¶¶ 73-74.)
As mentioned, in deciding whether to impose the death penalty, the jury must "consider whether all the aggravating factor or factors found to exist sufficiently outweigh all the mitigating factor or factors found to exist to justify a sentence of death." 18 U.S.C. § 3593(e). In this regard, the statute allows for the jury to "consider whether any other aggravating factors for which notice has been given exists." 18 U.S.C. § 3592(c); see also 18 U.S.C. § 3593(a). In accordance with *339 § 3593(a)(2), the Government has noticed six "Non-Statutory Aggravators." These are:
Non-Statutory Aggravating Factor 1: "Future Dangerousness of the Defendant," as evidenced by, at least, one or more of the following: "Membership in an Organized Criminal Enterprise," "Continuing Pattern of Violence," "Low Rehabilitative Potential," "Lack of Remorse," and "Specific Threats of Violence While in Prison;"[24]
Non-Statutory Aggravating Factor 2: "Murder to Increase Standing within an Organized Criminal Enterprise;"[25]
Non-Statutory Aggravating Factor 3: "Obstruction of Justice;"[26]
Non-Statutory Aggravating Factor 4: "Contemporaneous Convictions;"[27]
Non-Statutory Aggravating Factor 5: "Participation in Additional Uncharged Homicides, Attempted Homicides or Other Serious Crimes of Violence;"[28]
Non-Statutory Aggravating Factor 6: "Victim Impact Evidence."[29]
(Id. at 3-6.)
Basciano's death-penalty motions fall broadly into four categories: (1) a motion to preclude the death penalty on grounds of unconstitutionality; (2) a motion to bifurcate the penalty phase; (3) motions to strike various factors, including the "depraved indifference" Gateway Factor, two Statutory Aggravating Factors, and all the Non-Statutory Aggravating Factors; and (4) motions to require particulars from the Government regarding certain aggravating factors and for detailed victim impact evidence from the Government.
A. Constitutionality of the Death Penalty
Basciano argues on various grounds that the death penalty is unconstitutional and that it cannot be applied in this case. First, Basciano argues that the rareness of the imposition of the death penalty makes its imposition arbitrary and capricious and, therefore, unconstitutional under the Eighth Amendment. (See Def.'s Mem. in Support of Basciano's Motions to Dismiss the Aggravating Factors Noticed by the Gov't and to Preclude the Gov't from Seeking the Death Penalty ("Def. Death Penalty Mem.") (Docket Entry # 311) at 30-35.) Second, he argues that there is no *340 difference between cases imposing the death penalty and those imposing life in prison, showing that the death penalty is arbitrary and, therefore, unconstitutional under the Eighth Amendment and Fifth Amendment. (See id. at 36-43.) Third, he argues that the racial and regional disparities make the federal death penalty unconstitutional and that the Government is impermissibly "balancing out" racial disparities by bringing this death penalty prosecution against a white defendant. (See id. at 44-72.) Fourth, he argues that the death penalty statute is unconstitutional under Ring v. Arizona, 536 U.S. 584, 122 S. Ct. 2428, 153 L. Ed. 2d 556 (2002), because aggravating factors are not included in an indictment and proven beyond a reasonable doubt. (See id. at 73-105.) Finally, Basciano argues that the death penalty is per se cruel and unusual punishment and that too many innocent people are executed to allow the death penalty to stand as punishment. (See id. at 133-42.)
Although Basciano's arguments are thoroughly and aptly presented, the court finds them to be without merit. The law is well settled that the death penalty is constitutional; thus, this court will not address Defendant's arguments at length here. See United States v. Wilson, 493 F. Supp. 2d 364, 383-84 (E.D.N.Y.2006) ("[B]ecause the Second Circuit has squarely rejected the arguments put forth by the Defendant, I am compelled to uphold the constitutionality of the FDPA without further discussion."). Addressing the constitutionality of the FDPA, courts have repeatedly rejected the arguments presented by Basciano. See, e.g., United States v. Mitchell, 502 F.3d 931, 982 (9th Cir.2007) (rejecting claim that FDPA is unconstitutional on various grounds relied upon by Basciano); United States v. Barnes, 532 F. Supp. 2d 625, 631 (S.D.N.Y.2008) (rejecting essentially the same arguments advanced by Basciano); United States v. Williams, No. 00-CR-1008 (NRB), 2004 WL 2980027, at *5-*15 (S.D.N.Y. Dec. 22, 2004).[30] In light of the precedent rejecting Basciano's arguments that the FDPA and the death penalty generally are unconstitutional, his motion to preclude the death penalty on these grounds is DENIED.
B. Bifurcation of the Penalty Phase
Basciano requests that the court bifurcate the penalty proceedings into an "eligibility" phase and a "selection" phase. (See Def. Pretrial Mem. at 53-58.) In his view, the jury's penalty phase deliberations should proceed in two steps: first, a determination of eligibility for the death penalty based upon consideration of whether there is one Gateway Factor and at least one Statutory Aggravating Factor, and, second, a decision to "select" the death penalty in light of all the aggravating and mitigating information. (See id. at 55-56.) Basciano argues that bifurcation will prevent any prejudice to the eligibility determination that might result from including information relating to, for example, the Non-Statutory Aggravating Factors when making the eligibility determination. (See id. at 54-55.)[31]
In United States v. Fell, 531 F.3d 197, 239 (2d Cir.2008), the Second Circuit *341 the bifurcation approach as protective of the integrity of the jury's "death eligibility" determination. The Court of Appeals in that case explained:
While the FDPA speaks of "a separate sentencing hearing" after which the jury makes both the eligibility decision and the selection decision, see 18 U.S.C. § 3593(b)-(e), the central point of that phrase is that the sentencing decision should be separated from the guilt phasenot that the sentencing phase must necessarily take place during one uninterrupted hearing. See generally Blake v. Carbone, 489 F.3d 88, 100 (2d Cir.2007) (noting our duty to "interpret statutes to avoid constitutional infirmities"). Although we would not go so far as to require trifurcation, we encourage district courts ruling on motions to trifurcate to consider carefully the ramifications of presenting victim impact evidence, or any evidence that would otherwise be inadmissible in the guilt phase of a criminal trial, to a jury that has not yet made findings concerning death eligibility.
Id. at 240 n. 28.
At oral argument, after hearing from the parties, the court ordered that the penalty phase be bifurcated into two parts. (See Arg. Tr. at 61-65.) The court now memorializes that decision. In light of the Second Circuit's guidance in Fell, the court has considered penalty-phase bifurcation and deems it appropriate. Part one of the penalty phase shall consider Basciano's eligibility for the death penalty, "including a determination of the existence of one of the requisite Gateway Factors and at least one Statutory Aggravating Factor; part two "shall address whether the death penalty should be imposed, including the weighing of aggravating and mitigating factors." United States v. Natson, 444 F. Supp. 2d 1296, 1309 (M.D.Ga.2006); see also United States v. Johnson, 362 F. Supp. 2d 1043, 1110-11 (N.D.Iowa 2005).
Basciano's motion on this issue is GRANTED.
C. Strike Requests
Basciano moves to strike the factors that the Government intends to rely upon during the penalty phase. These motions fall into three categories: (1) request to strike the "depraved indifference" Gateway Factor; (2) request to strike the two Statutory Aggravating Factors; and (3) request to strike the Non-Statutory Aggravating Factors.
1. Request to Strike Gateway Factor
In its Notice of Special Findings, the Government has stated its intention to prove that Basciano (1) participated in an act, contemplating that the life of Randolph Pizzolo would be taken or (2) intentionally and specifically engaged in an act of violence knowing that the act created a grave risk of death to Pizzolo, "such that participation in the act constituted a reckless disregard for human life and Randolph Pizzolo died as a direct result." (S-9 Indictment ¶ 74(b), (c) (citing 18 U.S.C. § 3591(a)(2)(C)-(D)).) In order for Basciano to be eligible for the imposition of the death penalty, the jury must find that one of these two Gateway Factors has been established. Basciano has moved to strike the second of these Factors.
Basciano points out that the death eligible count in this case relies on the intentional murder of Pizzolo, under New York law, in aid of racketeering under 18 U.S.C. § 1959. (See Def. Pretrial Mem. at 34; see also S-9 Indictment ¶ 56 (citing New York Penal Law § 125.25(1), 20).)[32] He *342 argues that, under New York law, depraved indifference murder and intentional murder are inconsistent crimes. (See Def. Pretrial Mem. at 34.) He further argues that; "[i]f Mr. Basciano is found guilty of [the murder of Pizzolo] and there is a penalty phase, the jury will have necessarily found an intentional mental state. It should not be permitted to turn around and find, inconsistently, that Basciano's state of mind was reckless," (Id.) He also appears to argue that the inclusion of duplicative Gateway Factors is unconstitutional. (Id. at 34-35.)
In response, the Government argues that New York murder law has no relevance to the charging of multiple mental states as Gateway Factors under the FDPA. (See Gov. Pretrial Opp. at 61-65.) It also contends that the Gateway Factors under § 3591(a)(2) are not aggravating factors that are weighed by a jury, but, rather, are part of a gateway determination of death penalty eligibility. (Id.) For this eligibility determination, the Government argues, it is permissible to present multiple mental states to the jury. (Id.)
As an initial matter, the Government is correct that, as courts have held, there is no constitutional violation, or violation of the FDPA, by virtue of the Government's presentation of multiple Gateway Factors to the jury during the death-penalty eligibility determination. See, e.g., United States v. Kee, No. 98-CR-778 (DLC), 2000 WL 863119, at *11 (S.D.N.Y. June 27, 2000) ("[T]he four enumerated mental states are not four separate aggravating factors, and are not in any sense unfairly duplicative of one another."). Rather, the four enumerated mental states "simply assure that no one is sentenced to death without the Government having proved a sufficient level of mens rea in connection with the capital offense." Id. As evidenced by the many cases in which multiple Gateway Factors have been found, multiple mental states may be found by the jury and these mental states need not match the mental state found at the guilt phase. See, e.g., United States v. Wilson, 04-CR-01016 (NGG), Special Jury Verdict Form (Docket Entry # 360) (E.D.N.Y. Jan. 30, 2007) (finding all four mental states to have been proven beyond a reasonable doubt). In this regard, there is no defect with the Government's Notice of Special Findings.
Of course, while the Government may be permitted to charge intentional murder together with the mental state required under § 3591(a)(2)(D), this does not necessarily resolve the challenge here. In this case, the death-eligible count charges Basciano with "knowingly and intentionally murder[ing] Randolph Pizzolo." (S-9 Indictment ¶ 56.) It is alleged, that this particular murder was carried out while Basciano was incarcerated, at his behest. Although the court does not have before it the evidence the Government will present on this charge, it is clear that the charged murder took place outside of prison at a time when Basciano was in prison. This conduct appears to fit the third Gateway Factor:
intentionally participat[ing] in an act, contemplating that the life of a person would be taken or intending that lethal force would be used in connection with a person, other than one of the participants *343 in the offense, and the victim died as a direct result of the act.
18 U.S.C. § 3591(a)(2)(C). But this does not resolve the issue of whether this conduct could also fit the Fourth Gateway Factor:
intentionally and specifically engag[ing] in an act of violence, knowing that the act created a grave risk of death to a person, other than one of the participants in the offense, such that participation in the act constituted a reckless disregard for human life and the victim died as a direct result of the act.
18 U.S.C. § 3591(a)(2)(D).
This issue is directly addressed in United States v. Baskerville, 491 F. Supp. 2d 516, 522 (D.N.J.2007). In that case, the defendant was tried and convicted on death-eligible charges resulting from a murder that he ordered from prison. Id. at 517-18. For the purposes of deathpenalty eligibilityjust as in this case the Government charged the defendant as having "intentionally participated in an act contemplating that the life of a person would be taken" under § 3591(a)(2)(C), and with having "intentionally and specifically engaged in an act of violence, knowing that the act created a grave risk of death to a person" under § 3591(a)(2)(D).
Following trial, the defendant moved to strike the Gateway Factor under § 3591(a)(2)(D), arguing that "there was no evidence that Defendant himself `specifically engaged in an act of violence,'" as required by that provision. Id. at 519. The district court agreed. In deciding the motion, Judge Pisano began by observing that the Supreme Court's death penalty jurisprudence requires the court to focus on the actions of the defendant, rather than his co-conspirators, in assessing the propriety of a death sentence. Id. The court concluded that this conduct was not sufficient to meet the statutory language in § 3591(a)(2)(D). The court framed the issue as whether "the meaning of the phrase `intentionally and specifically engaged in an act of violence' in subsection (D) . . . encompasses the act of `ordering a hit.'" Id. at 521. Based on a reading of the statutory text, and interpreting the meaning of "act of violence" from various sources, including the dictionary, the court concluded that § 3591(a)(2)(D) required a defendant to engage in an act involving the use of physical force which was not satisfied by ordering a killing. Id. at 522. The court further concluded that "specifically engaged" required a level of personal involvement in the killing which was not satisfied by ordering a killing. Id.
Despite the Baskerville court's thorough analysis, this court declines to follow that case here. As the legislative history of the FDPA makes clear,[33] the purpose of these Gateway Factors was to permit the death *344 penalty when the mental state rises to the level of culpability found in Tison v. Arizona, 481 U.S. 137, 107 S. Ct. 1676, 95 L. Ed. 2d 127 (1987), where a defendant did not intentionally or even knowingly participate in the actual killing of the victim, but substantially participated in a felony that resulted in death and possessed the mental state of reckless indifference to human life. The focus of Tison and the FDPA is on the mental state of the defendant, as demonstrated by a substantial participation in actions that resulted in the death, rather than on whether the defendant personally committed the act of violence or was in close physical proximity to the act.
Accordingly, it would be inconsistent with this purpose to hold that a defendant who ordered another to commit acts of violence posing a grave risk of death, which caused the death of another, could not possess the requisite mental state for the death penalty to be permissible. In the case of a defendant who orders another to commit an act of violence, therefore, the words "specifically engage" ensure that the defendant personally was aware of and responsible for the type of conduct committed. Further, it ensures the defendant played a sufficient role in bringing about the specific act of violence so as to be responsible for the act committed, and it ensures the defendant possesses the mental state of reckless disregard as to its consequences. It would be inconsistent with the relevant case law and the legislative history of the FDPA to limit the application § 3591(a)(2)(D) to cases where a defendant personally commits the act of violence or is in close proximity to the act of violence. Accordingly, this court concludes that it is legally possible that a defendant, who was in prison at the time of the killing but ordered the act of violence resulting in death, could "intentionally and specifically engage[]" in an act of violence as required by § 3591(a)(2)(D).
This, however, does not end the matter. At oral argument, the Government conceded that "the theory of the case, defense counsel correctly notes, is not a reckless-disregard theory, but rather an intent theory." (Arg. Tr. at 78.) The Government further conceded that since the Government is not arguing a reckless-disregard theory, there is a "risk of confusion to the jury" by "inserting a notion" of reckless-disregard theory. (Id.) Since the Government concedes that a reckless-disregard theory is not consistent with its theory of the case, the risk of confusing the jury outweighs the minimal benefit of allowing the jury to consider this theory. Though the Government is not precluded as a matter of law from pursuing both theories of culpability, given the Government's concession, the court finds it appropriate to strike the Gateway Factor under § 3591(a)(2)(D). Should the Government's theory of the case change before the penalty phase, it can apply for reconsideration of this decision in light of that change. Basciano's motion is GRANTED.
2. Request to Strike Statutory Aggravators
Basciano asks the court to strike both of the Statutory Aggravating Factors that have been noticed by the Government. As this court has previously observed, "[t]he court's screening of aggravating factors is essential in directing and limiting the sentencing jury's discretion to prevent arbitrary and capricious imposition of the death penalty." Wilson, 493 F.Supp.2d at 385. Aggravating factors should be neither unduly vague nor overbroad. See United States v. Bin Laden, 126 F. Supp. 2d 290, 298 (S.D.N.Y.2001). The court in Bin Laden found that,
First, the aggravator must not be so vague as to lack some common-sense core meaning that criminal juries are *345 capable of understanding. Second, the aggravator cannot be overbroad such that a sentencing juror fairly could conclude that the aggravating circumstance applies to every defendant eligible for the death penalty. Third, the aggravator must be sufficiently relevant to the question of who should live and who should die. Fourth, even if relevant, the aggravator may be excluded if its probative value is outweighed by the danger of creating unfair prejudice, confusing the issues, or misleading the jury.
Id. (internal citation and quotation marks omitted)
Basciano moves to strike: (1) Statutory Aggravating Factor of Substantial Planning and Premeditation; and (2) each of the prior convictions the Government intends to rely on in support of the Statutory Aggravating Factor of Previous Conviction of Violent Felony Involving Firearm,
a. Substantial Planning and Premeditation
Basciano moves to strike the Statutory Aggravating Factor of Substantial Planning and Premeditation under § 3592(c)(9). (See S-9 Indictment ¶ 74(e).) He argues that the statutory text requiring a determination of whether the planning was "substantial" is too vague and imprecise to meet constitutional standards of notice, and must therefore be stricken. (Def. Death Penalty Mem. at 120-22.)
Numerous courts have rejected constitutional challenges to the Substantial Planning Factor under § 3592(c)(9). See, e.g., United States v. Bourgeois, 423 F.3d 501, 511 (5th Cir.2005) (ruling that § 3592(c)(9) adequately narrows the class of defendants eligible for the death penalty and is not unconstitutionally vague); Williams, 2004 WL 2980027, at *17 ("Defendants argue that the term `substantial' is unconstitutionally vague. This argument has been rejected by numerous other courts."); United States v. Bin Laden, 126 F. Supp. 2d 290, 296-97 (S.D.N.Y.2001) (summarily rejecting a challenge to, among others, this Statutory Aggravating Factor, because it had been "subject to thorough analyses and rejection by other courts") (citing cases). This court joins these other courts and adopts their reasoning. Accordingly, Basciano's motion to strike the Substantial Planning and Premeditation Factor is DENIED.
b. Previous Conviction of Violent Felony Involving Firearm
The Government has noticed its intent to rely on the Statutory Aggravating Factor of Previous Conviction of Violent Felony Involving [a] Firearm under 18 U.S.C. § 3592(c)(2). (S-9 Indictment ¶ 74(d).) In its September 22, 2008 disclosure regarding the Statutory Aggravating Factors, the Government stated its intention to rely upon two of Basciano's previous convictions in support of this Statutory Factor: convictions on June 19, 1987 ("1987 Conviction") and April 8, 2008 ("2008 Conviction"). (See Gov't's Letter of Sept. 22, 2008 ("Voluntary Disclosure") (Docket Entry # 528).) As the Government points out, the 2008 Conviction reflects jury verdicts of guilty for the attempted murder of David Nunez and for the murder of Frank Santoro. (See Gov. Pretrial Opp. at 46-47.) According to the Government, evidence was presented at the Basciano I trial regarding these murders showing that Basciano and another individual "shot David Nunez several times and were arrested in possession of their firearms by law enforcement officers as they tried to escape from the scene of the shooting," and that "Basciano shotgunned Santoro to death outside Santoro's home in the Bronx, New York." (Id. at 47.) The Government also points to Basciano's 1987 Conviction for criminal possession of a firearm in the third degree; the 1987 Conviction *346 was used as part of the evidence against Basciano with respect to the Nunez attempted murder. (Id.) The Government thus contends that these convictions constitute violent felonies involving firearms.
Basciano seeks to preclude the Government's reliance on both of these convictions. As set forth below, the court rejects Basciano's arguments. The Government will be permitted to rely on both convictions. In doing so, however, the court observes that a full re-litigation of the underlying convictions is not appropriate. See United States v. Chong, 98 F. Supp. 2d 1110, 1121 (D.Haw.1999) ("[T]he Court concludes that the Government is entitled to introduce information concerning the underlying circumstances of Defendant's prior convictions. However, the Court cautions both parties that such information should be limited. The Court will not permit either party to relitigate the merits underlying the convictions because of concerns of waste of time, cumulative evidence, and confusion of the issues."). Instead, it is appropriate for the parties to introduce the "appropriate amount of information" about these convictions for the jury to determine whether the Statutory Aggravator is satisfied and "to provide the necessary context for the jury to perform its weighing function." Id. The court reiterates that Basciano will not be permitted to relitigate the validity of the convictions. With this being stated, the court turns to Basciano's challenges to the two convictions.
i. The June 19, 1987 Conviction
Basciano argues that the Government should not be entitled to rely on the 1987 Conviction for criminal possession of a firearm in the third degree. Basciano argues that the elements of the weapon possession offense charged do not include "the use, attempted use, or threatened use of a firearm," and "no admission as to such use, attempted or threatened use was made by the defendant." (Def. Pretrial Mem. at 23.) He argues that the elements of the crime to which he pleaded guilty included only possession, or aiding and abetting possession, of a firearm, and that the court should not look to the facts underlying the conviction to determine whether it was a violent felony. (See id. at 23-25.)
In response, the Government argues that the 1987 Conviction involved the violent use of a firearm. (See Gov. Pretrial Opp. at 48-54.) Namely, Basciano attempted to murder David Nunez by shooting him and was arrested in possession of a firearm fleeing the scene of the crime. (Id.) The Government asserts that jury may appropriately look to the underlying facts, rather than merely the statutory elements, to determine this. (Id.) The Government contends that looking only to the elements of the conviction is inappropriate based upon the language of § 3592(c)(2), which only requires a prior conviction involving the use, attempted use, or threatened use of a firearm. (Id. at 49-50.) By contrast, it argues, other statutes define previous convictions by reference to what the elements of the offenses of conviction are, and had congress intended to similarly limit 3592(c)(2), it would have done so explicitly. (Id.) The Government urges the court to rely on this interpretation to allow consideration of the facts underlying the conviction. (Id. at 48-54.)
The Statutory Aggravator under § 3592(c)(2) applies when "the defendant has previously been convicted of a Federal or State offense . . . involving the use or attempted or threatened use of a firearm. . . against another person." The issue presented to the court is how to construe the language of § 3592(c)(2)that an "offense *347. . . involv[es] the use or attempted or threatened use of a firearm . . . against another person."
The court begins with the approach taken by the Fourth Circuit in United States v. Higgs, 353 F.3d 281, 316-17 (4th Cir. 2003). In Higgs, the defendant had argued, as Basciano does, that, under § 3592(c)(2), the "court must take a `categorical' approach to determining whether a prior felony conviction involved the use of a firearm, i.e., the court may only look to the fact of conviction and the statutory definition of the crime of conviction to determine whether a firearm was involved, not to the particular facts of the case." Id. at 316. The court focused on the difference between the language of § 3592(c)(2), which uses the phrase "involving the use or attempted or threatened use of a firearm," and other statutes in which "Congress has specified that a predicate offense have certain elements" that have been interpreted to require a categorical approach. Id. at 316. Such language, according to the Fourth Circuit, "authorizes and likely requires the court to look past the elements of the offense to the offense conduct." Id. Furthermore, the court noted that this approach is consistent with "an individualized determination is required in the death penalty context." Id. at 317
Since the Fourth Circuit decided Higgs, however, the Supreme Court has applied the categorical approach to provisions of the Armed Career Criminal Act ("ACCA") that use the term "involve," rather than referring to the elements of a crime. See James v. United States, 550 U.S. 192, 204-06, 127 S. Ct. 1586, 167 L. Ed. 2d 532 (2007). In James, the Supreme Court extended the categorical approach to provisions of the ACCA that referred to crimes that "involve conduct that presents a serious potential risk of physical injury to another." Nijhawan v. Holder, ___ U.S. ___, 129 S. Ct. 2294, 2300, 174 L. Ed. 2d 22 (2009) (quoting ACCA). James suggests, therefore, that Congress' use of the term "involve" may not be sufficient on its own to determine the proper interpretive approach to § 3592(c)(2).[34]
In this regard, a recent Eighth Circuit case, United States v. Rodriguez, is instructive. 581 F.3d 775, 806 (8th Cir. 2009). In deciding the proper approach to § 3592(c)(4)the Statutory Aggravating Factor for having two convictions "involving the infliction of, or attempted infliction of, serious bodily injury or death upon another person"the Rodriguez court observed that "the meaning of `involving' does not resolve the issue." Id. at 806. Instead, the court had to "examine[] the structure and language of the [FDPA]." Id.
Contrasting the ACCA (to which the Supreme Court had applied a categorical approach), the Eighth Circuit thoroughly detailed the features of the FDPA that required a circumstance-specific approach. It explained:
First, unlike sentence enhancements under the ACCA, a sentence of death does not automatically result if the defendant has qualifying predicate offenses under § 3592(c)(4). Rather, if the jury finds at least one § 3592(c) factor, it maybut does not automaticallyimpose the death penalty after weighing aggravating factors against mitigating factors.
*348 Becoming eligible for a sentence, as opposed to automatically receiving onean important structural difference between § 3592(c)(4) and the ACCAcounsels against applying Taylor [v. Louisiana, 419 U.S. 522, 95 S. Ct. 692, 42 L. Ed. 2d 690 (1975)] analysis to the screening function of § 3592(c)(4).
Second, unlike the ACCA, the FDPA mandates a fact-intensive process in death-eligible proceedings. In advance of trial, the government must set forth the aggravating factor or factors that it proposes to prove as justifying a sentence of death. . . . When a defendant is found guilty of a death-eligible offense, no Pre-sentence Report is prepared. Instead, during the penalty phase, information may be presented as to any matter relevant to the sentence, including any mitigating or aggravating factor permitted or required to be considered under section 3592.
Beyond the FDPA, the factual inquiry required in death penalty cases has constitutional significance. Statutory aggravating circumstances play a constitutionally necessary function at the stage of legislative definition: they circumscribe the class of persons eligible for the death penalty. What is important at the selection stage is an individualized determination on the basis of the character of the individual and the circumstances of the crime.
Factual inquiry is not permitted under the ACCA. Factual inquiry is required in death penalty sentencing. Taylor prohibits relying on witness testimony in ACCA cases; the FDPA expressly permits witnesses to testify. In Taylor cases, Pre-sentence Reports are prepared, allowing advance opportunity to dispute prior convictions. PSRs are not prepared in death penalty cases. This court concludes that Taylor analysis is inapplicable to the § 3592(c)(4) factor, which should instead be submitted to the jury.
Id. at 806-07 (internal citations, quotation marks, and alterations omitted).
The court finds that the reasoning of the Eighth Circuit with respect § 3592(c)(4) is well reasoned, is persuasive, and applies equally to § 3592(c)(2). The court is also persuaded by the approach of the Fourth Circuit in Higgs.[35] Should a penalty phase be reached in this case, an individualized determination will be appropriate, and the jury shall have the opportunity to consider whether the 1987 Conviction "invoIv[ed] the use or attempted or threatened use of a firearm . . . against another person." § 3592(c)(2). However, the court notes that proving that the 1987 Conviction "involved the use" of a firearm "against another person" could require the Government to prove substantial facts in addition to the statutory elements of the crime of conviction. Depending upon how the Government intends to prove this aggravator, if a penalty phase is reached, the court may need to determine whether proof of the facts underling the 1987 conviction, unlike the 2008 conviction, would create a distracting trial within a trial.[36] Basciano's motion is DENIED.
*349 ii. The April 8, 2008 Conviction
Basciano argues that the 2008 Conviction cannot be used to support the Statutory Aggravating Factor under § 3592(c)(2) because it is neither a "final" nor a "previous" conviction. (Def. Pretrial Mem. at 26-33.) He argues that the conviction is not "final" because it is currently on appeal, and that it is not "previous" because, at the time of the Pizzolo murder he had not yet been convicted. (See id.) Basciano further argues that because Defendant filed another Rule 33 motion challenging his Basciano I convictionwhich this court denied (see Basciano I Memorandum & Order of Aug. 19, 2010 (Docket Entry # 1157), 2010 WL 3325409), this further supports barring the 2008 conviction from being used at penalty phase. (Letter of April 8, 2010 (not filed on the public docket).) In response, the Government argues that § 3592(c)(2) does not require the 2008 Conviction be "final," because it only speaks of a previous conviction. (See Gov. Pretrial Opp. at 54-57.) The Government also argues that Basciano need not have been convicted of the 2008 Conviction at the time of the Pizzolo murder; instead, the conviction need only have occurred prior to sentencing. (See id. at 57-60.)
The court concludes that the 2008 Conviction is appropriately included in support of § 3592(c)(2). First, § 3592(c)(2) does not explicitly require that his conviction be "final" to be considered by the jury at the penalty phase. The provision only requires that Basciano have been "previously. . . convicted," and makes no mention of the word "final." This exclusion stands in contrast to other provisions of the federal code, which specifically use the term "final." See, e.g., 18 U.S.C. § 3559(c)(1)(A) (requiring prior conviction for certain felonies to have become "final" before mandatory life imprisonment applies); 21 U.S.C. § 841(b)(1) (requiring prior convictions to have "become final" before mandatory minimum applies). In such circumstances, a conviction is not "final" until "all avenues of direct appellate review have been exhausted." United States v. Lovell, 16 F.3d 494, 497 (2d Cir.1994) (interpreting 21 U.S.C. § 841(b)(1)(B)); see United States v. Glen, 418 F.3d 181, 186 (2d Cir.2005) (interpreting 21 U.S.C. § 841(b)(1)(A)). Without such a finality requirement included in § 3592(c)(2), it appears that Congress did not intend to require the conclusion of direct review before a conviction could be considered.
Basciano argues, however, that, the Supreme Court has read the word "final" into federal recidivist statutes, even though these statutes have been silent on the issue of the finality of a conviction. (See Def. Pretrial Mem. at 27-29.) For support, he relies on Custis v. United States, 511 U.S. 485, 114 S. Ct. 1732, 128 L. Ed. 2d 517 (1994), in which the Supreme Court held that "with the exception of convictions obtained in violation of the right to counsel, a defendant in a federal sentencing proceeding has no right collaterally to attack the validity of previous state convictions that are used to enhance his sentence under the *350 Armed Career Criminal Act." United States v. Doe, 239 F.3d 473, 475 (2d Cir. 2001). Basciano relies upon language in Custis holding that a "prior final conviction" need not be "subject to collateral attack . . . before it may be counted" to imply that a conviction must be a final conviction in order to be counted. (See Def. Pretrial Mem. at 29.) Basciano contends that a later Supreme Court decision, Daniels v. United States, 532 U.S. 374, 121 S. Ct. 1578, 149 L. Ed. 2d 590 (2001), supports his argument. From these cases, Basciano argues that there is no "apparent reason why a Court would read a finality requirement into 18 U.S.C. § 924(e) (as the Supreme Court did in Custis), but not read a similar requirement into . . . 18 U.S.C. § 3592(c)." (See Def. Pretrial Mem. at 29-30.)
Basciano, however, misreads Daniels and Custis. Contrary to Basciano's contention, the Daniels court stated that Custis held that "if, by the time of sentencing under the ACCA, a prior conviction has not been set aside on direct or collateral review, that conviction is presumptively valid and may be used to enhance the federal sentence." Daniels, 532 U.S. at 382, 121 S. Ct. 1578 (2001). The Daniels Court explained that "[a]fter an enhanced federal sentence has been imposed pursuant to the ACCA, the person sentenced may pursue any channels of direct or collateral review still available to challenge his prior conviction." Id. at 382, 121 S. Ct. 1578. "If any such challenge to the underlying conviction is successful, the defendant may then apply for reopening of his federal sentence." Id. This reasoning implicitly recognizes that a previous conviction may be relied upon to enhance a sentence under the ACCA while it is pending upon direct review, and thus is not yet final, so long as it has not yet been set aside on direct or collateral review. The court rejects Basciano's contention that Custis counsels the court to read "final conviction" into the term "conviction" under § 3592(c)(2). Accordingly, the court concludes that, under the clear language of § 3592(c)(2), a conviction need not be final in order for it to be considered by a jury at the penalty phase.
Moreover, the court rejects Basciano's contention that the 2008 Conviction is not a "previous conviction" under § 3592(c)(2). The Fourth Circuit addressed this challenge in Higgs, as it relates to a similarly worded statutory aggravator § 3592(c)(12), and the court follows that decision here. In Higgs, the Fourth Circuit reasoned that "[a]lthough it easily could have done so, Congress did not specify that either the prior offense or conviction had to occur before the death penalty offense. On the contrary, the entire section speaks in terms of those things that must be considered when the death sentencing hearing is conducted and the petit jury begins its weighing process." 353 F.3d at 318. Like the Statutory Aggravating Factor considered in Higgs, § 3592(c)(2) "does not concern matters directly related to the death penalty offense. Rather, it is concerned with the characteristics of the offender as of the time that he is sentenced." 353 F.3d at 318. The court is persuaded by the Fourth Circuit's consideration of this issue and concludes that the 2008 Conviction can properly be presented to the jury in support of the Statutory Aggravating Factor under § 3592(c)(2).[37] The court further notes, that because relitigation of the merits of previous convictions will not be allowed, Basciano will not, as he contends, *351 "have the right to convince the jury of the unreliability of any prior, but not final, conviction." (Def. Pretrial Mem. at 33.) Basciano's motion is DENIED.
3. Request to Strike Non-Statutory Aggravators
Basciano challenges the Government's reliance on the Non-Statutory Aggravating Factors and seeks to have all stricken. First, he challenges the reliance on Non-Statutory Factors as a general matter. (Def. Death Penalty Mem. at 123-25.) The court summarily rejects this argument. As numerous courts have held, "[t]he plain text of the FDPA . . . authorizes the use of factors not specifically enumerated in the statute." United States v. Barnes, 532 F. Supp. 2d 625, 643 (S.D.N.Y. 2008); see also United States v. Wilson, 493 F. Supp. 2d 520, 523 (E.D.N.Y.2007).
Basciano also objects to five of the six noticed Non-Statutory Aggravating Factors on the ground that the Factors are impermissibly duplicative. (Def. Death Penalty Mem. at 126-32.) Basciano argues that the Government "should not be permitted to `ratchet up the number of aggravating factors,' by quintuple-counting allegations premised exclusively on `other crimes' evidence for which Basciano is not facing the death penalty." (Id. at 128 (quoting Bin Laden, 126 F.Supp.2d at 300).) Basciano finds support in the fact that the sub-factors of the "future dangerousness" Aggravating Factor are similar to, and rely largely on, the same evidence as the other Aggravating Factors. (Id. at 128.)
As the Second Circuit recently observed, "the circuit courts are split as to whether duplicative aggravating factors are unconstitutional." Fell, 531 F.3d at 235 n. 26. Neither the Supreme Court nor the Second Circuit has resolved the question. Id. at 235-36. Nonetheless, this court has recognized, as other courts have, that "[t]here do exist circumstances in which two non-identical aggravating factors should be deemed impermissibly duplicative." Wilson, 493 F.Supp.2d at 388 (quoting Bin Laden, 126 F.Supp.2d at 299). This is because, "[u]nder a weighing death penalty scheme such as the FDPA, an aggravator that is entirely a subset of another `has a tendency to skew the weighing process and creates the risk that the death sentence will be imposed arbitrarily and thus unconstitutionally.'" Bin Laden, 126 F.Supp.2d at 299 (quoting United States v. McCullah, 76 F.3d 1087, 1111 (10th Cir.1996)). However, "[t]wo factors are not duplicative merely because they are supported by the same evidence." Fell, 531 F.3d at 236.
Basciano's argument focuses on the Government's reliance on overlapping evidence to prove the different Aggravating Factors. The use of same evidence to prove multiple Factors, however, is not in itself impermissible. The focus of the inquiry, rather, is on whether the jury in finding two Aggravating Factors as a whole "would necessarily have to find one in order to find the other," regardless of the evidence which proves them. Fell, 531 F.3d at 236 (quoting Johnson v. Gibson, 169 F.3d 1239, 1252 (10th Cir. 1999)). None of the Aggravating Factors here are duplicative. While the facts supporting a jury finding that defendant (1) murdered Pizzolo to increase his standing and leadership in a criminal enterprise, (2) obstruction of justice, (3) had contemporaneous convictions, (4) or participated in additional uncharged homicides would possibly support the finding that Defendant poses a threat of (5) "future dangerousness," none of these aggravators is necessary or sufficient to that finding. Furthermore, each of these factors speaks to a different relevant aspect of a defendant's character and his alleged crime. For example the jury's *352 consideration of whether a defendant continues to present a danger assesses what punishment is necessary for incapacitation. On the other hand, the fact that a defendant has committed additional homicides and other violent crimes could demonstrate a greater degree of culpability than another offender with no history of violent crimes. Consequently, none of the aggravating factors is impermissibly duplicative of another.
Basciano's general challenges to the Non-Statutory Aggravating Factors are DENIED.
a. Future Dangerousness
Basciano moves for the Future Dangerousness Non-Statutory Aggravating Factor to be stricken. (Def. Pretrial Mem. at 35-37.) He contends that future dangerousness must be considered "as it applies in the context of life in a prison setting." (Id.) He argues that the fact that he is designated to serve his life sentence at an "Administrative Maximum (ADX) facility" ("Supermax") effectively nullifies any threat of future dangerousness. (Id.) He also argues that his detention under SAMS measures has nullified any risk of future dangerousness. (Id.) Accordingly, he contends that evidence of Future Dangerousness will confuse the issues before the jury. (Id.)
In response, the Government argues that Basciano's long history of engaging in violence, including ordering others to engage in violence while he was incarcerated, support this Factor. (Gov. Pretrial Opp. at 65-68.) It argues that this safety risk exists despite his designation at a highly secure Supermax facility. (Id.) The Government contends that its evidence will show that other inmates have ordered murders from Supermax facilities and other organized crime leaders have been able to pass messages from those facilities. (Id. at 66.) The Government further argues that the SAMS measures have never eliminated the security risk posed by Basciano. (Id. at 66-67.) Finally, the Government opposes Basciano's contention that inclusion of a Future Dangerousness Factor will confuse the issues before the jury. (Id. at 67-68.)
"[L]ower courts have uniformly upheld future dangerousness as a non-statutory aggravating factor in capital cases under the FDPA, including instances where such factor is supported by evidence of low rehabilitative potential and lack of remorse." Bin Laden, 126 F.Supp.2d at 303-04. When a sentence of life in prison would be the alternative to a penalty of death, however, courts have required the future dangerousness inquiry to be considered in the context of a prison setting. See, e.g., United States v. Llera Plaza, 179 F. Supp. 2d 464, 487-88 (E.D.Pa.2001) ("[I]n the FDPA context, government arguments regarding `future dangerousness' should be limited to the dangers posed by the defendants while serving a life sentence in prison."); see also United States v. Cooper, 91 F. Supp. 2d 90, 111-12 (D.D.C.2000).
The Government does not argue to the contrary. The Government's list of evidentiary support for the Future Dangerousness Factor is substantially directed toward Basciano's conduct while incarcerated. For example, the Government will rely upon Basciano's "Membership in an Organized Criminal Enterprise," specifically stating that it intends to show that he has "continued participation in that criminal enterprise despite incarceration." (Notice of Intent at 3.) Similarly, the Government will rely upon Basciano's "Low Rehabilitative Potential," and has noticed "his continued participation in criminal activities despite incarceration." (Id. at 4 (emphasis added).) The Government also intends to rely on Basciano's "Specific Threats of Violence While in Prison." *353 (Id.) In other words, much of the Government's Notice of Intent focuses on Basciano's conduct while incarcerated.
The focus of Basciano's challenge is whether the measures taken by the Government to incapacitate Basciano have effectively nullified his future dangerousness while incarcerated. In this regard, Basciano points to the concern stated in United States v. Diaz, that "[i]f . . . the government's incarceration protocols would nullify [a] defendant's] dangerousness, presentation of [future dangerousness] evidence to the jury would not be relevant to the sentencing determination." 2007 WL 656831, at *23. The possibility that such protocols or other measures might serve to limit or undermine the safety threat posed by a defendant does not require the Future Dangerousness Factor to be stricken in this case.
In the circumstances of this case, the jury's consideration of future dangerousness in the prison context is appropriate. The guilt-phase charges relate, in part, to Basciano's alleged criminal conduct occurring in the prison environment. The death-eligible count specifically concerns the commission of a murder ordered by Basciano that occurred while Basciano was in the confines of prison. The Government also intends to prove other acts committed by Basciano while in prison, and in some cases under SAMS, that show Basciano's continued dangerousness while in pretrial detention. These circumstances support consideration of future dangerousness, in the context of a prison environment, as an Aggravating Factor in this case.
Further, the court need not conclude that the circumstances of Basciano's confinement have already "nullified" Basciano's dangerousness.[38] The parties have both pointed to specific information on each side of the issue, and both Basciano and the Government will have the opportunity to offer appropriate information to the jury. It will then be appropriate for the jury to determine whether Basciano "is likely to commit criminal acts of violence in the future that would constitute a continuing and serious threat to the lives and safety of others," as noticed by the Government. (Notice of Intent at 3.)
The court declines to strike the Non-Statutory Factor of Future Dangerousness. In order to ensure the proper consideration of this Factor by the jury, however, the court will ensure that that Jury's consideration is limited to the expected circumstances of Basciano's confinement should the death penalty not be imposed. Basciano's motion to strike the Non-Statutory Factor of Future Dangerousness is DENIED.
b. Murder to Increase Standing in a Criminal Organization
Basciano moves to strike the Non-Statutory Aggravating Factor, Murder to Increase Standing in a Criminal Organization. (See Def. Pretrial Mem. at 37-38.) He argues that, during the guilt phase, the Government will be required to prove that Basciano committed a murder to increase his standing in an organized crime family; he therefore argues that, when he enters the penalty phase, the jury will already have determined this Non-Statutory Aggravating Factor. (Id.) Basciano argues that he should not have to enter the penalty phase with one Non-Statutory Aggravating Factor already determined against him. (Id.)
This argument was made and rejected in United States v. Frank, 8 F. Supp. 2d 253, *354 274-76 (S.D.N.Y.1998), and the court does so here. In Frank, Judge Cote considered whether the Statutory Aggravating Factor that the "homicide occurred during the commission of a kidnapping" was "unconstitutionally `duplicative' of the underlying death-eligible offense with which he is chargedi.e., kidnapping in which a death results." 8 F. Supp. 2d at 274. First, the court rejected the argument that the aggravator does not genuinely narrow the class of persons eligible for the death penalty by holding that "[t]he Eighth Amendment does not require that [a defendant] be compared to all other defendants found guilty of a kidnapping in which death results, but rather that he be compared to all other persons who have committed murder," and thus the Aggravator provides meaningful narrowing. Id. at 274-75. Second, the Frank court rejected the argument that the duplicative aggravator would tip the aggravator-mitigator weighing process in favor of death because the aggravator would already have been found by the jury. Id. at 276. The Frank court reasoned that "[o]nce the penalty phase has begun, the jury is asked to consider only once the fact that the murder occurred in the course of the commission of another crime. That the jury may find it relatively easy, based on its guilty verdict, to find the existence of this factor does not unfairly tip the scales toward death." Id. at 276. Finally, the Frank court further held that "ignoring the crime at sentencing would be inconsistent with the Supreme Court's jurisprudence holding that the sentencer must take into account the individual characteristics of the crime and the defendant." Id. at 277.
The reasoning in Frank applies with equal force to the Non-Statutory Aggravating Factor in this case of Murder to Increase Standing in a Criminal Organization. Accordingly, Basciano's motion is DENIED.
c. Obstruction of Justice
Basciano moves the court to strike the Obstruction of Justice Non-Statutory Aggravating Factor. (See Def. Pretrial Mem. at 38-46.) Basciano concedes that Obstruction of Justice is a "recognized non-statutory aggravator." (Id. at 39.) He argues, however, that the evidence the Government intends to present in support of this Factor is not sufficiently reliable to be introduced at the penalty phase. (See id. at 46.) In its Voluntary Disclosure, the Government stated its intention to rely upon (1) the "solicitation to murder Salvatore Vitale," (2) the "solicitation and conspiracy to murder Frank Coppa, Jr., Joseph Lino and the parents of Joseph D'Amico," and (3) the "solicitation to murder the individuals on the List." (Voluntary Disclosure at 3.) The Government also states that it intends to rely on the "solicitation to murder AUSA Andres," though this is not mentioned specifically in the Government's Voluntary Disclosure. (Gov. Pretrial Opp. at 71.) Basciano contends that these acts do not meet "the relevance and heightened reliability components required to assume the significant role played by a non-statutory factor under the FDPA and the Supreme Court's death penalty jurisprudence." (Def. Pretrial Mem. at 45 (quoting United States v. Friend, 92 F. Supp. 2d 534, 545 (E.D.Va. 2000)).)[39] He asks that, should this Factor *355 not be stricken, the court conduct a reliability hearing with respect to this evidence.
The Government counters that each area of evidence is sufficiently defined, relevant, and reliable. (See Gov. Pretrial Opp. at 71-76.) With respect to the Vitale solicitation, the Government points out that this conduct was proven to a jury during Basciano I. (Id. at 72.) With respect to the List, the Government points to Judge Levy's conclusion, during litigation over the imposition of SAMS, that the Government's evidence on the List strongly indicated that it was intended be a hit list. (See id. at 73 (citing Basciano v. Martinez, No. 07-CV-421 (NGG) (RML), 2007 WL 2119908, at *7 (E.D.N.Y. May 25, 2007)).) With respect to the Coppa, Lino, and D'Amico solicitations, the Government concedes that this court determined in Basciano I that it had presented no factual basis to admit them, but argues that factual support is now available to substantiate them. (Id. at 72 n. 23 (citing Basciano I Feb. 17 Order (Docket Entry # 491) at 11).)
The Vitale solicitation was tried and proven to a jury in Basciano I and the court finds that this establishes sufficient reliability to allow it to be presented to the jury during the penalty phase. The court has ruled to permit the Government to present evidence of the alleged AUSA Andres murder solicitation at the guilt phase of this trial. Accordingly, sufficient evidence of the solicitation will be presented to negate the need for a reliability hearing prior to the penalty phase. Basciano's motion with respect to both the Vitale and AUSA Andres solicitation is DENIED. With respect to the remaining two areas of evidence, each also involve unadjudicated conduct, and the court addresses them below.
d. Participation in Additional Uncharged Homicides, Attempted Homicides or Other Serious Crimes of Violence
Basciano moves the court to strike this Non-Statutory Aggravating Factor (the "Additional Uncharged Homicides Factor"). (Def. Pretrial Mem. at 47-50.) Basciano concedes that every circuit to consider the issue has held that unadjudicated criminal conduct may be considered in the process of assessing aggravating factors in a capital case. (Id. at 47 (citing United States v. Corley, 519 F.3d 716, 724 (7th Cir.2008)).) However, Basciano argues that "allegations of murder, murder conspiracy, and solicitation to murder" are inflammatory and their admission would undermine the heightened reliability required in capital cases." (Def. Pretrial Mem. at 47.)
In its Voluntary Disclosures, the Government noticed eleven areas of conduct which it intends to rely on in support of this Factor. (See Voluntary Disclosure 3-4.) Each one of these listed areas is also noticed as supporting the "Continuing Pattern of Violence" subsection of the Future Dangerousness Non-Statutory Aggravating Factor. (See id. at 2.) Two others also are duplicated in support of other Non-Statutory Aggravating Factors. (See id. at 3 (listing solicitation to murder individuals on the List and solicitation to murder Coppa, Lino, and the parents of D'Amico in support of two additional Factors).)
Basciano places much emphasis on the "heightened reliability" standard throughout his papers, but never accurately states what is meant by "heightened reliability." As the Second Circuit held in United States v. Fell, "the Supreme Court has also made clear that in order to achieve *356 such `heightened reliability,' more evidence, not less, should be admitted on the presence or absence of aggravating and mitigating factors. . . . [A] long line of Supreme Court cases [] have emphasized the importance of allowing the sentencing body to have full and complete information about the defendant." 360 F.3d 135, 143 (2d Cir.2004). The FDPA evidentiary standard "permits the jury to have before it all possible relevant information about the individual defendant whose fate it must determine. As a result, the FDPA does not undermine `heightened reliability,' it promotes it." Id. at 144. Furthermore, "evidence of other acts of violence by a defendant is arguably more relevant and probative than any other type of aggravating evidence supporting imposition of the death penalty." United States v. Gilbert, 120 F. Supp. 2d 147, 152 (D.Mass. 2000) (internal citation and quotation marks omitted).
Accordingly, other homicides, attempted homicides, or other serious crimes of violence are highly relevant to the jury's determination and this additional evidence furthers the heightened reliability of the penalty phase. To exclude this conduct from the jury, if such conduct can be proven, would frustrate the jury's ability to properly weigh aggravating and mitigating factors. However, the court will require the Government to prove the specific uncharged crimes unanimously and beyond a reasonable doubt, rather than only requiring this standard of proof for the Non-Statutory Aggravating Factor generally. See e.g., Gilbert, 120 F.Supp.2d at 152 n. 2 ("The Government will have to prove the commission of such crimes beyond a reasonable doubt") (citing United States v. Cooper, 91 F. Supp. 2d 90, 108 (D.D.C.2000)). Further, the jury will be required to identify on the special verdict form which crimes have been proven to that standard.
Basciano's motion to strike the Additional Uncharged Homicides Factor is DENIED.
e. Unadjudicated Criminal Conduct
In the penalty phase of a capital trial, the Government may rely on unadjudicated conduct in presenting its case to the jury. See United States v. Corley, 519 F.3d 716, 723-24 (7th Cir.2008). Basciano argues, however, that the evidence the Government intends to present should be subject to a hearing to ensure that it meets the heightened standards of reliability for capital cases. (See Def. Pretrial Mem. at 46, 48-50.) Some courts facing challenges to the reliability of prior unadjudicated conduct have first made a reliability assessment of the Government's evidence before it is introduced to the jury at the penalty phase. See, e.g., United States v. Corley, 348 F. Supp. 2d 970, 972 (N.D.Ind.2004) (listing cases making a reliability assessment).
With respect to the List, the court is persuaded that sufficient reliability has been shown to offer this evidence. Judge Levy previously determined that sufficient indicia of reliability suggested that it was a hit list aimed at a judge, federal prosecutor, and cooperating witnesses. See Martinez, 2007 WL 2119908, at *7. The penalty phase is an adversarial proceeding and Basciano will have sufficient opportunity to rebut and counter the Government's evidence. As addressed above, Basciano even sought permission to admit evidence of the list at the guilt phase.
Furthermore, in order to prevent against the undue prejudice that could be caused by having my name, the name of the presiding judge, on the list, the court orders the list to be redacted so as to exclude the title "Judge" and my name from the list. Removing the word judge would remove the Defendant's concern *357 that "if the presiding judge's name is redacted from the `list,' then the jury speculates as to what judge was to be targeted ifit doesn't make sense to have a Santeria procedure performed on a judge who's not the presiding judge." (Arg. Tr. at 103.) Basciano has expressed further concern that "[t]he redaction of Your Honor's name to create a blank between Mr. Andres and the three witnesses will have the effect of actually highlighting Mr. Andres, the alleged subject of the charged murder solicitation" and that "[i]f the jury is instructed that a name was deleted, we will be prejudiced by undue speculation . . . and the redaction will be all the more sinister to the jury than submission of the complete list." (Def.'s Letter of July 13, 2009 (Docket Entry # 726).)
The court finds the risk that the redaction will unduly draw attention to AUSA Andres's name to be entirely speculative and is, nonetheless, far outweighed by the alternatives of presenting the presiding judge's name to the jury or striking the evidence altogether. Even if another judge were to hear this case so that the presiding judge's name was no longer on the list, this court rejects the argument that having the jury consider allegations that Basciano plotted to kill the judge who presided over Basciano's former trial is somehow less prejudicial than having no judge named on the list at all. Furthermore, the concern that Basciano will be prejudiced by "undue speculation" can be remedied by providing the jury with an appropriate instruction. Consequently, in order to prevent bias against the Defendant pursuant to 18 U.S.C. 3593(c), the court ORDERS the list redacted as specified above.
With respect to the remaining unadjudicated conduct, including the alleged Coppa, Lino and D'Amico murder solicitations, the Government has identified numerous factual areas that it intends to rely upon. (See Voluntary Disclosure at 3-4.) The Government has provided additional details about this conduct in its Particulars Production, including allegations of numerous solicitations to murder, conspiracies to murder, and murders committed by Basciano. (See Gov't's Letter of Feb. 19, 2009 ("Particulars Production") (Docket Entry # 639).) These charges are numerous and vague. For example, they allege crimes against unnamed "John Doe" defendants and the "Murder of thirteen individuals" who are unnamed. (Id. at 2, 3, 5.) While this information was sufficient to satisfy the bill of particulars order, this showing is not sufficient for the court to ensure that the penalty phase evidence is sufficiently reliable to be introduced to the jury.
Should a penalty phase be necessary, the Government will be required to submit an affirmation to the court detailing the specific offenses it intends to present to the jury, including the expected testimony and evidence that will prove this uncharged conduct, so that the court may assess the reliability and sufficiency of this evidence.[40] Once the Government has made this proffer, Basciano will have the opportunity to move to exclude particular evidence or for a reliability hearing. The Government should be prepared to provide this affidavit upon completion of the guilt phase, so that the court can move forward *358 expeditiously with a penalty phase, if necessary. The parties should also prepare memoranda in advance of the completion of the guilt phase, that can be provided to the court should a penalty phase be reached, briefing the court on the applicable standard of review for the court to apply in determining the reliability of the evidence, the standard of review to be applied by the jury to the uncharged conduct, and how this standard depends upon the aggravating factor to which it will be applied. At this time, Basciano has sufficient notice of the areas of evidence which the Government may rely upon. The court will assess reliability following the guilt phase, should it become necessary.
While the court need not decide the issue, the court is concerned with the number of alleged acts of uncharged crimes that the Government is considering introducing and with the limited evidence that appears to support some of these alleged crimes.[41] The penalty phase, if one is reached, should be focused on those acts relevant to the jury's decision and will not be permitted to become a forum to try dozens of alleged, past, uncharged crimes. The court further notes that to be relevant, the government must have proof that this uncharged conduct rose to the level of a sufficiently serious crime to be considered by a death penalty jury. See United States v. Gilbert, 120 F. Supp. 2d 147, 150 (D.Mass.2000) ("[I]t is clear that to be a relevant aggravating factor in favor of the death penalty, prior misconduct must at least be a crime, and a grave one at that."). Furthermore, while the court announces no decision at this time, some of the alleged uncharged conduct, such as some of the arson-related or assault-related charges, may not even rise to the level of sufficient seriousness to be introduced to a death penalty jury. See id. at 150 ("For a nonstatutory aggravating factor to be `relevant' within the meaning of the statute, it must be sufficiently relevant to the consideration of who should live and who should die. . . . [A]ggravating factors in death penalty cases must be particularly relevant to the sentencing decision, not merely relevant, in some generalized sense, to whether defendant might be considered a bad person.") (internal citations and quotation marks omitted).
Basciano's motion DENIED as not ripe for review.
D. Motions for Particulars
1. Motion for Aggravator Particulars
Although the Government is not required to provide specific evidence in its Notice of Intent, "courts have recognized that, `at a minimum, due process requires a defendant to receive sufficient notice of aggravating factors to enable him to respond and to prepare his case in rebuttal.'" Wilson, 493 F.Supp.2d at 377 (quoting Llera Plaza, 179 F.Supp.2d at 471). Accordingly, this court has previously recognized judicial authority to order "bills of particulars in connection with aggravating factors in the sentencing phase of a death penalty case." Id. at 375. A bill of particulars is not a discovery device, however, and should be ordered only as necessary "to apprise the defendant of the charges against him with sufficient precision." Id. at 369-70 (internal quotation marks omitted).
*359 Basciano moves for particulars from the Government with respect to three facets of the Non-Statutory Aggravators of Future Dangerousness: "Membership in an Organized Criminal Enterprise," "Low Rehabilitative Potential," and "Lack of Remorse." (Def. Pretrial Mem. at 51-53.) The Government has pointed to the following particulars that it will rely upon, citing to: evidence offered at previous trials, evidence produced during the SAMS litigation, as well as disclosures made in its Voluntary Disclosures and Particulars Production. (See Gov. Pretrial Opp. at 84-87.) The Government's briefing details the particular conduct that it will rely upon with respect to each of these areas. (See id.)
Based on the particulars provided in the Government's briefing, relaying the specific conduct and evidence that the Government intends to rely uponalong with the Notice of Intent, the Notice of Special Findings, the Particulars Production, and the S-9 Indictmentfurther particulars with respect to these facets of future dangerousness are not required. See Wilson, 493 F.Supp.2d at 377. Basciano's request for particulars is DENIED.
2. Request for Victim Impact Evidence
In his briefing, Basciano moves for production of victim impact evidence that would be used at a penalty phase. (Def. Pretrial Mem. at 50-51.) The Government indicated that it would provide a written statement of proposed victim impact testimony before trial. (Gov. Pretrial Opp. at 83 (citing United States v. Wilson, 493 F. Supp. 2d 491, 506 (E.D.N.Y.2007)).) On September 30, 2009, the Government provided Basciano with a summary of expected victim testimony. (See Docket Entry # 791.) The request is, therefore, DENIED as moot.
V. CONCLUSION
As set forth above, the court GRANTS in part and DENIES in part Basciano's pretrial motions. To the extent that the court does not address arguments raised by Defendant in his many submissions, the court has considered them and deems them to be either moot or without merit.
SO ORDERED.
NOTES
[1] The Government has previously represented that it will present a superseding indictment to the grand jury reflecting changes in light of United States v. Basciano, 599 F.3d 184 (2d Cir.2010). Because the S-9 Indictment is the operative indictment until a superseding indictment is returned, the court cites to the S-9 Indictment here.
[2] While the following is not an exhaustive list of the papers filed in support of and in opposition to Basciano's motions addressed herein, all filings cited to in this memo are listed below in chronological order. The court cites to the following submissions by Basciano: Def.'s Mem. in Support of Basciano's Motions to Dismiss the Aggravating Factors Noticed by the Gov't and to Preclude the Gov't from Seeking the Death Penalty ("Def. Death Penalty Mem.") (Docket Entry # 311); Def.'s Mem. in Support of Motion to Suppress the "Massino" Tapes and to Dismiss the Indictment ("Def.'s Massino Suppression Motion") (Docket Entry # 502); Def.'s Reply Mem. in Support of Motions to Suppress ("Def.'s Massino Suppression Reply") (Docket Entry # 527); Def.'s Mem. in Support of Motion to Supplement Motion to Suppress ("Def. Suppression Supp. Motion Mem.") (Docket Entry # 576); Def.'s Motion for Material Witness Orders and Warrants of Jan. 11, 2009 (Docket Entry # 601); Affirmation of Lawrence Mark Stern of Jan. 11, 2009 ("Stern Aff.") (Docket Entry # 601); Def.'s Mem. in Support of Def.'s Motion for Material Witness Orders and Warrants of Jan. 11, 2009 ("Def. Witness Mem.") (Docket Entry # 601); Def.'s Letter of Jan. 30, 2009 ("Def.'s Massino Reply Letter") (Docket Entry # 622); Def.'s Mem. in Support of Pretrial Motions ("Def. Pretrial Mem.") (Docket Entry # 631); Def.'s Letter of May, 19, 2009 (Docket Entry # 689); Def.'s Reply Mem. in Support of Pretrial Motions ("Def. Pretrial Reply") (Docket Entry # 694); Def.'s Letter of May 31, 2009 (Docket Entry # 702); Transcript of Oral Argument on June 26, 2009 ("Arg. Tr."); Def.'s Letter of July 13, 2009 (Docket Entry # 726); Attorney's Supporting Declaration of Aug. 19, 2009 ("Goltzer Reyes Decl.") (Docket Entry # 770); Def.'s Mem. in Support of His Motion to Compel Immunity for D. Reyes ("Def. Reyes Immunity Motion") (Docket Entry # 770); Def.'s Letter of Sept. 16, 2009 (Docket Entry # 785); Def.'s Supplemental Mem. in Support of Pretrial Motions ("Def. Supp. Pretrial Mem.") (Docket Entry # 907-2); Reply Mem. in Support of Pretrial Motions ("Def. Supp. Pretrial Reply") (Docket Entry # 934.); Def.'s Letter in Opp. to the Gov't's Letter Regarding Def.'s Request to be Transferred to the MDC (Docket Entry # 971); Def.'s Letter Motion that Vincent Basciano be Immediately Returned to MDC (Docket Entry # 973); Def.'s Letter Addendum to Motion for Transfer (Docket Entry # 975); Def.'s Letter in Further Support of an Order Directing the Def. be Transferred Back to the MDC ("Def. Nov. 29, 2010 Letter") (Docket Entry # 976); Def.'s Motion to Compel Vacatur of SAM, Hearing, and Bill of Particulars ("Def. Vacatur Motion") (Docket Entry # 979); Def.'s Letter of December 28, 2010 (Docket Entry # 1009); Def.'s Reply to Motion to Compel (Docket Entry # 1015); Def.'s Letter of Jan. 10, 2011 (not yet filed on ECF).
The court cites to the following submissions by the Government: Gov't's Mem. in Opp. to Def.'s Motion to Suppress the "Massino Tapes" and Dismiss the Indictment ("Gov. Massino Suppression Opp.") (Docket Entry # 516); (Gov't's Letter of Sept. 22, 2008 ("Voluntary Disclosure") (Docket Entry # 528); Gov't's Letter of Jan. 23, 2009 ("Massion Opp. Letter") (Docket Entry # 611); Gov't's Letter of Feb. 19, 2009 ("Particulars Production") (Docket Entry # 639); Gov't's Mem. in Opp. to Def.'s Pretrial Motions ("Gov. Pretrial Opp.") (Docket Entry # 668)); Gov't's Letter of June 29, 2009 (Docket Entry # 715); Gov't's Mem. in Opp. to Supplemental Pretrial Motions ("Gov. Supp. Pretrial Opp.") (Docket Entry # 923); Gov't's Motion In Limine to Admit Certain Evidence and to Preclude Certain Evidence and Arguments at Trial ("Gov. In Limine") (Docket Entry # 945); Gov't's Letter in Response to the Def.'s Letter Application Directing Basciano's Transfer to MDC (Docket Entry # 967); Gov't's Letter Regarding the MCC's Legal Visiting Conditions (Docket Entry # 978); Gov't's Response to Motion to Compel (Docket Entry # 1012); Gov't's Letter of Jan. 5, 2011 (Docket Entry # 1013).
[3] Under the Federal Death Penalty Act, if the Government seeks the imposition of the death penalty on a defendant, it must provide notice before trial "stating that the government believes that the circumstances of the offense are such that, if the defendant is convicted, a sentence of death is justified . . . and that the government will seek the sentence of death," and set "forth the aggravating factor or factors that the government, if the defendant is convicted, proposes to prove as justifying a sentence of death." 18 U.S.C. § 3593(a).
[4] The remaining counts in the S-9 Indictment relate only to Basciano's co-defendants.
[5] Basciano's request also cited the preparedness of counsel for a September trial date as grounds for a continuance, but the court was not persuaded by this argument, particularly because of the thousands of hours and millions of dollars already expended on Basciano's defense. (See June 4 Order at 1-3.)
[6] The court notes that it has considered Basciano's recusal request in the context of Defendant's extensive history of attempting to change the players involved in his criminal proceedings. As the parties are aware, Basciano has sought to recuse this court from the case on five separate occasions. (See Memorandum & Order of June 30, 2009 (Docket Entry # 721) (describing recusal motions); Memorandum & Order of November 1, 2010 (Docket Entry # 964).) 2010 WL 4484366.)
Basciano previously sought to disqualify AUSA Andres from the prosecution team in Basciano I. In response to that request, the court noted that "there is nothing in the record to suggest that [AUSA] Andres bears any actual bias toward Basciano[,]" and that, prior to Basciano's construction of the List, Basciano had "remarked in several recorded conversations that he felt [AUSA] Andres was performing better than Basciano's defense counsel." (See Memorandum & Order of Dec. 1, 2006 (Docket Entry # 249) ("Andres Disqualification Order"), at 4, 2.) The court concluded that his request appeared to be "yet another attempt by him to manipulate the judicial process which this court will not sanction." (Id. at 4.)
[7] One reason that disqualifying an entire prosecutor's office is strongly disfavored is that it implicates separation of powers concerns. Article II of the Constitution "vests the Executive with substantial discretion in choosing when and how to prosecute cases." Bolden, 353 F.3d at 877. "[D]isqualifying government attorneys implicates separation of powers issues," and "the generally accepted remedy" for an asserted conflict is "to disqualify a specific Assistant United States Attorney, not all the attorneys in the office." Id. at 879. This counsels against ordering recusal of the entire office.
[8] Defendant's reliance on United States v. Wright, 603 F. Supp. 2d 506 (E.D.N.Y.2009) is misplaced. (See Def.'s Reply Mem. in Support of Pretrial Motions ("Def. Pretrial Reply") (Docket Entry # 694) at 12.) In Wright, the U.S. Attorney's Office decided to recuse itself in a case involving an assault on an AUSA in the courtroom. In subsequent proceedings, Judge Vitaliano found transfer of venue to the Southern District to be appropriate. Judge Vitaliano noted that there had been "no evidentiary support, of any . . . bias or inappropriate behavior" on the part of personnel in the U.S. Attorney's Office. Id. at 508. With no objection from the Government, he ruled that transfer was appropriate based on the possible appearance of partiality. Id. 508-09. Here, by contrast, the U.S. Attorney's Office has decided not to recuse itself, and the cited case law protects this determination. Absent extreme and unusual circumstances, which are not present here, the court will not intrude upon the prosecutor's discretion to decide whether an alleged conflict requires recusal of an entire U.S. Attorney's Office.
[9] In support of his request, Basciano relies upon the Second Circuit's decision in United States v. Hogan, 712 F.2d 757 (2d Cir.1983). (See Def. Pretrial Mem. at 19-20; Arg. Tr. 53.) In Hogan, the Second Circuit "dismissed an indictment for narcotics violations because the prosecutor [during grand jury proceedings] prejudiced the defendant by characterizing him as a `hoodlum' who should be indicted as a `matter of equity' and a `suspect' in two murders and a bribery scheme, when he in fact had never been charged with those offenses." United States v. Ruggiero, 934 F.2d 440, 447 (2d Cir.1991). Dismissing based upon cumulative instances of "flagrant and unconscionable" conduct was meant to "prevent prosecutorial impairment of the grand jury's independent role." Hogan, 712 F.2d at 762, 761.
Hogan is not on point. Nor does it alter the general rule that "extreme acts of prosecutorial misconduct must be demonstrated before an indictment will be dismissed." Rosario-Dominguez v. United States, 353 F. Supp. 2d 500, 514 (S.D.N.Y.2005); see also United States v. Giovanelli, 747 F. Supp. 875, 883 (S.D.N.Y.1989) ("[R]equests for inspection of grand jury minutes should be granted sparingly in extreme cases only when the defendant advances facts . . . which clearly reflect a prejudicial irregularity in the grand jury proceedings.") (internal quotation marks omitted). No such demonstration has been made here. Even had the List been presented to the grand jury, as Basciano contends, proof of that presentation alone would not necessarily rise to the level of the "extreme acts of prosecutorial misconduct committed in Hogan . . . that materially impaired the grand jury's independence." United States v. Rodriguez, No. 95-CR-0754 (HB), 1996 WL 479441, at *2 (S.D.N.Y. Aug. 22, 1996).
[10] The Notice of Special Findings "tracks the language of the statutory proportionality factors which must be proven to make a defendant eligible for capital punishment under the Federal Death Penalty Act, as well as two of the statutory aggravating factors for homicide required to be considered by the jury in the penalty phase." (Memorandum & Order of Dec. 31, 2008 ("Particulars Order"), (Docket Entry # 593) at 2 (citing 18 U.S.C. §§ 3591(a), 3592(c)).)
[11] The List was part of the evidence that the Government relied upon in establishing the basis for the placing Defendant under Special Administrative Measures ("SAMS") at the Metropolitan Detention Center. See Basciano Habeas, 530 F.Supp.2d at 439. SAMS are imposed pursuant to 28 C.F.R. § 501.3(a), which authorizes measures that are "reasonably necessary to protect persons against the risk of death or serious bodily injury." This court denied Basciano's petition for a writ of habeas corpus regarding the circumstances of his confinement, and the Second Circuit subsequently affirmed this decision. See Basciano v. Martinez, 316 Fed.Appx. 50, 50-51 (2d Cir.2009) ("In light of the extensive evidence that Petitioner violated prison communications restrictions, engaged in criminal activity from jail, and tried to interfere with his own trial, we hold that his conditions of confinement were not intended to punish, but rather were rationally connected to the penological purpose of protecting the public from a detainee facing trial.").
[12] See Def.'s Massino Suppression Motion; Gov. Massino Suppression Opp.; Def.'s Reply Mem. in Support of Motions to Suppress ("Def.'s Massino Suppression Reply") (Docket Entry # 527); Def. Suppression Supp. Motion Mem.; Gov't's Letter of Jan. 23, 2009 ("Massino Opp. Letter") (Docket Entry # 611); Def.'s Letter of Jan. 30, 2009 ("Def.'s Massino Reply Letter") (Docket Entry # 622); Def.'s Supplemental Mem. in Support of Pretrial Motions ("Def. Supp. Pretrial Mem.") (Docket Entry # 907-2); Gov't's Mem. in Opp. to Supplemental Pretrial Motions ("Gov. Supp. Pretrial Opp.") (Docket Entry # 923); Reply Mem. in Support of Pretrial Motions ("Def. Supp. Pretrial Reply") (Docket Entry # 934).
[13] As discussed above, at the time of the Massino Conversations, Massino was not acting as a government agent, and thus the Fifth Amendment does not apply to those conversations. See Colorado v. Connelly, 479 U.S. 157, 167, 107 S. Ct. 515, 93 L. Ed. 2d 473 (1986).
[14] Def.'s Letter Motion that Vincent Basciano be Immediately Returned to MDC (Docket Entry # 973); Gov't's Letter in Response to the Def.'s Letter Application Directing Basciano's Transfer to MDC (Docket Entry # 967); Def.'s Letter in Opp. to the Gov't's Letter Regarding Def.'s Request to be Transferred to the MDC (Docket Entry # 971); Def.'s Letter Addendum to Motion for Transfer (Docket Entry # 975); Def.'s Letter in Further Support of an Order Directing the Def. be Transferred Back to the MDC ("Def. Nov. 29, 2010 Letter") (Docket Entry # 976); Gov't's Letter Regarding the MCC's Legal Visiting Conditions (Docket Entry # 978); Def.'s Motion to Compel Vacatur of SAM, Hearing, and Bill of Particulars ("Def. Vacatur Motion") (Docket Entry # 979); Gov't's Response to Motion to Compel (Docket Entry # 1012); Def.'s Reply to Motion to Compel (Docket Entry # 1015); Def.'s Letter of Jan. 10, 2011 (not yet filed on ECF).
[15] The Government informed defense counsel of the name of CW-1, and the court granted a protective order prohibiting dissemination of that person's identity; the court also granted the Government's request to redact the names of two other cooperating witnesses. (See id. at 8-9.)
[16] See Def.'s Motion for Material Witness Orders and Warrants of Jan. 11, 2009 (Docket Entry # 601); Affirmation of Lawrence Mark Stern of Jan. 11, 2009 ("Stern Aff.") (Docket Entry # 601); Def.'s Mem. in Support of Def.'s Motion for Material Witness Orders and Warrants of Jan. 11, 2009 ("Def. Witness Mem.") (Docket Entry # 601).
[17] In his reply on this issue, Basciano asks for an order compelling Santomaggio to disclose the identities of CW-2 and CW-3, as well as an order granting Santomaggio immunity. In contrast to his opening brief of five double-spaced pages, his reply brief is a fourteen-page, single-spaced letter that includes these new requests along with pages of speculation about prosecutorial misconduct. (See Def.'s Letter of May 31, 2009 (Docket Entry # 702).) The court has previously warned Basciano that "`arguments may not be made for the first time in a reply brief,' particularly because doing so deprives the Government of an opportunity to respond." (Particulars Order at 22 (quoting Knipe v. Skinner, 999 F.2d 708, 711 (2d Cir.1993)).) In the interest of completeness, however, the court has reviewed and considered these applications. They are without merit. With respect to compelling Santomaggio to provide the identity of the potential witnesses, the Defendant asks the court to "fashion some other method to compel Santomaggio to reveal the names of these inmates" without providing any explanation for what such a remedy would look like or providing any case law supporting issuance of such an order. (Def.'s Letter of May 31, 2009 at 6.) Santomaggio, on advice of counsel, has decided not to divulge their names. (Gov. Pretrial Opp. at 91.) Defense counsel can subpoena Santomaggio to testify at trial and the court will then decide whether Santomaggio's refusal to reveal information is driven by a legitimate assertion of his Fifth Amendment right against self-incrimination. This application is DENIED. With respect to immunity, defense counsel reiterated the application to immunize Santomaggio at oral argument (see Arg. Tr. at 136-37), but has provided no basis to conclude that forced immunity under the Second Circuit's standard in Ebbers, as discussed above, is appropriate. The application for immunity is also DENIED.
[18] Basciano also sought all § 3500 materials produced in Basciano I. (Def. Pretrial Mem. at 21-22.) At oral argument, the court ordered that defense counsel be permitted to access that material, which has been warehoused in the anteroom of the courtroom. (See Arg. Tr. at 134-35.) Basciano has also sought an order requiring the preservation of interview notes of law enforcement. (Def. Pretrial Mem. at 96.) The Government has indicated that it is already its practice to preserve such notes, so this request is DENIED as moot. (Gov. Pretrial Opp. at 99.)
[19] "Statutory and non-statutory aggravating factors must be found beyond a reasonable doubt and unanimously by the jury." Wilson, 493 F.Supp.2d at 385 (citing 18 U.S.C. § 3593(c)-(d)). "For mitigating factors, the defendant has the burden of establishing their existence by a preponderance of the information and any single juror who finds the existence of a mitigating factor established may consider that factor regardless of the number of jurors who concur that the factor has been established." Wilson, 493 F.Supp.2d at 385 (internal quotation marks omitted).
[20] This factor states: "The defendant intentionally participated in an act, contemplating that the life of Randolph Pizzolo would be taken or intending that lethal force would be used in connection with a person, other than a participant in the offense, and Randolph Pizzolo died as a direct result of the act." (Notice of Intent at 1-2.)
[21] This factor states: "The defendant intentionally and specifically engaged in an act of violence, knowing that the act created a grave risk of death to a person, other than a participant in the offense, such that participation in the act constituted a reckless disregard for human life and Randolph Pizzolo died as a direct result of the act." (Notice of Intent at 2.)
[22] This factor states; "The defendant previously has been convicted of an offense punishable by a term of imprisonment of more than one year, involving the use or attempted or threatened use of a firearm against another person." (Notice of Intent at 2.)
[23] This factor states: "The defendant committed the [death-eligible] offense after substantial planning and premeditation to cause the death of Randolph Pizzolo." (Notice of Intent at 3.)
[24] This factor states: "The defendant is likely to commit criminal acts of violence in the future that would constitute a continuing and serious threat to the lives and safety of others," and sets forth the particulars relating to each of the listed examples. (Notice of Intent at 3-4.)
[25] This factor states: "The defendant sought Randolph Pizzolo's death in order to increase his standing in and leadership of the Bonanno organized crime family of La Cosa Nostra, a criminal enterprise. . . ." (Notice of Intent at 4.)
[26] This factor states: "To attempt to obstruct justice, the defendant has engaged in conduct involving violence and threats of violence, including but not limited to murder conspiracy and murder solicitation." (Notice of Intent at 5.)
[27] This factor states: "The defendant faces contemporaneous convictions for other serious acts of violence." (Notice of Intent at 5.)
[28] This factor states: "The defendant has participated in uncharged murders, attempted murders, murder conspiracies, murder solicitation and murder authorizations, and other serious crimes of violence." (Notice of Intent at 5.)
[29] This factor states: "As reflected by the victim's personal characteristic as a human being and the impact of the offense on the victim and the victim's family, the defendant caused loss, injury, and harm to the victim and the victim's family." (Notice of Intent at 5.)
[30] See also United States v. Quinones, 313 F.3d 49 (2d Cir.2002) (upholding the FDPA over Fifth and Eighth Amendment challenges).
[31] Because bifurcating the penalty results in a guilt phase and a two-part penalty phase, ordering this structure for capital proceedings can also be referred to as trifurcation. See United States v. Fell, 531 F.3d 197, 239 (2d Cir.2008) ("For instance, a number of district courts have `trifurcated' capital proceedings by splitting the sentencing phase into two separate hearings: one for the eligibility phase and one for the selection phase.").
[32] The capital crime with which Basciano is charged "targets a person who, `for the purpose of gaining entrance to or maintaining or increasing position in an enterprise engaged in racketeering activity, murders or threatens to commit a crime of violence against any individual in violation of the laws of any State or attempts or conspires to do so.'" United States v. Jones, 291 F. Supp. 2d 78, 86 (D.Conn.2003) (quoting 18 U.S.C. § 1959(a)) (internal alterations omitted).
[33] "The intentional participation and `reckless disregard for human life' standards stem from the Supreme Court's holdings in the cases of Enmund v. Florida, 458 U.S. 782, 102 S. Ct. 3368, 73 L. Ed. 2d 1140 (1982) and Tison v. Arizona, 481 U.S. 137, 107 S. Ct. 1676, 95 L. Ed. 2d 127 (1987). The Committee understands these cases to hold that under certain particularly heinous circumstances, the Constitution permits the application of the death penalty where the defendant acted with a state of mind short of an intent to kill or in circumstances where an intent to kill can be imputed to the defendant. These circumstances can include situations in which the defendant intentionally and substantially participated in actions that resulted in a death and where the defendant's participation in an act of violence constituted extreme reckless indifference for human life. The Committee believes that the reckless indifference standard is appropriate, on both policy and constitutional grounds, when a defendant may not necessarily have had an actual intent to kill, but engaged in an act of violence that manifested an extreme and reckless indifference for human life and resulted in death." H.R. Rep. 103-466 at 15.
[34] Unlike the provision at issue in James which contains some language referring to elements of crimes and other language using the term "involving," § 3592(c) does not contain any subsections referring to the "elements" of crimes, but only uses the term "involving" when referring to the nature of past convictions. Compare 18 U.S.C. § 924(e) with 18 U.S.C. § 3592(c).
[35] The court thus disagrees with the conclusion in United States v. Smith, 630 F. Supp. 2d 713, 718 (E.D.La.2007), in which the district court applied the categorical approach and rejected Higgs. The court is not persuaded that this approach adequately considers the structure of the FDPA and the need for the individualized sentencing, as recognized in Higgs, Rodriguez, and other cases. See also United States v. Anh The Duong, CR-01-20154 (JF), 2010 WL 275058, at *3 (N.D.Cal. Jan. 14, 2010) (following Rodriguez and Higgs in rejecting the "categorical approach" to § 3592(c)(2)); Chong, 98 F.Supp.2d at 1120-21.
[36] While this case would not require relitigation of the merits of the conviction, it would require litigation of a wide range of facts surrounding the conviction, and thus could trigger concerns of waste of time, cumulative evidence, and confusion of the issues. Chong, 98 F.Supp.2d at 1121 ("[T]he Court concludes that the Government is entitled to introduce information concerning the underlying circumstances of Defendant's prior convictions. However, the Court cautions both parties that such information should be limited. The Court will not permit either party to relitigate the merits underlying the convictions because of concerns of waste of time, cumulative evidence, and confusion of the issues. However, the Court will permit an appropriate amount of information to provide the necessary context for the jury to perform its weighing function.").
[37] Basciano's citation to ex post facto cases dealing with reliance on statutory aggravating factors added to the death-penalty statute after a defendant's commission of the crime are inapposite. (See Def. Pretrial Mem. at 30-31.)
[38] Since the imposition of SAMS, the court has noted the continuing danger presented by the Defendant. (See, e.g., Particulars Order at 7 ("The risk of danger is a pervasive, omnipresent concern in this prosecution.").)
[39] For example, Basciano argues that these acts were "just talk," and did not involve substantial steps towards obstruction of justice. (Id. at 45.) He also argues that none of these acts were presented by the Government in sentencing in Basciano I, which indicates that it must have been deemed insufficiently reliable by the Government at that time. (Id.) He argues that, without more relevant or reliable evidence, this Aggravating Factor is just duplicative of the Aggravating Factor, Membership in a Criminal Enterprise, and should be stricken. (Id. at 42-43.)
[40] The court declines to require a full hearing with witnesses, as the Corley court did, because given the amount of uncharged conduct at issue in this case, a reliability hearing like that in Corley would essentially require the penalty phase to be conducted twiceonce before the court and once before a jury. See 348 F. Supp. 2d 970. However, the court notes that the "screening of aggravating factors is essential in channeling, directing and limiting the sentencer's discretion to prevent arbitrary and capricious imposition of the death penalty." United States v. Cisneros, 363 F. Supp. 2d 827, 833 (E.D.Va.2005).
[41] "In deciding whether to admit information regarding aggravating factors at sentencing, the Court must ensure that it is relevant, reliable and less prejudicial than probative. At the same time, it should lean in favor of admitting as much information as possible to allow the jury to make an individualized determination of whether the defendant merits the death penalty." Cisneros, 363 F.Supp.2d at 833. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2474842/ | 769 F. Supp. 2d 1225 (2011)
Keith ISAGAWA and Jessica Isagawa, as individuals, Plaintiffs,
v.
HOMESTREET BANK; Fidelity National Title; and Does 1-100 inclusive, Defendants.
CV. No. 10-00508 DAE-BMK.
United States District Court, D. Hawai`i.
February 14, 2011.
*1228 Keith Isagawa, Kahului, HI, pro se.
Jessica Isagawa, Kahului, HI, pro se.
Patricia J. McHenry, Sean Michael Smith, Cades Schutte, Carol A. Eblen, Regan M. Iwao, William K. Tanaka, Goodsill Anderson Quinn & Stifel LLLP, Honolulu, HI, for Defendant.
AMENDED ORDER: (1) GRANTING DEFENDANT HOMESTREET BANK'S MOTION TO DISMISS COMPLAINT; (2) DISMISSING THE COMPLAINT WITHOUT PREJUDICE AS AGAINST ALL DEFENDANTS; AND (3) DENYING AS MOOT DEFENDANT FIDELITY'S MOTION FOR JUDGMENT ON THE PLEADINGS
DAVID ALAN EZRA, District Judge.
On January 24, 2011, the Court was scheduled to hear Defendant HomeStreet Bank's Motion to Dismiss Complaint. Plaintiffs Keith Isagawa and Jessica Isagawa ("Plaintiffs"), pro se, failed to appear at the hearing on behalf of themselves[1]; Sean Smith, Esq., appeared at the hearing on behalf of Defendant HomeStreet Bank; William K. Tanaka, Esq., appeared at the hearing on behalf of Fidelity National Title Insurance. Because Plaintiffs did not appear at the hearing, pursuant to Local Rule 7.2(d), the Court finds this matter suitable for disposition without a hearing. After reviewing the supporting and opposing memoranda, the Court GRANTS Defendant HomeStreet Bank's Motion to Dismiss Complaint. (Doc. # 10.) The Complaint is DISMISSED as against all Defendants. Additionally, Defendant Fidelity's Motion for Judgment on the *1229 Pleadings is DENIED AS MOOT. (Doc. # 18.)
BACKGROUND
On September 1, 2010, Plaintiffs Keith Isagawa and Jessica Isagawa ("Plaintiffs") filed a Complaint against Defendants HomeStreet Bank ("HomeStreet"), Fidelity National Title Insurance Company and Fidelity National Title & Escrow of Hawaii, Inc. ("Fidelity"), and Does 1-100, (collectively, "Defendants") alleging that Plaintiffs had been lured into a predatory mortgage loan.[2] ("Compl.," Doc. # 1.) Specifically, Plaintiffs' Complaint alleges Counts: (Count I) Declaratory Relief (Compl. ¶¶ 39-43); (Count II) Injunctive Relief (id. ¶¶ 44-47); (Count III) Contractual Breach of Implied Covenant of Good Faith and Fair Dealing (id. ¶¶ 48-54); (Count IV) Violation of TILA, 15 U.S.C. § 1601, et seq. (id. ¶¶ 55-64); (Count V) Violation of Real Estate Settlement and Procedures Act ("RESPA") (id. ¶¶ 65-71); (Count VI) Rescission (id. ¶¶ 72-76); (Count VII) Unfair and Deceptive Business Act Practices ("UDAP") (id. ¶¶ 77-83); (Count VIII) Breach of Fiduciary Duty (id. ¶¶ 84-88); (Count IX) Unconscionability UCC-2-3202[3] (id. ¶¶ 89-92); (Count X) Predatory Lending (id. ¶¶ 93-107); and (Count XI) Quiet Title (id. ¶¶ 108-111).
Plaintiffs reside in the State of Hawaii. (Id. ¶ 1.) Plaintiffs entered into a loan repayment and security agreement on or about January 15, 2009. (Id. ¶ 3.) Plaintiffs executed a note with HomeStreet in the principal amount of $348,750.00, recorded on January 27, 2009 in the Bureau of Conveyances. (Motion to Dismiss Complaint, "Mot.," Doc. # 10 at 1.) The real property at issue in this loan transaction is located at 360 Onehee Avenue, Kahului, HI 96732, County of Maui (the "Subject Property"). (Compl. ¶ 2.)
Plaintiffs allege that Defendants "intentionally concealed the negative implications of the loan they were offering," putting Plaintiffs in a position of potentially "losing their home to the very entity and entities who placed them in this position." (Id. ¶ 16.) Plaintiffs also contend that Defendants "hold an interest in a loan that was improperly handled from its inception," and used "acts of deception violat[ing] several statutes and in essence creat[ing] an illegal loan." (Id. ¶¶ 18, 23.) In addition, Plaintiffs assert that HomeStreet "illegally, deceptively, and/or otherwise unjustly, qualified Plaintiffs for a loan which [they] knew or should have known that Plaintiffs could not qualify for or afford...." (Id. ¶ 24.)
On September 28, 2010, Defendant HomeStreet filed a Motion to Dismiss ("Motion") for failure to state a claim upon which relief can be granted. ("Mot.," Doc. # 10.) On November 17, 2010, Defendant Fidelity filed a Statement of No Position on Defendant HomeStreet's Motion. (Doc. # 14.) No Opposition has been filed by Plaintiffs. On December 29, 2010, Defendant Fidelity filed a Motion for Judgment on the Pleadings, alleging that Plaintiffs' Complaint should be dismissed for nearly identical reasons as Defendant HomeStreet's Motion.[4] (Doc. # 18.)
*1230 STANDARD OF REVIEW
I. Federal Rule of Civil Procedure 12(b)(6)
Pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure ("Rule"), a motion to dismiss will be granted where the plaintiff fails to state a claim upon which relief can be granted. Review is limited to the contents of the complaint. See Clegg v. Cult Awareness Network, 18 F.3d 752, 754 (9th Cir.1994). A complaint may be dismissed as a matter of law for one of two reasons: "(1) lack of a cognizable legal theory, or (2) insufficient facts under a cognizable legal claim." Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir.1984) (citation omitted). Allegations of fact in the complaint must be taken as true and construed in the light most favorable to the plaintiff. See Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir.2005).
A complaint need not include detailed facts to survive a Rule 12(b)(6) motion to dismiss. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007). In providing grounds for relief, however, a plaintiff must do more than recite the formulaic elements of a cause of action. See id. at 556-57, 127 S. Ct. 1955; see also McGlinchy v. Shell Chem. Co., 845 F.2d 802, 810 (9th Cir.1988) ("[C]onclusory allegations without more are insufficient to defeat a motion to dismiss for failure to state a claim.") (citation omitted). "The tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions," and courts "are not bound 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) (internal quotations and citations omitted). Thus, "bare assertions amounting to nothing more than a formulaic recitation of the elements" of a claim "are not entitled to an assumption of truth." Moss v. U.S. Secret Service, 572 F.3d 962, 969 (9th Cir.2009) ("[T]he non-conclusory `factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.") (internal quotations and citations omitted).
A court looks at whether the facts in the complaint sufficiently state a "plausible" ground for relief. See Twombly, 550 U.S. at 570, 127 S. Ct. 1955. A plaintiff must include enough facts to raise a reasonable expectation that discovery will reveal evidence and may not just provide a speculation of a right to relief. Id. at 586, 127 S. Ct. 1955. When a complaint fails to adequately state a claim, such deficiency should be "exposed at the point of minimum expenditure of time and money by the parties and the court." Id. at 558, 127 S. Ct. 1955 (citation omitted). If a court dismisses the complaint or portions thereof, it must consider whether to grant leave to amend. Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir.2000) (finding that leave to amend should be granted "if it appears at all possible that the plaintiff can correct the defect") (internal quotations and citations omitted).
II. Federal Rule of Civil Procedure 9(b)
Federal Rule of Civil Procedure 9(b) requires that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b). Under Ninth Circuit law, "Rule 9(b) requires particularized allegations of the circumstances constituting fraud." In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1547-48 (9th Cir.1994) (en banc), superseded on other grounds by 15 U.S.C. § 78u-4.
In their pleadings, plaintiffs must include the time, place, and nature of the alleged fraud; "mere conclusory allegations of fraud are insufficient" to satisfy *1231 this requirement. Id. at 1548 (quoting Moore v. Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir.1989)). "[T]he circumstances constituting the alleged fraud [must] `be specific enough to give defendants notice of the particular misconduct... so that they can defend against the charge and not just deny that they have done anything wrong.'" Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir.2009) (quoting Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir.2001)); see also Moore, 885 F.2d at 540 (finding that Rule 9(b) requires a plaintiff to attribute particular fraudulent statements or acts to individual defendants). However, "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed.R.Civ.P. 9(b); see also In re GlenFed, Inc. Sec. Litig., 42 F.3d at 1547 ("We conclude that plaintiffs may aver scienter ... simply by saying that scienter existed."); Walling v. Beverly Enter., 476 F.2d 393, 397 (9th Cir.1973) (finding that Rule 9(b) "only requires the identification of the circumstances constituting fraud so that the defendant can prepare an adequate answer from the allegations" (citations omitted)).
A motion to dismiss for failure to plead with particularity is the functional equivalent of a motion to dismiss under Rule 12(b)(6) for failure to state a claim. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1107 (9th Cir.2003). In considering a motion to dismiss, the court is not deciding the issue of "whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 40 L. Ed. 2d 90 (1974) overruled on other grounds by Davis v. Scherer, 468 U.S. 183, 104 S. Ct. 3012, 82 L. Ed. 2d 139 (1984).
DISCUSSION
For the reasons set forth below, the Court concludes that Defendants' Motion to Dismiss should be granted. The Complaint is dismissed without prejudice as against all Defendants.
I. Counts I and II: Declaratory Relief and Injunctive Relief
Count I of the Complaint asserts a claim for declaratory relief to prevent Defendants from foreclosing on the Subject Property, because Defendants' interest in the Subject Property has allegedly been rendered void due to violations of law. (Compl. ¶¶ 39-43.) Count II of the Complaint seeks an injunction preventing HomeStreet from proceeding with its foreclosure action and Plaintiffs argue that "injunctive relief ... is necessary and appropriate at this time to prevent irreparable loss to Plaintiffs." (Id. ¶¶ 44-47.)
Plaintiffs' requests in Count I and II fail to satisfy the minimum pleading requirements of Rules 8 and 9(b). Count I alleges that "Defendants did not properly comply with proper delivery procedures under RESPA," and that "Defendants [sic] actions in the processing, handling and attempted foreclosure of this loan has [sic] contained numerous violations of State and Federal laws...." (Id. ¶¶ 40-41.) Count II contends that "Plaintiffs has [sic] suffered and will continue to suffer in the future unless Defendants' wrongful conduct is restrained and enjoined...." (Id. ¶¶ 47.) Here, Plaintiffs fail to allege any facts and solely provide legal conclusions regarding Defendants' purported wrongful conduct and violations of State and Federal laws. Such legal conclusions are not entitled to an assumption of truth when ruling on a motion to dismiss. See Iqbal, 129 S.Ct. at 1949. As such, Plaintiffs' conclusory allegations are insufficient to state a claim for relief.
Additionally, Plaintiffs contend, in Count I, that "the Defendants perpetrated a fraudulent loan transaction." (Compl. *1232 ¶¶ 40.) To the extent that Plaintiffs bring allegations of fraud against Defendants, Plaintiffs have failed to satisfy the heightened fraud pleading standard under Rule 9(b). The Court discusses this at length in Section X of the instant Order below.
Accordingly, the Court GRANTS Defendants' Motion to Dismiss as to Plaintiffs' claims for declaratory and injunctive relief.
II. Count III: Contractual Breach of Implied Covenant of Good Faith and Fair Dealing
Count III of the Complaint alleges that Defendants "willfully breached their implied covenant of good faith and fair dealing," by withholding numerous disclosures; withholding notices with regards to excessive fees and closing costs, below standard and non-diligent underwriting standards, good faith estimates, yield spread premiums, disclosures of additional income due to interest rate increases, failure to disclose when negative credit scores were disseminated, failure to provide disclosures of business affiliations, kickback fees and rescission/right to cancel disclosures; and willfully placing Plaintiffs in a loan that they did not qualify for and could not afford. (Compl. ¶ 52.)
In Hawaii, commercial contracts are subject to a statutory duty to perform in good faith. Haw.Rev.Stat. § 490:1-304. Further, Hawaii law recognizes that "every contract contains an implied covenant of good faith and fair dealing that neither party will do anything that will deprive the other of the benefits of the agreement." Best Place, Inc. v. Penn Am. Ins. Co., 82 Hawai'i 120, 920 P.2d 334, 337-38 (1996) (citations omitted).
Here, Plaintiffs fail to allege any specific facts and solely provide legal conclusions regarding Defendants' purported violation of the implied covenant of good faith and fair dealing. While Plaintiffs provide a laundry list of disclosures and notices allegedly withheld by Defendants, they fail to state how Defendants' actions constitute a breach of the implied covenant of good faith and fair dealing. Moreover, Plaintiffs fail to show that any of the allegedly withheld notices were required under statute or any other law. Simply making such conclusory allegations is insufficient to properly plead this claim. Thus, Plaintiffs' legal conclusions are entitled to no weight. See Iqbal, 129 S.Ct. at 1949.
Accordingly, the Court GRANTS the Motion to Dismiss as to Plaintiffs' claim for breach of the implied covenant of good faith and fair dealing.
III. Count IV: Violation of TILA, 15 U.S.C. § 1601, et. seq.
Count IV of the Complaint alleges that Defendants violated the Truth in Lending Act ("TILA") by failing to provide Plaintiffs with all of the required disclosures. (Compl. ¶¶ 55-64.) Plaintiffs assert rescission and civil liability for the purported TILA violations. Defendants contend that Plaintiffs' TILA claim for rescission has not been sufficiently pled, and that Plaintiffs' TILA claim for damages is barred by the statute of limitations and that equitable tolling does not apply. (Mot. at 9-15.) The Court will address these arguments separately.
A. Rescission Under 15 U.S.C. § 1635
Section 1635(a), TILA's so-called buyer's remorse provision, gives borrowers three business days to rescind the loan agreement without penalty. 15 U.S.C. § 1635(a); Semar v. Platte Valley Fed. Sav. & Loan Ass'n, 791 F.2d 699, 701 (9th Cir.1986) (citing 15 U.S.C. § 1635(a)). To invoke this provision, the loan must be a consumer loan using the borrower's principal dwelling as security. 15 U.S.C. § 1635(a). If the lender fails to deliver certain forms or disclose important terms accurately, Section 1635(f) gives the borrower the right to rescind until "three *1233 years after the consummation of the transaction or ... the sale of the property, whichever occurs first." 15 U.S.C. § 1635(f); see also King v. California, 784 F.2d 910, 913 (9th Cir.1986). A borrower's right to rescind extends for three years if a lender fails to disclose the right to rescind or fails to make any other "material disclosure." 12 C.F.R. § 226.23(a)(3); 15 U.S.C. § 1605(u) (indicating that the material disclosures include the annual percentage rate, the finance charge, the amount financed, the total of payments, and the payment schedule).
Here, Plaintiffs consummated the loan on January 15, 2009 and initiated this action on September 28, 2010. Plaintiffs' request for rescission is therefore time-barred unless they can demonstrate that the extended three-year limitations period applies. Count IV of Plaintiffs' Complaint, which sets forth the alleged TILA violations, represents that Defendants failed to provide: (1) a correct payment schedule; (2) a properly disclosed interest rate; (3) a notice of the right to cancel; (4) an accurate Good Faith Estimate; (5) a disclosure relating to property/hazard insurance; and (6) a "CHARM booklet within three days of Plaintiffs' application pursuant to 12 C.F.R. § 19(b)." (Compl. ¶¶ 58, 60.)
These allegations are insufficient to show that Plaintiffs are entitled to the extended three-year limitations period for their TILA rescission claim. First, Defendants correctly argue that "good faith estimates and `CHARM booklets' are not among the `material disclosures' referenced in 12 C.F.R. § 226.23 n. 48...." (Mot. at 14.) Section 226.23 of Regulation Z lays out the right of rescission under TILA. Specifically, the statute states that, "[i]f the required notice or material disclosures are not delivered, the right to rescind shall expire three years after consummation," with "material disclosures" defined in footnote 48 as, "the required disclosures of the annual percentage rate, the finance charge, the amount financed, the total of payments, the payment schedule, and the disclosures and limitations referred to in §§ 226.32(c) and (d) and 226.35(b)(2)." 12 C.F.R. § 226.23. Thus, Defendants' alleged failure to provide Plaintiffs with good faith estimates or CHARM booklets would not trigger an extension of the three-day rescission period under TILA.
Additionally, Defendants contend that the remaining disclosures that they allegedly did not provide to Plaintiffs were actually provided to Plaintiffs in a Notice of Right to Cancel, and a Truth in Lending Disclosure Statement. (Mot. at 15.) Specifically, Defendants argue that, (1) a correct payment schedule, (2) a properly disclosed interest rate, (3) a notice of the right to cancel, and (4) a disclosure relating to property/hazard insurance were in fact provided to Plaintiffs. (Id.) The Notice of Right to Cancel and the Truth in Lending Disclosure Statement are provided to the Court in Exhibits C and D of Defendants' Motion. (See Mot. at Exs. C and D.) Here, the Court takes judicial notice of the Notice of Right to Cancel and the Truth in Lending Disclosure statement and as such, agrees with Defendants that the relevant disclosures are contained within those documents.[5] Thus, the Court *1234 cannot conclude that Plaintiffs are entitled to the extended three-year limitations period for their TILA rescission claim.
Plaintiffs also suggest that the disclosures made by Defendants were "false" or "incomplete." (Compl. ¶ 74.) These allegations, lacking any degree of specificity, are insufficient to put Defendants on notice of the disclosures that allegedly were not provided. Additionally, the Complaint leaves completely unanswered (1) how each Defendant is related to the mortgage agreement and/or note and the servicing of them; (2) which Defendants allegedly committed the alleged wrongs; and (3) when these wrongs were committed. In the absence of this information, the Court cannot conclude that Plaintiffs are entitled to the extended three-year limitations period for their TILA rescission claim.[6]
Accordingly, the Court GRANTS the Motion to Dismiss as to Plaintiffs' TILA rescission claim.
B. Damages Under 15 U.S.C. § 1640
In addition to rescission, TILA authorizes civil liability in the form of actual damages, statutory damages, costs, and attorneys fees. 15 U.S.C. § 1640. Pursuant to Section 1640(e), there is a one-year statute of limitations for civil liability claims under TILA. Id. § 1640(e). The limitations period generally runs from the date of consummation of the transaction. King, 784 F.2d at 915. Here, Plaintiffs entered into the loan transaction on January 15, 2009, and initiated the present lawsuit on September 01, 2010. As such, more than one year elapsed between the consummation of the loan and the filing of the instant action. Therefore, Plaintiffs' claim for damages under TILA is barred by the statute of limitations unless equitable tolling applies.
As a general matter, "[e]quitable tolling may be applied if, despite all due diligence, a plaintiff is unable to obtain vital information bearing on the existence of his claim." Santa Maria v. Pac. Bell, 202 F.3d 1170, 1178 (9th Cir.2000); see also O'Donnell v. Vencor, Inc., 465 F.3d 1063, 1068 (9th Cir.2006) ("Equitable tolling is generally applied in situations `where the claimant has actively pursued his judicial remedies by filing a defective pleading during the statutory period, or where the complainant has been induced or tricked by his adversary's misconduct into allowing the filing deadline to pass.'" (quoting Irwin v. Dep't of Veterans Affairs, 498 U.S. 89, 96, 111 S. Ct. 453, 112 L. Ed. 2d 435 (1990))). In a TILA damages action specifically, equitable tolling may suspend the limitations period "until the borrower discovers or had reasonable opportunity to discover the fraud or nondisclosures that form the basis of the TILA action." King, 784 F.2d at 915. However, when a plaintiff fails to allege facts demonstrating that the plaintiff could not have discovered the purported TILA violation with reasonable diligence, dismissal is appropriate and equitable tolling will not apply. See Meyer v. Ameriquest Mortg. Co., 342 F.3d 899, 902 (9th Cir.2003) (refusing *1235 to apply equitable tolling for failure to make required disclosures under TILA when the plaintiff was in full possession of all loan documents and did not allege fraudulent concealment or any other action that would have prevented discovery of the violation); Hubbard v. Fidelity Fed. Bank, 91 F.3d 75, 79 (9th Cir.1996) (holding that the plaintiff was not entitled to equitable tolling of her TILA claim because "nothing prevented [the plaintiff] from comparing the loan contract, Fidelity's initial disclosures, and TILA's statutory and regulatory requirements").
In this case, Plaintiffs allege that Defendants violated TILA by failing to provide them with all of the required disclosures. (Compl. ¶¶ 55-64.) As in Meyer and Hubbard, Plaintiffs fail to allege any facts to demonstrate that equitable tolling applies. Their assertion that Defendants "fail[ed] to effectively provide the required disclosures and notices," (id. ¶ 59) is conclusory and does not justify application of equitable tolling. Plaintiffs offer no explanation as to why they were unable to discover the TILA violations within the one-year statutory period. Plaintiffs' conclusory allegations without more are insufficient for them to invoke the doctrine of equitable tolling.
Accordingly, the Court GRANTS Defendants' Motion to Dismiss as to Plaintiffs' TILA damages claim.
IV. Count V: Real Estate Settlement Procedures Act Violations
Count V of the Complaint alleges that Defendants violated RESPA by "[giving], provid[ing], or receiv[ing] a hidden fee or thing of value for the referral of settlement business, including but not limited to, kickbacks, hidden referral fees, and/or yield spread premiums ...," and "charg[ing] fees in excess of the reasonable value of goods provided and/or services rendered." (Compl. ¶ 69-70.) Defendants assert that Plaintiffs' claims are barred by the statute of limitations and that equitable tolling does not apply. (Mot. 16-17.)
RESPA imposes either a one-year or a three-year statute of limitations depending on the violation alleged. 12 U.S.C. § 2614 (proscribing a one-year statute of limitations for violations of Sections 2607 and 2608 and a three-year statute of limitations for violations of Section 2605).
Plaintiffs fail to cite any specific provision of RESPA that was violated by Defendants, which is grounds for dismissal of the claim, alone. See Rosal v. First Federal Bank of California, 671 F. Supp. 2d 1111, 1125 (N.D.Cal.2009); Mansour v. Cal-Western Reconveyance Corp., 618 F. Supp. 2d 1178, 1183 (D.Ariz.2009).[7] Although FRCP Rule 8 requires only that a complaint include a "short and plain statement of the claim showing that the pleader is entitled to relief," the complaint must sufficiently put Defendants on fair notice of the claim asserted and the ground upon which it rests. Defendants, nor the Court, are required to speculate as to which provisions Plaintiffs are suing under or how Defendants violated such provisions. Vague allegations containing mere labels and conclusions are insufficient to survive a motion to dismiss. See Twombly, 550 U.S. at 555, 127 S. Ct. 1955.
While Plaintiffs fails to specify under which section of the statute their alleged RESPA claim arises, it appears that they are alleging a violation of 12 U.S.C. § 2607, which relates to kickbacks and unearned fees. (See Compl. ¶ 69.) Because Plaintiffs' alleged RESPA claim arose out *1236 of the loan origination, which occurred more than one year before Plaintiffs filed the instant action, their claim is barred by the statute of limitations. As discussed above, Plaintiffs are not entitled to equitable tolling because they have failed to allege specific facts showing why they could not bring suit within the limitations period.
Accordingly, the Court GRANTS Defendants' Motion to Dismiss as to the RESPA claims.
V. Count VI: Rescission
Count VI of the Complaint alleges that Plaintiffs are entitled to rescind their loan under violations of TILA, RESPA, fraudulent concealment, Deceptive Acts and Practices (UDAP), and under public policy grounds. However, rescission is a remedy and not an independent cause of action, thus there must be grounds on which to support an award of rescission. See Bischoff v. Cook, 118 Hawai'i 154, 185 P.3d 902, 911 (Haw.App.2008).
For the reasons stated above in the Court's analysis of Plaintiffs' TILA claim, Plaintiffs are not entitled to rescission under TILA. Plaintiffs' claim for rescission under RESPA fails as well, because rescission is not a form of relief offered by the statute. See 12 U.S.C. § 2601-2617. Additionally, as stated above, Plaintiffs' claim for RESPA fails, thus any derivative claim fails as well. Plaintiffs' third and fourth bases for rescission, fraudulent concealment and UDAP, fail for the reasons discussed below in Sections X and VI, respectively. Finally, Plaintiffs' claim for rescission on "public policy grounds" is wholly unsupported, simply a legal conclusion, and entitled to no weight. See Iqbal, 129 S.Ct. at 1949.
Accordingly, the Court GRANTS Defendants' Motion to Dismiss as to Plaintiffs' claim for rescission of the loan.
VI. Count VII: Unfair and Deceptive Trade Practices Act ("UDAP") Violations
Count VII of the Complaint alleges that Defendants "violated the Unfair and Deceptive Acts and Practices by consummating an unlawful, unfair, and fraudulent business practice, designed to deprive Plaintiffs of her [sic] home, equity, as well as her [sic] past and future investment." (Compl. ¶ 82.) Again, Plaintiffs fail to cite any specific provision of the statute that was violated by Defendants, which, as stated above, is grounds for dismissal of the claim.
While Plaintiffs fail to cite to any specific statute, Hawaii Revised Statute section 480-2(a) provides that "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are unlawful." Haw.Rev.Stat. § 480-2(a). "Two distinct causes of action have emerged under [section] 480-2(a): (1) claims alleging unfair methods of competition; and (2) claims alleging unfair or deceptive acts or practices."[8]Haw. Med. Ass'n v. Haw. Med. Serv. Ass'n, Inc., 113 Hawai'i 77, 148 P.3d 1179, 1207 (2006); see also Star Markets, Ltd. v. Texaco, Inc., 945 F. Supp. 1344, 1346 (D.Haw.1996).
Section 480-13 provides a private right of action for violations of section 480-2.[9] Haw.Rev.Stat. § 480-13. To maintain *1237 this cause of action, the plaintiff must demonstrate: (1) a violation of section 480-2; (2) injury to the consumer caused by such a violation;[10] and (3) proof of the amount of damages. Davis v. Wholesale Motors, Inc., 86 Hawai'i 405, 949 P.2d 1026, 1038 (Haw.App.1997) (citations omitted).
Plaintiffs' UDAP claim consists entirely of conclusory allegations, which are insufficient to survive a motion to dismiss. Plaintiffs merely provide that "Defendants failed to undergo a diligent underwriting process ... failed to properly adjust and disclose facts and circumstances relating to Plaintiffs' mortgage loan and place Plaintiffs in a loan ... which they should never have been approved for." (Compl. ¶ 78.) Plaintiffs further allege that "Defendants used various rates and charges to disguise the actual payment schedule and loan amount ... enjoyed unjust enrichment and have profited and deceptively preyed upon Plaintiffs," and "intentionally concealed business affiliates and rushed the closing" of the loan. (Id. ¶ 79, 81.) Plaintiffs fail to specify what "facts or circumstances," or "rates and charges" they are referring to. They fail to specify any "concealed business affiliates" or how the closing of the loan was rushed. In sum, Plaintiffs utterly fail to elaborate on the basis of these claims or provide any level of factual detail as to Plaintiffs' UDAP claim.
Because Plaintiffs' Complaint fails to provide any facts as to Defendants' purported unfair or deceptive acts or practices and unfair methods of competition, it fails to state a claim for a UDAP violation. See Iqbal, 129 S.Ct. at 1949 ("Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.").
Accordingly, the Court GRANTS the Motion to Dismiss as to Plaintiffs' UDAP claim.
VII. Count VIII: Breach of Fiduciary Duty
Count VIII of the Complaint states that "Defendant owed a fiduciary duty to Plaintiffs and breached that duty by [f]ailing to advise or notify Plaintiffs... that Plaintiffs would or had a likelihood of defaulting on the loan...." (Compl. ¶ 85.) Defendants argue that they owed Plaintiffs no fiduciary duty, and as such, the instant Count should be dismissed. (Mot. at 22-23.) Defendants are correct in asserting that there traditionally exists no fiduciary duty between borrowers and lenders. Unless a special relationship exists between a borrower and lender that elevates the lender's responsibility, the standard "arms-length business relationship" applies. Giles v. General Motors Acceptance Corp., 494 F.3d 865, 883 (9th Cir.2007); see also Pension Trust Fund for Operating Engineers v. Federal Ins. Co., 307 F.3d 944, 954 (9th Cir.2002).
In the instant Complaint, Plaintiffs make no allegations suggesting that their relationship to Defendants is anything other than an ordinary, arms-length, lender-borrower relationship. Simply stating that "[d]efendants owed a fiduciary duty to Plaintiffs and breached that duty" is insufficient to establish the existence of *1238 a fiduciary duty. Thus, Plaintiffs' allegations in Count VIII are wholly conclusory and unsupported. See Iqbal, 129 S.Ct. at 1949.
Accordingly, the Court GRANTS Defendants' Motion to Dismiss as to Plaintiffs' claim for breach of fiduciary duty.
VIII. Count IX: Unconscionability
In Count IX of the Complaint, Plaintiffs bring a claim for unconscionability alleging that, "based on the deception, unfair bargaining position, lack of adherence to the [law] ... the court may find that the loan agreement and trust deed are unconscionable." (Compl. ¶ 89.) According to the Hawaii Supreme Court, unconscionability is a cause of action[11] asserted to prevent the enforcement of a contract where, "the clauses are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract...." (emphasis added) Lewis v. Lewis, 69 Haw. 497, 748 P.2d 1362, 1366 (1988) (citations omitted).
Here, Plaintiffs' allegations fail to address any contract terms between Plaintiffs and Defendants, and instead, address Defendants' alleged conduct generally. These allegations do not speak to any unconscionable terms in the contract, nor are they limited to behavior that affected the circumstances under which the contract was made. For this reason, Plaintiffs' contentions in Count IX fail to state a claim for unconscionability.
Accordingly, the Court GRANTS Defendants' Motion to Dismiss as to Plaintiffs' claims for unconscionability.
IX. Count X: Predatory Lending
Count X of the Complaint contends that Defendants engaged in predatory lending practices by: including excessive closing fees and costs, offering a loan at one rate and then changing the loan program at the last moment, not prominently disclosing the good faith estimate of closing costs, not advising Plaintiffs of business affiliations, requiring Plaintiffs to pay rates and fees that were not justified by the marketplace, marketing the loan in a way that did not disclose its material terms, basing the loan on a loan application that is inappropriate for the borrower, and underwriting the loan without due diligence. (Compl. ¶¶ 94-102.)
Despite Plaintiffs' laundry list of allegations, the Court is entirely unclear as to what cause of action Plaintiffs are bringing this claim under. Plaintiffs fail to cite any relevant statute or law under which Defendants' alleged behavior is prohibited. Aside from citing to the Office of Comptroller of Currency's definition of predatory lending, Plaintiffs fail to identify any Hawaii or federal law creating a cause of action for predatory lending. (Compl. ¶ 91.) As stated above, Defendants, nor the Court, are required to speculate as to what law Plaintiffs are suing under or how Defendants violated such law. Vague allegations containing mere labels and conclusions are insufficient to survive a motion to dismiss. See Twombly, 550 U.S. at 555, 127 S. Ct. 1955. As such, Plaintiffs' claim for predatory lending fails.
Accordingly, the Court GRANTS Defendants' Motion to Dismiss as to Plaintiffs' claim for predatory lending.
*1239 X. Count XI: Quiet Title
In Count XI of Plaintiffs' Complaint, Plaintiffs seek to quiet title in the Subject Property via a declaration from the Court that "the title to the Subject Property is vested in Plaintiffs alone and that the Defendants herein, and each of them, be declared to have no estate, right, title or interest in the Subject Property...." (Compl. ¶ 106.) Under Hawaii Law, an action to quiet title "may be brought by any person against another person who claims, or who may claim adversely to the plaintiff, an estate or interest in real property, for the purpose of determining the adverse claim." Haw.Rev.Stat. § 669-1(a).
Plaintiffs state that "Defendants, and each of them, claim an interest in the Subject Property," and that "said Defendants have no legal or equitable right, claim, or interest in the Property." (Compl. ¶ 105.) However, this is merely a formulaic recitation of an element of the claim. Plaintiffs fail to plead any facts suggesting what interests are being claimed by Defendants and the nature of those interests. Throughout the Complaint, Plaintiffs make blanket statements about Defendants without recognizing that Defendants constitute multiple entities. As such, the Court is unable to determine what rights and interests in the Subject Property each defendant is claiming, thus Plaintiffs' claim to quiet title fails.[12]
Accordingly, the Court GRANTS Defendants' Motion to Dismiss as to Plaintiffs' claim to quiet title.
XI. Fraud
Throughout Plaintiffs' Complaint, they makes various allegations suggesting fraudulent conduct on the part of Defendants. (See e.g. Compl. ¶¶ 40, 54, 64, 73, 82, 85, 96, 104.) These allegations are insufficient to meet Plaintiffs' burden under Rule 8, much less the more rigorous requirements of Rule 9 that apply to allegations of fraud or mistake. See Fed. R.Civ.P. 9(b) (requiring a party to state with particularity the circumstances constituting fraud or mistake). Plaintiffs fail to plead the time and place of any alleged fraud and they also do not specify what role each defendant played in the alleged misconduct. Furthermore, Plaintiffs' statements that "Defendants perpetrated a fraudulent loan transaction" (Compl. ¶ 40), that Defendants' actions were fraudulent and malicious (Compl. ¶¶ 54, 64), and that Defendants partook in fraudulent concealment (Compl. ¶ 73), are legal conclusions entitled to no weight. See Iqbal, 129 S.Ct. at 1949.
Accordingly, the Court GRANTS Defendants' Motion to Dismiss as to any claims made by Plaintiffs regarding fraud.
XII. Leave to Amend
The Court recognizes that it may be possible for Plaintiffs to state a claim if provided the opportunity to amend their Complaint. Accordingly, the Complaint is DISMISSED as against all Defendants in this action with leave to amend no later than 20 days from the filing of this Order. Failure to do so and to cure the pleading deficiencies will result in dismissal of this action with prejudice. Additionally, Defendant Fidelity's Motion for Judgment on the Pleadings is DENIED AS MOOT because the Court dismisses Plaintiffs' Complaint without prejudice and with leave to amend, as against all Defendants.
Plaintiffs are advised that the amended complaint must clearly state how each of *1240 the named defendants have injured them, and it must also clearly identify the statutory provisions under which Plaintiffs' claims are brought. If Plaintiffs choose to file an amended complaint, they must (1) follow the directions in this Order; and (2) be ready, willing, and able to pursue their claims, which includes attending hearings and conferences in person unless there is a legitimate excuse.
CONCLUSION
For the reasons stated above, the Court GRANTS Defendant HomeStreet's Motion to Dismiss Complaint. (Doc. # 10.) The Complaint is DISMISSED as against all Defendants. Additionally, Defendant Fidelity's Motion for Judgment on the Pleadings is DENIED AS MOOT. (Doc. # 18.)
IT IS SO ORDERED.
NOTES
[1] Three calls were made in the hallway for Plaintiffs with no response. The Court acknowledges that Plaintiffs faxed in a request to appear at the hearing by phone. Given that Plaintiffs instituted this action in federal court, and upon a failure to show good cause, the request was denied.
[2] Plaintiffs presumably filed the Complaint in this Court on the basis of diversity jurisdiction pursuant to 28 U.S.C. § 1332, although Plaintiffs do not provide as much in their Complaint.
[3] The Court assumes Plaintiffs actually means Uniform Commercial Code § 2-302Unconscionable Contract or Clause.
[4] Given that HomeStreet's Motion to Dismiss and Fidelity's Motion for Judgment on the Pleadings seek the same relief, the Court from here on forward refers to HomeStreet's Motion to Dismiss as "Defendants' Motion" or "Defendants' Motion to Dismiss".
[5] When a defendant attaches exhibits to a motion to dismiss, the court ordinarily must convert the motion into a summary judgment motion so that the plaintiff has an opportunity to respond. Parrino v. FHP, Inc., 146 F.3d 699, 706 n. 4 (9th Cir.1998). However, a court "may consider evidence on which the complaint `necessarily relies' if: (1) the complaint refers to the document; (2) the document is central to the plaintiff's claim; and (3) no party questions the authenticity of the copy attached to the 12(b)(6) motion." Marder v. Lopez, 450 F.3d 445, 448 (9th Cir.2006). The court may treat such a document as "part of the complaint, and thus may assume that its contents are true for purposes of a motion to dismiss under Rule 12(b)(6)." United States v. Ritchie, 342 F.3d 903, 908 (9th Cir.2003). In the instant case, Plaintiffs' Complaint relies on these notices and disclosures, or the lack thereof, and has not questioned their authenticity. Accordingly, the Court takes judicial notice of the documents in making its determinations on the instant Motion.
[6] Defendants also contend that Plaintiffs cannot rescind the loan because Plaintiffs have not alleged that they are willing and able to tender the borrowed funds back to the lender. (Mot. at 15-16.) The Court need not reach this argument because of its determination that Plaintiffs have failed to state a claim for TILA rescission.
[7] Although the Court does not cite to other district courts as precedent, it notes that the cases cited here have also visited a similar issue.
[8] Although "[a]ny person" may bring an action for unfair methods of competition in violation of section 480-2, only consumers, the attorney general, or the director of the office of consumer protection may bring an action for unfair or deceptive acts or practices in violation of section 480-2. Haw.Rev.Stat. § 480-2(d), (e); see also Davis v. Four Seasons Hotel, Ltd., 122 Hawai'i 423, 228 P.3d 303, 307 (2010). A "consumer" is a "natural person who, primarily for personal, family, or household purposes, purchases, attempts to purchase, or is solicited to purchase goods or services or who commits money, property, or services in a personal investment." Haw.Rev. Stat. § 480-1.
[9] Specifically, section 480-13(a) provides a cause of action for "any person who is injured in the person's business or property by reason of anything forbidden or declared unlawful by this chapter," and section 480-13(b) provides a cause of action for "[a]ny consumer who is injured by any unfair or deceptive act or practice" in violation of section 480-2. Haw. Rev.Stat. § 480-13(a), (b). The plaintiff may sue for both injunctive relief and damages under sections 480-13(a) and (b). Id.
[10] In an unfair method of competition claim, the second element is injury to the plaintiff's business or property resulting from the section 480-2 violation. Haw. Med. Ass'n, 148 P.3d at 1216.
[11] Defendants argue in their Motion that unconscionability is not an affirmative claim for relief. (Mot. at 15.) While Defendants correctly cite to courts that have found unconscionability to be a defense and not an affirmative claim, see e.g. Gaitan v. Mortgage Elec. Registration Sys., 2009 WL 3244729, at *13 (C.D.Cal. Oct. 5, 2009), the Hawaii Supreme Court has addressed unconscionability as a separate cause of action on at least one occasion. See Thompson v. AIG Haw. Ins. Co., 111 Hawai'i 413, 142 P.3d 277 (2006).
[12] Defendants argue, amongst other things, that Plaintiffs "have not alleged that they are able to tender the entire amount of her indebtedness." (Mot. at 27.) The Court need not reach this argument because of its determination that Plaintiffs have failed to state a claim to quiet title. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2143871/ | 818 F. Supp. 2d 775 (2011)
UNITED STATES of America,
v.
Paul MARDIROSSIAN, Defendant.
No. 11 Cr. 350 (JSR).
United States District Court, S.D. New York.
October 13, 2011.
Sabrina P. Shroff, Federal Defenders of New York Inc., New York, NY, for Defendant.
Adam Sean Hickey, Christian R. Everdell, U.S. Attorney's Office, New York, NY, for United States of America.
MEMORANDUM ORDER
JED S. RAKOFF, District Judge.
On July 1, 2011, defendant Mardirossian moved to dismiss all of the charges against him on the ground that the extra-territorial application of United States law to his conduct violated the Due Process Clause. In the alternative, Mardirossian moved to dismiss Count IV, arguing that 18 U.S.C. § 924(c) does not apply extra-territorially. On September 13, 2011, the Court denied Mardirossian's motion to dismiss the indictment in its entirety, see transcript 9/12/11, but reserved judgment on the issue of whether § 924(c) applies extraterritorially. As explained in this Memorandum Order, the Court now denies Mardirossian's motion to dismiss Count IV of the Indictment, holding that § 924(c) applies extraterritorially in the circumstances of this case.
According to the Indictment, in February 2010 Mardirossian met with a confidential source from the DEA, who proposed exchanging cocaine for weapons that the confidential source would give to his associates in Colombia. Ind. ¶ 9(a). Defendant quoted prices to the confidential source, and a few months later in Panama he produced a bullet-proof vest to indicate the kind of materials he could provide. Id. ¶¶ 9(a)-(c). During a meeting in Panama, the informant told Mardirossian that he worked for the Colombian terrorist group known as "FARC," and Mardirossian responded that he knew what FARC was. Id. ¶ 9(d). In July 2010, the informant introduced Mardirossian to an unindicted *776 co-conspirator, who asked to purchase a sample of weapons from Mardirossian, including a rocket-propelled grenade launcher and an AK-47. Id. ¶ 9(f). On January 17, 2011, Mardirossian met with two DEA informants, who indicated that FARC needed the weapons quickly in order to attack an American military base before the completion of its construction. Id. ¶ 9(i). The next day, Mardirossian and his co-conspirator traveled to Panama to inspect the cocaine they would receive in exchange for the weapons. Id. ¶ 9(j). An informant told Mardirossian that the cocaine was bound for New York and offered him the opportunity to invest in the shipment. Id. ¶ 9(k). In response to that offer, Mardirossian, on March 21, 2011, caused a wire transfer of $20,000 to be sent to a bank account in New York. Id. ¶ 9(q). On April 7, 2011, Mardirossian arranged for a co-conspirator to deliver a grenade launcher and an AK-47 to an undercover officer in Copenhagen, Denmark. Id. ¶ 9(t).
Count IV of the Indictment charges Mardirossian with violating 18 U.S.C. § 924(c) by using firearms, specifically the grenade launcher and the AK-47, in relation to a drug trafficking crime. Mardirossian argues that the alleged use of firearms occurred in Denmark, and thus that § 924(c) does not apply because, he argues, that section does not apply to conduct outside the United States.
The Supreme Court has adopted a "legal presumption that Congress ordinarily intends its statutes to have domestic, not extraterritorial, application." Small v. United States, 544 U.S. 385, 388-89, 125 S. Ct. 1752, 161 L. Ed. 2d 651 (2005). This presumption, however, has two exceptions. First, the presumption does not apply to criminal statutes that are "not logically dependent on their locality for the government's jurisdiction, but are enacted because of the right of the government to defend itself against obstruction, or fraud wherever perpetrated." United States v. Bowman, 260 U.S. 94, 98, 43 S. Ct. 39, 67 L. Ed. 149 (1922). Second, ancillary statutes, such as those criminalizing conspiracy, apply extraterritorially whenever the underlying statute does. United States v. Yousef, 327 F.3d 56, 87-88 (2d Cir.2003) ("[I]f Congress intended United States courts to have jurisdiction over the substantive crime of placing bombs on board the aircraft at issue, it is reasonable to conclude that Congress also intended to vest in United States courts the requisite jurisdiction over an extraterritorial conspiracy to commit that crime.").
While the Government argues that both exceptions apply in this case, it is doubtful that the exception identified in Bowman applies here. The Court in Bowman confronted a statute that criminalized defrauding a corporation in which the United States held stock. Bowman, 260 U.S. at 95, 43 S. Ct. 39. Here, in contrast, § 924(c) criminalizes conduct that does not directly victimize the United States. All crime can harm the United States indirectly, but it does not follow that all federal criminal statutes apply extraterritorially based on the Government's need to "defend itself." Cf. United States v. Gatlin, 216 F.3d 207, 211 n. 5 (2d Cir.2000) (noting that "Congress's intent to regulate conduct abroad may `be inferred from the nature of the offense'" in Bowman (quoting Bowman, 260 U.S. at 98, 43 S. Ct. 39)). Nonetheless, because the Court concludes, as described below, that § 924(c) applies extraterritorially in this case as an ancillary statute, it need not finally decide whether Bowman provides an independent basis for § 924(c)'s extraterritorial application.
Section 924(c) is an ancillary statute. It applies only when the defendant uses a firearm "in relation to any crime of violence or drug trafficking crime ... for *777 which the person may be prosecuted in a court of the United States." 18 U.S.C. § 924(c)(1)(A). In his brief, defendant argues against this characterization on the grounds that the Government can convict under § 924(c) without even charging the underlying "crime of violence or drug trafficking crime." The same argument, however, would apply to conspiracy. Thus, the reasoning of Yousef applies here. Section 924(c) adds a weapon to the Government's arsenal whenever a criminal uses a gun. Given that Congress clearly intended the predicate statutes under which the Government charges Mardirossian to have extraterritorial applicationsomething Mardirossian does not disputeit may be inferred that, as in the case of any ancillary statute, Congress also intended to equip the Government with § 924(c)'s added power whenever a defendant uses a gun "in relation to" crimes punishable by those statutes. Yousef, 327 F.3d at 87-88. As a result, the Court holds that § 924(c) applies extraterritorially where the Government can prosecute a defendant's underlying extraterritorial "crime of violence or drug trafficking crime."
Accordingly, the Court hereby denies Mardirossian's motion to dismiss Count IV of the Indictment. The Clerk of the Court is hereby directed to close entry number sixteen on the docket of the case.
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3156703/ | In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 14-1329
GREGORY LEEB,
Plaintiff-Appellee,
v.
NATIONWIDE CREDIT CORPORATION,
Defendant-Appellant.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:12-cv-913 — Elaine E. Bucklo, Judge.
____________________
ARGUED JANUARY 22, 2015 — DECIDED NOVEMBER 20, 2015
____________________
Before EASTERBROOK, MANION, and WILLIAMS, Circuit
Judges.
WILLIAMS, Circuit Judge. Nationwide Credit Corpora-
tion—a debt-collection agency—telephoned Gregory Leeb
about an unpaid medical bill. Leeb disputed the debt, saying
that his insurance company should have paid. Because Leeb
disputed his debt, the Fair Debt Collection Practices Act re-
2 No. 14-1329
quired Nationwide to “cease collection” until it verified the
debt. 15 U.S.C. § 1692g(b). But, without verifying the debt,
Nationwide sent Leeb a letter that: (1) showed a “balance” of
$327; (2) instructed Leeb to “detach the upper portion and
return with payment”; (3) asked Leeb to provide additional
information; and (4) stated that the letter was “from a debt
collector attempting to collect a debt and any information
obtained will be used for that purpose.” Leeb sued Nation-
wide under the FDCPA.
On summary judgment, the district court held that Na-
tionwide violated the FDCPA because it did not “cease col-
lection.” We agree because Nationwide’s January 5 letter, ob-
jectively viewed, was an attempt to collect the debt. The dis-
trict court also held that Nationwide was not excused by the
FDCPA’s “bona fide error” provision. See 15 U.S.C.
§ 1692k(c). We agree because Nationwide failed to show
each of the three required elements: that its violation was
unintentional; that its violation resulted from a clerical or
factual mistake; and that it maintained procedures reasona-
bly adapted to avoid such mistakes. So we affirm the judg-
ment against Nationwide.
I. BACKGROUND
In May 2011, Leeb received emergency medical care. The
medical provider submitted a claim to Leeb’s insurance
company, Cigna. Cigna asked for additional information but
the medical provider never responded, so Cigna closed its
file without paying the claim. Later, Nationwide was hired
to collect payment.
On December 28, 2011, Nationwide telephoned Leeb
about his bill, and Leeb said that Cigna should have paid it.
No. 14-1329 3
Leeb then mailed and faxed a letter to Nationwide, disput-
ing the debt. Two days later, he received a letter from Na-
tionwide, dated December 26. Nationwide wrote that it was
“extremely important” that the debt be paid “in full,” oth-
erwise “collection activity [would] continue,” and Nation-
wide would “report the account to Equifax, Experian, and
Trans[U]nion credit reporting agencies.” Leeb replied (by fax
and mail), demanding that Nationwide acknowledge that
his debt was disputed and refrain from making any negative
credit reports.
The next day, December 31, Leeb copied Nationwide on a
letter he sent to the medical provider, informing the provider
that Cigna was responsible for payment. The provider called
Leeb and said that it would seek payment from Cigna and
would take Leeb’s account out of collections. On January 4,
2012, Leeb informed Nationwide (by fax and mail) that the
provider was stopping collection efforts.
On January 5, Nationwide sent the letter at the heart of
this suit. The letter was generated from a “form letter,” and
was divided into two portions. The top portion indicated a
“balance” of $327. Separating the top and bottom portions
was the instruction to “Detach Upper Portion And Return
With Payment.” In the bottom portion, Nationwide
acknowledged Leeb’s dispute, but asked him to provide ad-
ditional information. The bottom portion also included the
statement that “[t]his communication is from a debt collector
attempting to collect a debt and any information obtained
will be used for that purpose.” Leeb sued, contending that
4 No. 14-1329
by sending the January 5 letter, Nationwide violated the
FDCPA. 1
II. ANALYSIS
We review the grant of Leeb’s motion for summary
judgment de novo, and Nationwide is entitled to a favorable
view of the facts and reasonable inferences. In re Dairy Farm-
ers of Am., Inc. Cheese Antitrust Litig., 801 F.3d 758, 762 (7th
Cir. 2015). Nationwide concedes that Leeb disputed his debt,
and that Nationwide did not verify the debt. So the only
questions are: (1) did Nationwide “cease collection” as re-
quired by § 1692g(b); and if not, (2) was Nationwide’s viola-
tion a “bona fide error,” excused by § 1692k(c)?
A. Nationwide Did Not “Cease Collection” After Leeb
Lodged Dispute.
On the first question, Nationwide asks us to consider two
facts: first, that it sent the January 5 letter because Leeb de-
manded that Nationwide acknowledge that the debt was
disputed; and second, that Leeb believed he did not owe the
debt. From those facts, Nationwide asks us to infer that Leeb
did not subjectively view the January 5 letter as an attempt
to collect a debt. And from that inference, Nationwide asks
us to conclude that the letter was not an attempt to collect a
debt (so Nationwide “cease[d] collection” as it was required
to do).
But our task under § 1692g(b) is to determine whether
Nationwide “cease[d] collection,” not whether Leeb subjec-
Leeb disputed his debt before he received Nationwide’s December 26
1
letter. But that letter was sent before the debt was disputed, so Leeb does
not contend that sending the December 26 letter violated the FDCPA.
No. 14-1329 5
tively believed that to be so. We have held that an objective
standard is used to determine whether a letter was sent “in
connection with an attempt to collect a debt.” Gburek v. Litton
Loan Servicing LP, 614 F.3d 380, 385–86 (7th Cir. 2010); Ruth v.
Triumph P’ships, 577 F.3d 790, 798 (7th Cir. 2009). An objective
standard is likewise appropriate for the similar inquiry of
whether, by sending a particular letter, a debt collector failed
to “cease collection.” Our objective analysis considers the
content of the January 5 letter and the context in which it
was sent; that context includes the nature and scope of the
parties’ relationship, Leeb’s demand for an acknowledge-
ment of the dispute, and Leeb’s prior expressed belief that he
did not owe the debt. See Ruth, 577 F.3d at 799 (considering
the content of the letter, the other contents of the envelope,
and the nature and scope of the parties’ relationship).
Nationwide’s letter quoted a “balance” and instructed
Leeb to detach the top portion and return it with payment.
The letter also asked Leeb for information and stated, “This
communication is from a debt collector attempting to collect
a debt and any information obtained will be used for that
purpose.” See McLaughlin v. Phelan Hallinan & Schmieg, LLP,
756 F.3d 240, 245–46 (3d Cir. 2014) (holding that sending a
letter was an attempt to collect a debt where the letter stated
the amount due and that the sender was a “debt collector
attempting to collect a debt”). Further, Nationwide’s only
relationship with Leeb concerned his allegedly defaulted
debt. See Ruth, 577 F.3d at 799 (finding it relevant that “[t]he
only relationship the defendants had with the plaintiffs
arose out of [the] ownership of the plaintiffs’ defaulted
debt”); cf. Bailey v. Sec. Nat’l Servicing Corp., 154 F.3d 384,
387–89 (7th Cir. 1998) (where parties’ relationship concerned
both a defaulted debt and payments owed in the future on a
6 No. 14-1329
non-defaulted loan, sending a letter concerning only the lat-
ter was not an attempt to collect a debt under the FDCPA).
To be sure, Leeb did not believe that he owed the debt.
But that does not strip him of § 1692g(b)’s protection. To the
contrary, § 1692g(b) specifically protects debtors like Leeb,
who could be pressured by persistent collection efforts to
pay debts that are not actually owed. It is also true that Na-
tionwide sent its letter in response to Leeb’s demand for an
acknowledgement of his dispute. But Leeb did not demand a
letter “from a debt collector attempting to collect a debt,”
stating his “balance” and instructing him to send payment.
We conclude that, when the content and context are ana-
lyzed objectively, Nationwide’s January 5 letter was an at-
tempt to collect a debt, so Nationwide failed to “cease collec-
tion,” thereby violating § 1692g(b).
B. Nationwide’s Violation Is Not Excused Under
FDCPA’s “Bona Fide Error” Provision.
Nationwide argues that even if it violated § 1692g(b), its
violation is excused under the FDCPA’s “bona fide error”
provision. That provision precludes liability if “the debt col-
lector shows by a preponderance of evidence that the viola-
tion was not intentional and resulted from a bona fide error
notwithstanding the maintenance of procedures reasonably
adapted to avoid any such error.” 15 U.S.C. § 1692k(c).
Section 1692k(c) was the subject of the Supreme Court’s
opinion in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich,
L.P.A., 559 U.S. 573 (2010). In Jerman, a debt collector in-
formed a debtor that she could only dispute her debt if she
did so in writing. Id. at 578–79. The district court held that
that was a misstatement of law, in violation of the FDCPA—a
No. 14-1329 7
holding that the Supreme Court assumed was correct. The
debt collector argued that § 1692k(c) precluded liability be-
cause the violation was unintentional and was the result of
its honest belief, informed by thorough legal research, that
the FDCPA required disputes to be in writing. Id. at 579. The
Supreme Court rejected the argument, holding that FDCPA
violations excusable under § 1692k(c) must result from “cler-
ical or factual mistakes,” not mistakes of law. Id. at 587, 604–
05. The Court drew support for its conclusion from the statu-
tory requirement that a debt collector maintain “procedures
reasonably adapted to avoid” errors. The Court wrote that
“procedures” are “processes that have mechanical or other
such regular orderly steps” designed to “avoid errors like
clerical or factual mistakes,” and that legal analysis did not
lend itself to such mechanical procedures. Id. at 587 (internal
quotation marks omitted). Finally, the Court noted that al-
though the debt collector did not intend to violate the
FDCPA, its violation resulted from intentional conduct, and
liability was not limited to willful violations. Id. at 581, 584.
In view of Jerman, we reject Nationwide’s argument that
its violation should be excused. To show that its violation
was not intentional, Nationwide relies on an affidavit from
the employee who sent the January 5 letter. The employee
swears that she sent the letter intentionally but that she did
not intend to violate the FDCPA. At this stage, that entitles
Nationwide to the conclusion that its violation was not will-
ful—but liability is not confined to willful violations. Jerman,
559 U.S. at 584. 2 Notably, Nationwide did not argue that its
2 Citing Kort v. Diversified Collection Services, Inc., 394 F.3d 530, 536–37
(7th Cir. 2005), Nationwide argues that liability is limited to willful viola-
tions. But that was not Kort’s holding and, after Jerman, any dicta to that
8 No. 14-1329
employee was unaware of all of the contents of the January 5
letter (which, remember, was generated from a form letter).
So Nationwide’s violation was just as intentional as the vio-
lation in Jerman.
Moreover, Nationwide has not shown that its violation
resulted from a “bona fide error,” which the Supreme Court
instructs are “clerical or factual mistakes.” Jerman, 559 U.S. at
587. Nationwide argues that its “policy is to never send the
January 5th letter in response to … disputes… .” But wheth-
er sending the letter violated company policy is not the ques-
tion. Nationwide does not explain how intentionally sending
a letter can be considered a “clerical or factual mistake[].”
Finally, Nationwide failed to show that it maintained
“procedures reasonably adapted to avoid” errors that could
result in this type of violation. Nationwide first argues that it
maintained adequate procedures because its employees were
trained on the FDCPA. But Jerman held that mistakes of law
are not excused and so rejected the debt collector’s legal
training as an adequate “procedure.” See id. at 628 (Kennedy,
J., dissenting) (noting that the debt collector had “designated
a lead FDCPA compliance attorney, who regularly attended
conferences and seminars; subscribed to relevant periodicals;
distributed leading FDCPA cases to all attorneys; trained
new attorneys on their statutory obligations; and held regu-
lar firm-wide meetings on FDCPA issues”).
effect misstates the law. Kort’s holding was limited: where a separate
federal law requires debt-collection letters to include specific text, and
that text is later held to be misleading, a debt collector that used the re-
quired text is covered by the “bona fide error” provision. Id. at 539.
Those are not our facts, so we do not revisit Kort.
No. 14-1329 9
Nationwide next argues that it maintained adequate pro-
cedures because sending the January 5 letter was against its
“policy.” But Jerman instructs that “procedures” are “pro-
cesses that have mechanical or other such regular orderly
steps… .” Id. at 587 (internal quotation marks omitted). Na-
tionwide does not argue that its “policy” told its employee
what she should have done, much less that the policy gave her
any “mechanical” or “regular orderly” steps to follow. Fol-
lowing Jerman’s instruction, we reject the argument that a
thinly specified “policy,” allegedly barring some action but
saying nothing about what action to take, is an adequate
“procedure” under § 1692k(c). 3 Nationwide has failed to
show that its FDCPA violation should be excused under
§ 1692k(c).
III. CONCLUSION
We AFFIRM the judgment of the district court.
3 Determining whether a debt collector’s “procedures” are “reasona-
bly adapted” to avoid errors is “is a uniquely fact-bound inquiry suscep-
tible of few broad, generally applicable rules of law.” Owen v. I. C. Sys.,
Inc., 629 F.3d 1263, 1277 (11th Cir. 2011). So “in concluding that [Nation-
wide] is not entitled to § 1692k(c)’s bona fide error defense under the
particular factual circumstances in this case, we refrain from volunteer-
ing sweeping generalizations about what procedures would be enough
for a debt collector to effectively assert that defense. Such matters are
better resolved on a case-by-case basis.” Id. | 01-03-2023 | 11-21-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/2566051/ | (2008)
Diane BROCK, Plaintiff,
v.
POSITIVE CHANGES HYPNOSIS, LLC, Dorus Alderman, and Kathy Alderman, Defendants.
No. 06-2772-JPM/tmp.
United States District Court, W.D. Tennessee, Western Division.
June 26, 2008.
Order Denying Relief from Decision November 17, 2008.
ORDER GRANTING MOTION FOR SUMMARY JUDGMENT & DISMISSAL
JON PHIPPS McCALLA, District Judge.
Before the Court is Defendants' Motion for Summary Judgment, filed November 6, 2007. (Doc. 58.) In addition to responding in opposition (Doc. 103, filed Feb. 29, 2008), Plaintiff also filed a Motion in Limine (Doc. 64), and a Motion to Strike (Doc. 100), to exclude certain exhibits and allegations from Defendants' Motion for Summary Judgment. Defendants responded to these motions and filed a Motion in Limine of their own urging the Court to exclude the expert testimony of Plaintiffs physician. (Doc. 105, filed Mar. 19, 2008.) The Court held a hearing on the evidentiary matters on April 8, 2008. For the following reasons, the Court GRANTS Plaintiffs Motion in Limine, DENIES AS MOOT Plaintiffs Motion to Strike and Defendants' Motion to Depose, GRANTS Defendants' Motion in Limine, GRANTS Defendants' Motion for Summary Judgment, and DISMISSES this case with prejudice.
I. Background
This case arises from Plaintiff Diane Brock's employment with Dorus and Kathy Alderman at Positive Changes Hypnosis, LLC ("PCH"). Plaintiff began working for PCH as a Hypnosis Sales Consultant in March of 2003. (Compl.ś 11.) PCH compensated Plaintiff on a commission basis, paying her 10% of the cost of every hypnosis service "program" she sold to clients. (Brock Dep. (Doc. 58-4), Vol. 1, at 84.) This arrangement generated Plaintiff roughly $100,000.00 per year. (Brock Dep. Vol. 1 at 91.) Plaintiffs compensation did not change when she worked more than forty hours in a week. (Compl. ś 24.)
In early 2006, another PCH employee filed a complaint with the United States Department of Labor ("DOL"), who subsequently conducted an investigation into PCH's labor and compensation practices. (Compl. ś 29.) The DOL determined that Plaintiff should have been classified as a non-exempt hourly employee entitled to hourly overtime wages. PCH's failure to pay Plaintiff for her overtime wages violated 29 U.S.C. § 207(a)(1). The DOL determined that PCH owed Plaintiff $4946.56 in unpaid overtime. (Compl. ś 32.) It was Defendants' understanding that, to comply with the DOL's classification, PCH should pay Plaintiff an hourly wage plus a lower commission or ensure that Plaintiff did not work overtime. (Kathy Alderman Decl. ś 20, Doc. 58-3; Brock Dep. Vol. 1, at 182, 292.)
Plaintiff's Complaint alleges that, following this DOL determination, PCH threatened Plaintiff with decreased compensation if she collected her unpaid overtime. On April 7, 2006, Plaintiff signed a false statement that she had received her unpaid overtime. (Brock Dep. Vol. 1, at 190-92; Kathy Alderman Decl. ś 22.) Plaintiff allegedly acquiesced to this arrangement because, if she did not, PCH would change her 10% commission to an hourly wage and 6% commission package. (Brock Dep. Vol. 1, at 124, 191; Kathy Alderman Decl. ś 22.)
In May of 2006, Plaintiff managed PCH's office while the Aldermans vacationed. (Brock Dep. Vol. 1, at 154; Kathy Alderman Decl. ś 23.) During their absence the DOL wrote the Aldermans requiring further proof of payment of the unpaid overtime. (Brock Dep. Vol. 1, at 155.) Plaintiff circulated the DOL letter throughout the office. (Brock Dep. Vol. 1, at 156, 187.) Upon their return on June 5, 2006, the Aldermans met with Plaintiff and other staff members to discuss the DOL's requirements as well as a co-worker's report that Plaintiff referred to Kathy Alderman as a "money-grubbing bitch"; that Plaintiff "shirked" her responsibilities as manager in their absence; that Plaintiff had exceeded her deal-making authority in negotiations; and that Plaintiff had taken an impermissibly long lunch break. (Brock Dep. Vol. 1, at 173-80.)
On June 8, 2006, Kathy Alderman issued a check to Plaintiff for the unpaid overtime less applicable taxes ($3226.15) in an effort to satisfy the DOL's request for confirmation of payment. On June 9, 2006, PCH gave Plaintiff this overtime check along with her check for that pay period. Plaintiff agreed to return the overtime payment in order to maintain her 10% commission deal. (Kathy Alderman Apr. 9, 2008, Decl. ś 5; Doc. 129-3.) On June 14, 2006, after Plaintiff cashed the overtime check and returned the check amount, Dorus Alderman asked that Plaintiff also pay PCH the $1720.42 withheld from the overtime payment in taxes. (Brock Dep. Vol. 1, at 125; Vol. 2, at 44.) When Plaintiff refused to do so and instead asked that she receive her overtime payment again, Dorus Alderman denied any knowledge of the matter and asked Plaintiff if she was "on drugs." (Brock Dep. Vol. 1, at 126.)
Plaintiff alleges that after this disagreement, Defendants began discriminating against her. (Compl.ś 48.) Plaintiff alleges that by July 25, 2006, Defendants' hostility and the adverse affect it had on her relationship with her clients forced her to resign from her position with PCH. (Compl. ś 52.) Plaintiff began looking for other employment in mid-July of 2006, and accepted a sales position with "LA Weight Loss" when she left PCH. (Brock Dep. Vol. 1, at 31.) As had been the practice at PCH in at least one other employee's case, Plaintiff's final pay check was based on a 6% commission. (Brock Dep. Vol. 1, at 234; Kathy Alderman Decl. śś 7-10.)
Another PCH employee, Keith Haynie, also left PCH in the wake of the DOL determinations. Unlike Plaintiff, Keith Haynie did not leave voluntarily but was fired and escorted out of PCH by Bartlett, Tennessee, police officers. (Haynie Dep. 14-16; Brock Dep. Vol. 1, at 318-20.) On July 29, 2008, after her husband was fired, Kathie Haynie met with Dorus Alderman. (Haynie Dep. 16.) At that meeting Dorus Alderman suggested that the behavior that lead to Keith Haynie's firing was the result of an inappropriate romantic connection to Plaintiff. (Id. at 36-41.)
On September 9, 2006, Plaintiff received $3226.15 from PCH and executed a DOL receipt releasing all claims against PCH under § 16(b) of the Fair Labor Standards Act. (Brock Dep. Ex. 8 (Doc. 58-4) at 44.) In October of 2007, PCH ceased its business operations. (Kathy Alderman Decl. ś 3.)
On November 14, 2006, Plaintiff filed the instant action, seeking relief for retaliation for protected activity in violation of 29 U.S.C. § 215(a)(3); failure to pay commissions in violation of Tenn.Code Ann. § 47-50-114, et seq. ("Commission Statute"); slander and defamation in violation of Tenn.Code Ann. § 29-24-101, et seq. and Tennessee common law; and intentional infliction of emotional distress. The Court dismissed Plaintiff's Commission Statute claim in its Order Granting Defendants' Motion for Partial Judgment on the Pleadings.
II. Analysis
A. Evidentiary Matters
1. Farrington Declaration
Plaintiff seeks to exclude the declaration of Brian Farrington because it is irrelevant and, therefore, inadmissible pursuant to Federal Rule of Evidence 402. Relevant evidence is "evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence." Fed.R.Evid. 401. "All relevant evidence is admissible, except as otherwise provided by the Constitution of the United States, by Act of Congress, by [the Federal Rules of Evidence], or by other rules prescribed by the Supreme Court pursuant to statutory authority. Evidence which is not relevant is not admissible." Fed.R.Evid. 402.
When determining whether expert testimony is relevant, the Court applies the standards of Rule 401 to establish "whether proffered expert testimony is relevant, i.e., whether it has any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence." Amorgianos v. Nat'l. R.R. Passenger Corp., 303 F.3d 256, 265 (2d Cir.2002) (citations omitted); see also Beck v. Haik, 377 F.3d 624, 637 (6th Cir.2004)(holding that expert testimony must meet the general evidentiary relevance requirements as well as the specific expert testimony requirements of Rule 702). Whether to exclude expert opinion under Rules 401 or 402 is left to the sound discretion of the trial court. Beck, 377 F.3d at 636 (citing United States v. Cline, 362 F.3d 343, 348 (6th Cir.2004)).
Farrington's opinion that the DOL investigation should have concluded that Plaintiff was exempt from overtime under 29 U.S.C. § 207(i) does not have any tendency to show that the alleged violations of the FLSA were more or less probable. Defendants did not challenge the DOL's findings regarding Plaintiff's unpaid overtime and agreed to comply with all the DOL's recommendations. Farrington's opinions may be relevant to an appeal of those findings and recommendations, but Defendants have not brought such an appeal. Defendants argue that the Farrington Declaration supports their position that a "non-coerced mutually agreed upon repayment of money to an employer" does not violate the FLSA. (Defs.' Resp. (Doc. 79) at 1.) However, Plaintiff has not alleged that the agreement to return her overtime payment violated the FLSA. Rather, Plaintiff claims that her decision to abide by the DOL's recommendations and not the side agreement was a protected activity under the FLSA and, therefore, an impermissible ground for adverse employment action. The Farrington Declaration has no relevance to the evaluation of this argument. Accordingly, the Court GRANTS Plaintiffs Motion in Limine as to Brian T. Farrington's opinion. In light of the inadmissibility of the Farrington Declaration, the Court DENIES AS MOOT Defendants' Motion to Take Farrington's Deposition.
2. Settlement Negotiation Records
Plaintiff seeks to exclude correspondence between the parties' respective counsel because they contain settlement negotiations. Federal Rule of Evidence 408 prohibits the use of compromises and offers to compromise to prove liability for, invalidity of, or amount of a claim that was disputed as to validity or amount. See Stockman v. Oakcrest Dental Ctr., 480 F.3d 791 (6th Cir.2007)(holding that "where a party has raised an issue going to the validity or amount of a claim, that is insufficient for admitting settlement offers that go to the same issue because to do so violates Rule 408 on its face"). However, this rule does not require exclusion if the evidence is offered for purposes not prohibited by Rule 408(a). Examples of permissible purposes include proving a witness's bias or prejudice, negating a contention of undue delay, and proving an effort to obstruct a criminal investigation or prosecution. See Fed.R.Evid. 408(b).
Exhibits K and L to Defendants' Motion contain an unconditional offer of reinstatement, which Defendants admit is offered either to limit Plaintiffs back-pay claim or to render it invalid. (Defs.' Resp. 4.) Defendants contend that the offer of unconditional reinstatement is admissible because it is relevant to evaluating Plaintiffs alleged damages, relying on Pierce v. F.R. Tripler & Co., 955 F.2d 820 (2d Cir.1992). However, in Pierce all offers made in the context of settlement negotiations were excluded, and so this argument is without merit. Id. Accordingly, the Court GRANTS Plaintiffs Motion in Limine as to Exhibits K and L because the unconditional offer of reinstatement and the feasibility of reinstatement were offered to demonstrate that Plaintiff's back pay claim must be dismissed or limited.
Plaintiff seeks to strike certain items, in particular items 50, 51, 77, 78, and 79, from Defendants' statement of undisputed facts. Because these items are contained in the excluded exhibits, the Court DENIES Plaintiff's Motion to Strike AS MOOT.
3. Leite Affidavit
Federal Rule of Evidence 702 grants an expert witness "wide latitude to offer opinions, including those that are not based on firsthand knowledge or observation," relaxing the usual requirement that witnesses testify from firsthand knowledge. Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 589-92, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993); see also Kumho Tire Co. v. Carmichael, 526 U.S. 137, 147-48, 119 S. Ct. 1167, 143 L. Ed. 2d 238 (1999)(extending Daubert to encompass all expert opinion testimony). Rule 702 allows an expert witness this latitude on the "assumption that the expert's opinion will have a reliable basis in the knowledge and experience of his discipline." Daubert, 509 U.S. at 592, 113 S. Ct. 2786. However, Rule 702 also obligates a trial judge to exercise a "gatekeeping" role to admit only expert opinion testimony that is both reliable and relevant. Daubert, 509 U.S. at 589, 113 S. Ct. 2786; Kumho Tire, 526 U.S. at 147, 119 S. Ct. 1167. "The relevance requirement directs that there be a `fit' between the testimony and the issue to be resolved by the trial. The reliability requirement is designed to focus on the methodology and principles underlying the testimony." United States v. Pollard, 128 F. Supp. 2d 1104, 1116 (E.D.Tenn.2001)(citing United States v. Bonds, 12 F.3d 540, 555-56 (6th Cir.1993)).
A qualified expert witness "may testify if his `scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue,' provided that `(1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.'" Alfred v. Mentor Corp., 479 F. Supp. 2d 670, 672 (W.D.Ky.2007) (quoting Fed.R.Evid. 702).
The inquiry envisioned by Rule 702 is... a flexible one. Its overarching subject is the scientific validity and thus the evidentiary relevance and reliability of the principles that underlie a proposed submission. The focus, of course, must be solely on principles and methodology, not on the conclusions that they generate.
Daubert, 509 U.S. at 594-95, 113 S. Ct. 2786. The court must "make certain that an expert, whether basing testimony upon professional studies or personal experience, employs in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field." Kumho Tire, 526 U.S. at 152, 119 S. Ct. 1167.
At the hearing on their Motion in Limine, Defendants challenged the reliability of Dr. Leite's opinions. Defendants argued that because Dr. Leite's notes from his therapy sessions with Plaintiff did not correspond chronologically to the facts asserted in the case, his opinions regarding Plaintiff's mental health were unreliable. Specifically, Dr. Leite's session notes from June 8, 2006, indicated that Plaintiff had already returned the unpaid overtime compensation to Defendants, when the record shows that Plaintiff did not receive her overtime check until June 9, 2006, and did not cash the check and return those funds to Defendants until June 14, 2006. In keeping with this version of events, Dr. Leite's June 15, 2006, session notes described Plaintiff as feeling much better about her office conflicts, when the rest of the record indicates that Plaintiff had only just experienced her first serious disagreement with Defendants the day before. Dr. Leite could not account for the inconsistency between his session notes and the record of events in this case. Dr. Leite's session notes were the sole basis for his opinion regarding the cause of Plaintiff's emotional distress. Accordingly, the Court finds that Dr. Leite's expert opinion regarding the cause of Plaintiff's emotional distress was not the product of a reliable methodology as required by Federal Rule of Evidence 702 and GRANTS Defendants' Motion in Limine as to his affidavit.[1] This determination would not bar Dr. Leite from testifying at trial as a fact witness.
B. Summary Judgment
1. Standard of Review
Under Federal Rule of Civil Procedure 56(c), summary judgment is proper "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); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). So long as the movant has met its initial burden of "demonstrat[ing] the absence of a genuine issue of material fact," Celotex, 477 U.S. at 323, 106 S. Ct. 2548, and the nonmoving party is unable to make such a showing, summary judgment is appropriate. Emmons v. McLaughlin, 874 F.2d 351, 353 (6th Cir.1989). In considering a motion for summary judgment, however, "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) see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986).
When confronted with a properly-supported motion for summary judgment, the nonmoving party "mustâ by affidavits or as otherwise provided in this ruleâ set out specific facts showing a genuine issue for trial." Fed.R.Civ.P. 56(e)(2); see also Abeita v. TransAm. Mailings, Inc., 159 F.3d 246, 250 (6th Cir.1998). However, "`[t]he mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient.'" Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479 (6th Cir. 1989) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986)).
A genuine issue of material fact exists for trial "if the evidence [presented by the nonmoving party] is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S. Ct. 2505. In essence, the inquiry 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." Id. at 251-52, 106 S. Ct. 2505.
2. FLSA Claims
The anti-retaliation provision of the FLSA provides that an employer is prohibited from "discharg[ing] or in any other manner discriminat[ing] against [an] employee because such employee has filed [a] complaint or instituted ... any proceeding under [the FLSA]." 29 U.S.C. § 215(a)(3). The burden-shifting analysis in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S. Ct. 1817, 36 L. Ed. 2d 668 (1973), applies to an FLSA claim of retaliation. See, e.g., Adair v. Charter County of Wayne, 452 F.3d 482, 489 (6th Cir.2006). To establish a prima facie case of retaliation, an employee must prove that (1) she engaged in a protected activity under the FLSA; (2) her exercise of this right was known by the employer; (3) thereafter, the employer took an employment action adverse to her; and (4) there was a causal connection between the protected activity and the adverse employment action. See, e.g., Williams v. Gen. Motors Corp., 187 F.3d 553, 568 (6th Cir.1999). Such a prima facie showing of retaliation "creates a presumption that the employer unlawfully discriminated against the employee." St. Mary's Honor Ctr. v. Hicks, 509 U.S. 502, 506, 113 S. Ct. 2742, 125 L. Ed. 2d 407 (1993). If the plaintiff establishes a prima facie case, the burden then shifts to the defendant to set forth a legitimate, non-discriminatory reason for the adverse employment action. McDonnell Douglas, 411 U.S. at 802, 93 S. Ct. 1817. If the defendant carries this burden, the plaintiff then must prove by a preponderance of the evidence that the defendant's proffered reasons were not its true reasons, but merely a pretext for illegal discrimination. Kocsis v. Multi-Care Mgmt., Inc., 97 F.3d 876, 883 (6th Cir.1996).
a. Protected Activity
Plaintiff claims that Defendants discriminated against her because she asked Defendants for the return of her overtime payment. Defendants argue that Plaintiff was not engaged in any protected activity under the FLSA because she did not instigate or cooperate with the DOL action and because she did not bring her decision to keep her overtime compensation to the DOL for enforcement. However, an employee need not file a formal complaint to engage in protected activity. Rather, "it is the assertion of statutory rights" that triggers protection under the FLSA's anti-retaliation provision. Fox v. Eagle Distrib. Co., 510 F.3d 587, 591 (6th Cir.2007)(quoting EEOC v. Romeo Cmty. Sch., 976 F.2d 985, 989 (6th Cir.1992)(citing Love v. RE/MAX of Am., Inc., 738 F.2d 383, 387 (10th Cir.1984))); see also EEOC v. White & Son Enters., 881 F.2d 1006, 1010-11 (11th Cir.1989).
In this case, when Plaintiff changed her mind about returning her overtime payment to Defendants she was informally asserting her statutory right to overtime compensation under 29 U.S.C. § 207(a)(1). See Brennan v. Maxey's Yamaha, Inc., 513 F.2d 179, 180-81 (8th Cir.1975)(finding that refusal to participate in an overtime repayment scheme was protected under the FLSA). There is no dispute that Defendants knew of Plaintiffs reassertion. Accordingly, Plaintiff has satisfied the first two elements of her prima facie case.
b. Materially Adverse Employment Action
The adverse employment action requirement in the retaliation context is not limited to an employer's actions that solely affect the terms, conditions, or status of employment, or only those acts that occur at the workplace. See Hawkins v. Anheuser-Busch, Inc., 517 F.3d 321, 345 (6th Cir.2008)(citing Burlington N. & Santa Fe Ry. Co. v. White, 548 U.S. 53, 126 S. Ct. 2405, 165 L. Ed. 2d 345 (2006)). The retaliation provision instead protects employees from conduct that would have "dissuaded a reasonable worker" from engaging in the protected activity. Id. However, anti-retaliation protections do "not set forth a general civility code for the American workplace." Burlington, 548 U.S. at 68, 126 S. Ct. 2405 (quoting Oncale v. Sundowner Offshore Servs., Inc., 523 U.S. 75, 80, 118 S. Ct. 998, 140 L. Ed. 2d 201 (1998)). "[N]ormally petty slights, minor annoyances, and simple lack of good manners will not" deter a reasonable worker from asserting their statutory rights. Id.
Defendants argue that because Plaintiff did not incur a diminution in compensation, a disciplinary action, or a transfer or change in job title, she cannot support her claim of retaliation. In response, Plaintiff submits three arguments to support her retaliation claim: (1) that Defendants asked Plaintiff if she was "on drugs," publicly berated her, and accused her of engaging in an extra-marital affair with a co-worker; (2) that Defendants threatened to reduce her salary from 10% commissions to a combination of hourly and commission-based wages; and (3) that Plaintiff was constructively discharged.
Plaintiff's first argument is without merit. The staff meeting at which Plaintiff alleges she was publicly berated occurred on June 5, 2006, four days before Plaintiff received her overtime payment and more than a week before she chose to assert her right to keep that payment. (Brock Dep. Vol. 1, at 173-80.) Likewise, the conversation in which Dorus Alderman suggested that Keith Haynie harbored romantic feelings for Plaintiff occurred after Plaintiff had already left PCH. (Haynie Dep. 16.) Finally, Dorus Alderman's question to Plaintiff as to whether she was "on drugs" is not, by itself, conduct that would have "dissuaded a reasonable worker" from engaging in the protected activity. In her Response, Plaintiff notes that she and the Aldermans enjoyed a close personal relationship and that her employers were aware of her "very fragile and very emotional" condition. (Pl.'s Resp. 15.) During the Daubert hearing, Plaintiffs psychologist Dr. Leite testified that Plaintiff was regularly taking various anti-anxiety prescription medications in 2006. In light of these circumstances, Dorus Alderman's question does not constitute an adverse employment action. See Burlington, 548 U.S. at 69, 126 S. Ct. 2405 ("Context matters. `The real social impact of work-place behavior often depends on a constellation of surrounding circumstances, expectations, and relationships which are not fully captured by a simple recitation of the words used or the physical acts performed.'" (quoting Oncale, 523 U.S. at 81-82, 82, 118 S. Ct. 998)).
Plaintiff's second argument, that Defendants threatened to alter the terms of her compensation when she requested her overtime payment, is also insufficient to satisfy the third element of her prima facie case. "Mere threats of alleged adverse employment action are generally not sufficient to satisfy the adverse action requirement." Mitchell v. Vanderbilt Univ., 389 F.3d 177, 182 (6th Cir.2004)(holding that because the defendant's proposal to reduce the plaintiffs pay, alter his employment status, and reassign him were never implemented, the plaintiff had not suffered an adverse employment action); see also Chandler v. LaQuinta Inns, Inc., 264 Fed. Appx. 422, 425-26 (5th Cir.2008)(finding a threat of discharge insufficient to establish an adverse employment action)(citing Hargray v. City of Hallandale, 57 F.3d 1560, 1568 (11th Cir.1995)). There is no dispute that Defendants never carried out their threat to change Plaintiff's compensation, and the threat to do so does not constitute an adverse employment action.
Plaintiffs third and final argument, that she was constructively discharged, also fails to satisfy the third element of her prima facie case. Plaintiff may establish an adverse employment action by demonstrating that she was constructively discharged. See Kocsis v. Multi-Care Mgmt., 97 F.3d 876, 886 (6th Cir. 1996). To demonstrate a constructive discharge, Plaintiff must adduce evidence to show that the employer deliberately created intolerable working conditions, as perceived by a reasonable person, with the intention of forcing the employee to quit. Logan v. Denny's, Inc., 259 F.3d 558, 568-69 (6th Cir.2001)(quoting Moore v. KUKA Welding Sys., 171 F.3d 1073, 1080 (6th Cir.1999)). "To determine if there is a constructive discharge, both the employer's intent and the employee's objective feelings must be examined." Moore, 171 F.3d at 1080 (citing Held v. Gulf Oil Co., 684 F.2d 427, 432 (6th Cir.1982)). Under this standard, Plaintiff has failed to create any genuine issue of material fact supporting her allegation of constructive discharge. Plaintiffs assertion that "Defendants take their Plaintiff as they find her" is without merit. (Pl.'s Resp. 15.) In her deposition Plaintiff testified that she continued to have "pleasant conversations" with the Aldermans during June and July of 2006, but that PCH's office staff "ignored" her "completely" during that time, and that she "walked out" because "[n] o one was talking to [her] anymore." (Brock Dep. Vol. 1, at 299-300.) Plaintiff testified that this treatment did not impact her ability during those months to continue making strong sales. (Id. at 300.) Though her strained relationships with her co-workers may have made PCH an uncomfortable working environment, there is no dispute that Plaintiff was able to tolerate this condition and maintain her regular program sales levels during the summer of 2006.
Plaintiff has failed to establish any adverse employment action in this case. Neither Defendants' threatened compensation adjustment nor their behavior following Plaintiffs request to retain her overtime payment are sufficient to establish a prima facie case of discrimination under 29 U.S.C. § 215(a)(3). Accordingly, Plaintiffs retaliation claim fails as a matter of law, and the Court GRANTS Defendants' Motion for Summary Judgment as to her claim under the FLSA.[2]
3. Defamation Claims
Tennessee Code Annotated § 29-24-101 provides a cause of action for "[a]ny words written, spoken, or printed of a person, wrongfully and maliciously imputing to such person the commission of adultery or fornication." The basis for an action for defamation under the Tennessee common law "is that the defamation has resulted in an injury to the person's character and reputation." Davis v. The Tennessean, 83 S.W.3d 125, 128 (Tenn.Ct.App. 2001). The Tennessee Supreme Court described the elements necessary to establish a prima facie case of defamation as (1) a statement, (2) published by a party with knowledge that the statement was false and defaming to the other or (3) with reckless disregard for the truth of the statement or with negligence in failing to ascertain the truth of the statement. Sullivan v. Baptist Mem'l Hosp., 995 S.W.2d 569, 571 (Tenn.1999). "Publication" is a term of art meaning the communication of defamatory matter to a third person. Id.
The words upon which Plaintiff bases her defamation claims were made by Dorus Alderman to Keith Haynie's wife on July 29, 2006, following Haynie's termination from PCH. In that conversation Dorus Alderman made the following statements regarding Plaintiff:
"I think Keith is in love with her."
"His whole conversation that day was about Diane. I'll tell you what, there's got to beâ there's a lot more there than just two people working together."
"I don't know if there's anything sexual, but I think personally that Keith is infatuated or more. But that's just my opinion."
"Everyone else here will pretty much tell you the same thing."
"I've thought about it long and hard. This is the only thing thatâ all these other things don't make any sense. Keith has better sense. This keeps coming up, and I hope I'm wrong."
"This is where it's got to be coming from, and believe me, Diane is so shallow, I'm sure it's not reciprocal."
"And I doubt if she would do anything. I don't think Keith would either."
(Haynie Dep. 36-73.) None of these statements qualify as the kind of false factual assertion from which either a statutory or common law claim for defamation may arise. Plaintiff has failed to produce any evidence that Dorus Alderman's opinion as to Keith Haynie's feelings for her were false. Plaintiff claims that "Dorus Alderman told Kathie Haynie that [she] was having an affair with Mrs. Haynie's husband Keith," but this argument is not supported by the record. (Pl.'s Resp. 9 (citing Compl.).) Without evidence of some false and injurious statement, Plaintiff cannot sustain her defamation claims. Accordingly, the Court GRANTS Defendants' Motion for Summary Judgment as to Plaintiffs defamation claims pursuant to Tenn.Code Ann. § 29-24-101 and Tennessee common law.
4. Intentional Infliction of Emotional Distress Claim
To sustain a cause of action for intentional infliction of emotional distress, Plaintiff must establish that (1) the conduct complained of was intentional or reckless; (2) the conduct was so outrageous that it is not tolerated by a civilized society; and (3) the conduct resulted in serious mental injury. Lourcey v. Estate of Scarlett, 146 S.W.3d 48, 51 (Tenn.2004); Bain v. Wells, 936 S.W.2d 618, 622 n. 3 (Tenn.1997). The second element requires a plaintiff to show that "the defendant's conduct was 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." Lourcey, 146 S.W.3d at 51; see also Bain, 936 S.W.2d at 623. The third element requires emotional distress that is "so severe that no reasonable [person] could be expected to endure it." Levy v. Franks, 159 S.W.3d 66, 85 (Tenn.Ct.App.2004). The serious mental injury or emotional distress must be more than "the transient and trivial emotional distress [that] is a part of the price of living among people." Id.
Plaintiff has failed to even allege, much less support, any facts that satisfy these elements. The facts of this case reveal an inter-personal office conflict involving an emotionally vulnerable individual. This conflict resulted in hurt feelings, uncivil behavior, and Plaintiffs eventual departure from PCH. However, there is no evidence that Defendants engaged in any outrageous conduct or that any of their conduct resulted in a serious mental injury. Accordingly, the Court GRANTS Defendants' Motion for Summary Judgment as to Plaintiffs intentional infliction of emotional distress claim.
III. Conclusion
For the reasons stated above, the Court GRANTS Plaintiff's Motion in Limine to exclude Brian Farrington's expert opinion and those exhibits relating to the parties' settlement negotiations. The Court also GRANTS Defendants' Motion in Limine as to Dr. Leite's expert testimony. Finding no dispute of material fact, the Court GRANTS Defendants' Motion for Summary Judgment and DISMISSES Plaintiffs case with prejudice. As a result of these determinations, the Court also DENIES AS MOOT Plaintiffs Motion to Strike and Defendants' Motion in Limine to exclude Plaintiffs Affidavit.
ORDER DENYING PLAINTIFF'S MOTION FOR RELIEF FROM ORDER GRANTING SUMMARY JUDGMENT AND DISMISSAL AND FROM JUDGMENT
Before the Court is Plaintiff's "Motion for Relief from Order Granting Motion for Summary Judgment and Dismissal (Doc. 146) and from Judgment (Doc. 147)," filed July 3, 2008 (Doc. 149). Defendants responded in opposition on July 18, 2008 (Doc. 154). The Court held a hearing in this matter on August 21, 2008. For the reasons that follow, Plaintiff's Motion is DENIED.
Plaintiff seeks relief pursuant to Federal Rule of Civil Procedure 60(b)(6). Rule 60(b) allows the Court to "relieve a party... from a final judgment, order, or proceeding" for certain enumerated reasons (Fed.R.Civ.P. 60(b)(1)-(5)) or for "any other reason that justifies relief" (Fed. R.Civ.P. 60(b)(6)).[1] Relief under Rule 60(b)(6) is properly invoked "only in exceptional or extraordinary circumstances." Olle v. Henry & Wright Corp., 910 F.2d 357, 365 (6th Cir.1990). Such exceptional or extraordinary circumstances are not present in this case.
Plaintiff argues that summary judgment on her retaliation claim was improper because there is a genuine issue of material fact as to whether she was subjected to an adverse employment action. According to Plaintiff, the materially adverse employment action was the "hostile environment created by the Defendants." (Pl.'s Mot. 5.) Plaintiff testified that "[n]o one was talking to [her] anymore" (Brock Dep. 301) and that the staff ignored her "completely" in front of clients (Brock Dep. 300). The ostracism Plaintiff describes involves "petty slights" that are not actionable. In support of her position that she was subjected to an adverse employment action, Plaintiff points to parts of her deposition which she believes the Court either overlooked or read out of context. (Pl.'s Mot. 4.) The Court considered this testimony before granting summary judgment for Defendants on the retaliation claim. Plaintiffs request for relief from this judgment is DENIED.
Plaintiff also asks the Court for relief from the Order granting summary judgment for Defendants on her defamation claim. Relying on Memphis Publ'g Co. v. Nichols, 569 S.W.2d 412 (Tenn.1978), Plaintiff argues that whether Mr. Alderman's statements to Mrs. Haynie imputed adultery to Plaintiff is a question for the jury. In Memphis Publ'g Co., the court held that whether the newspaper article was "understood by readers in its defamatory sense is ultimately a question for the jury. But preliminary question of whether the article is [c]apable of being so understood is a question of law to be determined by the court." Id. at 419.
The Court concludes that Mr. Alderman's allegedly defamatory statements, when viewed in the context of the entire tape-recorded conversation with Mrs. Haynie, are not capable of being understood to impute adultery to Plaintiff. None of the statements cited by Plaintiff and listed in the Court's previous Order reference any physical intimacy between Plaintiff and Mr. Haynie. Furthermore, Mr. Alderman specifically denies that the relationship between Plaintiff and Mr. Haynie is of a sexual nature: "Diane is so shallow, I'm sure it's not reciprocal and I would doubt if she would do anything and I don't think Keith would either, okay? Sometimes things in the heart even if they are not done in the physical ... can be just as strong." (Kathie Haynie Dep. 69-71; Kathie Haynie Dep. Ex. 1.) Viewing the facts in the light most favorable to Plaintiff, she has failed to create a triable issue of fact as to whether Mr. Alderman's statements were defamatory under Tenn.Code Ann. § 29-24-101.[2] Her request for relief from the Court's order granting summary judgment to Defendant on the defamation claim is DENIED.[3]
In the alternative, Plaintiff argues that the Court should have dismissed her defamation claim without prejudice, permitting her to file in state court. (Pl.'s Mot. 8.) Plaintiff selected federal court as the forum in which to litigate her claim. Plaintiff's defamation claim has been resolved on its merits.
Plaintiff also seeks relief from the Court's exclusion of the expert testimony of Dr. Leite, who would have testified on the issue of causation. (Pl.'s Mot. 2.) Dr. Leite's testimony is not relevant to whether Plaintiff was subjected to an adverse employment action, or whether Mr. Alderman's statements were defamatory. Accordingly, even if Dr. Leite's expert testimony was not excluded, Defendant would be entitled to judgment as a matter of law. Plaintiff's motion for relief from the exclusion of this testimony is DENIED as MOOT.
For these reasons, Plaintiff's Motion is DENIED.
NOTES
[1] Defendants also move for the exclusion of Plaintiff's affidavit. The Court does not rely on Plaintiff's affidavit in its analysis of Defendants' Motion for Summary Judgment. Accordingly, the Court DENIES Defendants' Motion in Limine as to Plaintiff's affidavit AS MOOT.
[2] Even if Plaintiff could produce evidence of a materially adverse employment action, her FLSA claim would still fail because she also failed to refute Defendants' legitimate nondiscriminatory reason for threatening to change her commission rate, which is that the DOL investigators recommended such a change in compensation as a compliance measure.
[1] Plaintiff's motion should have been made pursuant to Rule 60(b)(1), which provides relief where there has been a "mistake." Fed. R.Civ.P. 60(b)(1). "[A] Rule 60(b)(1) motion is intended to provide relief ... when the judge has made a substantive mistake of law or fact in the final judgment or order." United States v. Reyes, 307 F.3d 451, 455 (6th Cir.2002). Plaintiff argues that the Court made mistakes of law in granting summary judgment for Defendant and in excluding the expert testimony of Dr. Leite.
[2] "Any words written, spoken, or printed of a person, wrongfully and maliciously imputing to such person the commission of adultery or fornication, are actionable, without special damage except as otherwise provided in § 29-24-105." Tenn.Code Ann. § 29-24-101.
[3] Plaintiff also argues that she is entitled to relief from judgment because the Court should not have imposed the burden of proving the statements' falsity on Plaintiff. (See Pl.'s Mot. 7.) The Court grants summary judgment for Defendant on other grounds, and therefore need not address Plaintiff's burden of proof argument. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3167210/ | In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 14-2458
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
MATTHEW POULIN,
Defendant-Appellant.
____________________
Appeal from the United States District Court for the
Central District of Illinois, Rock Island Division.
No. 11-CR-40116 — Michael M. Mihm, Judge.
____________________
ARGUED DECEMBER 4, 2015 — DECIDED JANUARY 5, 2016
____________________
Before POSNER, FLAUM, and WILLIAMS, Circuit Judges.
FLAUM, Circuit Judge. In 2013, the district court sentenced
Matthew Poulin to two concurrent 115-month terms of im-
prisonment followed by concurrent life terms of supervised
release after he pled guilty to receipt and possession of child
pornography. Poulin appealed his prison and supervised re-
lease terms as well as four special conditions of his supervised
release. We held that the district court erred by not addressing
2 No. 14-2458
a principal argument in mitigation and by not providing rea-
sons for imposing the maximum term of supervised release.
We also determined that the record lacked necessary reason-
ing for us to review the validity of the special conditions. We
therefore vacated Poulin’s prison and supervised release
terms, as well as the special conditions accompanying his su-
pervised release, and remanded for resentencing.
On remand, the district court resentenced Poulin to con-
current 84-month terms of imprisonment on both counts of
conviction, followed by a 10-year term of supervised release.
The district court imposed thirteen standard conditions of su-
pervision and seven special conditions. Poulin now brings a
successive appeal challenging various conditions of his super-
vised release. For the reasons that follow, we vacate the dis-
puted conditions and remand to the district court for resen-
tencing in conformance with our recent jurisprudence, which
encourages the imposition of supervised-release conditions
that are “properly-noticed, supported by adequate findings,
and well-tailored to serve the purposes of deterrence, rehabil-
itation, and protection of the public.” United States v. Kappes,
782 F.3d 828, 835–36 (7th Cir. 2015); see also United States v. Ar-
mour, 804 F.3d 859 (7th Cir. 2015); United States v. Thompson,
777 F.3d 368 (7th Cir. 2015). We do this recognizing that the
district court did not have the benefit of guidance provided
by the above-cited cases.
I. Background
Matthew Poulin lived in the basement of his mother’s
home in Silvis, Illinois, where he kept a computer. In Septem-
ber 2011, law enforcement identified the IP address associated
with Poulin’s computer as receiving and distributing child
pornography. Officers executed a search warrant on October
No. 14-2458 3
7, 2011, and recovered two hard drives and a computer from
Poulin’s basement room. The hard drives contained seventy-
eight videos depicting child pornography. Poulin was inter-
viewed during the search and admitted to possessing and re-
ceiving child pornography from the internet.
In December 2011, a grand jury indicted Poulin on one
count of receiving child pornography and one count of pos-
sessing thirty or more visual depictions of child pornography.
Poulin pled guilty to both counts on August 21, 2012.
Before pleading guilty, Poulin underwent competency and
sanity examinations. The Bureau of Prisons (“BOP”) con-
firmed four prior hospitalizations due to psychiatric difficul-
ties. The BOP records contain conflicting information regard-
ing Poulin’s use of alcohol and controlled substances. For in-
stance, in August 2006 at the age of twenty-one, Poulin was
diagnosed with alcohol dependence and cannabis abuse. Pou-
lin also told the BOP psychologist that he handles stress using
“alcohol and prescription medication.” The psychologist
noted, however, that there was no evidence in the records he
reviewed to indicate that Poulin misused these substances.
During an interview with a probation officer, Poulin stated
that he only consumed alcohol socially and that he had
stopped using cannabis at the age of sixteen—a statement that
conflicts with information in his medical records. In spite of
these contradictions, the BOP psychologist concluded that
Poulin would benefit from continued mental health treatment
and noted that Poulin’s “over-reliance on medication and per-
haps alcohol” were among the factors that might limit Pou-
lin’s therapeutic progress.
The presentencing investigation report gave Poulin a total
offense level of 34 with a criminal history category I, resulting
4 No. 14-2458
in an advisory guidelines range of 151 to 188 months in
prison. On March 15, 2013, the district court sentenced Poulin
to concurrent sentences of 115 months in prison, followed by
concurrent life terms of supervised release.
During his first appeal, Poulin challenged the sentence of
imprisonment and lifetime term of supervised release. Addi-
tionally, he challenged four special conditions of supervised
release that collectively prohibited unsupervised contact with
minors, as well as access to and possession of adult pornogra-
phy. We held that the district court erred by not addressing a
principal argument in mitigation and by not providing rea-
sons for imposing the maximum term of supervised release.
We also concluded that the record lacked the explanation nec-
essary for us to review the validity of the special conditions.
We therefore vacated Poulin’s prison and supervised release
terms, as well as the special conditions accompanying his su-
pervised release, and remanded for resentencing.
The district court held a resentencing hearing on June 27,
2014 and sentenced Poulin to concurrent 84-month terms of
imprisonment, followed by a 10-year term of supervised re-
lease. The district court imposed thirteen standard conditions
of release and seven special conditions. During the hearing,
the court discussed the mandatory conditions and defense
counsel indicated that Poulin did not object to the mandatory
conditions. The court did not verbally address any of the
standard conditions except in the context of Poulin’s objection
to the requirement that he attend substance abuse treatment
No. 14-2458 5
and abstain from alcohol during the term of supervised re-
lease. 1
The district court then considered the special conditions.
Defense counsel objected to four of the special conditions, in-
cluding the provisions barring contact with minors, govern-
ing use of the internet, and requiring that Poulin undergo sub-
stance abuse treatment and abstain from alcohol. Based on
Poulin’s objections, the district court modified a number of the
conditions.
Poulin now appeals a second time, challenging the follow-
ing standard conditions of his supervised release:
• The defendant shall not leave the judicial district with-
out the permission of the court or probation officer.
• The defendant shall answer truthfully all inquiries by
the probation officer and follow the instructions of the
probation officer.
• The defendant shall report to the probation officer in a
manner and frequency directed by the court or proba-
tion officer.
• The defendant shall support his or her dependents and
meet other family responsibilities.
• The defendant shall work regularly at a lawful occupa-
tion, unless excused by the probation officer for school-
ing, training, or other acceptable reasons.
• The defendant shall notify the probation officer at least
ten days prior to any change in residence or employ-
ment.
1At resentencing, the district court accidentally referred to the man-
datory conditions as “standard.” There was no mention of the actual
standard conditions.
6 No. 14-2458
• The defendant shall refrain from any use of alcohol and
shall not purchase, possess, use, distribute, or admin-
ister any controlled substance or any paraphernalia re-
lated to any controlled substances, except as prescribed
by a physician.
• The defendant shall not frequent places where con-
trolled substances are illegally sold, used, distributed,
or administered.
• The defendant shall not associate with any persons en-
gaged in criminal activity and shall not associate with
any person convicted of a felony, unless granted per-
mission to do so by the probation officer.
• The defendant shall permit a probation officer to visit
him or her at any time at home or elsewhere and shall
permit confiscation of any contraband observed in
plain view of the probation officer.
• As directed by the probation officer, the defendant
shall notify third parties of risks that may be occa-
sioned by the defendant’s criminal record or personal
history or characteristics and shall permit the proba-
tion officer to make such notifications and to confirm
the defendant’s compliance with such notification re-
quirement.
Poulin also challenges the following special conditions of
his supervised release:
• You shall participate in a sex offender treatment pro-
gram as directed by the U.S. Probation Office. You shall
abide by the rules of the treatment provider. You will
submit to physiological testing, including polygraph
testing. You shall pay for these services, if financially
able, as directed by the U.S. Probation Office.
No. 14-2458 7
• You shall at the direction of the U.S. Probation Office,
participate in a program for substance treatment in-
cluding not more than six tests per month to determine
whether you have used controlled substances or alco-
hol. You shall abide by the rules of the treatment pro-
vider. You shall pay for these services, if financially
able, as directed by the U.S. Probation Office.
• You shall participate in psychiatric services and/or a
program of mental health counseling/treatment as di-
rected by the U.S. Probation Officer and take any and
all prescribed medications as directed by the treatment
providers. You shall pay for these services, if finan-
cially able, as directed by the U.S. Probation Office.
• You shall have no contact with any female under the
age of 18 except: (1) in the presence of a responsible
adult who is aware of the nature of your background
and current offense, and who has been approved by
the U.S. Probation Office; (2) in the course of normal
commercial business; (3) in other cases of unintentional
and incidental contact.
II. Discussion
We have addressed the requirements for imposing condi-
tions of supervised release repeatedly over the past two years.
United States v. Douglas, 806 F.3d 979, 982 (7th Cir. 2015). As
we have explained:
Under 18 U.S.C. § 3583(d), a sentencing court
has discretion to impose appropriate conditions
of supervised release, to the extent that such
conditions (1) are reasonably related to the fac-
tors identified in § 3553(a), including the nature
and circumstances of the offense and the history
8 No. 14-2458
and characteristics of the defendant; (2) involve
no greater deprivation of liberty than is reason-
ably necessary for the purposes set forth in
§ 3553(a); and (3) are consistent with the policy
statements issued by the Sentencing Commis-
sion. Policies emphasized by the Sentencing
Commission include deterrence, rehabilitation,
and protecting the public.
Armour, 804 F.3d at 867 (quoting United States v. Ross, 475 F.3d
871, 873 (7th Cir. 2007)).
Additionally, we have outlined the findings necessary for
the imposition of discretionary conditions, including stand-
ard and special conditions. We observed in Kappes that
[t]he judge need not address every factor in
checklist fashion, explicitly articulating its con-
clusions regarding each one. [T]he court may
simply give an adequate statement of reasons,
consistent with § 3553(a), for thinking the sen-
tence it selects is appropriate…. Special condi-
tions often require more justification than
standard conditions—but not always—and a
condition’s label in the guidelines is ultimately
irrelevant. All discretionary conditions, whether
standard, special or of the judge’s own inven-
tion, require findings.
782 F.3d at 845–46 (internal citations and quotation marks
omitted) (emphasis in original). We emphasized that alt-
hough the judge need not “give a speech about each condi-
tion,” he or she “rarely, if ever, should list a multitude of con-
ditions without discussion.” Id. at 846.
No. 14-2458 9
A. Standard of Review
The standard of review we apply depends on whether the
defendant alleges that the district court committed proce-
dural or substantive error by imposing particular conditions
of supervised release. We review de novo a claim of proce-
dural error, such as the listing of conditions without any sort
of justification for the conditions imposed. United States v.
Poulin, 745 F.3d 796, 800 (7th Cir. 2015) (“A sentencing judge’s
failure to adequately explain his sentence is a procedural er-
ror that may require remand. We conduct a de novo review as
to whether a district court committed any procedural error.”
(internal citations omitted)). While the district court should
not list a multitude of conditions without discussion, this rule
is subject to a harmless error analysis. Kappes, 782 F.3d at 846.
By contrast, we review a claim of substantive error for ei-
ther abuse of discretion or plain error. “We review the impo-
sition of a condition of supervised release for an abuse of dis-
cretion if it is a contested condition (i.e., defendant objected
below), while we review uncontested conditions for plain er-
ror.” Armour, 804 F.3d at 867 (citing Kappes, 782 F.3d at 844).
B. Standard Conditions of Supervised Release
Poulin did not challenge the standard conditions at the re-
sentencing hearing, except for the ban on alcohol, which he
objected to in the context of the special condition directing
him to undergo substance abuse treatment. When asked
whether he had any objections to the standard conditions, de-
fense counsel replied, “no.” By contrast, as soon as the court
began to discuss the special conditions, defense counsel
stated: “[I]f this may help, we basically have three objections
to these [special] conditions.”
10 No. 14-2458
In the current appeal, Poulin claims that the district court
erred in imposing ten standard conditions of supervised re-
lease without sufficient discussion. The government argues in
response that Poulin waived any challenge to these conditions
by not objecting to them in his first appeal. According to the
government, Poulin cannot “use the accident of a remand to
raise in a second appeal an issue that he could just as well
have raised in the first appeal.” United States v. Schroeder, 536
F.3d 746, 751–52 (7th Cir. 2008) (citation and internal quota-
tion marks omitted).
The government also contends that because Poulin did not
challenge the standard conditions in his first appeal, this
Court did not vacate those conditions. The government cites
United States v. Whitlow for the proposition that “an issue that
could have been raised on appeal but was not is waived and,
therefore, not remanded.” 740 F.3d 433, 438 (7th Cir. 2014) (ci-
tations omitted). Thus, argues the government, the district
court was not required to make findings to support the impo-
sition of the standard conditions at resentencing.
Regardless of whether or not the district court was re-
quired on remand to make findings as to the standard condi-
tions, the imposition of waiver is inappropriate in light of de-
velopments in the law since Poulin’s first appeal. In United
States v. Purham, we declined to apply waiver because the con-
ditions the defendant challenged had been found “fatally
vague” in an intervening decision. 2 795 F.3d 761, 765–66 (7th
2The government has acknowledged as much in this litigation. On
December 3, 2015, the government filed a letter pursuant to Fed. R. App.
P. 28(j) that informed this Court of relevant precedent from United States
v. Purham, 795 F.3d 761 (7th Cir. 2015).
No. 14-2458 11
Cir. 2015) (citing Thompson, 777 F.3d at 368). Similarly, in the
period since Poulin’s initial appeal, we have issued decisions
that deem vague many of the standard conditions Poulin now
challenges. See generally Thompson, 777 F.3d at 368; Kappes, 782
F.3d at 828. As a result, we will not apply waiver.
Our case law since Poulin’s initial appeal emphasizes that
the decision to impose any discretionary conditions—includ-
ing standard conditions—must comport with the § 3553(a)
sentencing factors and requires the district court to make find-
ings justifying their imposition. See, e.g., Kappes, 782 F.3d at
845–46. Although the sentencing judge need not give a
lengthy exposition about each condition, he or she should do
more than list a multitude of conditions without any discus-
sion or justification. Id. at 846.
The district court in this case did not make any findings
with regard to the thirteen standard conditions, either at the
original sentencing or at resentencing. We therefore conduct
a de novo review of the challenged conditions to determine
whether the district court committed procedural error such
that remand is necessary. Poulin, 745 F.3d at 800. A finding of
harmless error would not necessitate remand. See, e.g., United
States v. Chatman, 805 F.3d 840, 847 (7th Cir. 2015). We consider
each challenged condition to determine whether or not the ab-
sence of findings justifying the condition was harmless error.
See, e.g., United States v. Siegel, 753 F.3d 705, 713 (7th Cir. 2014).
1. Administrative Requirements
The first three conditions Poulin challenges are “adminis-
trative requirements applicable whenever a term of super-
vised release is imposed, such as requiring the defendant to
report to his probation officer, answer the officer’s questions,
12 No. 14-2458
follow his instructions, and not leave the judicial district with-
out permission.” Kappes, 782 F.3d at 843 (quoting Thompson,
777 F.3d at 378) (internal quotation marks omitted). “Once the
judge has explained why supervised release is necessary, he
should be permitted to impose the necessary incidents of su-
pervision without explanation.” Id.
In Kappes, we noted that the condition that “‘the defendant
shall not leave the judicial district without … permission’
would be improved by explicitly adding a scienter require-
ment, particularly in a case where it is foreseeable that a de-
fendant will reside near the boundary of two judicial districts
within the same state.” Id. at 849–50. There is no evidence that
Poulin lives on the boundary of two judicial districts within
the same state. Furthermore, the court recommended, but did
not mandate, the inclusion of a scienter requirement. There-
fore, the district court did not err in imposing this condition
without findings.
We have also observed that the condition that “the defend-
ant shall answer truthfully all inquiries by the probation of-
ficer and follow the instructions of the probation officer” “es-
sentially asks for a waiver of the right not to be forced to in-
criminate oneself, because the condition would require the
defendant to answer ‘yes’ if he were asked whether he had
committed another crime and he had.” Id. at 850 (citation and
internal quotation marks omitted). While we did not defini-
tively decide the issue, we held that the defendant may re-
quest that the language be amended to indicate that the con-
dition does not prevent the defendant from invoking the Fifth
Amendment privilege against self-incrimination. Id. Such lan-
guage is recommended but not required. Id. Thus, imposition
of this condition without findings did not constitute error.
No. 14-2458 13
Additionally, Poulin does not substantiate his challenge to
the condition that “the defendant shall report to the probation
officer in a manner and frequency directed by the court or
probation officer.” This is a classic administrative require-
ment that can be imposed without explanation after the judge
has explained why supervised release is necessary. Id. at 843.
Moreover, in Armour we upheld such a condition as justified
by § 3603(2)’s requirement that a probation officer remain in-
formed of the conduct and condition of a person under super-
vision. 804 F.3d at 868. Therefore, the court did not err in im-
posing this condition.
In sum, the district court did not commit procedural error
in imposing these administrative conditions without explana-
tion. However, because we are ordering a review of all of the
conditions, the district judge may consider these comments
when resentencing Poulin.
2. Supporting Dependents and Meeting Other Family Re-
sponsibilities
Poulin also challenges the standard condition that “the de-
fendant shall support his or her dependents and meet other
family responsibilities” on the grounds that the district court
did not make findings as to why it was appropriate, and that
the requirement is impermissibly vague and broad. Poulin re-
lies on Thompson, in which we determined this condition was
inappropriate because it referred to “her” even though the de-
fendant was male, indicating the “rote nature of the judge’s
imposition” of the condition. 777 F.3d at 376. Moreover, the
condition in Thompson was inapt because that defendant did
not have any dependents at the time of sentencing. See id. By
contrast, Poulin has a minor son and shared a home with two
minor stepsiblings at the time of his arrest.
14 No. 14-2458
Nevertheless, this condition is problematic for the same
reason we observed in Kappes: The meaning of “other family
responsibilities” is not apparent. 782 F.3d at 852. We must con-
clude that the district court procedurally erred in imposing
this condition. On remand, the district court should make ex-
plicit the extent to which this condition requires financial, as
opposed to other forms, of support and take into account Pou-
lin’s ability to pay. See id. (“The meaning of the phrase, ‘other
family responsibilities,’ is not apparent … . To the extent the
condition requires only financial support, the condition
should make that explicit and should include a limitation
which takes into account the defendant’s ability to pay.”).
3. Working Regularly at a Lawful Occupation
Next, we turn to the district court’s requirement that Pou-
lin “work regularly at a lawful occupation, unless excused by
the probation officer for schooling, training, or other accepta-
ble reasons.” Poulin argues that the district court did not
make any findings and failed to define “regularly.” In Kappes,
we did not propose a definition for “regularly” but empha-
sized that the failure to define the term created “ambiguit[y].”
See id. at 848–49. Thus, we find procedural error necessitating
remand. On remand, the district court should adequately de-
fine the term “regularly.”
4. Notification of Changes in Residence or Employment
Poulin then challenges the condition that he “notify the
probation officer at least ten days prior to any change in resi-
dence or employment.” He claims that the district court failed
to make necessary findings and that the condition is vague
and overbroad. This condition presents the same problem as
No. 14-2458 15
in Kappes in that it “fails to indicate ‘whether change in em-
ployment just means changing employers or also includes
changing from one position to another for the same employer
at the same workplace.’” Id. at 849 (quoting Thompson, 777
F.3d at 379). Therefore, the district court procedurally erred in
ordering this condition. On remand, the court should adopt
the same, or a similar, condition to the one we upheld in Ar-
mour: Defendant shall “notify Probation at least ten days prior
to or as soon as you know about any changes in residence and
any time you leave a job or accept a job.” 804 F.3d at 869.
5. Ban on Alcohol and Controlled Substances
The district court imposed on Poulin the standard condi-
tion that “the defendant shall refrain from any use of alcohol
and shall not purchase, possess, use, distribute, or administer
any controlled substance or any paraphernalia related to any
controlled substances, except as prescribed by a physician.”
At resentencing, Poulin objected to the portion of this condi-
tion prohibiting him from consuming alcohol while on super-
vised release. Because we concluded above that Poulin’s fail-
ure to object in his first appeal does not constitute waiver, and
because the court justified its requirement that Poulin abstain
from alcohol and drugs when discussing the special condi-
tions, we review the imposition of this condition for abuse of
discretion.
Poulin argues that the district court’s findings that Poulin
handles stress by using alcohol and that consuming alcohol
could lead Poulin to view child pornography are not sup-
ported by the record. We disagree. The district court adopted
the factual findings in the presentencing investigation report,
which included explicit references to the fact that Poulin was
diagnosed as alcohol dependent in 2006. The district court
16 No. 14-2458
also noted Poulin’s substance abuse history before sentencing
him.
This case is thus distinguishable from Kappes, where we
vacated a complete ban on alcohol because “[t]he sentencing
judge imposed the alcohol ban with no explanation for how it
connected to [defendant’s] offense or history.” Id. at 852. Here,
the district court provided a sufficient explanation and rea-
sonably concluded that alcohol consumption might lead Pou-
lin to view child pornography. Thus, the court did not abuse
its discretion by imposing this condition.
6. Prohibition on Frequenting Places Where Drugs are Il-
legally Sold
Poulin also challenges the requirement that he “not fre-
quent places where controlled substances are illegally sold,
used, distributed, or administered.” In particular, Poulin ar-
gues that the problem with this condition is the word “fre-
quent.” We held in Kappes that this same condition was im-
permissibly vague because it contained no indication of how
many trips constitute “frequenting” such places. Id. at 849. We
also observed that the condition, “read literally, improperly
imposes strict liability because ‘there is no requirement that
[the defendant] know or have reason to know or even just sus-
pect that such activities are taking place.’” Id. (quoting Thomp-
son, 777 F.3d at 379) (alteration in original). Thus, we find pro-
cedural error and remand to the district court.
7. Prohibition Against Association with Felons
During his supervised release, Poulin is also prohibited
from “associat[ing] with any persons engaged in criminal ac-
tivity and … any person convicted of a felony, unless granted
permission to do so by the probation officer.” Poulin claims
No. 14-2458 17
this condition is impermissibly vague as it lacks a scienter re-
quirement and does not define what is meant by “associa-
tion.” We agree that this condition presents the same prob-
lems as the similarly-worded condition we deemed improper
in Thompson. See 777 F.3d at 376–77. We find procedural error
and remand for findings that support the imposition of the
condition as well as rephrasing in conformance with Thomp-
son, which suggested that the district court reword the condi-
tion to bar the defendant from “meet[ing], communicat[ing],
or otherwise interact[ing] with a person whom he knows to
be engaged, or planning to be engaged in criminal activity.”
Id. at 377.
8. Probation Officer Visits
Poulin challenges the standard condition that “the defend-
ant shall permit a probation officer to visit him or her at any
time at home or elsewhere and shall permit confiscation of
any contraband observed in plain view of the probation of-
ficer.” Poulin argues that this condition is overbroad because
it provides no limitation as to the time or frequency of these
visits. Given that the court did not explain its reason for im-
posing the condition, Thompson applies and we must vacate
and remand for a proper explanation by the district court. See
id. at 379–80 (“The … condition would allow the probation of-
ficer to ‘visit’ the defendant at 3:00 a.m. every morning and
look around for contraband, and also allow him to follow the
defendant everywhere, looking for contraband. Regardless of
any possible constitutional concern, [the condition is] too
18 No. 14-2458
broad in the absence of any effort by the district court to ex-
plain why [it is] needed.”).
9. Notification of Third Parties
Finally, Poulin challenges the standard condition that “as
directed by the probation officer, the defendant shall notify
third parties of risks that may be occasioned by the defend-
ant’s criminal record or personal history or characteristics and
shall permit the probation officer to make such notifications
and to confirm the defendant’s compliance with such notifi-
cation requirement.” Poulin claims that this condition is too
ambiguous and broad. As we noted in Thompson, there is “no
indication of what is meant by ‘personal history’ and ‘charac-
teristics’ or what ‘risks’ must be disclosed to which ‘third par-
ties.’” Id. at 379. Thus, we vacate this condition and instruct
the district court on remand to specify limitations on this con-
dition such that it is sufficiently clear to the defendant what
conduct is allowed and disallowed. See id. at 380.
In sum, we remand all of the standard conditions for re-
consideration in light of our recent case law.
C. Special Conditions of Supervised Release
1. Treatment Conditions
Poulin contends that the district court erred by not “con-
sider[ing] the practical effect of [the] three [treatment] condi-
tions imposed together,” namely sex offender treatment, sub-
stance abuse treatment, and mental health treatment. The
government argues that this challenge has been waived.
We agree with the government that Poulin waived any
challenge to these treatment conditions. At resentencing, Pou-
lin’s counsel stated that he had no objections to the proposed
No. 14-2458 19
sex offender treatment, mental health treatment, and sub-
stance abuse treatment conditions. He did, however, object to
the wording of what became the combined substance abuse
treatment condition as well as to the condition’s requirement
that, if financially able, Poulin pay for either alcohol or drug
testing. The government correctly notes that these objections
are unrelated to Poulin’s claim on appeal that the district court
erred by not considering the practical effect of imposing all
three conditions. Thus, by stating that he had “no objection”
to these conditions—whether independently or in combina-
tion—Poulin waived this argument.
2. No-Contact Condition
Poulin’s final argument on appeal is that the district court
abused its discretion by imposing a “no-contact condition,”
which states:
You shall have no contact with any female un-
der the age of 18 except: (1) in the presence of a
responsible adult who is aware of the nature of
your background and current offense, and who
has been approved by the U.S. Probation Office;
(2) in the course of normal commercial business;
(3) in other cases of unintentional and incidental
contact.
Poulin claims that the district court failed to consider that this
condition will prevent him from having contact with his mi-
nor stepsister, and that he was not diagnosed with pedophilia
and had never acted inappropriately with a child. Poulin ar-
gues that the district court “should have considered [his] lack
of history of offending with children and his family circum-
stances when crafting this condition.”
20 No. 14-2458
We review for abuse of discretion because Poulin objected
to the no-contact condition at both sentencing hearings. At re-
sentencing, the district court thoroughly considered Poulin’s
objection and noted that the condition does not prohibit con-
tact with minor females altogether, but rather prohibits unsu-
pervised or unauthorized contact. The court found that while
Poulin’s objection was “not frivolous” given desired contact
with his minor stepsister, the “wording [of the condition] is
adequate and appropriate unless [Poulin] has a—if he has a
specific situation that comes up upon release that would sug-
gest to him that this is not appropriate, then he can file a mo-
tion to amend it.” Based on this reasonable justification, we
conclude that the district court did not abuse its discretion by
requiring the presence of another adult when Poulin has con-
tact with minor females.
Additionally, contrary to Poulin’s contention, the district
court specifically considered the condition’s impact on his fa-
milial relations, the lack of a diagnosis of a pedophilic condi-
tion, and the lack of evidence that he has acted out sexually
toward a child. Even so, the court concluded it was reasonable
to impose the no-contact condition. We agree that the evi-
dence in the record supports a ban on contact with female mi-
nors. Thus, the district court did not abuse its discretion in
imposing this condition.
Although the district court did not abuse its discretion in
imposing these special conditions, we must nonetheless va-
cate all of the discretionary conditions and remand for resen-
tencing. See United States v. Falor, 800 F.3d 407, 411 (7th Cir.
2015) (“As the additional issues presented by both appellants
on appeal may be raised at a full resentencing hearing in the
No. 14-2458 21
district court, we vacate the entire sentences of both appel-
lants and remand for a complete resentencing.”). We also in-
struct the district court to include a requirement that Poulin,
“on the eve of his release from prison, [ ] attend a brief hearing
before the sentencing judge (or his successor) in order to be
reminded of the conditions of supervised release. That would
also be a proper occasion for the judge to consider whether to
modify one or more of the conditions in light of any changed
circumstances brought about by [Poulin’s] experiences in
prison.” Siegel, 753 F.3d at 717.
III. Conclusion
For the foregoing reasons, we VACATE the conditions of
supervised release and REMAND to the district court for lim-
ited proceedings consistent with this opinion. The sentence is
AFFIRMED in every other respect. | 01-03-2023 | 01-05-2016 |
https://www.courtlistener.com/api/rest/v3/opinions/3160342/ | NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with Fed. R. App. P. 32.1
United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Submitted December 4, 2015*
Decided December 7, 2015
Before
KENNETH F. RIPPLE, Circuit Judge
ILANA DIAMOND ROVNER, Circuit Judge
ANN CLAIRE WILLIAMS, Circuit Judge
No. 15-2564
UNITED STATES OF AMERICA, Appeal from the United States District
Plaintiff-Appellee, Court for the Northern District of Illinois,
Eastern Division.
v.
No. 05 CR 601-1
SAULO SALINAS-OSPINA,
Defendant-Appellant. Rebecca R. Pallmeyer,
Judge.
ORDER
Saulo Salinas-Ospina sought to reduce his 168-month prison sentence based on
Amendment 782 to the federal sentencing guidelines, which retroactively reduced the
guideline range for his crime. The district court denied the motion, reasoning that it did
* After examining the briefs and record, we have concluded that oral argument is
unnecessary. Thus the appeal is submitted on the briefs and record. See FED. R. APP. P.
34(a)(2)(C).
No. 15-2564 Page 2
not have the authority to reduce his sentence because it was already at the low end of the
new range. Its analysis is correct, so we affirm the judgment.
When Salinas-Ospina was sentenced in 2009, he received a term of imprisonment
below the then-current guideline range. He pleaded guilty to conspiracy to importing
five kilograms of heroin to the United States. See 21 U.S.C. §§ 952, 963. The district court
calculated a base offense level of 34, which included a 3-point increase for
Salinas-Ospina’s supervisory role and a 3-point decrease for acceptance of responsibility.
Coupled with his category IV criminal history, this offense level yielded a guidelines
imprisonment range of 210 to 262 months. The district court imposed a sentence of 168
months—42 months below the low-end of that range—for two reasons: His age (he was
71 years old at the time of the sentencing), and his declining health (he has been
diagnosed with several health issues including chronic hypertension, hypothyroidism,
gout, and arthritis and had a pacemaker installed while awaiting trial).
Salinas-Ospina now seeks a sentencing reduction under Amendment 782 to the
federal sentencing guidelines. That amendment, which became effective on November 1,
2014 and is retroactive, reduced the offense levels assigned to Salinas-Ospina’s drug
quantities by two levels. See U.S.S.G. § 1B1.10(d); U.S.S.G. supp. to app. C, amends. 782,
788 (2014). By reducing Salinas-Ospina’s base offense level to 32, see U.S.S.G. § 2D1.1, the
new guidelines yielded a sentencing range of 168 to 210 months.
Despite Amendment 782, Salinas-Ospina is not entitled to a sentence shorter than
his current 168 months. His sentence is already at the bottom of the new sentencing
range. Under U.S.S.G. § 1B1.10(b)(2)(A), the district court “shall not” sentence him to
“less than the minimum of” this new range. An exception applies if the district court had
earlier given him a below-guidelines sentence because he provided substantial
assistance to the government. Id. § 1B1.10(b)(2)(B). But Salinas-Ospina received a
below-guidelines sentence because of his age and health, not because he provided
substantial assistance to the government. Thus, the district court did not have authority
under 18 U.S.C. § 3582(c)(2) to further reduce Salinas-Ospina’s sentence. See United States
v. Cunningham, 554 F.3d 703, 708 (7th Cir. 2009).
Salinas-Ospina responds that § 1B1.10(b)(2)(A) violates the ex post facto clause,
but his contention is unavailing. He argues that because this guideline went into effect
three years after his crimes, it unconstitutionally eliminated the discretion courts had
enjoyed in § 3582(c)(2) proceedings to reduce sentences below a new guidelines range.
But his analysis of the ex post facto clause is wrong. Section 3582(c)(2) proceedings can
No. 15-2564 Page 3
only reduce sentences, not increase them. See United States v. Diggs, 768 F.3d 643, 645–46
(7th Cir. 2014). The ex post facto clause focuses on “‘lack of fair notice and governmental
restraint when the legislature increases punishment beyond what was prescribed when
the crime was consummated.’” Id. at 645 (quoting Weaver v. Graham, 450 U.S. 24, 30
(1981)). As this court has already held, the amendment to § 1B1.10 presents neither a
danger of increased punishment nor lack of fair notice. See Diggs, 768 F.3d at 645. On the
contrary, Amendment 782 and § 3582(c)(2) make drug sentences like Salinas-Ospina’s
more lenient. And in any case, the ex post facto clause does not create a constitutional
right to a reduced punishment for a past crime. Id. at 645–46; Dillon v. United States, 560
U.S. 817, 828 (2010). Thus no ex post facto violation occurred here.
AFFIRMED. | 01-03-2023 | 12-07-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/4290697/ | J-S28041-18
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
COMMONWEALTH OF PENNSYLVANIA : N THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
MARIA ALANA MCELROY :
:
Appellant : No. 1811 MDA 2017
Appeal from the Judgment of Sentence October 19, 2017
in the Court of Common Pleas of Luzerne County,
Criminal Division at No(s): CP-40-CR-0000909-2017
BEFORE: OLSON, J., KUNSELMAN, J., and MUSMANNO, J.
MEMORANDUM BY MUSMANNO, J.:
Maria Alana McElroy (“McElroy”) appeals from the judgment of sentence
entered following her guilty plea to driving under the influence of alcohol
(DUI)-highest rate of alcohol (third offense). See 75 Pa.C.S.A. § 3802(c).
We affirm.
The guilty plea colloquy is not part of the certified record. The Affidavit
of probable cause indicates that on November 19, 2016, at about 3:00 a.m.,
Dupont Police Officer Cassandra Marie Kudzinowski (“Officer Kudzinowski”)
observed McElroy drive her vehicle the wrong way on a one-way road.
Affidavit of Probable Cause (Officer Kudzinowski), 12/30/16, at 1. After
stopping McElroy’s vehicle, Officer Kudzinowski noticed that McElroy’s eyes
were bloodshot, and her speech was slurred. Id. When asked, McElroy
indicated that she had traveled from a bar in Scranton. Id. At Officer
Kudzinowski’s request, McElroy agreed to take a Preliminary Breath Test
J-S28041-18
(“PBT”), which showed a .16% level of alcohol on McElroy’s breath. Id.
Officer Kudzinowski asked if McElroy would go to Geisinger Hospital and give
blood for an alcohol test, and McElroy replied “yes.” Id. At the request of
Officer Kudzinowski, McElroy contacted friends to retrieve her vehicle. Id.
Officer Kudzinowski asked McElroy for her keys, and advised McElroy that she
could wait for her friends in McElroy’s vehicle. Id. As McElroy reached for her
purse containing the keys, Officer Kudzinowski observed a box of alcohol on
the front seat. Id. As Officer Kudzinowski bent to retrieve the box, she
observed drug paraphernalia on the front passenger seat. Searching
McElroy’s vehicle, Officer Kudzinowski discovered additional paraphernalia, as
well as a small plastic bag containing marijuana. Id.
At the hospital, Officer Kudzinowski read McElroy the O’Connell
warnings,1 indicating increased criminal penalties for refusing to consent to a
blood draw. Id. at 2. McElroy signed the form and submitted to blood testing.
Id. The test revealed McElroy’s blood alcohol content to be .179%. Id.
____________________________________________
1 “O’Connell warnings” refer to the obligation of police officers to inform
motorists, of whom the officer requests chemical testing, that the Miranda
rights are inapplicable to such tests under the Pennsylvania Implied Consent
Law. See Commonwealth, Dep’t of Transp. v. O’Connell, 555 A.2d 873
(Pa. 1989). Critical to this case, the officer informed McElroy that she would
suffer legal consequences if she refused her consent to the blood draw.
-2-
J-S28041-18
McElroy subsequently was charged with two counts each of DUI-highest
rate of alcohol and DUI-general impairment,2 and one count each of driving
the wrong way on a one-way street,3 possession of a small amount of
marijuana4 and possession of drug paraphernalia.5 On August 2, 2017,
McElroy entered a negotiated guilty plea to the charge of DUI-highest rate of
alcohol (third offense), in exchange for a recommended sentence of 1-2 years
of incarceration, to be served in house arrest. Thereafter, the trial court
sentenced McElroy to 1-2 years in jail, after which McElroy filed the instant,
timely appeal,6 followed by a court-ordered Pa.R.A.P. 1925(b) Concise
Statement of matters complained of on appeal.
McElroy presents the following claim for our review:
Was [] McElroy sentenced illegally, by being sentenced under the
highest tier of the DUI statute[,] after being read implied consent
warnings which were found unconstitutional in Birchfield [v.
North Dakota, 136 S. Ct. 2160 (2016)], a United States Supreme
Court decision which invalidated Pennsylvania’s implied consent
contained in DL-26B[?]
____________________________________________
2 75 Pa.C.S.A. § 3802(a)(1).
3 Id. § 3308(b).
4 75 P.S. § 780-113(a)(31)(i).
5 Id. § 780-113(a)(32).
6 The 30-day time period for McElroy to file her direct appeal expired on
Saturday, November 18, 2017. McElroy filed her Notice of Appeal on Monday,
November 20, 2017, the first business day following the expiration of the
appeal period. Accordingly, McElroy’s appeal was timely filed. See 1
Pa.C.S.A. § 908 (“Computation of time”).
-3-
J-S28041-18
Brief for Appellant at 5.
McElroy contends that her sentence for DUI-highest rate of alcohol is
illegal, as it relied upon a blood draw that was the result of the O’Connell
warnings, which were declared unconstitutional by the United States Supreme
Court in Birchfield.7 Id. at 9. McElroy points out that the police obtained no
warrant for a blood draw, and that her consent to the blood draw was the
direct result of the threat of greater jail time should she not consent to the
blood draw. Id. According to McElroy, her sentence was based on “something
it could not have been based upon, on proof which was legally unavailable to
the trial court.” Id. at 10.
This Court has summarized the holding in Birchfield, and its application
to Pennsylvania’s implied consent statutes, as follows:
In Birchfield, the United States Supreme Court recognized that
“[t]here must be a limit to the consequences to which motorists
may be deemed to have consented by virtue of a decision to drive
on public roads.” Birchfield, 136 S. Ct. at 2185. Of particular
significance, Birchfield held that “motorists cannot be deemed to
have consented to submit to a blood test on pain of committing a
criminal offense.” Id. at … 2186. Accordingly, this Court has
recognized that Pennsylvania’s implied consent scheme was
unconstitutional insofar as it threatened to impose enhanced
criminal penalties for the refusal to submit to a blood test.
Commonwealth v. Ennels, 167 A.3d 716, 724 (Pa. Super.
2017), reargument denied (Sept. 19, 2017) (noting that
“implied consent to a blood test cannot lawfully be based on the
____________________________________________
7 “[A]n appellant may raise legality of sentencing claims for the first time on
direct appeal.” Commonwealth v. Lankford, 164 A.3d 1250, 1252 n.5 (Pa.
Super. 2017).
-4-
J-S28041-18
threat of such enhanced penalties”); Commonwealth v. Evans,
153 A.3d 323, 330-31 (Pa. Super. 2016).
Commonwealth v. Kurtz, 172 A.3d 1153, 1157 (Pa. Super. 2017).
Our review of the record discloses that McElroy did not dispute the
admissibility of the blood test results, or the validity of her consent to undergo
blood testing, at any point prior to filing her Notice of Appeal; the first time
she raised the issue was in her Pa.R.A.P 1925(b) Concise Statement.
Furthermore, McElroy pled guilty to the DUI charge in question. Thus, McElroy
has waived any challenge to the admissibility of her blood test results based
upon Birchfield. See, e.g., Commonwealth v. Singleton, 169 A.3d 79, 81
(Pa. Super. 2017) (stating that “a plea of guilty constitutes a waiver of all
non[-]jurisdictional defects and defenses[,] and waives the right to challenge
anything but the legality of the sentence and the validity of the plea.”)
(internal quotation marks omitted).
McElroy attempts to avoid waiver by casting her Birchfield claim as a
challenge to the legality of her sentence. As set forth above, McElroy contends
that her sentence was based on “something it could not have been based
upon, on proof which was legally unavailable to the trial court.” Brief for
Appellant at 10.
This Court has rejected a similar argument, explaining that
“while Birchfield issues may raise a question regarding the legality of
sentence, that principle applies only if the defendant received an increased
punishment due to a refusal. In this case, where [the defendant] did not
-5-
J-S28041-18
refuse and did not seek suppression of the blood evidence, there is no illegality
to correct.” Commonwealth v. Kehr, 180 A.3d 754, 759 n.2 (Pa. Super.
2018) (citation omitted).
Here, McElroy did not receive an increased punishment due to a refusal
to submit to chemical testing, nor did she seek suppression of her blood test
results. Accordingly, McElroy’s sentence is not rendered illegal by Birchfield.
See id. Consequently, we cannot grant McElroy relief on this claim.
McElroy also asserts that, because her sentence is illegal, her plea was
involuntary, because she was not advised that “the law prohibited the
introduction of her blood test results, and that the sentence being offered was
above the range of those offered for a general impairment violation of the DUI
statute.” Brief for Appellant at 11. McElroy argues that the trial court had the
obligation to inquire into the facts surrounding the plea, including the blood
draw forming the basis of her plea. Id. According to McElroy, “a plea to the
highest tier [was] unknowing, unintelligent, and probably involuntary.”8 Id.
____________________________________________
8McElroy also argues that there was a chance to suppress significant evidence
and her plea counsel rendered ineffective assistance for not filing a pre-trial
suppression motion. Brief for Appellant at 11. We decline to address
McElroy’s ineffectiveness claim without prejudice for her to raise it in post-
conviction collateral proceedings. See Commonwealth v. Woeber, 174
A.3d 1096, 1109 n.16 (Pa. Super. 2017) (recognizing that, as a general rule,
a defendant should wait to raise claims of ineffective assistance of trial counsel
until collateral review). Such claims are within the purview of the Post
Conviction Relief Act, 42 Pa.C.S.A. §§ 9541-9546.
-6-
J-S28041-18
The trial court and the Commonwealth agree with McElroy’s assertion.
See Brief for the Commonwealth at 3 (stating that “McElroy appears to be
correct that the blood draw that provided the factual basis for her plea and
sentence under 3802(c) … would have been suppressed under Birchfield v.
North Dakota.”); Trial Court Opinion, 1/25/18, at 2 (stating that “McElroy[]
should have been [s]entenced pursuant to 3802[(A)(1)], 3rd offense, resulting
in a sentence of 10 days to 2 years.”).
Our review of the record discloses that McElroy did not raise this claim
by filing a post-sentence motion.
[A] request to withdraw a guilty plea on the grounds that it was
involuntary is one of the claims that must be raised by motion in
the trial court in order to be reviewed on direct appeal. ...
Moreover, for any claim that was required to be preserved, this
Court cannot review a legal theory in support of that claim unless
that particular legal theory was presented to the trial court….
Commonwealth v. Rush, 959 A.2d 945, 949 (Pa. Super. 2008) (citations
omitted). Thus, the claim is not preserved for our review.
Even if McElroy had preserved this claim, it is not clear, based upon the
record before us, whether McElroy would be entitled to relief. In the Affidavit
of Probable Cause, Officer Kudzinowski stated that at the scene of the vehicle
stop, she “asked [McElroy] if [McElroy] would go to Geisenger Hospital with
[her] and give blood for an alcohol test. She said yes.” Affidavit of Probable
Cause (Officer Kudzinowski), 12/30/16, at 1. Officer Kudzinowski further
stated that “[m]yself and [McElroy] arrived at the hospital at approximately
03:50 hrs. I then read her the chemical testing warnings (DL-26B)[,] which
-7-
J-S28041-18
she signed agreeing to submit a sample of blood, which she did so at
approximately 04:01 hrs.” Id. at 1-2.
In Commonwealth v. Haines, 168 A.3d 231 (Pa. Super. 2017), this
Court addressed a situation in which it was unclear as to whether the
defendant had consented to the blood test before or after having been read
the DL-26 form, which improperly threatened criminal penalties for refusal to
submit to the blood test, in violation of Birchfield and its progeny. This Court
explained that,
[i]f [the defendant] validly consented before being informed that
he faced enhanced criminal penalties for failure to [submit to a
blood draw], then his consent would not be tainted by the warning
and the blood test results would be admissible. If, however, he
did not consent until after [the officer] informed him that he would
face enhanced criminal penalties if he refused to consent, then the
trial court did not necessarily err in granting his motion to
suppress the test results.
Haines, 168 A.3d at 236 (emphasis omitted).
Here, as in Haines, the trial court’s Opinion does not address the
important temporal distinction between the O’Connell warning and McElroy’s
consent to the blood draw. The trial court states instead that “[a] review of
the [A]ffidavit of [P]robable [C]ause reflects that [McElroy] was arrested on
November 19, 2016, and a blood draw was completed on that date.” Trial
Court Opinion, 1/25/18, at 2. However, the Affidavit of Probable Cause
indicates that McElroy consented to the blood draw before being wrongfully
informed of increased penalties for refusing the blood draw. Affidavit of
Probable Cause (Officer Kudzinowski), 12/30/16, at 1. By not filing a motion
-8-
J-S28041-18
to withdraw her guilty plea, McElroy has deprived the trial court of the
opportunity to address the issue regarding the timing of McElroy’s consent,
and whether Birchfield is implicated in this case. We therefore conclude that,
because McElroy did not raise this issue before the trial court, it is not
preserved for our review. See Rush, 959 A.2d at 949; Pa.R.A.P. 302(a)
(stating that a claim cannot be raised for the first time on appeal).
Accordingly, we affirm McElroy’s judgment of sentence.
Judgment of sentence affirmed.
Judge Kunselman joins the Memorandum.
Judge Olson concurs in the result.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 7/2/18
-9- | 01-03-2023 | 07-02-2018 |
https://www.courtlistener.com/api/rest/v3/opinions/2155595/ | 357 F.Supp. 923 (1973)
Taylor WEBB, Plaintiff,
v.
CULBERSON, HELLER & NORTON, INC., et al., Defendants.
No. GC 72-34-S.
United States District Court, N. D. Mississippi, Greenville Division.
April 26, 1973.
Thomas R. Crews, Jackson, Miss., Charles L. Sullivan, of Sullivan, Smith & Hunt, Clarksdale, Miss., for plaintiff.
Campbell, DeLong, Keady, Robertson & Hagwood, Greenville, Miss., George H. Hagle, of Andrews, Kurth, Campbell & Jones, Houston, Tex., for defendants.
MEMORANDUM
ORMA R. SMITH, District Judge.
This action has been submitted to the court on the motion of defendants James V. Culberson, Robert S. Heller and Edward M. Norton under Rule 12(b) F.R. Civ.P. to dismiss for lack of personal jurisdiction and for failure to state a claim *924 upon which relief can be granted. The court has received briefs and, after having given full consideration to the motion, has reached the conclusion that the motion is well taken and should be sustained on both grounds.
The complaint herein seeks to recover damages from the corporate defendant, Culberson, Heller and Norton, Inc., for breach of a contract made between the corporate defendant and plaintiff.
The individual defendants, Culberson, Heller and Norton, are the principal owners of the corporate defendant, and during the time of which the complaint is made acted as officers and employees of said corporation in its dealings with plaintiff concerning the contract in question.
Plaintiff filed an amended complaint making the individual defendants parties defendant in the action seeking judgment of and from said individuals, jointly and severally, for actual and punitive damages in an amount to be determined as reasonable by the court or by jury upon the trial of this cause, basing his demands upon the allegation that ". . [E]ach of the individual defendants conspired with each other and with the corporate defendant to have the corporate defendant breach the contract with plaintiff and to have corporate defendant refuse to carry out the obligations of the contract."
The essential and underlying facts, as reflected by the record, show that plaintiff claims to have been injured because the corporate defendant breached its contract with him, and that the breach, if any, was occasioned by the decisions, actions and activities of the individual defendants who were acting in the scope of their employment and in the furtherance of the business of the corporation by which they were employed. It is not alleged that the individual defendants committed any act of a personal nature except in connection with the corporate affairs.
It is clear and generally held throughout the country that ". . . [A]n authorized agent for a disclosed principal, in the absence of circumstances showing that personal responsibility was incurred, is not personally liable to the other contracting party". Chipman v. Lollar, 304 F.Supp. 440, 445 (N.D.Miss. 1969). See also, 3 C.J.S. Agency § 215 and 3 Am.Jur.2d § 393, Page 654.
Applying this recognized rule of law in the action sub judice, the individual defendants who were acting as the agents and representatives of the corporate defendant cannot be held personally liable for any alleged breach of contract on the part of the corporate defendant.
The plaintiff attempts to sustain a right of action against the individual defendants on the theory, as stated on Page 3 of plaintiff's brief, ". . . [t]hat the individual Defendants conspired with each other to interfere with the performance of the contract by causing the corporate Defendant to refuse performance thereunder".
The individual defendants contend that a corporate "person" can only act through its officers and representatives, and their activities in relation to the corporation's business are the acts of the corporation and that while so acting they cannot conspire with the corporation of which they are a part, citing a number of authorities, among which is a decision of the Fifth Circuit, Nelson Radio & Supply Co. v. Motorola, 200 F.2d 911 (5th Cir. 1952).
In Nelson, the Fifth Circuit held:
. . . It is basic in the law of conspiracy that you must have two persons or entities to have a conspiracy. A corporation cannot conspire with itself any more than a private individual can, and it is the general rule that the acts of the agent are the acts of the corporation. . . . In the instant case we do not have any of those situations and it appears plain to us that the conspiracy upon which plaintiff relies consists simply in the absurd assertion that the defendant, *925 through its officers and agents, conspired with itself to restrain its trade in its own products. Surely discussions among those engaged in the management, direction and control of a corporation concerning the price at which the corporation will sell its goods, the quantity it will produce, the type of customers or market to be served, or the quality of goods to be produced do not result in the corporation being engaged in a conspiracy in unlawful restraint of trade under the Sherman Act. . .
. . . In the absence of any allegation whatever to indicate that the agents of the corporation were acting in other than their normal capacities, plaintiff has failed to state a cause of action based on conspiracy under Section 1 of the Act. . . . 200 F.2d at 914.
Plaintiff seeks to secure in personam jurisdiction of the individual defendants under Miss.Code Ann. § 1437 (Supp.1972), commonly known as the "Mississippi Long-Arm Statute". Plaintiff contends that the activities of the individual defendants in connection with the contract performed, or to be performed in Mississippi by the corporation, create the situation under which the Long-Arm Statute will reach the individual defendants' in personam jurisdiction. It has been held, however, that jurisdiction over individual officers and employees of a corporation cannot be predicated merely upon the jurisdiction over the corporation itself. See Hare v. Family Publications Service, 342 F.Supp. 678 (D.Md.1972); Path Instruments Int'l Corp. v. Asahi Optical Co., 312 F.Supp. 805 (S.D.N.Y.1970).
In sum, the court holds that the Mississippi Long-Arm Statute § 1437 cannot be used to sustain in personam jurisdiction over the individual defendants and that the amended complaint does not state a cause of action against said defendants upon which recovery can be predicated. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2474025/ | 776 F.Supp.2d 1064 (2011)
Kristen Lynn MILLER, Plaintiff,
v.
WASHINGTON MUTUAL BANK FA; JPMorgan Chase Bank National Association; California Reconveyance Company; and Does 1-50, inclusive, Defendants.
No. C 10-05787 WHA.
United States District Court, N.D. California.
March 8, 2011.
*1066 Kristen Lynn Miller, San Ramon, CA, pro se.
Victor Meng, Morrison and Foerster, San Francisco, CA, for Defendants.
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS
WILLIAM ALSUP, District Judge.
In this mortgage loan dispute, defendants move to dismiss the action pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons stated below, the motion is GRANTED IN PART AND DENIED IN PART.
STATEMENT
Defendants Washington Mutual Bank, JPMorgan Chase Bank National Association, and California Reconveyance Company all participate in the mortgage servicing business. In March 2005, Plaintiff Kristen Lynn Miller acquired real property located at 5178 East Lakeshore Drive, San Ramon, with a mortgage loan of $640,000 that she obtained from Washington Mutual. The loan was secured by a deed of trust that identified California Reconveyance as the trustee. Plaintiff alleges that the loan documents were not clearly explained to her before she signed them. Specifically, she alleges that she was not informed of the correct interest rate, loan repayment terms, or cost and fees for the loan. In 2010, California Reconveyance issued a notice of default and a notice of trustee's sale for the property.
Defendants have submitted exhibits documenting the relationship among the parties, requesting that judicial notice be taken of them. These documents include: (1) a deed of trust, recorded with the Contra Costa County Recorder's Office on March 30, 2005 as document number XXXX-XXXXXXX-XX; (2) a notice of default, recorded with the Contra Costa County Recorder's Office on May 24, 2010 as document number XXXX-XXXXXXX-XX; (3) a notice of trustee's sale, recorded with the Contra Costa County Recorder's Office on August 26, 2010 as document number XXXX-XXXXXXX-XX; (4) the Purchase and Assumptions Agreement between the FDIC and JPMorgan Chase, available at http://www. fdic.gov/about/freedom/Washington_Mutual_P_and_A.pdf; (5) Exhibit 21 of Washington Mutual's Form 10-K, filed with the SEC on February 29, 2008; and (6) Exhibit 21.1 of JPMorgan Chase's Form 10-K, filed with the SEC on February 24, 2010. Plaintiff does not object. Because all these documents are matters of public record, defendants' request for judicial notice is GRANTED pursuant to Federal Rule of Evidence 201(b). From these documents, it is apparent that JPMorgan Chase purchased a set of assets and liabilities from the FDIC in September 2008. These assets and liabilities formerly belonged to Washington Mutual and were acquired by the FDIC as receiver when Washington Mutual became insolvent.
*1067 Plaintiff originally filed this action in the Contra Costa County Superior Court, on November 12, 2010. Plaintiff alleged six causes of action against all defendants: (1) misrepresentation and fraud; (2) rescission and restitution of voidable cognovit note; (3) injunction against wrongful foreclosure based on cognovit note; (4) quiet title; (5) unfair business practices under California Business and Professions Code Section 17200; and (6) violation of 18 U.S.C. 1962. JPMorgan Chase and California Reconveyance removed the action. Defendants now move to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6). This order follows full briefing and a hearing on the motion.
ANALYSIS
"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, ___ U.S. ___, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted). A claim is facially plausible when there are sufficient factual allegations to draw a reasonable inference that a defendant is liable for the misconduct alleged. Ibid. While a court "must take all of the factual allegations in the complaint as true," it is "not bound to accept as true a legal conclusion couched as a factual allegation." Id. at 1949-50 (internal quotation marks omitted). "[C]onclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss for failure to state a claim." Epstein v. Wash. Energy Co., 83 F.3d 1136, 1140 (9th Cir.1996).
Defendants advance several arguments as to why each claim should be dismissed. Each argument will be addressed in turn.
A. FIRST CLAIM: MISREPRESENTATION AND FRAUD.
In her first claim, plaintiff alleges that when she signed the deed of trust, Washington Mutual concealed both the correct interest rate and the index for calculating interest rate adjustments. First, defendants argue that this claim is barred by the applicable statute of limitations. California Code of Civil Procedure Section 338(d) imposes a three-year statute of limitations on actions based upon fraud. Plaintiff executed the deed of trust securing the loan in March 2005. She did not file this action until November 12, 2010, over five years later.
When a plaintiff seeks relief on the ground of fraud or mistake, however, "[t]he cause of action in that case is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake." CAL. CIV.PROC.CODE § 338(d). Plaintiff alleged that Washington Mutual concealed both the correct interest rate and the index for calculating interest rate adjustments from plaintiff. As a result, "Plaintiff was not aware of Defendants' fraudulent representations until 2009 when it became increasingly difficult to keep up with the adjusted payments, and Plaintiff began to ask Defendants questions regarding what he [sic] believed to be the shifting terms of the agreement" (Compl. ¶ 3 8). The discovery rule applies, and plaintiff's first claim is not barred by the applicable statute of limitations.
Second, defendants argue that plaintiff's first claim should be dismissed because it is not pled with the particularity required by Federal Rule of Civil Procedure 9(b). "In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. Pro. 9(b). "[W]here a complaint includes allegations of fraud, Federal Rule of Civil Procedure 9(b) requires more specificity including an account of the time, place, and specific content of the false representations as well as the identities *1068 of the parties to the misrepresentations." Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir.2007) (internal quotations omitted).
Here, plaintiff has alleged enough facts to plead with particularity that Washington Mutual concealed from plaintiff the correct interest rate and the index for calculating interest rate adjustments when she signed the loan documents. In regards to JPMorgan Chase and California Reconveyance, plaintiff conclusorily alleges only that "Defendants CHASE and CRC, engaged in a pattern and practice of defrauding Plaintiff in that, during the entire life of the mortgage loan, Defendants, and each of them failed to properly credit payments made, incorrectly calculated interest on the accounts, and have failed to accurately debit fees" (Compl. ¶ 36). Plaintiff did not state her allegation against JPMorgan Chase and California Reconveyance with the required particularity.
Accordingly, defendants' motion to dismiss the first claim is GRANTED IN PART AND DENIED IN PART. Plaintiff's first claim remains as to Washington Mutual, but is dismissed as to JPMorgan Chase and California Reconveyance.
B. SECOND CLAIM: RESCISSION AND RESTITUTION OF VOIDABLE COGNOVIT NOTE.
In her second claim, plaintiff seeks rescission and restitution of the loan document, arguing that the document is void because it contains cognovit clauses. Defendants argue that this claim is barred by the applicable statute of limitations. Defendants are correct. As this issue is dispositive, defendants' alternative arguments in support of their motion to dismiss the second claim will not be addressed.
Plaintiff executed the deed of trust that included the alleged cognovit clauses in March 2005. She did not file this action until November 12, 2010, over five years later. Her second claim is barred by California Code of Civil Procedure Section 337, which imposes a four-year statute of limitations on actions based upon a written contract.
Plaintiff argues that the discovery rule applies here because her rescission claim is based on "[t]he failure of Defendants, and each of them, to disclose the cognovit clauses, misrepresentation and lack of contractual consent in the alleged contract" (Compl. ¶ 45). It is true that "[w]here the ground for rescission [of a written contract] is fraud or mistake, the time does not begin to run until the discovery by the aggrieved party of the facts constituting the fraud or mistake." CAL.CIV.PROC.CODE § 337(3). Nevertheless, a plaintiff has
a duty to exercise diligence to discover the facts. The rule is that the plaintiff must plead and prove the facts showing: (a) Lack of knowledge. (b) Lack of means of obtaining knowledge (in the exercise of reasonable diligence the facts could not have been discovered at an earlier date). (c) How and when he did actually discover the fraud or mistake. Under this rule constructive and presumed notice or knowledge are equivalent to knowledge. So, when the plaintiff has notice or information of circumstances to put a reasonable person on inquiry, or has the opportunity to obtain knowledge from sources open to his investigation (such as public records or corporation books), the statute commences to run.
Lee v. Escrow Consultants, Inc., 210 Cal. App.3d 915, 920, 259 Cal.Rptr. 117 (Cal.Ct. App.1989) (internal quotations omitted). Plaintiff's attempt to invoke the discovery rule here fails. Because plaintiff signed the deed of trust containing the alleged cognovit clauses, she has not pled facts showing that she was unable to discover the existence of the cognovit clauses at an earlier date even had she exercised reasonable *1069 diligence. Defendants' motion to dismiss the second claim is therefore GRANTED.
C. THIRD CLAIM: INJUNCTION AGAINST WRONGFUL FORECLOSURE BASED ON COGNOVIT NOTE.
In her third cause of action, plaintiff brings a claim for wrongful foreclosure, alleging that defendants "have engaged in deceptive loan practices" in violation of (1) the Home Ownership and Equity Protection Act, 15 U.S.C. 1637; (2) the Truth In Lending Act, 15 U.S.C. 1601-67f; and (3) the Federal Trade Commission Act, 15 U.S.C. 41-58 (Compl. ¶ 52). Defendants argue that in order to successfully state a claim for wrongful foreclosure, plaintiff must tender the total amount she currently owes under the loan, which is $712,125.56. Defendants' argument is meritless. The amount of debt relevant here is not the total amount still owed under the loan, but the amount by which plaintiff allegedly defaulted. See CAL. CIV. CODE § 2924c. Defendants' motion to dismiss the third claim is DENIED.
D. FOURTH CLAIM: QUIET TITLE.
In her fourth claim, plaintiff "seeks a declaration that the title to the Subject Property is vested in Plaintiff alone to quiet title against the other claimants" (Compl. ¶ 72). Defendants argue that "Miller's claim fails as a matter of law because she has not tendered the amount due under the Loan" (Br. 9).
Tender is required to maintain an action to quiet title in California. See Mix v. Sodd, 126 Cal.App.3d 386, 390, 178 Cal. Rptr. 736 (Cal.Ct.App.1981). Here, plaintiff has not alleged that she has offered to tender the amount of her unpaid debt. Accordingly, she has not successfully stated a claim for quiet title against defendants.
Plaintiff argues that the requirement that a mortgagor must pay the debt owed to quiet her title against the mortgagee is not universally applicable or mandatory. In support of this proposition, plaintiff cites several cases that she claims establish exceptions to this rule. First, plaintiff contends that tender "may be excused . . . if the beneficiary has lulled the trustor into not paying," citing McCue v. Bradbury, 149 Cal. 108, 84 P. 993 (Cal.1906) (Opp. 7). This case is inapposite, as plaintiff has not alleged any facts that suggest that defendants "lulled" plaintiff into not paying the loan.
Second, plaintiff contends that "when the hearing on a preliminary injunction is the debtor's only presale means of obtaining a judicial determination of the amount due or whether any amount is due, a tender is also unnecessary," citing both More v. Calkins, 85 Cal. 177, 24 P. 729 (Cal. 1890), and Stockton v. Newman, 148 Cal. App.2d 558, 307 P.2d 56 (Cal.Ct.App.1957) (Opp. 8). Both of these cases are inapplicable. More stands for the proposition that "[a] [foreclosure] sale ought not to be made when the debt is uncertain or in dispute; and if made, it may be set aside." More, 85 Cal. at 188, 24 P. 729 (internal quotations omitted). Rather, if the debt is uncertain, "the creditor must file a bill to ascertain the amount, and pray for leave to sell to pay the amount found due." Ibid. (internal quotations omitted). Moreover, Stockton concerns whether a court may enjoin a foreclosure sale where the plaintiff can prevent the sale by making the payments due, but making such payments may be construed as an affirmance of the contract and prevent the plaintiff from being able to rescind it. Stockton, 148 Cal. App.2d at 563-64, 307 P.2d 56. Neither of these cases concerns whether a mortgagor must offer tender in order to state a claim for quiet title.
Third, plaintiff argues that "the trial court has considerable discretion to impose *1070 conditions and `accommodate the equities' in lieu of a strict and literal tender of performance before commencement of litigation," citing Dickson, Carlson & Campillo v. Pole, 83 Cal.App.4th 436, 446, 99 Cal.Rptr.2d 678 (Cal.Ct.App.2000) (Opp. 8). Pole discusses the maxim that "One who seeks equity must do equity," which means that "a court will not grant equitable relief unless the plaintiff acknowledges or provides for the defendant's equitable rights arising from the same subject matter." Id. at 445-46, 99 Cal.Rptr.2d 678. This maxim is inapplicable here, as it concerns the obligation of the plaintiff, rather than the defendant, to do equity. Accordingly, defendants' motion to dismiss the third claim is GRANTED.
E. FIFTH CLAIM: UNFAIR BUSINESS PRACTICES.
In her fifth claim, plaintiff alleges that defendants engaged in fraudulent conduct, which included deceiving plaintiff during the loan process by failing to disclose the correct interest rate, information, variable nature of interest, and property value (Compl. ¶ 76). First, defendants argue that this claim is barred by the applicable statute of limitations. California Business and Professions Code Section 17208 imposes a four-year statute of limitations on actions based on unfair business practices. Plaintiff executed the deed of trust securing the loan in March 2005. She did not file this suit until November 12, 2010, over five years later.
On the other hand, "[t]he discovery rule provides that the accrual date of a cause of action is delayed until the plaintiff is aware of her injury and its negligent cause." Jolly v. Eli Lilly & Co., 44 Cal.3d 1103, 1109, 245 Cal.Rptr. 658, 751 P.2d 923 (Cal. 1988). Plaintiff alleges that defendants failed to disclose the correct interest rate, information, variable nature of interest, and property value in the deed of trust (Compl. ¶ 76). She also alleges that defendants "misleadingly portrayed or implied that these loans were fixed rate loans, when Defendants knew that only the periodic payments were fixed (for a time), but that interest rates were not, in fact, `fixed'" (id. ¶ 77). Plaintiff argues that because of this, she was not aware that defendants caused her an injury until 2009. The discovery rule applies, and plaintiff's fifth claim is not barred by the applicable statute of limitations.
Second, defendants argue that plaintiff has not successfully stated a claim against JPMorgan Chase or California Reconveyance because her allegations "are directed toward WaMu's origination of her Loan, and not Chase or CRC" (Br. 9). Plaintiff responds that the complaint "includes numerous allegations of fraud occurring during CHASE'S servicing of the loan and after CHASE acquired the loan from WAMU" (Opp. 9). The only allegation concerning JPMorgan Chase's servicing of the loan is paragraph 36 of the complaint, which alleges, "Defendants CHASE and CRC, engaged in a pattern and practice of defrauding Plaintiff in that, during the entire life of the mortgage loan, Defendants, and each of them failed to properly credit payments made, incorrectly calculated interest on the accounts, and have failed to accurately debit fees." Plaintiff must state this allegation with particularity, as "Rule 9(b)'s heightened pleading standards apply to claims for violations of the . . . UCL." Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009). Plaintiff did not state her allegation against JPMorgan Chase and California Reconveyance with the required particularity.
Accordingly, defendants' motion to dismiss the fifth claim is GRANTED IN PART AND DENIED IN PART. Plaintiff's fifth claim remains as to Washington Mutual, but is *1071 dismissed as to JPMorgan Chase and California Reconveyance.
F. SIXTH CLAIM: VIOLATION OF 18 U.S.C. 1962(A) AND 1962(C).
In her sixth claim, plaintiff alleges that defendants violated 18 U.S.C. 1962(a) and 1962(c). Defendants argue that this claim should be dismissed because the complaint fails to allege predicate acts with sufficient particularity to satisfy Federal Rule of Civil Procedure 9(b). Plaintiff's opposition brief does not address this argument. Defendants are correct. As this issue is dispositive, defendants' alternative arguments in support of their motion to dismiss the sixth claim will not be addressed.
Under Section 1962(a), it is illegal "for any person who has received any income derived . . . from a pattern of racketeering activity . . . to use or invest . . . any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise." Under Section 1962(c), it is illegal "for any person employed by or associated with any enterprise . . . to conduct or participate . . . in the conduct of such enterprise's affairs through a pattern of racketeering activity." In order to successfully state a claim under either Section 1962(a) or 1962(c), a plaintiff must allege a pattern of racketeering activity. See Schreiber Distrib. Co. v. Serv-Well Furniture Co., Inc., 806 F.2d 1393, 1398 n. 4 (9th Cir.1986). A pattern requires at least two acts of racketeering activity. 18 U.S.C. 1961(5).
"Rule 9(b)'s requirement that in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity applies to civil RICO fraud claims." Edwards v. Marin Park, Inc., 356 F.3d 1058, 1065-66 (9th Cir.2004) (internal quotations omitted). To avoid dismissal, a plaintiff must "state the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentation." Id. at 1066 (internal quotation marks omitted).
In an effort to establish a pattern of racketeering activity, plaintiff alleges eight predicate acts: (1) mail fraud; (2) wire fraud; (3) conversion; (4) "deceit-misrepresentation"; (5) securities fraud; (6) "loss of profit opportunity"; (7) making false statements about the value of the collateral; and (8) stripping the originator of the ability to pay debt claims in bankruptcy court (Compl. ¶ 83). These allegations are grounded in fraud. Plaintiff, however, has not satisfied the particularity required by Rule 9(b), as she only conclusorily alleged these predicate acts. Accordingly, defendants' motion to dismiss the sixth claim is GRANTED.
CONCLUSION
For the foregoing reasons, the motion to dismiss is GRANTED IN PART AND DENIED IN PART. Plaintiff's first and fifth claims remain as to Washington Mutual. Plaintiff's first and fifth claims are dismissed as to JPMorgan Chase and California Reconveyance. Plaintiff's third claim remains in its entirety. Plaintiff's second, fourth, and sixth claims are dismissed in their entirety.
Plaintiff may seek leave to amend the complaint and will have FOURTEEN CALENDAR DAYS from the date of this order to file a motion, noticed on the normal 35-day calendar, for leave to file an amended complaint. A proposed amended complaint must be appended to the motion. In the proposed amended complaint, plaintiff should bring only colorable claims, and should give serious consideration as to which defendant(s) may be liable for each claim. The motion should clearly explain how the amendments to the complaint address *1072 the problems with plaintiff's claims identified in this order.
IT IS SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2530211/ | 19 F.Supp.2d 816 (1998)
Joel THROPE, et al., Plaintiffs,
v.
STATE OF OHIO, et al., Defendants.
No. C-1-96-764.
United States District Court, S.D. Ohio, Western Division.
August 28, 1998.
*817 Richard Leo Creighton, Jr., Joseph M. Callow, Jr., Patrick F. Fischer, Keating, Muething & Klekamp, Cincinnati, OH, for Joel Thrope.
Stephen Howard Johnson, Ohio Atty. Gen., Business & Government Regulation Section, Columbus, OH, for State of Ohio, Dept. of Public Safety.
*818 ORDER GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT, AND DENYING DEFENDANTS' MOTION TO DISMISS OR FOR SUMMARY JUDGMENT
DLOTT, District Judge.
This matter is before the Court on the Plaintiffs' Renewed Motion for Summary Judgment (doc. # 35), and the Defendants' Motion to Dismiss or, in the alternative, Motion for Summary Judgment (doc. # 34). This case came before the Court for oral argument on July 1, 1998. For the reasons stated below, Plaintiffs' Motion is hereby GRANTED and Defendants' Motion is hereby DENIED.
I. INTRODUCTION
This is a class action lawsuit brought pursuant to the Americans with Disabilities Act ("ADA"), 42 U.S.C. § 12101, et. seq. The class members include over 300,000 Ohio residents and organizations who have been required to pay a $5.00 fee to the State of Ohio in order to obtain, renew, or replace a permanent handicapped windshield placard.[1] When displayed in the windshield of a motor vehicle, the placard allows for access to special parking spaces reserved for persons with disabilities. Plaintiffs allege that the State of Ohio's program of charging a $5.00 fee for these placards is a violation of the ADA because the ADA prohibits public entities from passing on the costs of such a program to disabled persons.
The Defendants in this action are the State of Ohio ("State" or "Ohio"); the Ohio Department of Public Safety ("DPS"); Mitchell J. Brown, Director of the Department of Public Safety; the Ohio Bureau of Motor Vehicles ("BMV"); and Frank R. Caltrider, Registrar of Motor Vehicles. The individuals are sued only in their official capacities, and therefore this suit is essentially against only the State. The Defendants contend that this Court lacks subject matter jurisdiction, and thus seeks dismissal of this suit. Even if jurisdiction exists, however, the Defendants contend that Ohio's program of issuing placards for a $5.00 fee does not violate the ADA.
The parties agree that no issues of material fact remain, and that this case turns on the legal questions of whether federal jurisdiction exists and whether Ohio's program of issuing handicapped parking placards violates the ADA. See Joint Stipulation Submitting Entire Case on Cross-Motions for Summary Judgment (doc. # 28); Fed.R.Civ.P. 56(c) (Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.").
II. ANALYSIS
The Court will first briefly summarize the relevant features of the ADA and of Ohio's program of issuing handicapped parking placards. Next the Court will address the jurisdictional issues raised by the Defendants. Finally, the Court will turn to the merits of the case.
A. The Americans with Disabilities Act
The Americans with Disabilities Act is a broad federal law designed to combat discrimination against disabled persons. With respect to public entities, the ADA mandates that "no qualified individual with a disability shall, by reason of such disability, be excluded from participation in or be denied the benefits of the services, programs, or activities of a public entity, or be subjected to discrimination by any such entity." 42 U.S.C. § 12132.[2] Congress directed the Department of Justice to promulgate regulations to implement the Act. 42 U.S.C. § 12134. Among the regulatory requirements of the ADA is the creation of special parking places for disabled persons, in order *819 to ensure accessibility to places of public accommodation. See 28 C.F.R. § 36.304; 28 C.F.R. pt. 36, Appendix A, ADA Accessibility Guidelines for Buildings and Facilities; Kornblau v. Dade County, 86 F.3d 193, 194 (11th Cir.1996); Petillo v. California Dep't of Motor Vehicles, Case No. CV96-5569JSL, (C.D.Cal. June 4,1997).
The ADA regulations regarding state and local government services also include general prohibitions against discrimination. Public entities are required to "make reasonable modifications in policies, practices, or procedures when ... necessary to avoid discrimination on the basis of disability." 28 C.F.R. § 35.130(b)(7). One of the specific prohibitions forms the basis of the Plaintiffs' claim in this case. The regulation specifically prohibits public entities from imposing a surcharge on disabled persons to cover the costs of an ADA-mandated measure:
A public entity may not place a surcharge on a particular individual with a disability or any group of individuals with disabilities to cover the costs of measures, such as provisions of auxiliary aids or program accessibility, that are required to provide that individual or group with the nondiscriminatory treatment required by the Act.
28 C.F.R. § 35.130(f). The surcharge provision prevents disabled persons from being denied access to ADA-mandated benefits or services because they do not have the funds to pay for them, and it spreads the costs of such benefits or services to all taxpayers. See McGarry v. Director, Department of Revenue, State of Missouri, 7 F.Supp.2d 1022 (W.D.Mo.1998). The question raised by the present case is whether Ohio's program of issuing handicapped parking placards for a $5.00 fee violates this federal regulation.
B. Ohio's Handicapped Parking Placard Program
Ohio's program for providing access to federally-mandated handicapped parking places is described at Ohio Revised Code § 4503.44. Under this program, there are only two ways in which persons with a walking impairment may access the reserved handicapped parking spaces in Ohio: special license plates or a parking placard. An individual who owns or leases a motor vehicle may apply to the BMV for special license plates imprinted with the international symbol of access. To obtain the special plates, one must pay only the regular license fee. There are no additional costs for obtaining handicapped registration and plates, and the Plaintiffs in this case do not challenge the legality of the license plate program.
Disabled persons may also apply for a permanent handicapped windshield placard.[3] To obtain the permanent placard, qualified individuals and organizations must pay a $5.00 fee to the State of Ohio.[4] A motor vehicle displaying the placard is entitled to park in the spaces reserved for disabled persons. Since the ADA became effective as to public entities on January 26, 1992, the State of Ohio has collected in excess of $2.5 million for permanent placards.[5]
C. Jurisdiction
In order to address the merits of the case, the Court must first determine that it has jurisdiction over the case. Defendants contend that two separate barriers exist which prevent federal jurisdiction in this matter: the Eleventh Amendment to the United States Constitution, and the Tax Injunction Act.
*820 1. Eleventh Amendment Immunity
Defendants first allege that the Eleventh Amendment prohibits federal jurisdiction in this case. 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." U.S. Const. amend. XI. Although the text of the Amendment appears to restrict only the Article III diversity jurisdiction of the federal courts, the Supreme Court has long "understood the Eleventh Amendment to stand not so much for what it says, but for the presupposition ... which it confirms." Seminole Tribe v. Florida, 517 U.S. 44, 54, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996) (quoting Blatchford v. Native Village of Noatak, 501 U.S. 775, 779, 111 S.Ct. 2578, 115 L.Ed.2d 686 (1991)). This presupposition is that each state is a sovereign entity in our federal system and that it is inherent in this sovereignty not to be subject to the suit of an individual without its consent.[6]Id.
State sovereign immunity under the Eleventh Amendment, however, is not absolute: a state may consent to suit in federal court; and Congress may, under certain circumstances, abrogate a state's Eleventh Amendment immunity. Neither party in this case contends that the State of Ohio has consented to suit under the ADA, but the parties disagree over whether Congress effectively abrogated states' Eleventh Amendment immunity when it passed the ADA.
The Supreme Court recently set forth a two-part test for determining whether Congress has properly abrogated states' Eleventh Amendment immunity. See Seminole Tribe v. Florida, 517 U.S. 44, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996). First, Congress must unequivocally express an intent to abrogate Eleventh Amendment immunity. Second, Congress must act pursuant to a valid exercise of power. Id. 517 U.S. at 55, 116 S.Ct. 1114. The first question is easily answered in the affirmative, and the parties do not dispute that Congress, in enacting the ADA, unequivocally expressed its intent to abrogate Eleventh Amendment immunity. 42 U.S.C. § 12202 ("A State shall not be immune under the eleventh amendment to the Constitution of the United States from an action in Federal or State court of competent jurisdiction for a violation of this chapter.").
The parties disagree, however, as to whether Congress acted pursuant to a valid exercise of power. In Seminole Tribe, the Supreme Court held that only one constitutional provision, Section 5 of the Fourteenth Amendment,[7] provides Congress the authority to abrogate Eleventh Amendment immunity. Id. 517 U.S. at 58-72, 116 S.Ct. 1114 (overruling a prior Supreme Court decision which found authority to abrogate under the Commerce Clause, U.S. Const. art. I, § 8, cl. 3); Fitzpatrick v. Bitzer, 427 U.S. 445, 96 S.Ct. 2666, 49 L.Ed.2d 614 (1976). Discussing Fitzpatrick, the Court explained the rationale for finding that the Fourteenth Amendment confers upon Congress the power to abrogate:
In Fitzpatrick, we recognized that the Fourteenth Amendment, by expanding federal power at the expense of state autonomy, had fundamentally altered the balance of state and federal power struck by the Constitution. We noted that § 1 of the Fourteenth Amendment contained prohibitions expressly directed at the States and that § 5 of the Amendment provided that "The Congress shall have the power to enforce, by appropriate legislation, the provisions of this article." We held that through the Fourteenth Amendment, federal power extended to intrude upon the province of the Eleventh Amendment and therefore that § 5 of the Fourteenth Amendment allowed Congress to abrogate *821 the immunity from suit guaranteed by that Amendment.
Id. 517 U.S. at 59, 116 S.Ct. 1114 (internal citations omitted). Thus, the precise question presented is whether Congress acted pursuant to § 5 of the Fourteenth Amendment when it passed the ADA, thereby abrogating state immunity.
Neither the Supreme Court nor the Sixth Circuit[8] has directly ruled on this question since the issuance of the Seminole Tribe decision, and other courts are split on the issue. The clear majority of courts, however, including all four of the federal appellate courts to address the issue, has concluded that the ADA was enacted pursuant to the Fourteenth Amendment as required for abrogation of Eleventh Amendment immunity. See Coolbaugh v. Louisiana, 136 F.3d 430, 438 (5th Cir.1998); Crawford v. Indiana Dep't of Corrections, 115 F.3d 481, 487 (7th Cir.1997); Clark v. California, 123 F.3d 1267, 1270 (9th Cir.1997); Kimel v. Florida Board of Regents, 139 F.3d 1426 (11th Cir.1998). In addition to the appellate courts cited above, several District Courts, including the Southern District of Ohio, have held that Congress effectively abrogated states' immunity by enacting the ADA. See e.g., Williams v. Ohio Dep't of Mental Health, 960 F.Supp. 1276 (S.D.Ohio 1997) (Sargus, J.); Niece v. Fitzner, 941 F.Supp. 1497 (E.D.Mich.1996); Muller v. Costello, 997 F.Supp. 299 (N.D.N.Y. 1998); Mayer v. University of Minnesota, 940 F.Supp. 1474 (D.Minn.1996).
The Court is aware that at least two District Courts, including the Southern District of Ohio, have reached the opposite conclusion, finding that Congress did not abrogate states' sovereign immunity when it enacted the ADA. See Nihiser v. Ohio Environmental Protection Agency, 979 F.Supp. 1168 (S.D.Ohio 1997) (Graham, J.); Brown v. North Carolina Division of Motor Vehicles, 987 F.Supp. 451 (E.D.N.C.1997). However, for the reasons stated below, the Court concurs with the majority view that the ADA abrogates states' Eleventh Amendment immunity.
As an initial matter, it is significant that Congress specifically intended the ADA to be an expression of its authority under the Fourteenth Amendment. It is for Congress in the first instance to determine what legislation is necessary to secure the guarantees of the Fourteenth Amendment, and its conclusions are entitled to much deference. See City of Boerne v. Flores, ___ U.S. ___, 117 S.Ct. 2157, 2172, 138 L.Ed.2d 624 (1997) (citing Katzenbach v. Morgan, 384 U.S. 641, 651, 86 S.Ct. 1717, 16 L.Ed.2d 828 (1966)). In enacting the ADA, Congress specifically stated that is was Congress' purpose "to invoke the sweep of congressional authority, including the power to enforce the fourteenth amendment." 42 U.S.C. § 12101(b)(4). Congress' discretion is of course not unlimited. See City of Boerne, 521 U.S. at 507, 117 S.Ct. at 2172 (finding that Congress exceeded its authority under the Fourteenth Amendment in enacting the Religious Freedom Restoration Act). However, "Congress has broad discretion to legislate to enforce the core promises of the Fourteenth Amendment," and its judgments are entitled to great deference. Wilson-Jones v. Caviness, 99 F.3d 203, 209 (6th Cir.1996); see Timmer v. Michigan Dep't of Commerce, 104 F.3d 833, 842 (6th Cir.1997) (holding that Congress abrogated states' sovereign immunity under the Equal Pay Act pursuant to the Fourteenth Amendment).
Furthermore, Congress made specific findings in the ADA that disabled persons are a discrete and insular minority who have faced restrictions and limitations and been subjected to a history of purposeful unequal treatment. 42 U.S.C. § 12101(a)(7). The ADA thus clearly invokes the Equal Protection Clause of the Fourteenth Amendment,[9]*822 which limits states' ability to discriminate on the basis of classifications. It is undisputed that disabled persons are protected by the Equal Protection Clause. See City of Cleburne v. Cleburne Living Center, 473 U.S. 432, 105 S.Ct. 3249, 87 L.Ed.2d 313 (1985). Moreover, Congress' power under Section 5 of the Fourteenth Amendment is not limited to proscribing unconstitutional acts. In an effort to remedy or prevent constitutional violations, Congress may enact legislation proscribing conduct that falls beyond the reach of the Fourteenth Amendment's prohibitions, so long as there is a "congruence between the means used and the ends to be achieved." City of Boerne, 521 U.S. at 507, ___, 117 S.Ct. at 2163, 2169.
Defendants argue that Congress exceeded its authority under the Fourteenth Amendment in enacting the ADA. Defendants contend that the ADA, unlike other anti-discrimination laws, mandates preferential treatment for disabled persons, treatment which goes beyond the neutral guarantee of equal protection. See Nihiser, 979 F.Supp. 1168, 1174.
This Court agrees, however, with the clear majority of courts in finding that the ADA is within the scope of appropriate legislation under the Equal Protection Clause. See Clark, 123 F.3d at 1270; Coolbaugh, 136 F.3d at 438; Crawford, 115 F.3d at 487; Williams, 960 F.Supp. at 1282. The ADA represents "Congress' considered efforts to remedy and prevent what it perceived as serious, widespread discrimination against the disabled." Coolbaugh, 136 F.3d at 438. Like other anti-discrimination statutes, the ADA is a valid exercise of Congress' power under Section 5 of the Fourteenth Amendment to enact legislation to enforce the substantive guarantee of equal protection. By prohibiting discrimination against disabled persons, the ADA is plainly adapted to and consistent with the Constitution, which seeks to provide all citizens with equal protection and equal treatment under the law. See Clark, 123 F.3d at 1270 (finding that the ADA does not provide remedies "so sweeping that they exceed the harms that [it] is designed to redress"); Coolbaugh, 136 F.3d at 438 (same). Since Congress clearly intended to abrogate states' Eleventh Amendment immunity and acted pursuant to the Fourteenth Amendment, this Court finds that the ADA represents an effective abrogation of the Eleventh Amendment. Consequently, Defendants' Motion to Dismiss based upon sovereign immunity is hereby DENIED.
2. Tax Injunction Act
Defendants also contend that federal jurisdiction in this matter is prohibited by the Tax Injunction Act. The Tax Injunction Act provides: "The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy, and efficient remedy may be had in the courts of such State." 28 U.S.C. § 1341. The Tax Injunction Act is based on principles of federalism and is designed to prevent a federal court from interfering with the administration of a state tax system. See Wright v. McClain, 835 F.2d 143, 144 (6th Cir.1987) ("The Tax Injunction Act is an expression of congressional purpose to promote comity and to afford states the broadest independence, consistent with the federal constitution, in the administration of their affairs, particularly revenue raising.")
The jurisdictional impediment created in the Tax Injunction Act is not, however, absolute. For the Act to apply, the assessment at issue must be a "tax." The parties in the present case disagree over whether the $5.00 fee required for a parking placard constitutes a "tax." Whether a particular assessment is a "tax" under the Act is a question of federal law. See Wright v. McClain, 835 F.2d at 144. In addressing this question, federal courts have sought to determine whether the assessment in question "is for revenue raising purposes or merely a regulatory or punitive levy." Id. 835 F.2d at 144-45. Courts have generally "sketched a spectrum with a paradigmatic tax at one end and a paradigmatic fee at the other." San Juan Cellular Telephone Co. v. *823 Public Service Commission of Puerto Rico, 967 F.2d 683, 685. Although the line between a "tax" and a "fee" can be a blurry one, certain distinctions emerge from the case law between a classic tax and a classic fee:
[T]he classic tax sustains the essential flow of revenue to the government, while the classic fee is linked to some regulatory scheme. The classic tax is imposed by a state or municipal legislature, while the classic fee is imposed by an agency upon those it regulates. The classic tax is designed to provide a benefit for the entire community, while the classic fee is designed to raise money to help defray an agency's regulatory expenses.
Home Builders Association of Mississippi, Inc. v. Madison, 143 F.3d 1006, 1011 (5th Cir.1998); see also, Bidart Brothers v. California Apple Commission, 73 F.3d 925 (9th Cir.1996); City of Chattanooga v. BellSouth Telecommunications, Inc., 1 F.Supp.2d 809 (E.D.Tenn.1998).
In the present case, Defendants argue that the placard surcharge is more like a tax than a fee, and thus the Tax Injunction Act divests this Court of jurisdiction. The Court disagrees. First, the Court notes that the placard surcharge is termed a "fee" in the statute. Ohio Rev.Code § 4503.44(D). While this label is not dispositive, the circumstances and intended use of the surcharge reveal that it is not a "tax" under the Tax Injunction Act. See Chattanooga, 1 F.Supp.2d at 813 ("When courts are faced with cases that lie near the middle of this spectrum, the courts tend to emphasize and focus on the revenue's ultimate use and the reason why the revenue is being taken or collected."). Defendants argue that the purpose of the fee is to raise funds for the general benefit of the community, and thus it is a tax. In support of this argument, Defendants note that the fees collected by the registrars are deposited "into the state treasury to the credit of the state bureau of motor vehicles fund." Ohio Rev.Code § 4503.44(L). The fact that monies are directed to the BMV fund, however, does not establish that the fees were intended as a general revenue-raising measure.
Rather, the nominal surcharge for the parking placard appears more like a user fee designed to cover the State's costs of issuing the placards. See Folio v. City of Clarksburg, 134 F.3d 1211, 1217 (4th Cir.1998) ("A user fee, by contrast, is a payment given in return for a government provided benefit and is tied in some fashion to the payor's use of the service.") (internal quotations omitted). The fee is paid by and provides a benefit to only those disabled persons who apply for a parking placard, not the public at large. The deposition testimony of Mitchell Brown, Director of the Ohio Department of Public Safety,[10] further supports the conclusion that the placard fee is more properly viewed as a user fee rather than a tax. Mr. Brown confirmed, and the Defendants have not disputed, that the $5.00 amount was chosen as an approximation of the costs of the program.[11] Thus, the placard surcharge is not a "tax" for purposes of the Tax Injunction Act, because it is charged only to the applicants for a placard and designed to cover the regulatory costs of administering the program. See San Juan, 967 F.2d at 686 (stating that one purpose of a regulatory fee is to defray the costs of the program); Union Pacific Railroad Co. v. Public Utility Commission of Oregon, 899 F.2d 854, 856 (9th Cir.1990) (finding an assessment to be a fee because it helped defray the costs of performing the regulatory duties of the agency); Wright v. McClain, 835 F.2d at 145 (stating that an assessment is not a tax if it is "merely a regulatory or punitive levy"). Thus, the Tax Injunction Act presents no impediment to federal jurisdiction, *824 and Defendants' Motion in this regard is DENIED.
D. The Merits: Does Ohio's Handicapped Parking Placard Program Violate the ADA?
The Court now turns to the question of whether Ohio's program of issuing parking placards violates the ADA. As outlined above, the ADA requires the creation of special parking places for disabled persons, in order to ensure accessibility to places of public accommodation. See 28 C.F.R. § 36.304; 28 C.F.R. pt. 36, Appendix A, ADA Accessibility Guidelines for Buildings and Facilities; Kornblau v. Dade County, 86 F.3d 193, 194 (11th Cir.1996); Petillo v. California Dep't of Motor Vehicles, Case No. CV96-5569JSL, (C.D.Cal. June 4, 1997). Furthermore, ADA regulation prohibit public entities from imposing a surcharge on disabled persons to cover the costs of an ADA-mandated measure. 28 C.F.R. § 35.130(f). In brief, this Court finds that Ohio's imposition of a $5.00 fee for a permanent handicapped parking placard is an illegal surcharge under the ADA.
ADA regulations clearly prohibit a state from charging disabled persons to pay a user fee to cover the costs of ADA-mandated accommodations. The specific regulation states:
A public entity may not place a surcharge on a particular individual with a disability or any group of individuals with disabilities to cover the costs of measures, such as provisions of auxiliary aids or program accessibility, that are required to provide that individual or group with the nondiscriminatory treatment required by the Act.
28 C.F.R. § 35.130(f). Ohio's program runs afoul of this prohibition. To obtain a removable placard, a disabled Ohio resident must pay a $5.00 fee to the State of Ohio. See Ohio Rev.Code § 4503.44. Only disabled persons seeking the placard are required to pay the fee, and the funds collected cover the costs of the program. See Brown Depo. at 18-19. Ohio's fee is thus exactly the type of surcharge prohibited by the ADA. The illustration which follows the above-quoted regulation further supports this conclusion:
ILLUSTRATION: A community college provides interpreter services to deaf students, removes a limited number of architectural barriers, and relocates inaccessible courses and activities to more accessible locations. The college cannot place a surcharge on either an individual student with a disability (such as a deaf student who benefited from interpreter services) or on groups of students with disabilities (such as students with mobility impairments who benefited from barrier removal). It may, however, adjust its tuition or fees for all students.
Americans with Disabilities Act Title II Technical Assistance Manual, at § 3.5400. Ohio's surcharge on mobility-impaired Ohio residents who seek access to handicapped parking accommodations is clearly akin to this illustration, and this Court finds that the fee violates the ADA.
The Court notes that three other courts have addressed the legality of nearly identical parking placard programs in other states. Each court concluded that the fee violated the ADA, as embodied in 28 C.F.R. § 35.130(f). See Petillo v. California, Case No. CV96-5569JSL (C.D.Cal. June 4, 1997); McGarry v. Director, Dep't of Revenue, State of Missouri, 7 F.Supp.2d 1022 (W.D.Mo. 1998); Miller v. State of North Dakota, Case No. 96-C-1988 (Burleigh Cty. District Court Oct. 10, 1997).
The Defendants contend that the placard program does not violate the ADA because the placards are "only one alternative available to disabled Ohio drivers to permit them to utilize-handicapped-reserved parking spaces." Defendants' Motion, at 12. The removable placard is "an optional means of identifying a vehicle authorized to park in handicapped spaces, in addition to or in lieu of the license plates." Id. at 14. Special license plates represent a "no-cost" alternative for disabled Ohio drivers, since the cost is identical to regular registration. Therefore, Defendants argue, disabled Ohio drivers are not required to pay for placards in order to utilize the parking accommodations.
The Defendants' argument is without merit. As noted by the Plaintiffs, this argument *825 is premised upon the assumption that handicapped plates and the handicapped placard are equivalent, interchangeable alternatives. They are not. First, in order to obtain special license plates, one must own or lease a vehicle. As Plaintiffs point out, not all disabled Ohio residents own cars. For those who do not own a vehicle, the removable placard is not simply an "option" or a luxury, as Defendants suggest: it is necessary for them to access the ADA-mandated parking places. The ADA protects people, not cars. See 42 U.S.C. § 12132 (stating that "no qualified individual with a disability" shall be excluded from participation or subjected to discrimination.). The State cannot, consistent with the ADA, provide no-cost access to special parking only to those disabled persons who own cars. See McGarry, 7 F.Supp.2d at 1027-28 ("Discrimination against the disabled who do not own automobiles is not permitted."); Petillo, at 5. The special license plates simply do not provide access to reserved parking for all of the individuals entitled to such parking under the ADA.
Second, special license plates do not provide the same freedom of mobility provided by a placard and required by the ADA. The problem addressed by exclusive parking areas for disabled persons is the difficulty of getting safely and efficiently from a parking lot to a building or other destination. Both disabled drivers and passengers face this difficulty. Yet the special license plates are not portable. The plates cannot be transferred to a car in which a disabled person is a passenger, or to a car which the disabled person may be borrowing or renting. The purpose of providing reserved parking is to provide disabled persons with access to places of public accommodation. The license plate "option" alone provides meaningful access to only a subset of disabled Ohioans (those who drive their own cars 100% of the time), and is thus at odds with the ADA. See Petillo, at 5-6 (rejecting the "option" argument and finding the provision of license plates alone to violate the ADA); McGarry, 7 F.Supp.2d at 1027-28 (same).
The removable placards solve the problem of providing disabled persons with the access to parking accommodations required by the ADA. Public entities may not, however, pass on the costs of compliance to the disabled as a condition for the enjoyment of ADA-mandated measures. For these reasons, this Court finds that Ohio's $5.00 fee for permanent handicapped windshield placards is an impermissible surcharge under the ADA.
E. The Definition of the Class
By prior order of this Court, the following class was certified in this action pursuant to Rule 23(b)(2) of the Federal Rules of Civil Procedure:
All Ohio residents or qualified organizations under Chapter 4503 of the Ohio Revised Code who purchased a permanent handicapped windshield placard or a renewal or replacement handicapped windshield placard enabling use of parking accommodations set aside for the exclusive use of persons with disabilities from January 26, 1992, to the present. The class also includes all Ohio residents or qualified organizations under Chapter 4503 of the Ohio Revised Code who will be required to purchase these placards in the future until declaratory and injunctive relief is granted.
Defendants object to this class definition, arguing that only those Ohio residents who are disabled within the meaning of the ADA should be entitled to reimbursement of the application fee. The Court agrees but does not consider it necessary to alter the class definition.
The ADA covers individuals who have a physical or mental impairment that substantially limits one or more major life activities. See 42 U.S.C. § 12102. "Major life activities" is defined broadly to include such things as walking, seeing, breathing and working. See 29 C.F.R. § 1630.2(i). "Substantially limits" is defined as being unable to perform a major life activity that the average person in the general population can perform, or being significantly restricted as to the condition, manner or duration under which he or she can perform a major life activity. 29 C.F.R. § 1630.2(j).
The Ohio statute limits eligibility for handicapped parking placards to persons "with a disability that limits or impairs the ability to walk." Ohio Rev.Code § 4503.44. This mobility-impairment *826 is then further defined in the statute, and it includes persons who meet one of several measures of impairment in walking, breathing, etc. Comparing the definitions of disability in the ADA and the Ohio statute, this Court finds that all persons falling within Ohio's definition of "persons with a disability that limits or impairs the ability to walk" also fall within the ADA's definition of persons with a "disability." Therefore, all the Plaintiffs in this case are entitled to relief under the ADA,[12] and thus the class definition need not be altered.
III. CONCLUSION
For the reasons stated above, this Court finds that Ohio's $5.00 fee for the issuance of a permanent handicapped windshield placard violates the ADA. Since there are no disputes of material facts, and the Plaintiffs are entitled to judgment as a matter of law, Plaintiff's Motion for Summary Judgment is hereby GRANTED, and Defendants' Motion to Dismiss or for Summary Judgment is hereby DENIED.
The Court hereby ORDERS the following relief:
(1) The Court hereby DECLARES that the State of Ohio's statutory scheme of requiring a $5.00 fee for the issuance of a permanent handicapped windshield placard, codified at Ohio Rev.Code § 4503.44, violates the Americans with Disabilities Act;
(2) the State of Ohio is hereby ENJOINED from requiring payment from future applicants for permanent handicapped windshield placards; and
(3) the State of Ohio shall reimburse Plaintiffs for past payments of the illegal surcharge.
The Court will contact the parties to set a schedule for resolving any remaining issues, including: the determination of the exact amount of damages owed by the State; notice to the class; an award of attorney's fees; and any other unresolved issues.
IT IS SO ORDERED.
NOTES
[1] Joel Thrope, the class representative, is an Ohio resident who is physically disabled within the meaning of Ohio Rev.Code 4503.44. Like all class members, Mr. Thrope was required to pay a fee to the State of Ohio to obtain a permanent handicapped windshield placard.
[2] The ADA became effective as to state and local governments on January 26, 1992. 42 U.S.C. §§ 12202, 12134; see O'Bryant v. City of Midland, 9 F.3d 421, 422 (5th Cir.1993).
[3] The State of Ohio also issues temporary placards to Ohio residents who are temporarily disabled. Ohio Rev.Code § 4503.44(E). Plaintiffs in this case do not challenge the fees collected for the temporary placards.
[4] In addition to the $5.00 fee to the State of Ohio, Deputy Registrars throughout the state are permitted to charge an additional service fee. Plaintiffs in this case challenge only the $5.00 fee for the placards.
[5] The exact amount collected under the program to date is not enumerated in the parties' submissions to the Court. According to a discovery document prepared by the State, the total amount collected for permanent placards from 1992 through 1996 was approximately $2.5 million. Plaintiff's Appendix of Relevant Authority in Support of Plaintiff's Renewed Motion for Summary Judgment with Memorandum in Support, at Tab 12.
[6] The Supreme Court has held that the Eleventh Amendment also precludes a citizen from suing his or her own state in federal court, and thus the Amendment is applicable in the present case. See Hans v. Louisiana, 134 U.S. 1, 10 S.Ct. 504, 33 L.Ed. 842 (1890).
[7] Section 5 of the Fourteenth Amendment provides: "The Congress shall have the power to enforce, by appropriate legislation, the provisions of this article." U.S. Const. amend XIV, § 5.
[8] In a brief, unpublished decision in 1996, the Sixth Circuit stated that Congress had abrogated states' Eleventh Amendment immunity in enacting the ADA. Sears v. Kentucky, 77 F.3d 483, 1996 WL 67769 (6th Cir.1996) (unpublished). The precedential value of this decision is limited, however, since it occurred prior to Seminole Tribe and contained no analysis of the abrogation issue.
[9] The Equal Protection Clause commands that no State shall "deny to any person within its jurisdiction the equal protection of the laws." U.S. Const. amend. XIV, § 1. It is "essentially a direction that all persons similarly situated should be treated alike." City of Cleburne v. Cleburne Living Center, 473 U.S. 432, 439, 105 S.Ct. 3249, 87 L.Ed.2d 313 (1985).
[10] The Department of Public Safety includes the Bureau of Motor Vehicles, as well as several other state agencies.
[11] The following is an excerpt of Mr. Brown's deposition at page 18-19:
Question: Do you have a recollection as to how the five dollar charge was initially determined?
Answer: My best recollection of the five dollars was that it was a collective average of what it would cost for the State to purchase these things in large quantities ... our costs came out to approximately five dollars to be passed along to the individual who wished to have the placards.
[12] Persons bringing suit under Title II of the ADA are entitled to the full range of relief. See 42 U.S.C. § 12133; 29 U.S.C. § 794a; 42 U.S.C. § 2000d; Johnson v. City of Saline, 151 F.3d 564, 1998 WL 442669, at *9 (6th Cir.1998) (stating that compensatory damages are available under Title II of the ADA); Niece v. Fitzner, 922 F.Supp. 1208 (E.D.Mich.1996) (stating that the full range of remedies is available under Title II of the ADA). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2578673/ | 443 F.Supp.2d 703 (2006)
In Re LINERBOARD ANTITRUST LITIGATION
This Document Relates to: The Procter & Gamble Company, et al. Plaintiffs,
v.
Stone Container Corp., et al. Defendants.
(Civil Action No. 03C-3944, No. MDL 1261. CIV.A. Nos. 03-5231, 03C-3944.
United States District Court, E.D. Pennsylvania.
July 28, 2006.
United States District Court for the Northern District of Illinois) No. MDL 1261. CIV.A. Nos. 03-5231, 03C-3944.
*705 MEMORANDUM & ORDER
DuBOIS, District Judge.
I. INTRODUCTION
Presently before the Court is Defendants' Motion for Summary Judgment Directed *706 to Plaintiff FAC Acquisition, LLC. Defendants assert that direct action plaintiff FAC Acquisition, LLC ("FAC") lacks standing to assert claims in this antitrust litigation because FAC never made any direct purchases from defendants and the antitrust claims of entities that did make direct purchases were not validly assigned to FAC. For the reasons set forth below, the Court concludes that FAC does not have standing to assert claims in this litigation and, therefore, grants defendants' motion for summary judgment.
II. BACKGROUND
This multidistrict litigation involves allegations that a number of United States manufacturers of linerboard[1] engaged in a combination and conspiracy in unreasonable restraint of trade and commerce in violation of the Sherman Act, 15 U.S.C. § 1, and various state antitrust statutes. The Court sets forth only an abbreviated factual and procedural history as pertinent to address defendants' pending Motion for Summary Judgment.
The factual background of the case is described at length in this Court's previous opinions. See In re Linerboard Antitrust Litig., MDL No. 1261, 2000 WL 1475559 (E.D.Pa. Oct. 4, 2000) ("Linerboard I"); In re Linerboard Antitrust Litig., 203 F.R.D. 197 (E.D.Pa.2001) ("Linerboard II"); In re Linerboard Antitrust Litig., 305 F.3d 145 (3d Cir.2002) ("Linerboard III"); In re Linerboard Antitrust Litig., 296 F.Supp.2d 568 (E.D.Pa.2003) ("Linerboard IV"); In re Linerboard Antitrust Litig., 2004 WL 1221350 (E.D.Pa. Jun.2, 2004) ("Linerboard V"); In re Linerboard Antitrust Litig., 223 F.R.D. 357 (E.D.Pa. 2004) ("Linerboard VI"); In re Linerboard Antitrust Litig., 223 F.R.D. 335 (E.D.Pa.2004) ("Linerboard VII"); In re Linerboard Antitrust Litig., 2005 WL 1625040 (E.D.Pa. July 11, 2005) ("Linerboard VIII").
A. The Class Case
Class plaintiffs named the following defendants in their Complaints and Amended ComplaintsStone Container Corporation, Jefferson Smurfit Corporation, Smurfit-Stone Container Corp., International Paper Company, Georgia-Pacific Corporation, Temple-Inland, Inc., Gaylord Container Corporation, Tenneco, Inc., Tenneco Packaging, Inc., Union Camp Corporation, Packing Corporation of American and Weyerhaeuser Paper Companyand alleged that these defendants conspired to raise the price of corrugated containers and corrugated sheets throughout the United States by restricting production and/or curtailing inventory in violation of federal antitrust laws.
By Memorandum and Order dated September 4, 2001, this Court certified the following two plaintiff classes: a "sheet class" consisting of buyers of corrugated sheets and a "box class" consisting of purchasers of corrugated containers. Linerboard II, 203 F.R.D. at 224. The Court's certification ruling was affirmed by the United States Court of Appeals for the Third Circuit and the Supreme Court denied certiorari. See Gaylord Container Corp. v. Garrett Paper, Inc., 538 U.S. 977, 123 S.Ct. 1786, 155 L.Ed.2d 666 (2003). All claims in the class case were resolved for a total of $202,572,489. By Order dated *707 February 10, 2005, the Court approved initial distribution of over 90% the settlement fund to the classes; it approved a second distribution by Order dated June 28, 2005. By Order dated November 2, 2005, the Court approved a final distribution to all claimants.
B. The Direct Actions
One-hundred and forty entities opted out of the classes certified by the Court by filing Requests for Exclusion on or before June 9, 2003, including FAC.[2] These 140 entities opted-out themselves and approximately 3400 subsidiary and affiliate companies.[3] Of the 140 Requests for Exclusion, thirteen groups of opt-outs subsequently filed direct actions against defendants alleging both federal and state claims. As of the date of this Memorandum, nine of those groups have outstanding claims against defendants Temple-Inland, Inc. and Gaylord Container Corp.[4] In the nine remaining actions, the claims against all other defendants have either been settled or withdrawn.
All of the remaining direct actions were originally filed in districts other than the Eastern District of Pennsylvania and were transferred to this Court for coordinated pretrial proceedings pursuant to 28 U.S.C. § 1407. On August 6, 2003, a conditional transfer order was issued by the Judicial Panel on Multidistrict Litigation pursuant to Rule 7.4 of the Rules of Procedure of that Panel. Linerboard IV, 292 F.Supp.2d *708 at 652. That order, which became final on August 21, 2003, provided for the transfer to this Court of eight of the nine remaining direct actions. Id. The ninth direct action, Mars Inc., et al. v. Stone Container Corporation, et al., No. 03-6977 (N.D. Ill. filed October 1, 2003), was transferred pursuant to a conditional transfer order dated December 8, 2003. That order became final on December 23, 2003.
C. Direct Action Plaintiff FAC Acquisition, LLC
On June 9, 2003, FAC opted-out of the class action. Amended Notice of Request to be Excluded from the Linerboard Box and Sheet Classes at 4, Def. Ex. 1. On June 10, 2003, The Procter & Gamble Company, as lead plaintiff, and a number of other parties, including FAC, filed a direct action against all defendants. Procter & Gamble Compl. ¶ 28, Def. Ex. 2. The Complaint in this action has been amended twice. In the Second Amended Complaint, FAC alleges that it and "its subsidiaries, affiliates, predecessors-in-interest and assigns (collectively `FAC'), purchased substantial quantities of corrugated material from one or more of the Defendants during the relevant period. . . ." Procter & Gamble Second Amen. Compl. ¶ 30 (Document No. 58). FAC asserts a federal antitrust claim under Section 1 of the Sherman Act (15 U.S.C. § 1) and a state antitrust claim under Tennessee's antitrust statute, Tenn.Code Ann. §§ 47-25-101, 47-25-106.[5] Procter & Gamble Second Amen. Compl. ¶¶ 122-124, 163-168.
FAC has admitted that it did not purchase corrugated boxes or sheets from any of the defendants during the time period relevant to this litigation. Plaintiff FAC Acquisition LLC's Amended Individual Responses to Defendants' First Joint Set of Interrogatories (hereinafter "Amended Responses") at 2, Def. Ex. 3. Instead, FAC asserts antitrust claims on behalf of three companiesFingerhut Companies, Inc., Fingerhut Corporation, and Tennessee Distribution, Inc. (collectively, "Fingerhut"). Id. at 4. FAC contends it is entitled to assert Fingerhut's claims based on its purchase of the operating assets of Fingerhut from Federated Department Stores ("Federated") in an Asset Purchase Agreement (the "Agreement") dated as of June 11, 2002. Id. at 4-5. Prior to the Agreement, Fingerhut was a wholly owned subsidiary of Federated, and Fingerhut Corp. and Tennessee Distribution, Inc. were wholly owned subsidiaries of Fingerhut. Agreement at 1 (Recital B), Def. Ex. 4; Plaintiff FAC Acquisition, LLC's Response to Defendants' Supplemental Set of Interrogatories (hereinafter "Supplemental Response") at 3, Def. Ex. 5. According to FAC, Fingerhut's claims arise out of purchases of corrugated containers or sheets by Fingerhut Corp. and Tennessee Distribution, Inc., between 1992 and 1998. Pl. Opp. at 1.
The Agreement contains several provisions pertinent to the Court's analysis. First, Recital C expresses the parties' intent as to the scope of the Agreement: "Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller, certain of the assets of the Direct Marketing Business. . . ."[6] Agreement at 1. Next, *709 Article 1 describes the "assets to be sold and retained." Id. Section 1.1, labeled "Acquired Assets," identifies nine categories of property to be conveyed. Id. at 1-2. The list does not include, specifically, the right to assert claims against third parties, a fact not disputed by FAC. Section 1.2 of the Agreement, entitled "Excluded Assets," describes the assets not transferred and explains that "Seller is not selling, conveying, transferring, delivering, or assigning to Purchaser, and Purchaser is not purchasing or acquiring from Seller, any assets or property of Seller other than the Acquired Assets, including, without limitation. . . ." Id. at 2. The two categories of enumerated "Excluded Assets" include "the equipment, other personal property and intellectual property used by Seller in connection with credit and collection activities" and "all tax refunds with respect to taxable years of Seller ending on or before the Closing Date." Id. at 3. The parties dispute whether the list of Excluded Assets is exhaustive.
Several other provisions in the Agreement are implicated by the Court's analysis. In Section 4.3 of the Agreement, Fingerhut represented that there was no litigation pending or threatened relating to the Acquired Assets. Id. at 5-6. Specifically, Fingerhut warranted that:
Except for those items listed on Schedule 4.3, there are no suits, actions, governmental investigations, administrative hearings, arbitrations or other proceedings . . . pending or, to Seller's Knowledge, threatened, by or against or affecting Seller in connection with, or relating to, the Acquired Assets, the transactions contemplated by this Agreement or any action taken or to be taken in connection herewith or the consummation of the transactions contemplated hereby . . .
Id. at 5 (emphasis in original). Section 10.4, entitled "Entire Agreement," explains that the "Agreement . . . supersede[s] any other agreements, whether written or oral, that may have been made or entered into by Purchaser and Seller or any of their Affiliates relating to the matters contemplated hereby." Id. at 22. This Section, in describing the "Entire Agreement," also references the schedules and exhibits attached to the Agreement as well as the "Confidentiality Agreement" and the "Purchase Letter Agreement." Id. Schedule 1.2, which lists Excluded Assets, is the only schedule or exhibit submitted or referenced by the parties. Finally, Section 10.10 states that the Agreement "is to be governed by, and construed and interpreted in accordance with, the laws of the State of Minnesota. . . ." Id. at 23.
In its responses to defendants' interrogatories, FAC contended that negotiations leading up to the execution of the Agreement and the terms of the Agreement itself "indicate that the parties to the Agreement intended that the presumably unknown and unasserted claims against the Defendants be included in the sale along with the other business assets." Supplemental Responses at 2. Thomas Petters ("Petters"), FAC's Chief Executive Officer, participated in the negotiations that led to the purchase of the assets of the Fingerhut Entities, and FAC contends his affidavit provides further support for this argument. Petters Aff. ¶¶ 1-2, Def. Ex. 7. According to Petters, "[a]lthough the subject [of antitrust claims] was not specifically discussed in negotiations, it was clear that FAC was buying . . . all of Fingerhut Companies, Inc.'s assets except those identified in paragraph 1.2 of the Agreement or on Schedule 1.2 attached thereto." Id. ¶ 6.
III. LEGAL STANDARD
A court should grant summary judgment if "the pleadings, depositions, answers to interrogatories, and admissions *710 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); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A "genuine" issue exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A factual dispute is "material" when it "might affect the outcome of the suit under the governing law." Id.
"In determining the facts, the court should draw all reasonable inferences in favor of the nonmoving party." Id. at 255, 106 S.Ct. 2505; Highlands Ins. Co. v. Hobbs Group, LLC, 373 F.3d 347, 351 (3d Cir.2004). The nonmoving party, however, cannot rely merely upon bare assertions, conclusory allegations, or suspicions to support a claim. Fireman's Ins. Co. v. DuFresne, 676 F.2d 965, 969 (3d Cir.1982); see also Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505 (stating that summary judgment must be granted if the evidence is "merely colorable" or "not significantly probative"). In a summary judgment motion, the moving party has the initial burden of identifying evidence which demonstrates the absence of a genuine issue of material fact. However, where the nonmoving party bears the burden of proof, it must "make a showing sufficient to establish the existence of [every] element essential to that party's case." Equimark Commercial Finance Co. v. C.I.T. Financial Services Corp., 812 F.2d 141, 144 (3d Cir. 1987) (citing Celotex, 477 U.S. at 323-24, 106 S.Ct. 2548).
IV. DISCUSSION
A. The Parties' Arguments
Defendants make four principal arguments in support of their Motion for Summary Judgment. First, they contend that, because FAC has admitted that the right to assert the claims of Fingerhut was not specifically included in Section 1.1 ("Acquired Assets") of the Agreement, FAC never acquired the right to assert Fingerhut's antitrust claims under the Agreement. Second, although third-party claims were not specifically listed under Section 1.2 ("Excluded Assets"), the claims were not transferred under the Agreement because the plain language of the Agreement states that FAC acquired only those assets expressly mentioned in Section 1.1. Third, under Minnesota law, the Court should not speculate about the unexpressed intentions of the parties when the plain meaning of a contract is unambiguous, and FAC should not be allowed to use parol evidence to create ambiguity in an otherwise unambiguous contract. Fourth, assuming arguendo that the parties to the Agreement intended to transfer Fingerhut's claims, FAC has not acquired the right to assert Fingerhut's antitrust claims because Third Circuit law requires that such an assignment be made in express terms.
FAC responds with three arguments in support of its contention that it acquired the right to assert Fingerhut's claims. First, Fingerhut did not intend to retain its rights in the antitrust litigation because these rights were not included in the Schedule of Excluded Assets and because Fingerhut made representations in Section 4.3 of the Agreement that there was no litigation pending or threatened relating to the sale. Second, under Minnesota law, parties to the sale of substantially all of the seller's business assets may be found to have intended to include unknown claims arising out of the seller's operations, even if such claims were not expressly transferred under the terms of the agreement. Third, the Schedule of Excluded Assets creates ambiguity in the plain meaning of the contractbecause if *711 it was not meant to be an exhaustive list, it serves no real purposeand, therefore, under Minnesota law, the Court should look to the intention of the parties to interpret the terms of the ambiguous contract.
B. Assignment of Antitrust Claims
FAC has asserted antitrust claims under both federal and Tennessee law. The question of assignment of a federal antitrust claim is governed by federal common law under the rule announced in Gulfstream III Associates, Inc. v. Gulfstream Aerospace Corp., 995 F.2d 425 (3d Cir.1993) ("Gulfstream"). The question of assignment of a Tennessee antitrust claim is purely a matter of contract construction. In this case, Minnesota law governs that analysis, because it is the law applicable to construction of the Agreement. Due to the different standards governing the assignment of claims arising under the two relevant statutes, the Court must engage in a two-part analysis to determine whether FAC has standing to assert Fingerhut's claims. As explained below, because Gulfstream requires that assignments of federal antitrust claims be made in express terms and because the Agreement does not contain such an express term, FAC lacks standing to assert Fingerhut's federal antitrust claim. With respect to FAC's state law claim, the Court concludes that the Agreement, which is an unambiguous, integrated writing, does not include the assignment of antitrust claims because they were not specifically included in the list of assets acquired by FAC.
C. FAC's Federal Antitrust Claim
1. Gulfstream and its Progeny
In analyzing questions of federal law, the Court applies the law of the transferee court and is bound by Third Circuit precedent. Linerboard VIII, 2005 WL 1625040, at *4 ("[A]lthough the law of the transferor court merits consideration, only the law of the transferee court is binding on issues of federal law in an action transferred pursuant to 28 U.S.C. § 1407."). Thus, the Court begins its analysis with a discussion of the Third Circuit's opinion in Gulfstream. In that case, Gulfstream III brought suit against seven manufacturers of business jet aircraft, alleging a horizontal price-fixing conspiracy. Gulfstream, 995 F.2d at 428. Defendant Cessna Aircraft Company ("Cessna"), the only defendant not to settle, challenged Gulfstream III's standing to assert federal antitrust claims. Id. Cessna argued that Gulfstream III assigned the rights to these claims to another entity, JB & A, based on its assignment of the purchase agreement for an airplane, the alleged price-fixed item. Id. at 437. The Gulfstream Court disagreed with Cessna.
The Third Circuit in Gulfstream first explained that the validity of the assignment of an antitrust claim "is a matter of federal common law." Id. (citing In re Fine Paper Litig., 632 F.2d 1081, 1090 (3d Cir.1980) ("In any event, the status of assignments under the Sherman and Clayton Acts is a matter of federal law.")). The Court then turned to the question of whether, under federal common law, a general assignment of "rights, title and interest" was sufficient to validly assign a federal antitrust claim, and it answered in the negative. Id. at 438. Next, the Court explained that "a general assignment would be disfavored under the direct purchaser rule" because of the speculation required to determine "the relative extent of injury incurred by the direct or remote purchasers. . . ." Id. at 439. The Third Circuit concluded that "any assignment of antitrust claims, as a matter of federal common law, must be an express assignment; general assignments, without specific reference to antitrust claims, cannot validly transfer the right to pursue those claims." Id. at 440.
*712 Shortly after Gulfstream was decided, the Third Circuit interpreted Gulfstream and concluded that an unambiguous and all-inclusive assignment of claims was sufficient to meet the express assignment standard. See Lerman v. Joyce Ina, Inc., 10 F.3d 106 (3d Cir.1993).[7] In Lerman, Joyce International, Inc. ("Joyce International") purchased an unincorporated division of Litton Selling Entities ("Litton"). Id. at 107-108. The purchase agreement provided that the assets acquired by Joyce International included "without limitation, any and all of the following: . . . causes of action, judgments, claims and demands of whatsoever nature." Id. at 108. After Lerman filed suit, Joyce International asserted several counterclaims, including one alleging violation of the Racketeering Influenced and Corrupt Organizations ("RICO") statute, 18 U.S.C. § 1961, et. seq. Lerman, 10 F.3d at 108. In opposition, Lerman argued that Litton had not validly assigned the RICO claim to Joyce International.[8]Id. at 111. The Third Circuit disagreed and concluded that the "language is unambiguous and all-inclusive. Consequently, we hold that this assignment is `express' within the meaning of Gulfstream." Id. at 112.
Lerman interpreted Gulfstream in two significant respects. First, the Lerman Court held that an unambiguous and all-inclusive assignment of claims, even without specifying the types of causes of action assigned, satisfies the express assignment requirement. Second, the decision confirmed that the rule announced in Gulfstream was not limited to assignments arising out of purchase agreements for an allegedly price fixed product. While Gulfstream analyzed a purchase agreement for the product at issue in the antitrust litigation (an airplane), Lerman involved a purchase agreement for a division of a corporation. The analysis in Lerman makes it clear that the rule in Gulfstream is applicable to the type of agreement at issue in the instant casean agreement to purchase corporate assets.
2. Application of Federal Common Law
After reviewing the evidence presented and the arguments asserted by the parties, the Court concludes that the Agreement between FAC, Federated, and Fingerhut did not expressly assign the federal antitrust claim asserted by FAC. The terms of the Agreement explain that only those assets listed as "Acquired Assets" were transferred to FAC, and the enumerated list in Section 1.1 makes no mention of an assignment of antitrust rights, causes of action, or claims. Additionally, Section 1.1 is devoid of any unambiguous, catch-all provision assigning claims, such as the one at issue in Lerman. Therefore, under Gulfstream and its interpretation in Lerman, the Court concludes FAC does not have standing to assert Fingerhut's federal antitrust claim.
Moreover, the rule announced in Gulfstream precludes the Court from accepting FAC's arguments. First, FAC contends *713 that the antitrust claims (both federal and state) were impliedly transferred, because only those assets specifically excluded in Section 1.2 were not transferred under the Agreement. As explained in greater detail below (Part IV.D, infra), FAC's argument is contrary to the plain meaning of the Agreement and, more importantly, unavailing under federal common law which requires that the assignment be made expressly. Second, FAC argues that an affidavit from Petters supports its contention that the parties intended to transfer the antitrust claims. As explained below (Part IV.E, infra), Petters's affidavit is parol evidence and will not be considered by the Court because the Agreement is an unambiguous, integrated writing.
For all of the foregoing reasons, the Court concludes that, under the terms of the Agreement, Fingerhut did not assign its federal antitrust claim to FAG.[9]
D. FAC's State Antitrust Claim
While federal common law governs the assignment of federal antitrust claims, the assignment of state law claims is determined by the applicable state law. See, e.g., Silver v. Klehr, Harrison, Harvey, Branzburg & Ellers, LLP, 2004 WL 1699269 (E.D.Pa. July 28, 2004) (applying Pennsylvania law in analyzing assignment of legal malpractice claim). The Court's determination of FAC's standing to assert Fingerhut's claim under Tennessee's antitrust statute is based on its interpretation of the Agreement. Because the Agreement contains a choice of law provision which requires that it be construed under Minnesota law, the Court will analyze the Agreement based on Minnesota's rules of contract construction. See, e.g., Jiffy Lube Int'l, Inc. v. Jiffy Lube of Pennsylvania, Inc., 848 F.Supp. 569 (E.D.Pa.1994) (holding that choice of law provision governed construction and interpretation of agreement). In turning to Minnesota law to analyze the assignment of Fingerhut's state antitrust claim, the Court notes that the parties have not pointed to any special rule under Tennessee law that relates to the assignment of Tennessee antitrust claims, and the Court has found none.
1. Minnesota Law
Under Minnesota law, the primary goal of contract interpretation is to determine and enforce the intent of the parties. Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 66 (Minn.1979) (citing Midway Center Associates v. Midway Center, Inc., 306 Minn. 352, 237 N.W.2d 76 (1975)). To do so, the Court must turn to the language of the contract at issuethe Agreement of July 11, 2002. "When the parties express their intent in unambiguous words, those words are to be given their plain and ordinary meaning." Motorsports Racing Plus, Inc. v. Arctic Cat Sales, Inc., 666 N.W.2d 320, 323 (Minn. 2003) ("Motorsports II") (citing Minneapolis Pub. Hous. Auth. v. Lor, 591 N.W.2d 700, 704 (Minn.1999)). The Court must decide whether the terms of the Agreement are ambiguous. 3M Innovative Properties Co. v. Barton Nelson, Inc., 2003 WL 22989077, at *3 (D.Minn. Dec.12, 2003) (applying Minnesota law) ("Whether the terms of a contract are ambiguous is a question of law, which must be determined based on contract language itself.").
*714 2. Analysis of the Agreement under Minnesota Law
The Court concludes that the pertinent terms of the Agreement are unambiguous and that Fingerhut did not transfer its rights to the antitrust claims to FAC. Recital C clearly states that the scope of the transfer is limited and that Federated, Fingerhut, and FAC intended the transfer of only "certain of the assets of the Direct Marketing Business. . . ." Agreement at 1 (emphasis added). Section 1.1, entitled "Acquired Assets," describes nine categories of assets transferred under the Agreement; none of these categories include claims or causes of action. Id. at 1-2. Additionally, Section 1.2 explains that "Seller is not selling, conveying, transferring, delivering, or assigning to Purchaser, and Purchaser is not purchasing or acquiring from Seller, any assets or properties of Seller other than the Acquired Assets. . . ." Id. at 2 (emphasis added). These three provisionsRecital C, Section 1.1, and Section 1.2make clear that only those assets listed in Section 1.1 were transferred under the Agreement, and the antitrust claims belonging to Fingerhut were not included in that exhaustive list.
FAC contends that the terms of the Agreement are ambiguous due to the presence of an exhaustive list of Excluded Assets in Section 1.2. The Court does not agree. It is clear that the list of Excluded Assets is illustrative and not exhaustive because it is prefaced by the phrase "including, without limitation. . . ." Id. The plain meaning of that phrase is "to contain as part of something" or "indicates a partial list." Black's Law Dictionary 766 (7th ed.1999). Thus, the terms of the contract preclude the conclusion that the list of Excluded Assets is exhaustive. Moreover, the presence of the list of Excluded Assets in Section 1.2 does not create ambiguity in the relevant terms of the Agreement. Such a list serves to highlight specific assets that were not part of the Acquired Assets; under the express language of the Agreement, the list of Excluded Assets cannot be used to limit assets not assigned. Therefore, the Court concludes that, under the unambiguous terms of the Agreement, Fingerhut did not transfer its state antitrust claim to FAC.
E. FAC's Other Arguments
In arguing that Fingerhut intended to transfer its federal and state antitrust claims, FAC points to Section 4.3 of the Agreement and Petters's affidavit. The Court rejects both arguments.
Section 4.3 is Fingerhut's warranty that there was no litigation pending or threatened relating to the Acquired Assets. This provision has no bearing on the question of whether Fingerhut assigned its antitrust claims to FAC. Section 4.3 relates to potential litigation pertaining to the assets transferred and not, as FAC asserts, whether any of the assets transferred include potential claims or causes of action.
With respect to Petters's affidavit, the Court notes that, according to Petters, the intent of the parties was to transfer all of Fingerhut's assets except for those specifically excluded by Section 1.2 of the Agreement. Petters Aff. ¶¶ 4-6. The Court, however, has already concluded that the terms of the Agreement are unambiguous and that only those assets included in the list of Acquired Assets were transferred to FAC. Thus, Petters's statement is contradicted by the plain language of the Agreement. In addition, as explained below, because the statements in Mr. Petters's affidavit are parol evidence and because Minnesota law prohibits consideration of parol evidence offered by a party to contradict the terms of an unambiguous, integrated writing, the Court will *715 not consider Mr. Petters's affidavit in deciding the instant motion. See Alpha Real Estate Co. of Rochester v. Delta Dental Plan of Minn., 664 N.W.2d 303, 312 (Minn. 2003).[10]
Parol evidence is "extrinsic evidence of prior or contemporaneous oral agreements, or prior written agreements. . . ." Id. The statements in Petters's affidavit qualify as parol evidence because they pertain to representations made during the negotiations that led to the execution of the Agreement. See Mies Equipment, Inc. v. NCI Bldg. Systems, L.P., 167 F.Supp.2d 1077, 1082-83 (D.Minn.2001) ("the terms of a final and integrated written expression may not be contradicted by parol evidence of previous understandings and negotiations . .").
In determining whether the Agreement is a complete integration of the terms of the contract between FAC, Federated, and Fingerhut, the Court looks to the writing itself and then reads the writing "in light of the situation of the parties, the subject matter and purposes of the transaction, and like attendant circumstances." Bussard v. Coll. of St. Thomas, Inc., 294 Minn. 215, 200 N.W.2d 155, 161 (1972) (citations omitted). The Minnesota Supreme Court has stated that "[a] merger clause establishes that the parties intended the writing to be an integration of their agreement." Alpha Real Estate, 664 N.W.2d at 312 (citing Williston on Contracts § 33.21 (4th ed.1999)). Section 10.4 of the Agreement states that "[t]his Agreement . . . supersede[s] any other agreements, whether written or oral, that may have been made or entered into by Purchaser and Seller or any of their Affiliates relating to the matters contemplated hereby." Agreement at 22. Because Section 10.4 qualifies as a merger clause, the Agreement, under Minnesota law, is a complete integration of the contract between the parties. Thus, the parol evidence offered by FAC cannot be considered by the Court and does not create a genuine issue of material fact regarding the transfer of the Fingerhut claims.
FAC's final argument is that, under Minnesota law, "parties to the sale of substantially all of the seller's business assets may be found to have intended to include an unknown claim arising out of seller's operation, even though not mentioned in the sale documents." Pl. Opp. at 3. In its brief, FAC argues that Minnesota law presumes that such a sale includes unknown legal claims: "[w]hen a business sells substantially all of its assets without expressly reserving potential claims, there is a presumption that the seller did not intend to exclude such claims from the sale." Pl. Opp. at 4. FAC points to In re Milk Products Antitrust Litig., 195 F.3d 430 (8th Cir.1999) (applying Minnesota law) and Motorsports Racing Plus, Inc. v. Arctic Cat Sales, Inc. ("Motorsports I"), 653 N.W.2d 204 (Minn.Ct.App.2002).
The Court does not agree with FAC's interpretation of Minnesota law. The Minnesota Supreme Court has stated that Milk Products has little precedential value. "[A]lthough Milk Products purports to apply Minnesota law, it actually does so at the most general level: it only affirms the primacy of the intent of the parties as the basis for contract interpretation." *716 Motorsports II, 666 N.W.2d at 325. While the Eighth Circuit's decision in Milk Products appears to be on point to the extent that it examines whether a plaintiff's antitrust claims were transferred as part of a sale of assets, the Minnesota Supreme Court has noted that the posture of the case limits its precedential value in cases such as the instant one. "Milk Products arose in the unusual context of the adequacy of the plaintiff to represent the class, and therefore the court's decision on standing is somewhat diluted by being blended with class action criteria." Motorsports II, 666 N.W.2d at 325. Given the Minnesota Supreme Court's efforts in Motorsports II to distinguish the Eighth Circuit's analysis in Milk Products, the Court concludes that FAC's argument to apply the holding of Milk Products is unjustified and, therefore, unpersuasive in disposing of the instant motion for summary judgment.
In Motorsports I, the second case relied upon by FAC, the Minnesota Court of Appeals interpreted the meaning of the term "intangibles" in a purchase agreement and found it to include potential antitrust claims. 653 N.W.2d at 207. The Agreement in the instant case does not contain any analogous terms for interpretation. For that reason alone, Motorsports I is inapplicable to this case. Additionally, the Minnesota Supreme Court reversed the Court of Appeals on the issue of assignment of the antitrust claims. Motorsports II, 666 N.W.2d at 327. Although FAC claims that the "Minnesota Supreme Court reversed Motorsports I based on factual distinctions inapplicable to [this] case," the Court concludes that the reversal in Motorsports II negates any potential precedential value that Motorsports I might have in this case.
V. CONCLUSION
Based on the foregoing analysis, the Court determines that the relevant terms of the Agreement are unambiguous, that the Agreement is an integrated writing, and that Fingerhut's federal and state antitrust claims were not assigned to FAC. Because these antitrust claims were not assigned, FAC lacks standing to assert these claims in this litigation. Therefore, Defendants' Motion for Summary Judgment Directed to Plaintiff FAC Acquisition, LLC is granted.
An appropriate Order follows.
ORDER
AND NOW, this 28th day of July, 2006, upon consideration of Defendants' Motion for Summary Judgment Directed to Plaintiff FAC Acquisition, LLC (Document No. 85, filed October 17, 2005), Plaintiff's Memorandum of Law in Opposition to Defendants' Motion for Summary Judgment Directed to Plaintiff FAC Acquisition, LLC (Document No. 86, filed November 7, 2005), Defendants' Reply Brief in Support of Defendants' Motion for Summary Judgment against Plaintiff FAC Acquisition, LLC (Document No. 87, filed November 14, 2005), and the related submissions of the parties,[1] and good cause appearing, IT IS ORDERED that Defendants' Motion for Summary Judgment Directed to Plaintiff FAC Acquisition, LLC is GRANTED.
NOTES
[1] Linerboard includes any grade of paperboard suitable for use in the production of corrugated sheets, which are in turn used in the manufacture of corrugated boxes and for a variety of industrial and commercial applications. Corrugated sheets are made by gluing a fluted sheet which is not made of linerboard, known as the corrugating medium, between facing sheets of linerboard; corrugated sheets are also referred to as containerboard. The defendants named in the instant lawsuits are major integrated manufacturers and sellers of linerboard, corrugated sheets, and corrugated boxes.
[2] A copy of the Record of Potential Class Members Who Excluded Themselves from the Classes is appended to this Court's Memorandum and Order dated December 8, 2003 approving the Settlement Agreement between Temple-Inland, Inc. and Gaylord Container Corporation; this Court's Memorandum and Order dated December 8, 2003 granting Class Plaintiffs' Motion for Final Approval of Settlement Agreement Between the Class and International Paper Company and Union Camp Corporation, Georgia-Pacific Corporation, and Weyerhauser Company; and this Court's Memorandum and Order dated April 21, 2004 granting Class Plaintiffs' Motion for Final Approval of the Settlements with Defendants Packaging Corporation of America, Inc., Tenneco, Inc. and Tenneco Packaging Inc. and with Defendants Stone Container Corporation, Jefferson Smurfit Corporation, and Smurfit Stone Container Corporation.
[3] In its Memorandum dated August 27, 2004, the Court directed each entity on whose behalf a Request for Exclusion was filed to affirm its intent to opt out by submitting a ratification form. By Order dated January 7, 2005, the Court dismissed with prejudice 803 entities which failed to submit ratification forms. The Court also dismissed without prejudice 635 entities and/or names of alleged predecessors-in-interest, trade names, and other entities/names which plaintiffs claim were not required to opt out.
[4] The following are the direct actions that are proceeding:
1. Perdue Farms Incorporated v. Stone Container Corporation, et al., No. 03-1702 (D. Md. filed June 9, 2003);
2. Sara Lee Corporation, et al. v. Smurfit-Stone Container Corporation, et al., No. 03-3939 (N.D. Ill. filed June 10, 2003);
3. The Procter & Gamble Company, et al. v. Stone Container Corporation, et al., No. 03-3944 (N.D. Ill. filed June 10, 2003);
4. United States Gypsum Company, et al. v. Stone Container Corporation, et al., No. 03-4251 (N.D. Ill. filed June 10, 2003);
5. Smithfield Foods, Inc., et al. v. Smurfit-Stone Container Corporation, et al., No. 03-3968 (N.D. Ill. filed June 11, 2003);
6. Hormel Foods Corporation, et al. v. Stone Container Corporation, et al., No. 03-3421 (D. Minn. filed June 13, 2003);
7. Milne Fruit Products, Inc., et al. v. Stone Container Corporation, et al., No. 03-4049 (N.D. Ill. filed June 13, 2003);
8. Kellogg Company, et al. v. Smurfit Stone Container Corporation, et al., No. 03-4213 (N.D. Ill. filed June 19, 2003); and
9. Mars Inc., et al. v. Stone Container Corporation, et al., No. 03-6977 (N.D. Ill. filed October 1, 2003).
[5] It should be noted that the Second Amended Complaint in the Procter & Gamble direct action includes allegations that defendants also violated the antitrust provisions of Colorado, Indiana, Kansas, South Carolina, and Wisconsin. Procter & Gamble Second Amen. Compl. ¶¶ 135, 142, 149, 156, 170. FAC, however, is not specifically listed as among those plaintiffs asserting claims under these other state provisions. Id. ¶¶ 37, 144, 151, 158, 172. Thus, FAC has only asserted claims under federal and Tennessee law.
[6] Under the terms of the Agreement, the "Seller" is Fingerhut and the "Purchaser" is FAC. Agreement at 1.
[7] While the claim at issue in Lerman v. Joyce Internat'l, Inc. was asserted pursuant to the Racketeering Influenced and Corrupt Organizations ("RICO") statute, 18 U.S.C. § 1961, et. seq., the Third Circuit concluded that Gulfstream was applicable to its analysis. Lerman, 10 F.3d 106, 112 (3d Cir.1993). In Gulfstream, "we held that an assignment of a claim under Section 4 of the Clayton Act, 15 U.S.C. § 15, must be `express.' Since this provision served as the model for the provision of the RICO statute authorizing private civil actions, 18 U.S.C. § 1964, we assume that an assignment of a RICO claim must also be `express.'" Lerman, 10 F.3d at 112.
[8] The question of assignment was at issue because most of the events relevant to the RICO claim occurred prior to Joyce International's acquisition of the unincorporated division. Lerman, 10 F.3d at 111.
[9] During the status conference on November 21, 2005, the Court asked whether, assuming the Court ruled that the antitrust claims were not assigned to FAC, Federated could assert those claims on behalf of Fingerhut. Barack S. Echols, Esq., counsel for defendant Weyerhaeuser Paper Co., responded that "to the extent that anyone other than FAC or a currently proceeding opt-out plaintiff has the claim, then that claim has been settled at the least." Telephone Conference Transcript, November 21, 2005, at 5:21-24.
[10] Under Minnesota law, "when parties reduce their agreement to writing, parol evidence is ordinarily inadmissible to vary, contradict, or alter the written agreement." Hruska v. Chandler Assoc's, Inc., 372 N.W.2d 709, 713 (Minn.1985). According to the Minnesota Supreme Court, parol evidence may be relied upon when the written agreement is ambiguous or "[i]f it appears from the circumstances of the case that the parties did not intend the agreement to be a complete integration." Alpha Real Estate Co. of Rochester v. Delta Dental Plan of Minn., 664 N.W.2d 303, 312 (Minn.2003).
[1] Counsel for defendants and plaintiff FAC Acquisition, LLC submitted letters to the Court following a telephone status conference on November 21, 2005a letter dated December 8, 2005 on behalf of defendants and a letter dated December 12, 2005 on behalf of FAC Acquisition, LLC. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3164785/ | In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 15-2983
RAUL SALAZAR GARCIA,
Petitioner-Appellee,
v.
EMELY GALVAN PINELO,
Respondent-Appellant.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 14 C 09644 — Edmund E. Chang, Judge.
____________________
ARGUED DECEMBER 3, 2015 — DECIDED DECEMBER 22, 2015
____________________
Before WOOD, Chief Judge, and MANION and HAMILTON,
Circuit Judges.
WOOD, Chief Judge. Raul Salazar Garcia and Emely Galvan
Pinelo, both Mexican citizens, dated only briefly in 2001 and
early 2002. But their relationship had one lasting conse-
quence: in October 2002, Galvan gave birth to a child, D.S., in
Monterrey, Nuevo León, Mexico. Although Galvan at all
times has had physical custody of D.S., Salazar played an ac-
tive part in the child’s life. In 2013, Galvan and D.S. moved to
2 No. 15-2983
Chicago. Salazar now seeks D.S.’s return to Mexico under the
Hague Convention on Civil Aspects of International Child
Abduction, T.I.A.S. No. 11670, 1343 U.N.T.S. 89 (Oct. 25,
1980), to which both Mexico and the United States are parties.
In the United States, it has been implemented through the In-
ternational Child Abduction Remedies Act (ICARA), 22
U.S.C. § 9001 et seq. The Convention “entitles a person whose
child has wrongfully been removed to the United States in vi-
olation of the Convention to petition for return of the child to
the child’s country of ‘habitual residence,’ unless certain ex-
ceptions apply.” Norinder v. Fuentes, 657 F.3d 526, 529 (7th Cir.
2011). Once the child is in that country, the local courts are
empowered to resolve any questions about custody, support,
or other family law matters.
This case presents us with three questions. First, we must
determine whether, for the purpose of determining “rights of
custody” under the Convention, a petitioner’s proof of for-
eign law should be treated as a question of law or a question
of fact. Second, we must decide whether Salazar has shown
that he had sufficient rights over D.S. at the time of the reten-
tion to trigger the Convention’s protections. Finally, we must
evaluate whether the district court went beyond the bounds
of its discretion when it declined to allow D.S. to stay in the
United States pursuant to the Convention’s mature-child ex-
ception.
We conclude that the Hague Convention is no exception
to the general rule, reflected in Federal Rule of Civil Proce-
dure 44.1, that an issue about foreign law is a question of law,
not fact, for purposes of litigation in federal court. We agree
with the district court that Salazar had the necessary custodial
right (referred to in Mexico either by its Latin name, patria
No. 15-2983 3
potestas, or occasionally by its Spanish name, patria potestad)
over D.S. at the time when Galvan refused to permit his return
to Mexico. Because D.S.’s habitual residence is Mexico (a
point that is now uncontested), Galvan’s retention of D.S. is
wrongful under the Convention. Finally, although we con-
sider it a close question, we conclude that the district court
had adequate reason to refuse to defer to D.S.’s indications
that he prefers to stay in the United States. We therefore af-
firm the district court’s judgment.
I
As we noted, Salazar and Galvan’s brief relationship left
them with a son, D.S., who was born in October 2002. They
never married, and they never lived together. In 2006, a
Nuevo León court entered a custody order recognizing Gal-
van and Salazar as D.S.’s parents. The court awarded physical
custody of D.S. to Galvan and gave Salazar weekly visitation
rights. For the first ten years of his life, D.S. lived with his
mother in Monterrey, and Salazar visited regularly in accord-
ance with the custody agreement.
In late 2012, Galvan requested Salazar’s assistance in ob-
taining a passport and visa for D.S. to visit the United States.
She intended to visit relatives in Texas and then to take D.S.
to either Disney World or Disneyland. Before that trip took
place, however, she became engaged to an American citizen
named Rogelio Hernandez, whom she married in July 2013.
Around this time, she decided that she wanted to move with
D.S. to the United States. While Galvan had told Salazar about
her initial plans to travel with D.S. to the United States as a
tourist, she did not advise him of her change in plans. Salazar
became suspicious, however, when he saw news of Galvan’s
4 No. 15-2983
engagement on Facebook. That led to a meeting among Gal-
van, Salazar, and D.S. on July 30, 2013, at a Starbucks in Mon-
terrey. Galvan and Salazar agreed then that D.S. would move
to Chicago with his mother and stay there for one school year.
What was not clear was what was to happen at the end of that
year. Salazar recalls that the parties agreed that D.S.’s wishes
would be dispositive, and Galvan thought that the two par-
ents simply agreed to conduct further discussions.
As planned, Galvan and D.S. moved to Chicago on August
15, 2013, and D.S. enrolled in school. Throughout the year,
D.S. and Salazar kept in touch through Skype and Facebook.
D.S. visited his father in Mexico for the Christmas holiday in
December 2013. In his conversations with Salazar, D.S. said
that he wanted to return to Mexico at the end of the school
year; at the same time, he was telling his mother that he
wanted to stay in Chicago.
Believing that the parties had agreed that D.S.’s wishes
would govern his placement after the 2013-14 school year,
and further believing that D.S. wanted to return to Mexico,
Salazar showed up in Chicago in July 2014 with two return
tickets to Mexico, one for him and one for D.S. This time it
was Galvan who was taken by surprise: she believed that Sal-
azar was in Chicago only to visit. Salazar and D.S. spent sev-
eral days as tourists in Chicago. On July 21, 2014, in another
Starbucks, D.S. and Salazar announced to Galvan that D.S.
was moving back to Mexico with Salazar. Galvan did not be-
lieve that he wanted to return, nor did she think that she had
an obligation to defer to his wishes. Salazar left the Starbucks
with D.S., but the Chicago Police later contacted Salazar and
instructed him to return D.S. to Galvan. Salazar complied. He
returned alone to Monterrey, where he filed the petition that
No. 15-2983 5
is now before us. The Mexican Central Authority transferred
the petition to the United States Department of State, which
filed it in the district court on December 2, 2014.
The district court appointed a guardian ad litem for D.S. At
first, D.S. did not indicate a preference for either Mexico or
Chicago. Over time, however, his views evolved. In late April
2015, D.S. told his guardian that he wanted to stay in Chicago.
The district court conducted an in-camera hearing with D.S.—
by then 13 years old—to ascertain his views. D.S. told the
judge that he preferred to stay in Chicago because it had bet-
ter schools and opportunities, was safer, and he did not want
his mother to be forced to pay Salazar’s costs and fees. He in-
dicated that he wanted to finish eighth grade in Chicago, but
that if he were not admitted to a good high school after eighth
grade, he might return to Mexico. While he stated a prefer-
ence for remaining in Chicago, he did not object to returning
to Mexico.
At some point while all this was happening, Galvan’s im-
migration status took a turn for the worse. We go into more
detail below, but for present purposes it is enough to say that
both she and D.S. had overstayed their tourist visas and had
no other basis for staying in the United States. This meant, her
immigration lawyer told her, that she probably could not
travel outside the United States, even to visit D.S. This news
prompted Galvan to request a second in-camera hearing be-
tween the judge and D.S. She believed her immigration diffi-
culties would change D.S.’s mind: since she would be unable
to visit him in Mexico, it would be very difficult for D.S. to see
his mother, possibly for a very long time. The district court
obliged. During the second hearing, D.S. more clearly ob-
jected to returning to Mexico. While he gave several reasons
6 No. 15-2983
for doing so, he also indicated that he would not object to re-
turning if Galvan’s immigration situation were quickly re-
solved and she could travel freely between the United States
and Mexico.
On August 21, 2015, the district court held an evidentiary
hearing at which it received testimony from Salazar, Galvan,
and Hernandez on the issues of the scope of Salazar and Gal-
van’s July 2013 agreement and whether the United States or
Mexico was D.S.’s country of habitual residence. In orders en-
tered on August 16 and August 28, 2015, the court granted
summary judgment for Salazar. It found as a matter of fact
that when Salazar and Galvan met in the Monterrey Starbucks
in July 2013, they agreed that it would be D.S.’s decision
whether to remain in Chicago after one school year had
passed. It also found that Mexico was D.S.’s country of habit-
ual residence. Applying the law of the Mexican state of Nuevo
León, the court found that Salazar had the right of patria
potestas over D.S., and that this qualifies as a “right of cus-
tody” for purposes of the Convention. (We refer occasionally
to “Mexican law” in this opinion; we intend that phrase to en-
compass both Mexican federal law, such as the Convention,
and the state law of Nuevo León.) This meant, the court held,
that as of the summer of 2014 D.S. was wrongfully retained.
That meant that he had to be returned to Mexico, unless the
mature-child exception recognized by the Convention was
met (i.e. D.S. was mature enough to make his own decision,
and his decision was to stay in the United States). The court
found that D.S. had eventually objected to returning to Mex-
ico, and that he was sufficiently mature. It nonetheless de-
clined to give effect to D.S.’s wishes, because it determined
that doing so would not serve the purposes of the Conven-
tion. It thus ordered D.S. to be returned to Mexico.
No. 15-2983 7
Galvan has appealed. She offers three reasons for rejecting
the district court’s decision. First, she argues that Salazar did
not prove his custody rights by a preponderance of the evi-
dence, and thus that there is no basis for finding that D.S. was
wrongfully retained. Second, she asserts that as a matter of
Mexican law, Salazar does not have the necessary custody
rights for Convention purposes. Finally, she argues that the
district court abused its discretion by declining to apply the
Convention’s mature-child exception. She does not contest
the district court’s findings with regard to D.S.’s country of
habitual residence or the scope of the July 2013 agreement.
II
We review the district court’s findings of fact for clear er-
ror, and its conclusions of law—whether American, foreign,
or international—de novo. See Koch v. Koch, 450 F.3d 703, 710
(7th Cir. 2006) (collecting cases); Friedrich v. Friedrich, 78 F.3d
1060, 1064 (6th Cir. 1996) (citing Fed. R. Civ. P. 44.1 (“In deter-
mining foreign law … [t]he court’s determination must be
treated as a ruling on a question of law.”)).
At bottom, the Hague Convention “is an anti-abduction
treaty.” Redmond v. Redmond, 724 F.3d 729, 739 (7th Cir. 2013).
It has two purposes: “to secure the prompt return of children
wrongfully removed to or retained in any Contracting State,”
and “to ensure that rights of custody and of access under the
law of one Contracting State are effectively respected in the
other Contracting States.” Hague Convention art. 1, T.I.A.S.
No. 11670. It is meant “to deter parents from absconding with
their children and crossing international borders in the hopes
of obtaining a favorable custody determination in a friendlier
jurisdiction.” Walker v. Walker, 701 F.3d 1110, 1116 (7th Cir.
2012).
8 No. 15-2983
In order to accomplish its objectives, the Convention “em-
ploys a ‘remedy of return.’” Ortiz v. Martinez, 789 F.3d 722,
728 (7th Cir. 2015) (quoting Kahn v. Fatima, 680 F.3d 781, 783
(7th Cir. 2011)). This remedy “entitles a person whose child
has wrongfully been [retained in] the United States in viola-
tion of the Convention to petition for return of the child to the
child's country of ‘habitual residence.’” Norinder, 657 F.3d at
529. A removal or retention is wrongful under the Convention
where “it is in breach of rights of custody attributed to a per-
son … under the law of the State in which the child was ha-
bitually resident immediately before the removal or reten-
tion,” and those rights were “actually exercised … or would
have been so exercised but for the removal or retention” at the
time of the removal or retention. Hague Convention art. 3,
T.I.A.S. No. 11670.
Several principles of the Convention have a bearing on
this case. First, it is not our prerogative “to settle a custody
dispute.” Ortiz, 789 F.3d at 728; Hague Convention art. 19,
T.I.A.S. No. 11670 (“A decision under this Convention con-
cerning the return of the child shall not be taken to be a deter-
mination on the merits of any custody issue.”); 22 U.S.C.
§ 9001(b)(4). Rather, the Convention is designed to restore the
pre-removal status quo. See Ortiz, 789 F.3d at 728. More
broadly, it “seeks ... to prevent a later decision on the matter
[from] being influenced by a change of circumstances brought
about through unilateral action by one of the parties.” Elisa
Pérez–Vera, Explanatory Report: Hague Conference on Private In-
ternational Law ¶ 71, in 3 Acts and Documents of the Fourteenth
Session 426, 447–48 (1980). Finally, it is a “basic principle” of
the Convention “that a child’s country of habitual residence
No. 15-2983 9
is ‘best placed to decide upon questions of custody and ac-
cess.’” Whallon v. Lynn, 230 F.3d 450, 456 (1st Cir. 2000) (quot-
ing Explanatory Report ¶ 34, at 434–35).
A
We turn first to the question whether Salazar must
“prove” the content of the relevant Mexican law by a prepon-
derance of the evidence, as if it were a question of fact, or if
this is a straightforward question of law for the court. Galvan
takes the former position and asserts that Salazar failed to
prove that the rights he possesses under Mexican law qualify
for protection under the Convention. Thus, she concludes, the
district court should have dismissed his petition.
Whatever one might think of Galvan’s position in the ab-
stract, it does not stand up to scrutiny under the governing
rules of procedure. Federal Rule of Civil Procedure 44.1 states
that “[i]n determining foreign law, the court may consider
any relevant material or source, including testimony, whether
or not submitted by a party or admissible under the Federal
Rules of Evidence.” It specifies that “[t]he court’s determina-
tion must be treated as a ruling on a question of law.” Id. And
this is not a rule exclusively for the district courts. To the con-
trary, “[i]n determining these questions of [foreign] law, both
trial and appellate courts are urged to research and analyze
foreign law independently.” Twohy v. First Nat’l Bank of Chi-
cago, 758 F.2d 1185, 1193 (7th Cir. 1985). This is because “one
of the policies inherent in Rule 44.1 is that whenever possible
issues of foreign law should be resolved on their merits and
on the basis of a full evaluation of the available materials.” Id.
(quoting 9 CHARLES ALAN WRIGHT & ARTHUR R. MILLER,
FEDERAL PRACTICE AND PROCEDURE § 2444 (1971)).
10 No. 15-2983
Galvan argues that two cases—In re Griffin Trading Co., 683
F.3d 819, 824 (7th Cir. 2012), and Banque Libanaise Pour Le Com-
merce v. Khreich, 915 F.2d 1000, 1006 (5th Cir. 1990)—support
her position, but they do not. Griffin and Khreich address the
distinct issue of choice of law, which is not contested in our
case. The parties can waive a choice-of-law argument, but the
court has an independent responsibility to ascertain the con-
tent of any given law. See Twohy, 758 F.2d at 1193; Curley v.
AMR Corp., 153 F.3d 5, 12 (2d Cir. 1998). Indeed, the court is
not limited to materials submitted by the parties when it un-
dertakes this job: it is free to conduct its own research.
A central issue in the present case is whether Salazar had
sufficient custody rights over D.S. to be entitled to relief under
the Convention and ICARA. The answer depends on Mexican
law, and thus the inquiry lies comfortably within Rule 44.1’s
ambit. In this respect, the U.S. federal rules of procedure are
entirely consistent with the Convention, which is based on re-
spect for the law of the country of the child’s habitual resi-
dence. Whallon, 230 F.3d at 456, which in turn refers to Explan-
atory Report ¶ 34, at 434–35 (also noting at ¶ 67 that “the law
of the child’s habitual residence is invoked in the widest pos-
sible sense.”).
Galvan attempts to avoid this logic by arguing that the
bundle of fact and law on which the district court made its
decision had to be treated as a question of fact. But she has no
quarrel with the facts that Salazar presented; instead, she says
that Salazar did not produce enough evidence of the law of
Nuevo León to permit the district court to resolve the issue.
The district court was not, however, limited to the evidence
Salazar presented (and for what it is worth, he did present
some). The district court was required to find that it was more
No. 15-2983 11
likely than not, given its independent analysis of the relevant
Mexican law and its consideration of Salazar’s factual evi-
dence, that the rights Salazar possessed are protected by the
Convention. The important question, to which we now turn,
is whether the court came to the right conclusion.
B
A removal or retention is wrongful if (1) “in breach of
rights of custody … under the law of the state in which the
child was habitually resident immediately before the removal
or retention”; and (2) “at the time of removal or retention
those rights were exercised … or would have been so exer-
cised but for the removal or retention.” Hague Convention
art. 3, T.I.A.S. No. 11670. Because D.S.’s habitual residence at
the time of the retention was the Mexican state of Nuevo
León, the governing law is that state’s Civil Code.
Salazar relies on a doctrine known as patria potestas to sup-
port his claim. Patria potestas is a concept derived from the Ro-
man civil law tradition; literally, the Latin words mean “the
power of the father.” Historically, the power of the father over
his children was absolute, both in scope and to the exclusion
of others. Patricia Begné, Parental Authority and Child Custody
in Mexico, 39 Fam. L.Q. 527, 529 (2005). Under Roman and
German law, patria potestas permitted a father to discipline his
children in any way, up to and including by death; that power
endured throughout the father’s life. Id. Mexico’s codes of
1870 and 1884 conveyed patria potestas first to the father of a
child and only secondarily to the mother. Id. It was only in
1928 that the Civil Code began the process of eliminating its
gender bias. Id.
12 No. 15-2983
Today, patria potestas is based on the central values of “fair-
ness and reciprocity”; it is a gender-neutral legal regime that
regulates the relationship between parents (or parent-like fig-
ures) and their children. Id. at 530 (citing Código Civil para el
Distrito Federal art. 411); see also Civil Code for Nuevo León
(CCNL) art. 411 (“Respect and mutual consideration shall
govern the relationship between parents and children.”). This
court has recognized patria potestas as a “right[] of custody”
within the meaning of the Convention. See Altamiranda Vale v.
Avila, 538 F.3d 581, 587 (7th Cir. 2008) (“When the parent who
does not receive physical custody is given the rights and du-
ties of patria potestas, he has custody rights within the meaning
of the Hague Convention.”). While we interpreted Venezue-
lan law in Avila, the concept of patria potestas is substantially
the same under the law of Nuevo León.
Galvan does not dispute that patria potestas constitutes a
“right of custody” under the Convention. Cf. Abbott v. Abbott,
560 U.S. 1 (2010) (noncustodial parent’s ne exeat right is a
“right of custody” for purposes of the Convention). Rather,
she denies that Salazar has such a right. She does so on two
bases: primarily, she asserts that he never possessed the patria
potestas right over D.S.; her back-up position is that any patria
potestas right he may have held was extinguished by the 2006
custody agreement.
1
Galvan’s more ambitious argument—that Salazar never
possessed patria potestas over D.S.—was never squarely pre-
sented to the district court. In her reply brief, Galvan argues
that she nevertheless did not waive it because it was an essen-
tial part of her argument that “the parties’ rights were limited
to what was specified in the [2006] court order.” This assertion
No. 15-2983 13
is not borne out by Galvan’s summary judgment submission,
which at no point asserts that Salazar lacked patria potestas be-
fore the custody agreement. This probably constitutes waiver
of the point. Even if it were merely forfeited, however, we
think that Salazar has the better of the argument.
Galvan relies on article 416 of the Civil Code for Nuevo
León, because it is the only provision that expressly applies to
parents who never lived together. Article 416 states:
When both parents have recognized a child born out of
wedlock and they live together, they will jointly exert
parental authority/responsibility (patria potestas). If
they do not live together, what is established by articles
380 and 381 will apply to grant custody of the child.
Articles 380 and 381 describe the procedures for establishing
custody depending on the timing of the parents’ recognition
of the child. Neither mentions patria potestas.
Galvan argues that article 416’s mention of the patria
potestas right with regard to parents who live together—and
especially the article’s silence on this point with regard to par-
ents who do not—indicates that patria potestas does not attach
automatically when the parents never cohabitated. She finds
support for this position in article 417, which provides that
“[w]hen the parents of a child born out of wedlock that were
living together[] separate, both retain parental authority/re-
sponsibility (patria potestas).” This article, too, has nothing to
say about unmarried parents who never lived together.
Salazar counters that patria potestas is a default doctrine
that attaches automatically to both birth parents upon their
acknowledgment of parentage. He provided the district court
with a certificate from the Mexican Central Authority stating
14 No. 15-2983
that “[a]ccording to Mexican Law, individuals acquire paren-
tal rights (patria potestad) over a child since the moment of
birth, or registration before the civil registry as a result of an
acknowledgment of paternity.” Salazar also notes that article
414 states that “[p]arental authority/responsibility (patria
potestas) is exerted jointly by both parents.” Other authorities
support this view. The Begné article suggests that patria
potestas is “mandatory” and “not transferable.” Begné, Paren-
tal Authority, 39 Fam. L.Q. at 530 (“Parental authority has rel-
evant social significance, as it involves the fulfillment of the
most important responsibility that a person can assume … . It
is therefore considered by law to be mandatory.”). “Parents
exercising their authority ‘always keep … the right to shelter
their descendants.’” A.A.M. v. J.L.R.C., 840 F. Supp. 2d 624,
634–35 (E.D.N.Y. 2012) (quoting JOSÉ ANTONIO MÁRQUEZ
GONZÁLEZ, FAMILY LAW IN MEXICO 81 (2011)). “The [Mexican]
Supreme Court has ruled that … ‘patria potesta[d], as a general
rule, must be exercised by two parents jointly, and only as an
exception may it be exercised by one parent.’” Saldivar v.
Rodela, 879 F. Supp. 2d 610, 624 (W.D. Tex. 2012) (quoting
STEPHEN ZAMORA ET AL., MEXICAN LAW 459–60 (2004)). Sala-
zar argues that article 416’s second sentence is better read as
addressing the rules for physical custody in the case of un-
married, noncohabiting parents, not as a statement on
broader rights of parental authority. After all, if the parents
are cohabiting, it makes sense to assume that they will exer-
cise joint custody.
Galvan’s textual argument depends entirely on the maxim
expressio unius est exclusio alterius (to include one thing is to
exclude another). But even assuming that this notion exists in
Mexican law and operates there just as it does in the United
No. 15-2983 15
States, it is at best “an aid to determine the intent of the stat-
ute.” 82 C.J.S. Statutes § 424 (2015). Even if we set aside the
certificate from the Mexican Central Authority (and we see no
reason to do so), nothing justifies our applying the maxim
here. Patria potestas is central to Mexican family law. See
Lieberman v. Tabachnik, 625 F. Supp. 2d 1109, 1118 (D. Colo.
2008) (citing Mexican attorney’s testimony that “patria potestas
is the most sacred concept in Mexican family law”). Galvan
maintains that article 416 overrides the default rule in the case
of unmarried, noncohabiting parents. But we reject the idea
that the Code would exclude a subset of parents from such a
fundamental right in this backhanded manner.
Galvan’s interpretation of article 416 has the further dis-
advantage of creating a gap in the law: no one would have
patria potestas over a child born to unmarried noncohabiting
parents. Even Galvan accepts that article 416 does not award
patria potestas to unmarried, noncohabiting parents; nor do ar-
ticles 380 and 381. The latter articles describe only how to
award physical custody, not patria potestas, for unmarried,
noncohabiting parents. Here and elsewhere the Code care-
fully distinguishes between patria potestas and custody. See
CCNL art. 415 bis (“Even if they do not have custody of the
minors, those exerting parental responsibility (patria potestas),
have a right to coexist (spend time) with their descendants
… .”). Galvan’s view, taken to its logical extreme, would pro-
duce the odd result that even she would not possess patria
potestas over D.S. today—indeed, no one would. This would
be inconsistent with article 412, which dictates that “non-
emancipated minors are under parental authority/responsi-
bility (patria potestas) as long as the ancestors that must exert
it according to the Law subsist.” Galvan’s response is to shift
her attention to the 2006 custody agreement as the source of
16 No. 15-2983
her own patria potestas. We turn to that agreement in a mo-
ment. For now, we conclude that under the law of Nuevo
León, patria potestas attaches automatically at birth or ac-
knowledgment. Since at least 2006, Salazar has been D.S.’s
acknowledged father; he thus has the patria potestas right over
D.S. unless something in the 2006 agreement requires a differ-
ent result.
2
Putting original rights to one side, Galvan urges that the
2006 agreement not only clarified (or conferred) her sole phys-
ical custody rights, but also granted patria potestas to her ex-
clusively. In doing so, she says, it necessarily terminated any
original patria potestas right Salazar had; it did so by failing to
mention them.
Some courts have held that patria potestas may be extin-
guished by a custody agreement. See, e.g., Gonzalez v.
Gutierrez, 311 F.3d 942, 954 (9th Cir. 2002) (“Here, unlike the
situation in Whallon, the parties have executed a formal, legal
custody agreement, thus eliminating any basis for relying on
patria potestas.”), abrogated by Abbott, 560 U.S. at 10, 22; see also
Avila, 538 F.3d at 587. None of these decisions, however, cites
any Mexican law for this proposition, nor do we find any ba-
sis for it in the Civil Code for Nuevo León. Even if they are
correct, however, the question would remain whether the
2006 agreement before us had that effect.
Chapter III of the CCNL spells out the conditions under
which patria potestas may be suspended or terminated. The list
is extensive, detailed, and specific. The conditions all relate to
the parent’s ability or willingness to care for the child. See
CCNL arts. 443–448. Patria potestas terminates automatically
No. 15-2983 17
only by the death of the person exercising it, the child’s eman-
cipation by marriage, or the child’s reaching majority. See
CCNL art. 443. The right can be terminated if the person exer-
cising it (1) is convicted of two or more serious crimes endan-
gering the child or the child’s assets, (2) is convicted of an in-
tentional offense against the child or the child’s assets, (3) mis-
treats or abandons the child in a way that puts the child at
risk, (4) fails to visit the child in a public welfare institution,
(5) abandons the child for greater than 180 days, or (6) leaves
the child alone for more than 30 days without any information
about the child’s origin. Id. art. 444. It can also be terminated
if the person exercising it “is expressly condemned to its loss.”
Id. It can be suspended for lack of capacity, formally declared
absence, or a criminal sentence imposing suspension. Id. art.
447. Article 447 bis notes that the patria potestas right may be
limited judicially, but the sole justification listed is “to protect
the physical or psychological integrity” of the child. Id. art.
447 bis.
Neither a custody agreement nor anything akin to one is
listed as a condition that may terminate, suspend, or even
limit patria potestas. Nor is there a general provision for the
judicial surrender of parental authority and responsibility. To
the contrary, article 448 states expressly that “[p]arental au-
thority/responsibility [patria potestas] is not waivable.” Article
448 enumerates only two circumstances under which a person
with patria potestas may be excused of his or her duties: (1) if
the person is “sixty years or older” or (2) if he or she is “unable
to properly carry out [his or her] duties” because of “a state of
regular poor health.” Id. The fact that article 415 distinguishes
between custody and parental authority rights further but-
tresses the idea that patria potestas cannot be lost through a
custody agreement. Even if it were theoretically possible for a
18 No. 15-2983
parent to lose patria potestas through a custody agreement, this
custody agreement would not suffice. Article 444’s sole sub-
section not conditioning termination on a specific contin-
gency indicates that a person may lose the patria potestas right
by being “expressly condemned to its loss.” The 2006 custody
agreement did not mention either Galvan or Salazar’s patria
potestas right, let alone “expressly condemn” Salazar to its
loss. The custody agreement thus did not extinguish Salazar’s
patria potestas right over D.S.
C
As we noted earlier, patria potestas is considered a custo-
dial right for purposes of the Convention. Since Salazar has
that right, and Galvan arranged to have D.S. kept in the
United States against Salazar’s will, it follows that for Con-
vention purposes D.S. was wrongfully retained. This conclu-
sion, however, does not end our inquiry. Under the Conven-
tion, the district court had the discretion to refuse to return
D.S. to Mexico if Galvan proved by a preponderance of the
evidence that D.S. “object[ed] to being returned and ha[d] at-
tained an age and degree of maturity at which it is appropri-
ate to take account of [his] views.” Hague Convention art. 13,
T.I.A.S. No. 11670 (mature-child exception); 22 U.S.C.
§ 9003(e)(2)(B) (burden of proof for article 13 defenses). The
district court found that D.S. was sufficiently mature to in-
voke the exception, and we see nothing in the record to cast
doubt on that assessment. The district court also found that
D.S. eventually stated his objection to being returned to Mex-
ico during the second in-camera hearing. Both formal prereq-
uisites for this exception are therefore satisfied.
No. 15-2983 19
The question remains, however, whether the exception au-
tomatically applies in such a case, or if the district court re-
tains discretion to follow the rule rather than the exception. In
our view, it would be inconsistent both with the Convention
and with the often sensitive questions involved in domestic
relations to take a mechanical approach. This is consistent
with the way other courts and the U.S. Department of State
have understood the exceptions. They have said that a district
court retains discretion not to apply an exception, and that its
decision either way is reviewed only for abuse of discretion.
See de Silva v. Pitts, 481 F.3d 1279, 1285 (10th Cir. 2007) (“[A]
court still has discretion to order the return of the child if it
would further the aim of the Convention which is to provide
for the return of a wrongfully removed child.”) (citing Frie-
drich, 78 F.3d at 1067); England, 234 F.3d at 270–71; see also
Hague Convention art. 13, T.I.A.S. No. 11670 (“The judicial or
administrative authority may also refuse to order the return of
the child” if the mature-child exception applies) (emphasis
added); U.S. Dep’t of State Public Notice 957: Hague Int’l
Child Abduction Convention, 51 Fed. Reg. 10494, 10509 (1986)
(“The courts retain the discretion to order the child returned
even if they consider that one or more of the exceptions ap-
plies.”).
Here, the district court decided that it would be incon-
sistent with the aims of the Convention to refuse to repatriate
D.S. First, it noted D.S.’s ambivalence before he finally ob-
jected to returning to Mexico, and the fact that D.S.’s objection
was founded “almost entirely” on his belief that his mother
would not be able to travel to and from Mexico because of her
immigration status. Galvan observes, correctly, that D.S. gave
other reasons, too, but the district court’s sense of which rea-
20 No. 15-2983
son predominated was not clear error. The court was particu-
larly struck by the fact that D.S. stated that he would not ob-
ject to return if his mother’s travel to and from Mexico were
not impeded, based on the assumption that she could obtain
the proper visa within six months. 1 The court never asked
D.S. how he would react to periods longer than six months.
While this omission troubles us, in the end it does not com-
pel a finding that the district court abused its discretion. The
court’s greatest concern was independent of the amount of
time D.S. might go without seeing his mother. It believed that
the application of the mature-child exception in this case
would reward Galvan for problems of her own making. Her
immigration status was unstable because she (and D.S.) over-
stayed their tourist visas. It reasoned that allowing D.S. to stay
in the United States would allow Galvan to benefit from her
own violations of the Convention and U.S. immigration laws.
1 The record is unclear both on the status of Galvan’s application for
legal permanent resident status and on the accuracy of the six-month esti-
mate. Apparently Galvan had been trying ever since her arrival in the
United States to pursue a visa, but she represents that she could not afford
the necessary fees. The process takes some time: a qualified person (such
as her husband) must first submit a Petition for Alien Relative (an I-130)
on her behalf. The alien must also submit an application for adjustment of
status (I-485). Although U.S. Citizenship and Immigration Services indi-
cates that the entire process can take as little as seven months, see USCIS
Processing Time Information, https://egov.uscis.gov/cris/process-
TimesDisplayInit.do (last updated Dec. 15, 2015) (choose “Chicago IL”
from “Field Office” drop-down menu), the Department of State represents
that “[t]he length of time [for processing] varies from case to case and can-
not be predicted for individual cases with any accuracy.” Bureau of Con-
sular Affairs, U.S. Dep’t of State, Immigrant Visa for a Spouse of a U.S. Citizen
(IR1 or CR1), http://travel.state.gov/content/visas/en/immigrate/fam-
ily/immediate-relative.html#13 (last visited Dec. 16, 2015).
No. 15-2983 21
Galvan argues that applying the mature-child exception
would not “reward” her for her immigration problems be-
cause her visa overstay was not a “strategic ploy” and the vi-
sas expired before the wrongful retention. She notes that even
the district court recognized that her conduct was not in bad
faith. The court’s rationale, she urges, fits only more egregious
cases of child abduction.
Article 13 is meant to address both systemic concerns—in
particular, deterrence—and individual cases. See England, 234
F.3d at 271 (“The Convention’s primary aims are to ‘restore
the pre-abduction status quo and to deter parents from cross-
ing borders in search of a more sympathetic court.’”) (quoting
Friedrich, 78 F.3d at 1063); Explanatory Report ¶¶ 16 (noting
that one of the Convention’s two central objectives is “deter-
ring” the abductor by “depriv[ing] his actions of any practical
or juridical consequences”), 17 (noting the enforcement of the
objective of “effective respect for rights of custody and of ac-
cess ... belongs on the preventive level”), at 429–30. The dis-
trict court was concerned that exercising the exception in this
case would set a precedent that allows a parent to prevent the
return of a child by problems of his or her own making. It rea-
soned that an inquiry into a litigant’s subjective intentions is
a difficult endeavor, and one potentially subject to abuse by
savvy litigants. It would be difficult for a court to smoke out
bad faith in these situations. Neither the Convention nor
ICARA forbids the district court to take these concerns into
account when it makes its ultimate decision. The Conven-
tion’s “defenses … are narrowly construed” at least in part to
preserve that deterrence. De Silva, 481 F.3d at 1285.
The district court also reasoned that this was a weak case
for the mature-child exception because D.S.’s objection was
22 No. 15-2983
partially premised on getting “used” to missing his father and
extended family in Mexico, and D.S.’s views had not been
consistent. At the time of the wrongful retention in July 2014,
D.S. wanted to return to Mexico. By the time of the first in-
camera hearing, he preferred to stay in Chicago, but did not
object to being returned to Mexico. It was only at the second
in-camera hearing—roughly 13 months after he was wrong-
fully retained—that D.S. unequivocally objected to being re-
turned. The district court reasoned that refusing to return D.S.
under such conditions would reward Galvan for the contin-
ued wrongful retention. It would also signal that a parent
might escape the Convention by running out the clock until
the wrongfully retained child became accustomed to her new
home. See, e.g., Yang v. Tsui, 499 F.3d 259, 280 (3rd Cir. 2007)
(affirming district court’s decision not to exercise exception
because where the child “grew attached to her family and
life” in the place where she was wrongfully retained during
the retention itself, applying the exception “would encourage
parents to wrongfully retain a child for as long as possible[,]
… and reward [the retaining parent] for violating [the peti-
tioner’s] custody rights, and defeat the purposes of the Con-
vention”). The Convention is intended “to secure the prompt
return of children wrongfully removed to or retained in any
Contracting State.” Hague Convention art. 1, T.I.A.S. No.
11670 (emphasis added). Creating an incentive for delay
would frustrate this central purpose.
III
There is no doubt that this is a close case. Two points, how-
ever, are clear: Salazar had patria potestas over D.S. at the time
of the retention; and he had “rights of custody” recognized by
No. 15-2983 23
the Convention. That is enough to establish Galvan’s reten-
tion of D.S. in violation of her agreement with Salazar as
wrongful under the Convention. Whether to apply the ma-
ture-child exception was a question within the district court’s
discretion. We see nothing powerful enough in this record to
warrant the rejection of its conclusion, and so we AFFIRM its
judgment in favor of Salazar. | 01-03-2023 | 12-22-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/3166812/ | In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 14-3088
GREGORY JEAN-PAUL,
Petitioner-Appellant,
v.
TIMOTHY DOUMA,
Respondent-Appellee.
____________________
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 12-C-697 — Patricia J. Gorence, Magistrate Judge.
____________________
ARGUED NOVEMBER 18, 2015 — DECIDED DECEMBER 31, 2015
____________________
Before POSNER, MANION, and SYKES, Circuit Judges.
SYKES, Circuit Judge. Gregory Jean-Paul, a Wisconsin pris-
oner, filed a petition for a writ of habeas corpus under
28 U.S.C. § 2254 arguing that he did not knowingly and
intelligently waive his right to counsel on his direct criminal
appeal in state court. The district court denied relief. We
affirm the judgment because the state appellate court rea-
sonably concluded that his waiver was knowing and intelli-
gent.
2 No. 14-3088
I. Background
Jean-Paul was convicted in 2007 of state drug crimes and
sentenced to 13 years’ confinement and 12 years’ extended
supervision. He appealed, but vacillated on whether he
wanted to represent himself on appeal. In January 2008 he
talked with his appointed counsel, Patrick Donnelly.
Donnelly told his client that he intended to file a “no-merit
report,” see WIS. STAT. § 809.32, unless Jean-Paul wanted to
proceed pro se, in which case Donnelly would simply ask to
withdraw. Jean-Paul replied that he wanted to proceed
pro se. To confirm, Donnelly wrote to Jean-Paul, advising
him that if he signed and returned a “Statement of Decision
to Proceed Pro Se,” Donnelly would withdraw from Jean-
Paul’s appeal. Donnelly noted that “[t]he deadline for taking
action in your case is currently March 14, 2008.”
Two days later, Jean-Paul reconsidered. He told Donnelly
that instead of proceeding pro se, he wanted all “documents
concerning my case” sent to him so that he could “fully and
thoroughly respond to the No Merit report.” Donnelly
acknowledged Jean-Paul’s change of heart and promised to
submit the no-merit report. Donnelly also advised Jean-Paul
that the deadline for the no-merit was not on March 14, but
rather 180 days from when the last transcript from the trial
had been released. See § 809.32(2)(a). The transcript was
released on November 13, 2007, which meant that the report
wasn’t due until May 2008.
By March 14, 2008, however, Jean-Paul was looking for
the no-merit report. He asked Donnelly and the court clerk if
it had been filed. Donnelly responded that the no-merit
report was due by May 9, and he would file it before then.
The clerk answered that the report was due May 12.
No. 14-3088 3
In April Jean-Paul changed his mind again, so Donnelly
asked the appellate court for permission to withdraw from
the case. With his motion Donnelly submitted a “Statement
of Decision to Proceed Pro Se” signed by Jean-Paul. The
statement, dated April 4, read as follows:
I, Gregory Jean-Paul declare that I have de-
cided to proceed pro se with my appeal. I un-
derstand that pro se means that I will represent
myself in this matter without the assistance of
an attorney. I have made my decision to appeal
pro se after talking with my appointed counsel,
Patrick M. Donnelly, Assistant State Public De-
fender, and I understand that the ramifications
of my decision to be as follows:
1. I understand that by deciding to repre-
sent myself I am giving up my right to be rep-
resented on appeal by Mr. Donnelly, who was
appointed to represent me by the Office of the
State Public Defender. I understand that this
appeal is my one appeal of right from my con-
viction and that no other attorney will be ap-
pointed by the Office of the State Public De-
fender to represent me in this case in the fu-
ture.
2. I understand that there are dangers and
disadvantages in representing myself and ad-
vantages in having an attorney represent me
because an attorney familiar with the law may
be in a better position to discover factual in-
formation or legal arguments which could as-
sist me in seeking postconviction relief. I also
4 No. 14-3088
understand that even though I am not an at-
torney, I will be expected to follow the statutes,
rules, and procedures for filing postconviction
motions, appeals and subsequent briefing in
the court of appeals. I understand that I will be
personally responsible for all aspects of my
appeal, including the obligation to file post-
conviction motions or a notice of appeal by the
current dead-line, March 14, 2008, unless I per-
sonally seek and obtain an additional extension
of time from the court of appeals.
I have discussed with my attorney my right
to a no-merit report and I have decided to pro-
ceed pro se. This decision is entirely voluntary
on my part and is not the result of any threats
or promises from anyone.
The Wisconsin Court of Appeals accepted Jean-Paul’s waiv-
er and granted Donnelly’s motion to withdraw.
Proceeding pro se, Jean-Paul filed several challenges to
his conviction. First, he voluntarily dismissed his appeal and
brought a state postconviction motion, which in Wisconsin
precedes a direct appeal. See WIS. STAT. § 974.02; Morales v.
Boatwright, 580 F.3d 653, 656–57 (7th Cir. 2009). He argued
that his trial counsel had been ineffective for failing to listen
to certain audiotapes. This motion was rejected. Jean-Paul
then refiled his direct appeal, and the state appellate court
affirmed his conviction.
Next, Jean-Paul filed a petition for habeas corpus in the
state appellate court challenging the validity of his waiver of
counsel on direct appeal. He argued that he was not compe-
No. 14-3088 5
tent to waive his right to counsel and had not done so know-
ingly or intelligently. In addition to the correspondence with
his counsel recounted above, Jean-Paul submitted an affida-
vit stating, without more, that “I Jean-Paul, Gregory, swear
that I can not read or write.” An affidavit of another prisoner
repeats that Jean-Paul is illiterate and asserts that he, the
fellow prisoner, had prepared Jean-Paul’s legal filings. Based
on this evidence, Jean-Paul argued that he had misunder-
stood the April 4 statement he signed. He argued that he
thought it was a requirement for his lawyer to file a no-merit
report, not that it was a waiver of his right to counsel on
appeal.
The Wisconsin Court of Appeals denied relief. The court
explained that Jean-Paul may now regret “his choice to
proceed with the assistance of a jail-house lawyer,” but that
this did “not undermine the validity of his initial, knowing
and voluntary decision to represent himself” on appeal.
Other unrelated postconviction petitions and appeals were
unsuccessful.
Moving next to federal court, Jean-Paul filed a petition
for habeas relief under § 2254. He renewed his claim that he
had not knowingly and intelligently waived his right to
appellate counsel. The district judge denied relief, holding
that the state appellate court had applied the right standard
and reached a reasonable result. At most, the judge ex-
plained, Jean-Paul had “demonstrated that [his waiver of
appellate counsel] is a decision he has come to regret, which
does not make it unknowing or unintelligent.”
6 No. 14-3088
We granted a certificate of appealability on the question
whether Jean-Paul was denied his Sixth Amendment right to
appellate counsel. 1
II. Analysis
Criminal defendants have a Sixth Amendment right to
counsel on a direct appeal taken as of right. Halbert v. Michi-
gan, 545 U.S. 605, 610 (2005); Douglas v. California, 372 U.S.
353, 356–57 (1963). To waive that right, a defendant must be
competent to waive and must do so knowingly and intelli-
gently. Godinez v. Moran, 509 U.S. 389, 400–01 (1993). Wheth-
er a defendant is competent to waive counsel turns on
“whether he has the ability to understand the proceedings.”
Id. at 401 n.12. “[T]he ‘knowing and voluntary’ inquiry, by
contrast, is to determine whether the defendant actually does
understand the significance and consequences of a particular
decision and whether the decision is uncoerced.” Id.
As an initial matter, the State argues procedural default,
contending that Jean-Paul did not “fairly present” to the
state courts the argument he now pursues—that his waiver
was not knowing and intelligent. See Lewis v. Sternes,
390 F.3d 1019, 1025–26 (7th Cir. 2004); Perruquet v. Briley,
390 F.3d 505, 513 (7th Cir. 2004). We disagree. Jean-Paul’s
state habeas petition stated several times that a waiver of his
right to counsel must be made “knowingly, intelligently and
voluntarily.” True, he emphasized that he was not “compe-
tent to proceed pro se.” But he also argued that he misun-
1We recruited pro bono counsel to assist Jean-Paul on appeal and thank
E. King Poor and Matthew T. Ingersoll of Quarles & Brady LLC for
accepting the appointment and ably discharging their duties.
No. 14-3088 7
derstood the waiver form and thought it was required for
his attorney to file a no-merit report. Jean-Paul thus “framed
the claim in terms so particular as to call to mind a specific
constitutional right.” See Perruquet, 390 F.3d at 519–20 (inter-
nal quotation marks and citation omitted).
The State also maintains that Jean-Paul forfeited this
claim by failing to raise it in the district court. Again, the
State is incorrect. Jean-Paul’s § 2254 petition specifically
alleges that he “didn’t have the required information … to
warn a defendant of the risk of counsel withdraw or a
defendant disadvantage proceeding pro se [sic].” This
language recalls the warnings a defendant must receive
before waiving his right to trial counsel, see Faretta v. Califor-
nia, 422 U.S. 806, 835 (1975), and the district court appropri-
ately treated the petition as questioning whether Jean-Paul’s
waiver of appellate counsel was “knowing and voluntary.”
Turning to the merits of the claim, Jean-Paul faces a stiff
burden. He must show that the state appellate court’s deci-
sion was (1) “contrary to, or involved an unreasonable
application of, clearly established Federal law, as deter-
mined by the Supreme Court of the United States,” or
(2) “based on an unreasonable determination of the facts in
light of the evidence presented in the State court proceed-
ing.” 28 U.S.C. § 2254(d); see Carter v. Douma, 796 F.3d 726,
733 (7th Cir. 2015). The state court’s ruling must be “so
lacking in justification that there was an error well under-
stood and comprehended in existing law beyond any possi-
bility for fairminded disagreement.” Carter, 796 F.3d at 733
(quoting Harrington v. Richter, 562 U.S. 86, 103 (2011)).
The state court’s decision was not based on an unreason-
able application of clearly established law. The Supreme
8 No. 14-3088
Court has held that waiver of the right to counsel must be
knowing and intelligent, and has also explained that such a
determination is case specific. See Iowa v. Tovar, 541 U.S. 77,
88 (2004); Godinez, 509 U.S. at 401–02; Faretta, 422 U.S. at 835;
Johnson v. Zerbst, 304 U.S. 458, 464 (1938). But as this court
recognized in Speights v. Frank, 361 F.3d 962, 964–65 (7th Cir.
2004), the Court has also held that the inquiry into the
validity of a waiver depends on the stage of the proceedings
at which the waiver occurs. See Marshall v. Rodgers, 133 S. Ct.
1446, 1450 (2013) (explaining that a circuit court may “look
to circuit precedent to ascertain whether it has already held
that the particular point in issue is clearly established by
Supreme Court precedent”). A waiver of counsel before trial
may require a “give-and-take between the accused and
someone trying to educate him about counsel’s benefits.”
Speights, 361 F.3d at 964–65 (citing Tovar, 541 U.S. at 90). But
a waiver of counsel on appeal need not be accompanied by
this kind of colloquy because “the major complexities,
choices, and risks are past.” Id. at 965. Instead, “straightfor-
ward assent” is enough to waive the right to counsel on
appeal. Id.
Applying this standard, the state appellate court reason-
ably concluded that Jean-Paul validly waived his right to
counsel on appeal. After he told his lawyer that he wanted to
proceed pro se, his lawyer gave him a waiver form that
notified him of the perils of doing so, see Halbert, 545 U.S. at
621, and he later signed it.
Jean-Paul raises two arguments in response. First, he con-
tends that the form he signed is insufficient as a matter of
law. Although it listed the risks of proceeding pro se, it did
not explain that if his lawyer filed a no-merit report, the
No. 14-3088 9
appellate court must assess it before deciding whether to
release counsel. Jean-Paul relies on Betts v. Litscher, 241 F.3d
594, 595–96 (7th Cir. 2001), where this court found that a
letter from counsel to the appellate court stating only that
the defendant had “declined an opportunity to have a no-
merit report filed by [his attorney] and elected to proceed
pro se with an appeal” was “scant evidence” of waiver. The
defendant in that case did not sign counsel’s letter, however,
and no evidence showed that he understood that if his
counsel filed a no-merit report, the state court had to assess
that report before permitting his attorney to withdraw. Id. at
596.
Here, in contrast, not only did Jean-Paul sign the waiver
form, the record supports a finding that he understood that
the state appellate court would evaluate any no-merit report.
In the signed waiver form, Jean-Paul states that he had
“discussed with my attorney my right to a no-merit report.”
And in his correspondence with Donnelly, Jean-Paul asked
for all court papers so he could “fully and thoroughly re-
spond to the No Merit report.” This evidence shows that
Jean-Paul understood that the appellate court would decide
whether to accept Donnelly’s no-merit report. This case is
thus distinguishable from Betts.
Jean-Paul also argues that the state appellate court made
an “unreasonable determination of the facts” in finding that
his waiver of appellate counsel was knowing and voluntary.
He admits that a signed waiver form ordinarily can establish
that a defendant has validly waived his right to counsel on
appeal. But he argues that his signed waiver is vitiated by
other evidence—namely, his correspondence with counsel,
which shows “confusion” about deadlines and “vacillation”
10 No. 14-3088
about whether to proceed pro se, and the affidavits asserting
his inability to read or write. He argues that the state appel-
late court unreasonably evaluated this evidence when
deciding that his signed assent established that his waiver
was knowing and voluntary.
A state court’s factual finding is unreasonable only if it
“ignores the clear and convincing weight of the evidence.”
Taylor v. Grounds, 721 F.3d 809, 817 (7th Cir. 2013) (internal
quotation marks and citations omitted). Here, the evidence
reasonably supports the state appellate court’s factual
findings. First, the “vacillation” reflected in the letters shows
only that Jean-Paul reconsidered whether to proceed pro se.
Jean-Paul points to no case suggesting that when a defend-
ant is initially uncertain about waiving appellate counsel, a
later-signed waiver is presumptively suspect.
Second, the confusion about deadlines is irrelevant. It
may suggest uncertainty about when he needed to sign a
waiver, but not whether to do so. Finally, the state appellate
court reasonably discounted the evidence that Jean-Paul
cannot read or write. His inability to read (assuming that’s
true) does not necessarily imply an inability to understand
what is read to him, and Jean-Paul hasn’t claimed that the
waiver wasn’t read to him or that he did not understand it.
He argues that he thought it had something vaguely to do
with the no-merit report, but his affidavit doesn’t say that.
Although the affidavits could support a finding that he was
confused about the waiver, the weight of the evidence is not
clearly and convincingly in his favor. Accordingly, the state
appellate court’s factual finding that Jean-Paul validly
waived counsel survives habeas review. See Brumfield v.
Cain, 135 S. Ct. 2269, 2277 (2015) (explaining that “state-court
No. 14-3088 11
factual determinations” are not “unreasonable merely
because we would have reached a different conclusion in the
first instance” (internal quotation marks, alterations, and
citation omitted)).
AFFIRMED. | 01-03-2023 | 12-31-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/2848019/ | In the Interest of E.V. and I.S.V., Jr., Children
COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 2-04-210-CV
IN THE INTEREST OF E.V.
AND I.S.V., JR., CHILDREN
------------
FROM THE 393
RD
DISTRICT COURT OF DENTON COUNTY
------------
MEMORANDUM OPINION
(footnote: 1)
------------
Appellant Sarah G. appeals from the trial court’s termination of her parental rights to her children, E.V. and I.S.V., Jr. In six points, she challenges the legal and factual sufficiency of the evidence to support the trial court’s findings on endangerment and failure to support. Because we hold that the evidence is legally and factually sufficient to support the termination of Sarah’s parental rights, we affirm the trial court’s order of termination and adoption. In November 1999, Sarah apparently voluntarily placed the children with her mother, Lynn H., who was and is married to Jim C. In December, Lynn filed a petition to modify the parent-child relationship, seeking conservatorship of the children. On November 1, 2000, Lynn and Jim filed a petition for termination and adoption of the children. On November 28, 2000, Lynn was named sole managing conservator of the children, and the trial court ordered that the parents have no visitation rights with the children. The causes were later consolidated. The trial court terminated Sarah’s parental rights on April 2, 2004 after a four-day bench trial. The father voluntarily relinquished his rights. The trial court signed the order of adoption and termination on June 2, 2004.
The petition for termination alleged, and the trial court found, that Sarah knowingly placed or knowingly allowed the children to remain in conditions or surroundings that endangered their physical or emotional well-being, engaged in conduct or knowingly placed the children with persons who engaged in conduct that endangered their physical or emotional well-being, and failed to support the children in accordance with her ability during a period of one year ending within six months of the filing of the petition for termination.
(footnote: 2) The trial court also found that termination was in the children’s best interest.
(footnote: 3)
In six issues that she briefed together, Sarah argues that the evidence is legally and factually insufficient to support the trial court’s findings on endangerment and failure to support.
As this court explained in
In re W.J.H.
,
Endangerment means to expose to loss or injury, to jeopardize. It can occur through both acts and omissions. Neglect can be just as dangerous to the child’s emotional and physical health as intentional abuse.
Under subsection D [of the termination statute], evidence must show that the child’s environment is a source of endangerment. In some circumstances, the parent’s conduct may create that dangerous environment. Subsection E focuses on the parent’s conduct alone, including acts and omissions. While the endangerment must be a direct result of the parent’s course of conduct, the conduct does not have to be directed toward the child, nor does the child have to suffer actual injury for the finding to be upheld. Similarly, the conduct does not have to cause a concrete threat of injury to the child. If the evidence shows that the parent has engaged in a course of conduct which has the effect of endangering the child, then the finding under subsection E may be upheld.
(footnote: 4)
Similarly, this court has also explained,
As a general rule, conduct that subjects a child to a life of uncertainty and instability endangers the physical and emotional well-being of a child. Drug use and its effect on a parent's life and his ability to parent may establish an endangering course of conduct. Further, a parent's mental state may be considered in determining whether a child is endangered if that mental state allows the parent to engage in conduct that jeopardizes the physical or emotional well-being of the child. Threats or attempts to commit suicide may also contribute to a finding that the parent engaged in a course of conduct that is detrimental to a child's physical or emotional well-being.
(footnote: 5)
The trial court admitted the following evidence. On Sunday, October 31, 1999, Sarah’s grandmother called Jim and voiced concerns about Sarah. He went to Sarah’s apartment to check on her. He found the door wide open. Sarah was incoherent. I.S.V., Jr., who was one year old at the time, was asleep in his crib, and his older sister E.V., who was two and one-half years old, was watching television. Jim saw bottles of pills lying on the breakfast bar, and he testified that the pills were within reach of the children. Several days later, Sarah attempted to commit suicide. Within two days, she tried again. Although the children were still in her legal custody at the time of both attempts, there is no evidence that they were physically present when Sarah tried to kill herself. Sarah testified that she told doctors that she had tried to kill herself because she was “in an abusive relationship with [her] children’s father, and either he was going to kill [her] or [she] was going to kill [herself].”
Jim testified that Sarah had told him that the children’s father was a drug dealer. Jim also testified that Sarah had told him that the father had assaulted her in the parking lot of her apartment complex while she was holding the baby, I.S.V., Jr. Another witness testisfied that the father had beaten Sarah pretty badly at a motel. Sarah testified that the children’s father had assaulted her numerous times, both before and after the children were born, and that she went to the hospital as a result of several of the assaults. He had gone to jail or prison for four of the assaults.
Sarah testified that she had lived in Kansas for about a year prior to trial. She was not employed at the time of trial. She had had sporadic employment, with her most recent employment, from December 2003 until January 2004, netting her $420. She planned to begin a certified nurse aide course in Kansas after trial. Although the trial court had ordered that Sarah pay child support of $177 per month, she did not pay any in 2004 and only $25 in 2003, and that was in August. Sarah testified that she had not paid for any of the children’s medical expenses since 1999. On the other hand, she paid the expert witness $700, according to her testimony, and $1,075, according to his. Sarah sent the children cards and some clothes during the years that she was not allowed to visit.
Sarah’s paternal grandmother helped support her. Sarah testified that since 1999, her grandmother had provided her with a car to drive, a place to live, and a big screen television, but her grandmother would not give her money to support the children.
By the time of trial, Sarah testified, she had been arrested four times, three times for theft and once for possession of drugs. She also admitted to having a pending theft charge in Baxter Springs, Kansas, but she denied that she had been arrested there. In March 2001, Sarah pled guilty to the possession of a controlled substance by fraud and received two years’ probation. In 2002, she acted as a drug informant to attempt to get off probation early so that she could move to Kansas.
Sarah testified that she was a recovering addict, that she was addicted to painkillers, hydrocodone, and Xanax, and that Xanax, which had been prescribed for her, had been her drug of choice when she first became addicted. She also testified that she had lied to Denton County MHMR personnel after her second suicide attempt when she told them that she did not have a drug problem.
Sarah said that her recovery began in March 2001 when she began her probation, but she admitted that she continued to associate with people whom she had done drugs with even after that time. She also claimed that she was in treatment for her drug problem at Tulsa Rightway, 120 miles from her home in Kansas, and that she had been going there for about a year. She testified that she saw a counselor, Rebecca Hall, once a week and attended group counseling. She also testified that she paid $130 per month for that treatment. Sarah did not know what Hall’s credentials were. Sarah did not provide documents regarding her treatment for substance abuse in Oklahoma or her prior drug treatment at clinics in Denton and St. Louis. Sarah claimed that she was in a twelve-step program and had been during her entire recovery, but she could not name any of the steps and could not explain which step she was working on. At one point, her therapist was listed as a witness, but Sarah chose not to call her. Sarah also chose not to call her grandmother as a witness.
Sarah's urine and hair follicle drug tests that the trial court ordered during the trial came back negative for drugs, but they also came back negative for methadone, which Sarah insisted that she took daily as prescribed as part of her drug treatment. She had no explanation for the negative test for methadone.
When the children began living with Jim and Lynn in November 1999, E.V. had night terrors every night for about a year and frequent bedwetting. She was also terrified of strangers, the dogs that she had previously enjoyed playing with, and visits from the Tooth Fairy or Santa Claus. Sarah had made threatening telephone calls to Lynn and Jim throughout their more than four years of raising her children, sometimes twenty to thirty calls in one hour; at one point, the family stayed outside the home overnight because they feared for their safety. Before Sarah’s visitation was discontinued in 2000, the children would be frightened and clingy after the visits with her.
By the time of trial, E.V.’s night terrors were occurring only about once a month. The children were doing pretty well in school and at home. Lynn and Jim interacted with them appropriately and wanted to adopt them. The couple showed a respect for the children's biracial heritage. Lynn and Jim also demonstrated a willingness to reestablish some contact between Sarah and the children in the future, but only if she first gains stability.
Based on the evidence before us and the applicable standards of review, we conclude that the evidence is legally
(footnote: 6) and factually
(footnote: 7) sufficient to support the trial court’s findings that Sarah knowingly placed or knowingly allowed the children to remain in conditions or surroundings that endangered their physical or emotional well-being and that Sarah engaged in conduct or knowingly placed the children with persons who engaged in conduct that endangered their physical or emotional well-being. We overrule Sarah’s first, second, fifth, and sixth points. Even though Sarah does not challenge the evidence supporting the trial court’s best interest finding, we also note that the evidence supports that finding.
(footnote: 8) We therefore hold that the evidence is legally and factually sufficient to support the trial court’s order terminating Sarah’s parental rights. Because of our disposition of Sarah’s first, second, fifth, and sixth points, we do not reach her third and fourth points regarding the evidence supporting her failure to support the children.
(footnote: 9)
Having held that the evidence is legally and factually sufficient to support termination, we affirm the trial court’s order of termination and adoption.
PER CURIAM
PANEL F: DAUPHINOT, HOLMAN, and GARDNER, JJ.
DELIVERED: August 25, 2005
FOOTNOTES
1:See
Tex. R. App. P.
47.4.
2:See
Tex. Fam. Code Ann.
§ 161.001(1)(D), (E), (F) (Vernon 2002).
3:See id.
§ 161.001(2).
4:In re W.J.H.
, 111 S.W.3d 707, 715-16 (Tex. App.—Fort Worth 2003, pet. denied) (citations omitted).
5:In re R.W.
, 129 S.W.3d 732, 739 (Tex. App.—Fort Worth 2004, pet. denied) (citations omitted).
6:See
In re J.F.C.
, 96 S.W.3d 256, 265-66 (Tex. 2002).
7:See
In re C.H.
, 89 S.W.3d 17, 25, 28 (Tex. 2002).
8:See J.F.C.
, 96 S.W.3d at 265-66;
C.H.
, 89 S.W.3d at 25, 27, 28;
Holley v. Adams
, 544 S.W.2d 367, 371-72 (Tex. 1976).
9:See
Tex. R. App. P.
47.1;
W.J.H.
, 111 S.W.3d at 715. | 01-03-2023 | 09-03-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/2849110/ | COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 2-04-338-CV
SWSC-HURST, L.P. APPELLANT
V.
TONY ARGUELLO REYES APPELLEE
----------
FROM THE 342ND
DISTRICT COURT OF TARRANT COUNTY
----------
MEMORANDUM
OPINION
(footnote: 1)
AND JUDGMENT
----------
We have considered appellant’s “Motion To Dismiss Appeal Without Prejudice.” It is the court's opinion that the motion should be granted; therefore, we dismiss the appeal.
See
T
EX.
R. A
PP.
P. 42.1(a)(1), 43.2(f).
Appellant shall pay all costs of the
appeal, for which let execution issue.
PER CURIAM
PANEL D: MCCOY, J.; CAYCE, C.J.; and LIVINGSTON, J.
DELIVERED: January 27, 2005
FOOTNOTES
1:See
Tex. R. App. P. 47.4. | 01-03-2023 | 09-03-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/4567931/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 20-6080
EDWARD DANE JEFFUS,
Petitioner - Appellant,
v.
UNITED STATES OF AMERICA,
Respondent - Appellee.
Appeal from the United States District Court for the Middle District of North Carolina, at
Greensboro. N. Carlton Tilley, Jr., Senior District Judge. (1:17-cv-00910-NCT-JEP)
Submitted: June 18, 2020 Decided: June 23, 2020
Before FLOYD, THACKER, and RUSHING, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Edward Dane Jeffus, Appellant Pro Se.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Edward Dane Jeffus appeals the district court’s order accepting the recommendation
of the magistrate judge and denying his petition for a writ of error coram nobis. We have
reviewed the record and find no reversible error. Accordingly, we affirm for the reasons
stated by the district court. Jeffus v. United States, No. 1:17-cv-00910-NCT-JEP
(M.D.N.C., Nov. 4, 2019). We dispense with oral argument because the facts and legal
contentions are adequately presented in the materials before this court and argument would
not aid the decisional process.
AFFIRMED
2 | 01-03-2023 | 09-22-2020 |
https://www.courtlistener.com/api/rest/v3/opinions/1944583/ | 801 F. Supp. 1309 (1992)
HATCO CORPORATION, Plaintiff,
v.
W.R. GRACE & CO. CONN., Defendant and Third Party Plaintiff,
v.
ALLSTATE INSURANCE COMPANY (as Successor to Northbrook Excess and Surplus Insurance Company), et al., Third-Party Defendants.
Civ. A. No. 89-1031.
United States District Court, D. New Jersey.
July 27, 1992.
*1310 *1311 *1312 *1313 Aubrey M. Daniel, III, Paul Mogin, Evan J. Roth, Dane H. Butswinkas, Williams & Connolly, Washington, D.C., Robert M. Goodman, Carpenter, Bennett & Morrissey, Newark, N.J., for plaintiff.
Randy Paar, Elizabeth A. Sherwin, Frank S. Occhipinti, Anderson Kill Olick & Oshinsky, New York City, Anthony Marchetta, Hannoch Weisman, Roseland, N.J., for defendant.
*1314 OPINION
WOLIN, District Judge.
Our society's destruction of its own living environment is a problem that we increasingly must confront. For centuries humankind has polluted the Earth's land, air and waterways with impunity, under the assumptions, now known to be false, that the Earth's resources are inexhaustible, and that advances in technology would in any event solve our environmental problems faster than we could create them.
To some extent we are all responsible for the past lax practices of industry and government.[1] That we, through our representatives in government, tolerated standards and practices that allowed wholesale dumping of untreated chemicals and other forms of hazardous waste onto our land, and into our water and air, bespeaks of our lack of forethought as a society. To the extent these cheaper, though harmful waste disposal practices lowered the prices we paid for consumers products or government services, or created wealth for great numbers of shareholders of publicly traded companies, the inescapable fact remains that we all benefitted directly from this conduct.
At long last we have recognized the frailty created by our shortsightedness and have begun to take steps to reduce the rate of the Earth's destruction, and to remediate our past transgressions against the planet. For its part, through the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") as amended, 42 U.S.C. § 9601 et seq., Congress has fashioned a statutory framework intended to motivate individuals to cleanup their own land by providing the incentive that they may recover all costs from other parties to whom the environmental damage is attributable. Conceived in haste and born out of compromise, that statute has produced significant litigation over the meaning of even its most basic terms,[2] and has not, after a decade, produced a fraction of the results envisioned by Congress. As this case well demonstrates, the legal, economic and political difficulties involved in fairly and accurately allocating financial responsibility for the cleanup of past environmental abuses present problems perhaps more daunting than the scientific and engineering problems faced in the actual remediation of the polluted sites.
This is a case brought pursuant to CERCLA and state common law. The current owner of an industrial site located in Fords, New Jersey Hatco Corporation ("Hatco") who has conducted chemical manufacturing operations on the site for thirteen years, has sued its predecessor-in-title W.R. Grace & Co. Conn. ("Grace") who conducted chemical manufacturing operations on the site for close to twenty years. A cast of numerous third-fourth- and fifth-party insurance company defendants have been impleaded into the action. All are battling to avoid responsibility for costs to monitor, evaluate and remediate the Fords tract.
For more than three decades, that site has been polluted by a wide variety of toxic chemical compounds (including known carcinogens) that have been defined by the Environmental Protection Agency as "hazardous substances." Voluminous evidence presented to the Court demonstrates the extent to which this land has been polluted. Through the practice of pumping millions of pounds of effluent yearly from its chemical manufacturing operations into lagoons and holding ponds on the site, the owners and operators of the site have thoroughly saturated the ground with toxic wastes. Much of it continues to migrate under the earth, spreading the poisons over a wider area and contaminating the groundwater. Illustrative of conditions at the site is the existence of a marsh filled with black *1315 sludge that exudes a strong mothball odor. Estimates of potential cleanup costs have been suggested by the parties in the range from "tens of millions" of dollars upward to $100 million.
Before the Court are a number of motions by and between Hatco and Grace. First are cross-motions for summary judgment on the issue whether Grace's liabilities under CERCLA were assumed by Hatco under the 1978 Sale Agreement in which Hatco purchased the Fords, New Jersey facility that is the subject of this action. Grace asserts that it is entitled to a judgment, as a matter of law, that under the Sale Agreement, Hatco assumed responsibility and agreed to indemnify Grace for all costs to remediate and remove hazardous substances that may have been disposed of on the Fords site when it was owned by Grace, with the exception of those liabilities for which Grace is effectively insured. Hatco, conversely, asserts that it is entitled to a judgment as a matter of law that it did not under the Agreement assume any such responsibilities. For the reasons that follow, the Court will deny Grace's motion and grant Hatco's motion.
Second is the motion of Grace for summary judgment in its favor on Hatco's claim under state common law for damage to property based on a theory of strict liability. Grace bases its motion on the grounds that: (1) Hatco assumed the risk of the abnormally dangerous conditions at the site; and (2) Hatco's claims are time-barred by the statute of limitations. For the reasons that follow, Grace's motion will be granted on the statute of limitations ground.
Third is a motion by Hatco to strike a number of defenses from Grace's Answer to the Second Amended Complaint. For the reasons stated below, that motion will be granted in substantial part.
Fourth is a motion by Hatco for partial summary judgment against Grace on the issue of Grace's liability for all response costs under CERCLA. Grace has cross-moved, contingent on the Court granting Hatco's motion, for a declaration that Hatco is liable in contribution for its equitable share of response costs. Hatco's motion will be denied, and Grace's motion will therefore not be reached.
Fifth are cross-motions for summary judgment on the issue whether response costs already incurred by Hatco to clean up one area of the site were incurred in compliance with the national contingency plan. Both motions will be denied.
Last, the parties have cross-moved for summary judgment on the issue whether attorneys' fees are recoverable by a private party in a response cost action under CERCLA. Because the Court adheres to its view, expressed in a previous case, that such fees are not recoverable, Hatco's motion will be denied, and Grace's will be granted.
BACKGROUND
From 1959 until 1978, Grace owned and operated a chemical manufacturing business located on an approximately 80-acre tract of land in Fords, New Jersey, that used and produced a number of different chemical products, consisting primarily of plasticisers and synthetic lubricants. The business was run by a division of Grace known as Hatco Chemical Division. On August 21, 1978, Grace simultaneously sold "the Chemical Assets other than the Chemical Realty" of the Hatco Chemical Division to the Farben Corporation ("Farben"), and the "Chemical Realty" to the Fuss Corporation ("Fuss"). Fuss and Farben were owned by Alex Kaufman, who had worked at the Fords Hatco site for over twenty years, both for Grace and its predecessor. On September 1, 1978, Farben changed its name to the Hatco Chemical Corporation. On September 30, 1978, Fuss merged into the Hatco Chemical Corporation. On October 28, 1986, the Hatco Chemical Corporation was renamed the Hatco Corporation.
In the Sale Agreement, "Assumed Liabilities and Obligations" is defined as:
(a) liabilities of Chemical[[3]] reflected in, reserved against or noted on the Closing *1316 Net Statement, other than Excluded Liabilities;
and
(b) the following obligations and liabilities existing on the date of the Closing, or in the case of those described in clause (iv), arising thereafter, whether or not they are reflected in, reserved against or noted on the Closing Net Statement:
(i) obligations with respect to sales orders accepted by the Chemical Business[[4]] other than Excluded Liabilities;
(ii) obligations for goods and services ordered by the Chemical Business, other than Excluded Liabilities;
(iii) liabilities and obligations with respect to capital expenditures described in any Request for Capital Appropriation approved in accordance with Seller's customary procedures by the management of the Chemical Business, or any management group of Seller senior thereto;
(iv) other obligations and liabilities arising in the ordinary course of the Chemical Business, whether prior to or after the date of Closing, other than Excluded Liabilities;
(v) other liabilities and obligations of which Alex Kaufman or David G. Seabrook has actual present personal knowledge and awareness at the date of this agreement, other than Excluded Liabilities; and
(vi) other liabilities and obligations which do not exceed $5,000 per item and $50,000 in the aggregate, other than Excluded Liabilities.
Sale Agreement § 1.11 (JA 187).[5]
The Sale Agreement defines "Excluded Liabilities" to include, among other items, "liabilities against which Seller is effectively insured, without regard to any applicable deductible amounts", and "the liabilities specifically described in the schedule to this Section." Sale Agreement § 1.10(c), (h).[6] Included in the schedule to § 1.10 as an excluded liability is the "Alleged pollution of Sling Tail Brook on or about May 31, 1977."[7] (JA 187) Section 2.02 of the Sale Agreement provides, in part, that Hatco would not be responsible for any obligations or liabilities of Grace other than *1317 the defined "Assumed Liabilities and Obligations." That section further states that "All such liabilities and obligations not assumed by Buyers are hereby retained by [Grace]".
DISCUSSION
I. Summary Judgment Standard
Summary judgment shall be granted 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); see Hersh v. Allen Products Co., 789 F.2d 230, 232 (3d Cir. 1986). In making this determination, a court must draw all reasonable inferences in favor of the non-movant. Meyer v. Riegel Products Corp., 720 F.2d 303, 307 n. 2 (3d Cir.1983), cert. dismissed, 465 U.S. 1091, 104 S. Ct. 2144, 79 L. Ed. 2d 910 (1984). Whether a fact is "material" is determined by the substantive law defining the claims. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986); United States v. 225 Cartons, 871 F.2d 409, 419 (3d Cir.1989).
"[A]t the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson, 477 U.S. at 249, 106 S. Ct. at 2511. Summary judgment must be granted if no reasonable trier of fact could find for the non-moving party. Id.
II. Cross-Motions for Summary Judgment on the Issue Whether Hatco Assumed CERCLA Liability In the Sale Agreement
Both parties have moved for summary judgment on Grace's defenses that Hatco may not recover damages under CERCLA because it assumed all environmental liabilities in the Sale Agreement. Resolution of this motion requires the Court to apply the standard it previously adopted in Mobay Corp. v. Allied-Signal, Inc., 761 F. Supp. 345, 354-58 (D.N.J.1991) to the contract in issue in this case. In Mobay, this Court recognized, as had other courts before it, that CERCLA allows parties to privately allocate by contract the risk of loss for liabilities under that statute. See, e.g., Smith Land & Improvement Corp. v. Celotex Corp., 851 F.2d 86, 89 (3d Cir.1988) ("agreements to indemnify or hold harmless [from CERCLA liabilities] are enforceable between the parties"), cert. denied, 488 U.S. 1029, 109 S. Ct. 837, 102 L. Ed. 2d 969 (1989). Because § 9607(e)(1) renders ineffective any attempt to completely "transfer" liability, the most a party can do to limit its liability under CERCLA is to obtain from another an agreement "to insure, hold harmless, or indemnify" it from any liabilities established against it. 42 U.S.C. § 9607(e)(1). To the extent that an agreement to insure, hold harmless or indemnify the seller from CERCLA liability prevents a purchaser from asserting a CERCLA claim against the seller, the agreement can be viewed as a "release." Mobay, 761 F.Supp. at 355.
Although CERCLA liabilities can be allocated between parties when expressly agreed to, the problem raised in Mobay was whether indemnity agreements entered before the enactment of CERCLA could ever act to release a party from CERCLA liability. Because entered pre-CERCLA, such agreements could not have expressly mentioned CERCLA liabilities in any indemnity, hold harmless or insurance provision. After canvassing the existing law, the Court concluded that parties could have agreed to allocate risks of liability between them arising from CERCLA even prior to the enactment of CERCLA, provided that it was done by written agreement that included "a clear provision which allocates these risks to one of the parties." Id. at 358. The Court held that such a "clear provision" must be either: (1) a broad waiver of "all liabilities of any type whatsoever",[8]id. at 358, n. 15 (emphasis in original), *1318 which would clearly evince the parties' broad intent to finally settle all present and future liability issues arising from the sale,; or (2) at a minimum, "must at least mention that one party is assuming [all] environmental-type liabilities", id. at 358, which would clearly evince the parties' intent to settle all issues related to present and future environmental liabilities.
This holding, as another District Court has recently recognized, was derived substantially from the generally recognized public policy tending toward strict construction of any indemnity agreement under which one party agrees to indemnify another for the consequences of that other's own acts. See Purolator Products Corp. v. Allied-Signal, Inc., 772 F. Supp. 124, 130-31 (W.D.N.Y.1991); see also Haynes v. Kleinwefers and Lembo Corp., 921 F.2d 453, 456-57 (2d Cir.1990) (discussing New York law of indemnity, under which agreement to indemnify another for liability arising from its own acts is construed strictly). Hence, to create a contractual duty of one party to indemnify or hold the other harmless from CERCLA-type liability arising from that other's acts, an unmistakable intent to do so must be expressed in unambiguous terms or be clearly implied. Consequently, extrinsic evidence is for the most part irrelevant to the issue of the parties' intent, and the interpretation of the agreement in issue will always be a question of law ripe for summary judgment. An agreement will either unambiguously express or clearly imply that one party will indemnify the other against its own acts giving rise to liability under CERCLA, or it will not. Hence, to the extent Grace's motion for summary judgment fails, Hatco's motion will necessarily succeed.
As discussed above, for the Sale Agreement to have effected a release by Hatco of any CERCLA claim it might ever have against Grace, it must contain either a broad, all-inclusive waiver by Hatco of any and all claims it might ever have against Grace arising from the sale, or it must contain a specific provision that expressly or by clear implication waives any claim it might ever have against Grace arising from environmental problems at the Fords facility. The Sale Agreement contains neither type of provision.
The Sale Agreement clearly lacks a broad waiver and release from all liabilities. Assumed liabilities are carefully enumerated in section 1.11 of the Sale Agreement. More important, section 2.02 expressly declares that Hatco will not be responsible for any liability or obligation not included in the definition at section 1.11, and that "All such liabilities and obligations not assumed by [Hatco] are hereby retained by [Grace]." Thus, far from including a broad, all-inclusive waiver of any and all liabilities, the Sale Agreement actually contains express declarations to the contrary.
Grace's reliance on Purolator is misplaced. In that case the court found that a purchaser of assets had released the seller from CERCLA liabilities because in two separate agreements related to the transfer of certain assets, the parties included language under which the purchaser broadly assumed, without limitation, any and all liabilities related to or arising from the transferred assets. The 1975 agreement provided:
Facet hereby assumes and agrees to satisfy all liabilities and obligations of Bendix, secured or unsecured (whether accrued, absolute, contingent or otherwise) relating to or arising out of the Assets (which are transferred hereby subject to such liabilities and obligations).
Purolator, 772 F.Supp. at 131. The 1979 agreement included equally broad language. Id. Moreover, quite unlike the agreement here, the indemnity provision in the 1979 agreement in Purolator did not restrict the liabilities assumed to those expressly specified, but rather stated broadly that the 1975 agreement "include[d], but without limiting the generality thereof, *1319 an assumption by Facet of, and an indemnity to Bendix and Fram against, any and all liabilities arising out of or connected with the assets and businesses" that were transferred. Id. (emphasis in original). Equally broad language was included in other parts of the agreement. Id. Thus, the court found a clear intent on the part of the parties to have the purchaser broadly assume all liabilities, including future CERCLA liabilities. The agreements in Purolator are so unlike the Sale Agreement here that Purolator provides no support for Grace's position.[9]
Grace argues that section 1.11(b)(iv) evinces a clear intent by the parties to have Hatco assume all environmental-type liabilities that might arise at the Fords facility. That section provides for the assumption by Hatco of "other liabilities and obligations arising in the ordinary course of the Chemical Business, whether prior to or after the date of the Closing, other than Excluded Liabilities." (Emphasis added). Grace contends that environmental cleanup liabilities arise "in the ordinary course" of Hatco's operations, and are therefore covered by subsection (iv). It further argues that the express inclusion of one environmental liability for Sling Tail Brook pollution in a schedule of specific "Excluded Liabilities" that complemented the general classes of Excluded Liabilities included in section 1.10 indicates a clear intent on the part of the parties that Hatco assume all other environmental liabilities under the ordinary course clause.
An identical "ordinary course" provision in an agreement between Grace and another party was construed by the Second Circuit Court of Appeals, in a different factual context, in Haynes v. Kleinwefers and Lembo Corp., 921 F.2d 453 (2d Cir.1990). In Haynes, Grace argued that a liability arising after a sale of assets, from an injury sustained by an employee operating a machine that had been altered when it was owned by Grace, was assumed by the purchaser of assets under an "ordinary course of business" provision identical in all material respects to the one included in the Sale Agreement. 921 F.2d at 457. The Second Circuit, construing the subsection in the context of the whole section, rejected Grace's argument.
Applying ordinary rules of contract construction, it found that the reference to "other" liabilities and obligations in the "ordinary course" provision limited those liabilities and obligations to those "of like kind" to those mentioned in preceding subsections of the definition of "Assumed Liabilities and Obligations". Id. The preceding subsections in the agreement in Haynes, like those involved here, referred to accepted sales orders, ordered goods and services, and capital expenditures. Id. The Second Circuit found no additional language in the remainder of the agreement from which, together with the ordinary course clause, it could be clearly implied that the purchaser assumed liability for personal injuries that resulted from acts by Grace. Thus, the Second Circuit held that the "other" liabilities and obligations referred to in the "ordinary course" provision included only liabilities and obligations related to "business transactions" and did not broadly include any liability or obligation that arose during ownership of the *1320 assets. Id. More important, however, the Second Circuit held that "a catch-all phrase such as `other obligations and liabilities arising in the ordinary course of business' fails to establish clearly an unmistakable intent to assume an obligation to indemnify." Id. at 458. This Court agrees.
Grace has attempted to distinguish the Sale Agreement from the agreement in Haynes by arguing that the express retention by Grace in the schedule to section 1.10 of its liability for the alleged pollution of Sling Tail Brook makes clear that the parties thought about potential environmental liabilities, and expressly allocated their risk. This differs from the agreement in Haynes, it argues, because no mention of liability for personal injuries was made in that agreement. It contends that from the express retention by Grace of the liability for its pollution of Sling Tail Brook, together with the "ordinary course" provision, it can clearly be implied that Hatco assumed all other environmental-type liabilities. This argument is based on the canon of construction that the inclusion of one thing implies the exclusion of all others.[10]
The Court cannot accept Grace's argument, and finds that the mention of one environmental liability in the schedule to section 1.10 of the Sale Agreement does not modify the meaning of the "ordinary course" clause of the Sale Agreement. That provision remains constricted in scope, as the Second Circuit found in Haynes, by the liabilities and obligations expressed in other subsections of section 1.11. Grace's argument to the contrary reads too much significance into the inclusion of the phrase "other than Excluded Liabilities" in the ordinary course provision. That phrase "other than Excluded Liabilities" is included in each subsection of section 1.11. Inclusion of one item in the definition of "Excluded Liabilities" does not, without more, mean that every other liability of a similar nature was assumed by Hatco. It is clear from the structure of section 1.10 that when the parties meant to exclude a broad class of liabilities, they did so expressly. They did not do so with respect to environmental liabilities.
Moreover, the express retention by Grace of one specified pollution liability cannot alone shift responsibility for all other environmental liabilities to Hatco. To imply such a meaning would too easily relieve Grace of the burden, as a party seeking to impose on another a duty to indemnify it against the consequences of its own acts, to ensure that such an intent is clearly intended and expressed. Grace's express retention of one liability says nothing about the scope of liabilities Hatco assumed; it does not clearly imply that Hatco assumed all other similar liabilities, particularly when the Sale Agreement provides expressly to the contrary in section 2.02. Grace's reliance on the expressio unius doctrine is misguided. That doctrine "is not of universal application and caution should be exercised in its use." McKenna v. Ortho Pharmaceutical Corp., 622 F.2d 657, 667 (3d Cir.), cert. denied, 449 U.S. 976, 101 S. Ct. 387, 66 L. Ed. 2d 237 (1980). When the controlling substantive law, as with the law of indemnity, requires a greater clarity of expression of contractual intent than is usually required in contracts, even more caution than is ordinarily the case should be applied in the use of the expressio unius rule of construction.[11] Thus, regardless of the inclusion of the Sling Tail Brook liability in the schedule to section 1.10, "a catch-all phrase such as `other obligations and liabilities arising in the ordinary course of business' fails to establish clearly an unmistakable intent to assume an obligation to indemnify." Haynes, 921 F.2d at 458.
*1321 At best, Grace's express retention of one environmental liability ambiguously expresses the intent Grace claims. Hatco's assertion that the Sling Tail Brook liability was expressly retained by Grace because it was the only environmental liability of which the parties were actually aware is at least as plausible an explanation as the one set forth by Grace. Given the ambiguity, the Mobay standard has not been met.
Even giving Grace the benefit of its construction of the "ordinary course" provision that environmental liabilities are "ordinary course" liabilities within the meaning of the Sale Agreement it would still fail to effect a wholesale assumption of environmental-type liabilities because the only "ordinary course" liabilities assumed are those of the "Chemical Business". "Chemical Business" is defined in the Sale Agreement as "that business presently conducted by Chemical...." Thus, Hatco argues, and the Court agrees, that because most of the liabilities in issue in this case are attributable to manufacturing activities that were not "presently conducted" at the time of the sale in 1978, even accepting Grace's construction of the ordinary course clause, those liabilities would not have been assumed. Grace counters that the "presently conducted" language is surplusage and should be ignored. Although Grace supports this argument by pointing out the absurdity of recognizing the "presently conducted" language in other contexts in the Sale Agreement, the language does not lead to an absurd result in the context in issue. Grace's arguments at best lead to the conclusion that the meaning of "Chemical Business" is ambiguous, which is further reason why the "ordinary course" clause should not be construed to effect a broad assumption of liability by Hatco.
Grace asserts another argument based on the drafting history of the Sale Agreement. Although, as discussed above, extrinsic evidence is irrelevant to the issue whether environmental liabilities have been assumed, the Court will nevertheless briefly address Grace's argument. Grace contends that during the negotiations of the Sale Agreement, Hatco attempted on more than one occasion to include in the agreement a provision by which Grace expressly retained all environmental liabilities. It further claims that it rejected the inclusion of such language every time it was suggested by Hatco. From this, together with its express retention of the Sling Tail Brook liability, Grace contends that the parties must therefore have believed that all other environmental liabilities were assumed by Hatco. This argument, like the previous argument based on the expressio unius maxim, improperly seeks to reverse the burden of expression of intent.
For an agreement to indemnify against CERCLA liabilities, an intent to that affect must be clearly expressed. This rule is simple: No clear expression, no indemnity. Grace's argument seeks to turn this rule on its head by imposing the opposite requirement that, unless it expressly agreed not to be indemnified for all of its environmental liabilities, Hatco must indemnify it for those liabilities. Grace seems to forget that the CERCLA liabilities in issue were its liabilities to begin with. If the parties failed to agree to expressly allocate the risk of loss for all of Grace's environmental liabilities, the burden of that failure must fall on Grace. Hence, Grace's refusal during the drafting of the Sale Agreement to expressly acknowledge its retention of all environmental liabilities in that document was an act without legal significance, notwithstanding its express retention of one specific environmental liability.
Grace additionally argues that another provision in the definition of assumed liabilities acts as an assumption by Hatco of all environmental-type liabilities. It argues that the assumption of
other liabilities and obligations of which Alex Kaufman or David G. Seabrook has actual present personal knowledge and awareness at the date of this agreement, other than Excluded Liabilities
in section 1.11(b)(v) includes CERCLA liabilities.
Kaufman had worked at the Fords Hatco site for over twenty years, both for Grace and its predecessor. Kaufman was President *1322 of Grace's Hatco group from 1962 until the sale in 1978. Seabrook was a financial analyst for the Hatco Chemical Division, who negotiated for Kaufman the purchase of Hatco from Grace.
Grace argues that Kaufman's or Seabrook's knowledge of the existence of chemical pollution on the Fords site at the time of the sale was equivalent to knowledge of future environmental-type liabilities, and that therefore any CERCLA claim arising from pollution at the Fords facility of which Kaufman or Seabrook was aware has been assumed by Hatco. This argument fails for several reasons.
First, the reasoning of the Second Circuit in Haynes, found persuasive by the Court, that the general term "other liabilities and obligations" in the "ordinary course" provision was limited by the class of liabilities enumerated in previous subsections of section 1.11, applies equally well to this provision. Thus, the provision is similarly narrow, and applies only to liabilities and obligations "of like kind" to those enumerated before it in section 1.11(b).
Second, and perhaps more important, section 1.11(b)(v) by its express terms applies only to liabilities known to Alex Kaufman or David G. Seabrook "at the date of th[e] agreement". Grace's argument that its CERCLA liability "arose long before CERCLA was enacted", and could be "known" two years before the passage of CERCLA, is completely unpersuasive.[12] Grace relies almost exclusively on the definition of "liability" in Black's Law Dictionary to support its position. Although that expansive definition could be read to support Grace's position, the Court finds that the structure of the Sale Agreement and common sense militate sharply against Grace's position.
The structure of the Sale Agreement militates against Grace's position because its interpretation of "existing" liabilities, if accepted, would be read out of the Sale Agreement the distinction clearly made by the parties between liabilities "existing" on the date of closing and "liabilities arising ... after the date of the Closing", a distinction expressly made in the agreement. Compare Sale Agreement § 1.11(b)(v) with § 1.11(b)(iv). Common sense also defeats Grace's position because the term "liability" necessarily implies a legal relationship between the liable party and the party to whom it is liable. No such legal relationship existed, in the case of CERCLA liabilities, until enactment of CERCLA. See In re Penn. Central Transportation Co., 944 F.2d 164, 167-68 (3d Cir.1991), cert. denied, ___ U.S. ___, 112 S. Ct. 1262, 117 L. Ed. 2d 491 (1992). What Grace essentially argues is that knowledge of all of the facts necessary for CERCLA liability at the date of closing is sufficient to constitute knowledge of "liabilities." Without a statutory or common law basis to impose responsibility, however, it is too far of a stretch to characterize the existence of the facts as a "liability." In an analogous situation, the Third Circuit found that a final decree in bankruptcy entered in 1978 that precluded future lawsuits against a reorganized debtor "on account of or based upon any right, claim or interest of any kind or nature whatsoever" did not bar future suits based on CERCLA. In re Penn. Central, 944 F.2d at 167-68. The court found that the nonexistence of that statute at the time of the decree meant that the petitioners did not have any interest, contingent or otherwise, that fell within the terms of the decree. Id. However broad Grace believes Black's Law Dictionary defines "liability", it is not any broader than the "right, claim or interest of any kind or nature whatsoever" in the decree in In re Penn. Central. Accordingly, it cannot be said that CERCLA liabilities existed at the date of closing of the Sale Agreement. Hence, section 1.11(b)(v) does not support Grace's contention that Hatco assumed CERCLA liabilities from Grace.
Therefore, the Court concludes, as a matter of law, that Hatco did not, through the *1323 Sale Agreement, assume and agree to indemnify Grace for CERCLA liabilities. Grace's motion for summary judgement on this issue will therefore be denied, and Hatco's motion for summary judgment will be granted.
III. Grace's Motion for Summary Judgment on Hatco's Common Law Strict Liability Claim
Hatco has asserted a claim in strict liability against Grace based on the allegedly abnormally dangerous activities in engaged in, involving the disposal of toxic wastes at the Fords site, while it owned that site. See generally T & E Industries, Inc. v. Safety Light Corp., 123 N.J. 371, 587 A.2d 1249 (1991); State Department of Environmental Protection v. Ventron Corp., 94 N.J. 473, 468 A.2d 150 (1983). Grace contends that Hatco assumed the risk of the abnormally dangerous conditions for which Hatco seeks recovery and that Hatco's strict liability claim is time-barred. Because the Court concludes that summary judgment should be granted in Grace's favor on the statute of limitations ground, it will not address the issue of assumption of risk.
Under N.J.S.A. § 2A:14-1, a claim for strict liability based on injury to real property must be commenced within six years from the date it accrues. New Jersey has embraced the "discovery rule", which tolls the running of the limitation of actions period until a person "`learns, or reasonably should learn, the existence of that state of facts which may equate in law with a cause of action.'" Apgar v. Lederle Laboratories, 123 N.J. 450, 455, 588 A.2d 380 (1991) (quoting Burd v. New Jersey Telephone Co., 76 N.J. 284, 291, 386 A.2d 1310 (1978)) (emphasis in original); see also Allied Corp. v. Frola, 730 F. Supp. 626, 631 (D.N.J.1990). The doctrine focuses on "`material facts' relating to the existence and origin of [the] injury rather than the comprehension of the legal significance of such facts." Lynch v. Rubacky, 85 N.J. 65, 73, 424 A.2d 1169 (1981).
Grace asserts that Hatco knew or should have known at least eight years before it filed this action that the Fords Hatco site was extensively polluted with hazardous substances, and that the pollution was due to Grace's acts while it owned the Hatco facility. Grace supports its position primarily through the notice given to Hatco by an Amended Administrative Order that was issued by the New Jersey Department of Environmental Protection ("NJDEP") on December 14, 1981. (JA 212) The Amended Order documents a series of inspections by the agency to the Fords site. It also contains findings made based on the inspections, and on test results obtained from samples collected during the inspections. In addition, Grace has directed the Court's attention to several documents that indicate Hatco's knowledge that the pollution problems revealed by the NJDEP were caused by Grace. (JA 210, 211)
Test results on samples obtained during a February 18, 1981 inspection revealed that "extensive groundwater contamination is taking place at the Hatco site." (¶ 7, JA 212) Test results on samples obtained during a July 22, 1981 inspection revealed the presence on the site of "high concentrations of napthelene, phthalates, and petroleum hydrocarbons." (¶ 9, JA 212) The Amended Order included a directive that Hatco must "obtain NJDEP's approval of a plan for performing soil borings and installing monitoring wells to determine the extent discharges have contaminated groundwater beneath the Hatco site", and that Hatco must carry out that plan. (JA 212) Thus, Grace asserts that Hatco "knew or should have known" no later than December 1981 of facts sufficient to support a legal action based on strict liability, and that the six year statutory limitation of actions period ran out in December 1987, long before Hatco filed this action in 1989.
Hatco contends that it did not become aware of the extensive nature of the environmental problems at the site until it undertook a comprehensive study of the entire site between 1986 and 1988. Although that may be true, the Court concludes as a matter of law that the December 14, 1981 Amended Order put Hatco on notice of facts sufficient to trigger the running of the statute of limitations as to the problems *1324 directly addressed. As to every substance identified by the NJDEP to be present at a specific location on the Fords site, Hatco acquired direct and express notice. Claims based on those problems are therefore time-barred.
To the extent the Amended Order did not address specifically every problem that has since been discovered at the site, it nonetheless triggered a duty on Hatco's part to "exercise ... reasonable diligence and intelligence" to investigate and discover those problems. Vispisiano v. Ashland Chemical Co., 107 N.J. 416, 419, 527 A.2d 66 (1987). This duty of reasonable inquiry arose despite Hatco's assertion that it disputed the NJDEP's findings.
The "discovery rule" is an equitable doctrine, O'Keeffe v. Snyder, 83 N.J. 478, 491, 416 A.2d 862 (1980), that requires diligence and reasonable investigative efforts on the part of the plaintiff, id. at 497-98, 416 A.2d 862. "In determining whether the discovery rule should apply, a court should identify, evaluate and weigh the equitable claims of all parties." Id. at 498, 416 A.2d 862. Under the circumstances presented in this case, the equities weigh heavily against Hatco.
Hatco's owner, Alex Kaufman, worked at the Fords site for more than twenty years, including a substantial period of time as President. In the Sale Agreement, he acknowledged that he was "personally familiar with the business and operations of [the Fords facility]" prior to the sale. Sale Agreement § 8.01 (JA 187). Thus, when Hatco received the Amended Order, it was not as if it had for the first time been made aware that substantial polluting activities had occurred on the site. Indeed, the Amended Order indicated that releases of pollutants were ongoing. As noted above, the statute is triggered by a plaintiff's knowledge of "material facts", not by conclusive proof of every relevant fact. Thus, Hatco's argument that it did not learn of its claim until it undertook an extensive engineering survey rings hollow. Because of Kaufman's intimate familiarity with the day-to-day operations of the site developed over two decades, and its ongoing water and air pollution problems, Hatco was in a position to with reasonable promptness verify the extent of pollution at the site. Against the backdrop of Kaufman's extensive knowledge of waste disposal practices at the site, Hatco cannot now invoke as a shield against application of the statute of limitations its own inaction in waiting close to five years to investigate the problems raised by the 1981 NJDEP order. Therefore, as to problems not specifically addressed in the Amended Order, the Court finds that the NJDEP order put Hatco on inquiry notice such that Hatco "should have" discovered their existence shortly thereafter, through the exercise of "reasonable diligence and intelligence". Vispisiano, 107 N.J. at 419, 527 A.2d 66. The Court finds as a matter of law that such diligence would have revealed facts sufficient to equate in law with Hatco's strict liability claim more than six years before Hatco filed this action in 1989. Accordingly, the Court concludes that Hatco's strict liability claim is time-barred by the six-year statute of limitations in N.J.S.A. 2A:14-1.[13]
IV. Hatco's Motion to Strike Grace's Defenses to CERCLA Liability
Hatco has moved to strike certain defenses from Grace's Answer to Plaintiff's Second Amended Complaint ("answer"). For the reasons that follow, the motion will be granted in part, and certain defenses enumerated below will be stricken.
*1325 In its answer to Hatco's Second Amended Complaint ("complaint"), Grace has asserted 26 affirmative defenses to liability. Hatco's complaint includes state law counts in addition to a count based on CERCLA. Grace has not specified in its answer the counts to which each affirmative defense is being raised. In this motion, Hatco seeks to have all of those defenses not based on the 1978 Sale Agreement between Hatco and Grace stricken, to the extent they are raised as to the CERCLA count, on the ground that they are insufficient as a matter of law.
Grace has represented in its Memorandum in Opposition to Hatco's motion at footnote 24 that it will not pursue three of the defenses to the CERCLA claim. These defenses include one based on the statute of limitations, and two based on constitutional challenges to CERCLA. Accordingly, those defenses, asserted in ¶¶ 75, 82 and 95 of the answer, need not be discussed, and will be stricken by the Court. The Court will also strike the defense of failure to join indispensable parties, asserted in ¶ 96 of the answer, as inconsistent with the Court's Order dated July 11, 1989.
A. Equitable and State-Law Defenses
Hatco first argues that 16 equitable and state-law defenses pleaded by Grace are precluded from being raised as defenses to CERCLA liability by 42 U.S.C. § 9607.[14] That section provides for liability
[n]otwithstanding any other provision or rule of law, and subject only to the defenses set forth in subsection (b) of this subsection.
Subsection (b) provides:
There shall be no liability under subsection (a) of this section for a person who can establish by a preponderance of the evidence that the release or threat of a release of a hazardous substance and the damages resulting therefrom were caused solely by
(1) an act of God;
(2) an act of war;
(3) an act or omission of a third party other than an employee or agent of the defendant, or than one whose act or omission occurs in connection with a contractual relationship, existing directly or indirectly, with the defendant ... if the defendant establishes by a preponderance of the evidence that (a) he exercised due care with respect to the hazardous substance concerned, taking into consideration the characteristics of such hazardous substance, in light of relevant facts and circumstances, and (b) he took all precautions against foreseeable acts or omissions of any such third party and the consequences that could foreseeably result from such acts or omissions; or
(4) any combination of the foregoing paragraphs.
42 U.S.C. § 9607(b).
In Smith Land & Improvement Corp. v. Celotex Corp., 851 F.2d 86 (3d Cir.1988), the Third Circuit held that caveat emptor and unclean hands could not be asserted as defenses to CERCLA liability because such defenses "do not comport with congressional objectives." Id. at 90. The court observed that in legislative history, Congress made clear that "`the only defenses to liability remain those set forth in Section [9607(b)].'" Id. (quoting H.R.Rep. No. 253(I), reprinted in 1986 U.S.Code Cong. & Admin.News at 2861-62). In addition to being expressly acknowledged in the legislative history, the exclusivity of the defenses in § 9607(b) is apparent from the language of the statute itself. The Court therefore held that, although equitable considerations may be raised in mitigation of the amount of a damage award, they may not be raised as defenses to liability. Id. Other courts have similarly concluded that the defenses provided in CERCLA are exclusive. See, e.g., General Electric Co. v. Litton Industrial Automation Systems, *1326 Inc., 920 F.2d 1415, 1418 (8th Cir.1990) ("CERCLA is a strict liability statute, with only a limited number of statutorily-defined defenses available"), cert. denied, ___ U.S. ___, 111 S. Ct. 1390, 113 L. Ed. 2d 446 (1991); United States v. Kramer, 757 F. Supp. 397, 428 (D.N.J.1991).
Grace has responded to Hatco's motion by citing decisions that are not binding on this Court and are otherwise unpersuasive. Smith Land and the statute itself are clear: no defense not provided by CERCLA itself may be raised as a bar to CERCLA liability. With the exception of the defense asserted in paragraph 99, the Court finds that this rule should be applied to all defenses listed in footnote fourteen. The causation defense asserted in paragraph 99 falls within the ambit of the "divisibility of harm"/causation defense recognized by the Third Circuit in United States v. Alcan Aluminum Corp., 964 F.2d 252 (3d Cir.1992), discussed below, and will therefore not be stricken. As to the other defenses, although Grace may raise and prove equitable considerations in mitigation of damages in the context of the allocation of joint and several liability between responsible parties in a contribution claim under § 9613(f), those considerations have no place in the answer as defenses to CERCLA liability. Kramer, 757 F.Supp. at 428. Accordingly, the defenses listed in footnote 14 of this Opinion, with the exception of the Twenty-Sixth Defense asserted in paragraph 99, will be stricken to the extent that they are asserted against Hatco's CERCLA claim.
B. CERCLA Defenses
Hatco has also moved to dismiss the defenses asserted in paragraphs 94 and 98 of Grace's answer. Paragraph 94 contains the allegation that "Any costs incurred by Hatco were neither necessary nor consistent with the National Contingency Plan, as required under Section 107 of CERCLA, 42 U.S.C. § 9607." Paragraph 98 contains the allegation that
Grace is not liable for any release or threatened release of hazardous substances alleged by Hatco in the Complaint, and any costs or damages resulting therefrom, caused solely by the acts or omissions of third parties other than employees or agents of Grace persons whose acts or omissions occurred in connection with a contractual relationship, existing directly or indirectly, with Grace, because all of its actions in relation to the Fords facility or to the hazardous substances alleged to have been released or threatened to be released from the site, Grace exercised due care, taking into consideration the characteristics of such hazardous substance [sic], in light of all relevant facts and circumstances, and Grace also took all precautions against foreseeable result [sic] from such acts or omissions.
The first defense is superfluous and will be stricken. The second defense is facially proper, and will not be stricken from Grace's answer.
Hatco argues that proof of the necessity of response costs and their consistency with the national contingency plan is not required to establish CERCLA liability, citing T & E Industries, Inc. v. Safety Light Corp., 680 F. Supp. 696, 708 (D.N.J.1988), and Amoco Oil Co. v. Borden, Inc., 889 F.2d 664, 668 (5th Cir.1989). And that, therefore, a defense based on the absence of such proofs is insufficient as a matter of law. T & E held that CERCLA liability could be established without proof of necessity and consistency with the NCP of the response costs. Id. 680 F.Supp. at 709. Liability under CERCLA can be established by proof that the plaintiff incurred "response costs". Proof that those response costs were necessary and consistent with the National Contingency Plan ("NCP") is required only to prove the extent of plaintiff's recovery. 42 U.S.C. § 9607(a)(4)(B). Therefore, a defense that no proper response costs have been incurred is essentially a defense that plaintiff has not been damaged within the meaning of CERCLA. As plaintiff already bears the burden to establish the extent of its damages, this defense is superfluous and will be stricken.
*1327 The other CERCLA defense raised by Grace derives from § 9607(b)(3), set forth at length above. Hatco contends that this defense should be stricken because "Grace cannot claim that the releases or threatened releases of the hazardous substances listed in Hatco's complaint were caused solely by third parties." Hatco Memorandum Concerning Defenses Not Based on 1978 Agreement of Sale at 14. Hatco's position therefore is not that the defense is insufficient as a matter of law, but that Grace cannot prove that any release or threatened release of hazardous substances at the Fords facility falls within the defense. Striking a clearly permissible defense on the ground that it is not factually supported would be inappropriate. See Kramer, 757 F.Supp. at 410 (a court "may strike only those defenses so legally insufficient that it is beyond cavil that defendants cannot prevail upon them"). The Court cannot say with any confidence that there is no way Grace can prevail on this defense as to any release or threatened release of a hazardous substance at the Fords facility, and will therefore deny Hatco's request to strike it from the answer.
C. Failure to State A Claim
Hatco further has moved to strike the defense asserted in paragraph 74 of Grace's answer to the extent it is raised as to the CERCLA claim, that "Hatco has failed to state a claim against Grace upon which relief can be granted." Grace has not with any specificity opposed this request. The Court finds that Hatco's complaint adequately asserts all of the elements of a CERCLA claim. Accordingly, the defense raised in paragraph 74 of Grace's answer will be stricken to the extent that it is asserted against Hatco's CERCLA claim.
D. Conclusion
For the reasons stated above, Hatco's motion to strike certain defenses from Grace's answer will be granted in part, and the Court will strike the defenses raised in paragraphs 74 through 82, 85 through 92, and 94 through 97, to the extent that they are asserted against Hatco's CERCLA claim.
V. Hatco's Motion for Partial Summary Judgment On the Issue of CERCLA Liability and Grace's Cross-Motion On the Issue of Contribution Liability
Hatco has moved for a partial summary judgment on the issue of Grace's liability under CERCLA. It seeks a judgment that Grace is liable to it under CERCLA for $707,804.82 in response costs already incurred to investigate the conditions at the Fords site. Hatco further seeks a declaration that Grace is liable for all future response costs incurred to investigate, remove and remediate hazardous substances released by Grace at that site. For the reasons that follow, the Court will deny Hatco's motion.
Grace has cross-moved for a declaration that, in the event the Court grants Hatco's motion, Hatco is liable for contribution to Grace for any CERCLA response costs that may equitably be apportioned to it. Because the Court will deny Hatco's motion, Grace's motion need not be reached.
Section 107(a) of CERCLA provides, in relevant part, that
Notwithstanding any other provision or rule of law, and subject only to the defenses set forth in subsection (b) of this section
* * * * * *
(2) any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of ...
* * * * * *
from which there is a release, or a threatened release which causes the incurrence of response costs, of a hazardous substance, shall be liable for
* * * * * *
(B) any ... necessary costs of response incurred by any ... person consistent with the national contingency plan.
42 U.S.C. § 9607(a). Thus, four elements must be proved by Hatco to establish *1328 Grace's liability under CERCLA: (1) that the Hatco property is a "facility"; (2) that a "release" or "threatened release" of a hazardous substance from the Hatco property has occurred; (3) that a release or threatened release of hazardous substances has caused Hatco to incur "response costs"; and (4) that Grace "owned or operated" the Hatco facility at the time that any hazardous substances were disposed of on that site. T & E Industries, 680 F.Supp. at 708. If these four elements are established as undisputed, summary judgment on the issue of liability is appropriate. Id.
Grace admitted in its answer that it both "owned and operated" the Fords site between 1959 and August 1978. Answer at ¶ 6 (JA 438). That the Fords site was a "facility" is beyond dispute. "Facility" is very broadly defined to include "any site or area where a hazardous substance has been deposited, stored, disposed of, or placed, or otherwise come to be located." 42 U.S.C. § 9601(9). Ample documentation has been submitted by Hatco that "hazardous substances" had "come to be located" and disposed of at the site while Grace was its owner and operator.[15]See, e.g., Pond Soil Summary at DR700449-53 (JA 488) (indicating presence of polychlorinated biphenyls ("PCBs") in "settling ponds" in concentrations up to 3200 parts per million ("ppm") and presence of various phthalates in the ponds and muck storage areas in concentrations up to 34,000 ppm); Daners Memorandum dated June 24, 1970 (JA 130) (indicating discharge of millions of pounds of phthalic anhydride, esters and other compounds per year into the pond and lagoon areas); Dominach Memo. (JA 129) (same); Morano Memo. (JA 128) (same); Table II: Summary of Targeted Volatile Organic Compounds in Ground Water at XXXXXX-XX (JA 489) (indicating groundwater contamination by hazardous substances); Napthelene Residue Report at H014040-54 (JA 408) (indicating concentrations of napthelene in the napthelene waste disposal area of the site). Thus, the first and fourth elements of CERCLA liability have been established.
The second element is also beyond dispute. "Release" is defined, in relevant part, as
any spilling, leaking, pumping, pouring, emitting, discharging, injecting, escaping, leaching, dumping, or disposing into the environment....
42 U.S.C. § 9601(22). This definition has been read broadly. See Amland Properties Corp. v. Aluminum Co. of America, 711 F. Supp. 784, 793 (D.N.J.1989). Thus, the extensive documentation of pollution offered to establish that the Fords site is a "facility" also establishes that hazardous substances have been "released" onto that site.
Grace maintains, however, that material fact disputes exist as to the remaining element: that the releases of hazardous substances "cause[d] the incurrence of response costs". The Third Circuit Court of Appeals has held that response costs include costs for investigating, testing, sampling, and monitoring environmental contamination caused by the release of hazardous substances. Artesian Water Co. v. New Castle County, 851 F.2d 643, 651 (3d Cir.1988) (citing Wickland Oil Terminals v. Asarco, Inc., 792 F.2d 887 (9th Cir. 1986)); see also Ascon Properties, Inc. v. Mobil Oil Co., 866 F.2d 1149, 1153 (9th Cir.1989); New York v. Shore Realty Corp., 759 F.2d 1032, 1043 (2d Cir.1985) ("costs in assessing conditions of the site ... fall squarely within CERCLA's definition of response costs"). It is undisputed that, between February 1986 and June 1990, Hatco incurred $707,804.82 in liability for fees to Dan Raviv Associates, Inc. ("Raviv"), consultants in hydrogeology, water quality and landfill hydrology. See Revised Summary of Raviv Invoices (JA 480); Raviv Invoices (JA 481). Of these invoices, it is undisputed that $668,975.43 was incurred to monitor, assess and evaluate the extent of hazardous substance contamination *1329 at the Hatco site.[16] Hence, Hatco has established that it incurred response costs to the extent of $668,975.43.
Nevertheless, Grace maintains that a number of factual issues exist as to the extent to which the response costs already incurred or yet to be incurred are divisible between harm resulting from Grace's acts and harm resulting from Hatco's acts. Grace asserts and has submitted evidence that Hatco has also contributed to the environmental problems at the site in the thirteen years since it has owned that site, either through its own discharges or through its inaction in cleaning up Grace's disposal of hazardous substances. It contends that some part of the response costs already incurred or that will in the future be incurred can be attributed to Hatco's acts, and that summary judgment on liability for all response costs is therefore inappropriate.
To the extent that Grace's opposition to Hatco's motion is premised on Hatco's inaction in cleaning up Grace's hazardous substance contamination, its argument might succeed. Merely because Hatco is liable, however, due to its passive inaction during its ownership of the site, for any continued releases of hazardous substances disposed of by Grace, Nurad, Inc. v. William E. Hooper & Sons Co., 966 F.2d 837, 845-46 (4th Cir.1992), does not relieve Grace from liability for such continued releases. Under § 9607(a), Grace is joint and severally liable for any and all releases of hazardous substances at the Fords facility, indefinitely into the future, provided that it owned or operated that facility when those substances were initially disposed of there. 42 U.S.C. § 9607(a)(2), (4). That Hatco may also be liable for the later migration of those substances while it owns the facility under § 9607(a)(1) does not automatically relieve Grace of any liability. As will be discussed below, Grace's liability for Hatco's inactions can be defeated only if it can sustain its burden to prove that the harm is divisible.
The extent to which any response costs incurred by Hatco were due to its own post-sale pollution, moreover, is, as Hatco has correctly argued, also largely irrelevant to Grace's liability for all response costs incurred to investigate and cleanup the site. CERCLA liability for all response costs caused by any release or threatened release is strict, and attaches to any owner or operator of a facility on which any hazardous substances have been disposed of: "it is the release alone that must justify the response costs, not the particular waste generated by one given defendant." United States v. Alcan Aluminum Corp., 964 F.2d 252, 264 (3d Cir. 1992) (emphasis in original).
The statute does not ... require the plaintiff to prove that the generator's hazardous substances themselves caused the release or caused the incurrence of response costs; rather, it requires the plaintiff to prove that the release or threatened release caused the incurrence of response costs, and that the defendant is a generator of hazardous substances at the facility.
Id. (emphasis in original). "Congress considered and rejected a requirement that the plaintiff establish that the defendant's waste caused or contributed to the release or the incurrence of response costs." Id. at 265. Thus, whether Hatco caused the need to incur any of the response costs is in itself immaterial to the issue of Grace's liability.
An exception to the CERCLA principles stated above, however, was recognized by the Third Circuit Court of Appeals in Alcan Aluminum when a defendant can prove the "divisibility" of harm caused by it. Recognizing the harshness of a rule that holds a party liable without regard to the extent to which it caused damage, the Third Circuit adopted the use of Section 433A of the Restatement (Second) of Torts in apportioning liability between joint tortfeasors. Id., at 268-69. That section provides:
*1330 (1) Damages for harm are to be apportioned among two or more causes where
(a) there are distinct harms, or
(b) there is a reasonable basis for determining the contribution of each cause to a single harm.
(2) Damages for any other harm cannot be apportioned among two or more causes.
Id. at 268. When a joint tortfeasor seeks to apportion harm here Grace "it is the tortfeasor's burden to establish that the damages are capable of such apportionment." Id., at 269. This burden is "substantial". Id. Nevertheless, the "divisibility" inquiry is of an "intensely factual nature", militating against "summary judgment for the full claim in favor of [the plaintiff] without conducting a hearing." Id.
Grace has raised a number of factual issues as to the extent to which the Hatco has contributed to the contamination of the site in the thirteen years since it has owned the site, either through its own discharges or through its inaction in cleaning up Grace's disposal of hazardous substances. Grace therefore disputes that it is fully liable for all response costs incurred by Hatco. Under Alcan Aluminum, Grace is not liable for response costs incurred by Hatco that result from its own post-sale pollution or inaction and is divisible from harm occasioned by the disposal of hazardous substances during Grace's ownership of the site.
Hatco contends that Grace has failed to raise a material fact dispute as to Hatco's liability for any response costs incurred or that will be incurred at the Fords site. It has submitted an extensive exposition of the facts of record and an explanation of why it believes a sufficient issue has not been raised as to whether its response costs were expended due to its own releases of hazardous substances. See Reply Memorandum at 32-63. Although Hatco has extensively countered Grace's contentions that the need to incur response costs was due to any of Hatco's thirteen years of post-sale activities, inactions or releases, without rendering a point-by-point analysis, the Court finds that material issues remain disputed on the divisibility of harm issue. Even though the amount of response costs attributable to Hatco may ultimately be found minimal, because Grace has raised factual issues, and in the absence of any undisputed segregable amount of response costs attributable solely to Grace, summary judgment is inappropriate.
Despite Hatco's further assertion that, at a minimum, the disposal of specific substances, such as PCBs, are 100% attributable to Grace, summary judgment is nevertheless inappropriate. Merely establishing that disposals of certain substances are solely attributable to Grace does not establish which releases, threatened releases or response costs are attributable to those disposals.
Hatco's argument that divisibility of harm is a question inappropriate for determination in a § 107(a) action, but should be considered in the context of a § 113(f)(1) action, was rejected by the Third Circuit in Alcan Aluminum. There, the court held that the divisibility of harm issue is directly relevant in a § 107(a) action because it deals with the defendant's "effort to avoid liability otherwise established." Id. at 269. It further observed that
the "contribution" inquiry involves an analysis similar to the "divisibility" inquiry, as both focus on what harm the defendant caused. However, we believe that this inquiry ... is best resolved at the initial liability phase and not at the contribution phase since it involves precisely relative degrees of liability. Thus, if the defendant can prove that the harm is divisible and that it only caused some portion of the injury, it should only be held liable for that amount.
* * * * * *
We note, of course, that a determination in a given case that harm is indivisible will not negate a defendant's right to seek contribution ..., as the contribution proceeding is an equitable one in which a court is permitted to allocate response *1331 costs based on factors it deems appropriate, whereas the court is not vested with such discretion in the divisibility determination.
Id., at 270 n. 29 (emphasis added).
Consequently, because the Court finds that Grace has raised sufficient fact questions as to the relative degrees of harm caused by Hatco, it should have the opportunity to prove at trial that those harms are divisible, and that Grace is therefore not liable for all response costs. Hatco's motion for summary judgment on the issue of CERCLA liability and response costs already incurred will therefore be denied. Because Grace made its motion for a declaration of liability for contribution contingent on the Court granting Hatco's motion, it need not be addressed.
VI. Cross-Motions for Summary Judgment On the Issue Whether Hatco Failed to Comply With the National Contingency Plan
Between 1961 and 1971, Grace generated close to 5,000 tons of phthalic anhydride ("PA") distillation residue as a by-product of its production of PA. This residue was deposited on a site that was 400 feet by 300 feet in area, which became known as the "PA Residue Area." Hatco has never manufactured PA. Between July 12 and August 18, 1988, approximately 18,000 cubic yards of soil weighing close to 25,000 tons was excavated from the PA Residue Area and shipped to a landfill at a cost in excess of five million dollars.
Grace and Hatco have cross-moved for summary judgment on the issue whether Hatco complied with the National Contingency Plan ("NCP") when it incurred cleanup costs by its excavation and disposal of soil from the PA Residue Area. Grace contends it is undisputed that Hatco failed to comply with the terms of the NCP in its cleanup of the PA area, and that Grace is therefore entitled as a matter of law to a judgment that Hatco may not recover any of the costs of that cleanup. Hatco, conversely, contends that it is undisputed that its cleanup was consistent with the NCP, and that it is therefore entitled as a matter of law to a judgment for all cleanup costs incurred in August 1988. For the reasons that follow, the Court finds that disputed factual issues preclude the Court from granting either motion.
A. Hatco's Motion
Hatco's motion for summary judgment on its response costs to cleanup the PA residue area is contingent on its motion for summary judgment on the issue of Grace's liability under CERCLA. Hatco may not obtain a judgment for specific response costs unless it has already established Grace's liability under CERCLA. Because the Court has determined that Hatco's motion as to Grace's CERCLA liability must be denied, this motion must also fail. Material issues of fact remained disputed as to the divisibility of the harms caused by Grace's disposal of the PA residues and the harms caused by Hatco's ten years of inaction before excavating those materials, during which those residues may have migrated or otherwise caused further damage. Accordingly, Hatco's motion will be denied.
B. Grace's Motion
Grace contends that many aspects of Hatco's excavation of the PA residue area were neither necessary nor in compliance with the NCP. For response costs to be recoverable, they must have been both necessary and consistent with the NCP. 42 U.S.C. § 9607(a)(4)(B). Thus, Grace seeks a summary judgment that Hatco may not recover any of the costs incurred in connection with that cleanup.
Different standards apply to determine the consistency of Hatco's cleanup with the NCP depending on whether it was a "removal" or "remedial" action. "Removal action" and "remedial action" are defined respectively at 42 U.S.C. §§ 9601(23) and (24). In brief,
"removal" actions are primarily those intended for short-term or interim responses and "remedial" actions are generally considered long-term or permanent remedies.
*1332 T & E Industries, 680 F.Supp. at 706. More extensive requirements must be complied with for remedial actions, because their comprehensive, permanent nature usually means no further cleanup will occur.
Hatco contends that its cleanup was a removal action. Grace contends that it was a remedial action. The parties make numerous factual and legal arguments in support of their positions. Because the Court finds that a substantial number of fact issues are disputed as to whether Hatco's cleanup was a removal or remedial action, it may not determine by summary judgment whether Hatco effected a removal or remedial action. Therefore, unless Grace can demonstrate beyond dispute that Hatco's actions were inconsistent with the NCP standards for removal actions, its motion must be denied.
Critical to the determination whether actions taken are consistent with the NCP is the standard of compliance. The 1985 version of the NCP, which applies to Hatco's cleanup of the PA Residue Area, see Versatile Metals, Inc. v. Union Corp., 693 F. Supp. 1563, 1575 (E.D.Pa.1988) (NCP in place at time of cleanup controls), was silent on the standard of compliance. Courts construing that NCP for the most part held that "strict compliance" with its terms was required. See, e.g., Amland Properties, 711 F.Supp. at 796-97.
The 1985 NCP was superseded by a newer NCP in 1990. In the Summary of the 1990 NCP, the EPA stated that
Today's revisions to the NCP are intended to implement regulatory changes necessitated by SARA, as well as to clarify existing NCP language and to reorganize the NCP to coincide more accurately with the sequence of response actions.
55 Fed.Reg. 8666, March 8, 1990 (emphasis added). One provision of the 1990 NCP provides that:
A private party response action will be considered "consistent with the NCP" if the action, when evaluated as a whole, is in substantial compliance with the applicable requirements ... and results in a CERCLA quality cleanup.
40 C.F.R. § 300.700(c)(3)(i) (1990), 55 Fed. Reg. 8858, March 8, 1990 (emphasis added). Hatco argues that the "substantial compliance" standard of the 1990 NCP was intended to clarify the 1985 NCP, and should therefore be applied to its actions. In support of this argument, it relies on Versatile Metals, in which the court held, referring to differences between the 1985 and 1990 NCPs, that "[t]o the extent that the subsequent regulations clarify the prior regulations as to private party obligations, such regulations will govern." 693 F. Supp. at 1575 (emphasis in original). More to the point, Hatco relies on the unpublished decision in Con-Tech Sales Defined Benefit Trust v. Cockerham, 1991 Westlaw 209791 (E.D.Pa. October 9, 1991), in which Judge Van Antwerpen found that
the substantial compliance standard is meant to clarify the meaning of "consistent with the NCP," not to add a new provision. The "strict compliance" standard advocated by the defendants is a creation of the courts, not the EPA, and the agency has simply announced its disagreement with the courts' interpretation of section 107 of CERCLA and of the 1985 NCP.
Slip Op. at 6.
The Court fully agrees with this analysis. As the Third Circuit recently observed, "CERCLA is a remedial statute which should be construed liberally to effectuate its goals." Alcan Aluminum, 964 F.2d at 258. That compliance with the NCP must be "strict" is nowhere hinted at in CERCLA itself, nor is it expressed in the 1985 NCP. That standard is at odds with the goal of CERCLA to facilitate prompt cleanups of hazardous substances by assuring those who perform the cleanup that they may recover their costs from those who caused the need to incur them. The strict compliance standard would place too great of a risk on the party expending funds to cleanup a site that it would not recover its costs, and would thus discourage cleanups. It would also frustrate the congressional policy that those who cause the harm should pay for it. Thus, the Court finds *1333 that the substantial compliance standard shall be applied to Hatco's actions.
The remaining factual questions, whether the response costs incurred by Hatco were necessary and in substantial compliance with the NCP, are hotly disputed by the parties, and the Court finds that none of them may be resolved on motion for summary judgment. Accordingly, Grace's motion will be denied.
VII. Cross-Motions for Summary Judgment on the Issue Whether Attorney's Fees May Be Recovered Under CERCLA
Hatco and Grace have cross-moved for summary judgment on the issue whether attorneys fees may be recovered under CERCLA. In T & E Industries, Inc. v. Safety Light Corp., 680 F. Supp. 696 (D.N.J.1988), this Court held that such fees may not be recovered. Id. at 707-08. Plaintiff Hatco asks that the Court reconsider that holding in light of arguments based on legislative history not advanced by the parties in T & E, and also on the authority of the Eighth Circuit Court of Appeals in General Electric Co. v. Litton Industrial Automation Systems, Inc., 920 F.2d 1415 (8th Cir.), cert. denied, ___ U.S. ___, 111 S. Ct. 1390, 113 L. Ed. 2d 446 (1991).
For the reasons stated in T & E, the Court adheres to its view that attorneys fees are not recoverable by a private party under CERCLA. An additional, more persuasive ground to disallow attorneys fees, not mentioned in T & E, is the United States Supreme Court's directive in Runyon v. McCrary, 427 U.S. 160, 96 S. Ct. 2586, 49 L. Ed. 2d 415 (1976) that "absent explicit congressional authorization, attorneys' fees are not a recoverable cost of litigation." Id. at 185, 96 S. Ct. at 2602. CERCLA was enacted against the backdrop of Runyon. Yet the statute contains nothing even remotely "explicit" that authorizes the recovery of attorneys fees by a private party. Under this standard, policy arguments why fees should be recoverable, and arguments based on legislative intent, advanced by Hatco, are irrelevant. The Court therefore finds plaintiff's arguments based on legislative history and policy concerns, and the Eighth Circuit of Appeals' reasoning in Litton, unpersuasive. Accordingly, the Court will deny Hatco's motion on the issue of attorneys fees, will grant Grace's motion for summary judgment on that issue, and will strike the demand in Hatco's complaint for recovery of attorneys fees under CERCLA.
CONCLUSION
For the reasons stated above, Hatco's motion for summary judgment that Grace's liabilities under CERCLA were not assumed by Hatco under the 1978 Sale Agreement will be granted. Grace's cross-motion on the same issue will be denied. Grace's motion for summary judgment in its favor on Hatco's claim under state common law for damage to property based on a theory of strict liability will be granted on the ground that Hatco's claims are time-barred by the statute of limitations. Hatco's motion to strike a number of defenses from Grace's Answer to the Second Amended Complaint to the extent they are asserted against Hatco's CERCLA claim will be granted as to paragraphs 74 through 82, 85 through 92, and 94 through 97 of the Answer, and otherwise denied. Hatco's motion for partial summary judgment against Grace on the issue of Grace's liability for all response costs under CERCLA will be denied. The parties' cross-motions for summary judgment on the issue whether response costs already incurred by Hatco to clean up one area of the site were incurred in compliance with the national contingency plan will both be denied. Last, Grace's motion for summary judgment that attorneys' fees are not recoverable by a private party in a response cost action under CERCLA will be granted, and Hatco's demand in Count I of its Second Amended Complaint for attorneys fees will be stricken. Hatco's cross-motion on the issue of attorneys fees will be denied.
ORDER
In accordance with the Court's Opinion filed herewith,
It is on this 27th day of July, 1992,
ORDERED that defendant's motion for a declaration that plaintiff assumed defendant's *1334 liabilities under CERCLA under the 1978 Sale Agreement is denied; and it is further
ORDERED that plaintiff's cross-motion for summary judgment declaring that defendant's liabilities under CERCLA were not assumed by plaintiff under the 1978 Sale Agreement is granted; and it is further
ORDERED that defendant's motion for summary judgment in its favor on Count II of plaintiff's Second Amended Complaint because plaintiff's claims are time-barred by the statute of limitations is granted; and it is further
ORDERED that plaintiff's motion to strike defenses from defendant's Answer to the Second Amended Complaint to the extent they are asserted against Count I of plaintiff's Second Amended Complaint is granted as to paragraphs 74 through 82, 85 through 92, and 94 through 97 of the Answer, and otherwise denied; and it is further
ORDERED that plaintiff's motion for partial summary judgment against defendant on the issue of defendant's liability for all response costs under CERCLA will be denied; and it is further
ORDERED that the cross-motions for summary judgment by plaintiff and defendant on the issue whether response costs already incurred by plaintiff to clean up one area of the site were incurred in compliance with the national contingency plan will both be denied; and it is further
ORDERED that defendant's motion for summary judgment that attorneys' fees are not recoverable by a private party in a response cost action under CERCLA will be granted, and the demand in Count I of plaintiff's Second Amended Complaint for attorneys fees will be stricken; and it is further
ORDERED that plaintiff's cross-motion on the issue of attorneys fees will be denied.
NOTES
[1] As continuing revelations indicate, federal, state and local governments have contributed directly to the substantial pollution of the United States.
[2] The Third Circuit Court of Appeals has observed that
CERCLA is not a paradigm of clarity or precision. It has been criticized frequently for inartful drafting and numerous ambiguities attributable to its precipitous passage.
Artesian Water Co. v. Government of New Castle County, 851 F.2d 643, 648 (3d Cir.1988).
[3] "Chemical" is defined in the Sale Agreement as "the Chemical Division of the Hatco Group of Seller as presently constituted, having its principal executive offices at Fords, New Jersey." Sale Agreement § 1.05.
[4] "Chemical Business" is defined in the Sale Agreement as "that business presently conducted by Chemical comprising the manufacture and sale of plasticisers and synthetic lubricants at a principal manufacturing location at Fords, New Jersey. For purposes of this agreement, `Chemical Business' does not include the business of purchase and resale of oxo-alcohols conducted by Chemical, or any interest of Seller in Grace Petrochemical." Sale Agreement § 1.06.
[5] "(JA 187)" refers to Exhibit 187 of the Joint Appendix submitted by the parties.
[6] Section 1.10 provides:
"Excluded Liabilities" means the following liabilities and obligations of Seller attributable to the Chemical Business for all periods ending on or prior to the date of the Closing: (a) all liabilities for taxes, including without limitation income taxes ..., (b) notes and accounts payable to other groups, divisions or other units or subsidiaries or affiliates of Seller, other than trade accounts arising from the purchase of goods, (c) liabilities against which the Seller is effectively insured, without regard to any deductible amounts, (d) product liabilities for personal injury, with respect to merchandise sold or shipped prior to the date of the Closing, (e) liabilities and obligations arising from claims asserted by any employee or former employee with respect to injury, sickness, disease or death or under any disability or workmen's compensation laws, (f) liabilities for which the corresponding assets are prepaid expenses and deferred charges, the benefit of which cannot be effectively transferred to Buyers, (g) liabilities and obligations arising from claims asserted by any of the former owners or managers of any predecessor company, any portion of the business or assets of which is included in the Chemical Business or the Chemical Assets, and (h) the liabilities specifically described in the schedule to this Section.
[7] The schedule to section 1.10 consists of the following items:
1. Alleged pollution of Sling Tail Brook on or about May 31, 1977.
2. Canton v. Buffalo Tank, et al., Superior Court of New Jersey, Middlesex County, Docket L-4354-77.
3. Potential claim by Norman Bresee for personal injury incurred at the Chemical plant in 1976.
4. Liloia v. E.I. duPont de Nemours & Co., Inc., et al., Superior Court of New Jersey, Essex County, Docket L-44267-76.
[8] Although the Court stated only that it "would expect" a broad waiver clause to include an allocation of risk of loss for CERCLA liabilities, 761 F. Supp. at 358 n. 15, it now makes clear that, at least in the context of an agreement negotiated at arms-length between sufficiently sophisticated parties, such a broad waiver of all liabilities will be sufficient to shift the risk of loss for CERCLA liabilities.
[9] Grace's reliance on Armotek Industries, Inc. v. Freedman, 790 F. Supp. 383 (D.Conn.1992) is similarly misplaced. Grace reads Armotek as finding a broad assumption of environmental liabilities from the presence of contract language limiting the time period in which claims could be asserted based on a breach of any of the warranties or representations in the sale agreement. The contract barred the assertion of such claims after three years from the date of sale. The contract provision on which the action was based was one in which the seller represented that it was in compliance with all environmental laws on the date of the sale. The Armotek court found that the purchaser could not recover any damages resulting from a condition that was in violation of environmental laws at the date of closing, because the action was brought after three years. It held that regardless of the legal theory for recovery, whether state statutory law, common law or CERCLA, the claim was barred because the agreement was unambiguous, and the claim asserted was based on a condition that was in violation of a Connecticut environmental law at the time of closing, and hence, in violation of the representation. Armotek is based on circumstances and an agreement very different in structure from that involved here. The Court therefore finds Armotek inapposite.
[10] "Expressio unius est exclusio alterius".
[11] The Court notes that its and the Haynes court's application of the canon of construction ejusdem generis to limit the scope of liabilities of "other liabilities and obligations" is not inconsistent with its rejection of the use of expressio unius, because ejusdem generis, unlike expressio unius, is consistent with and furthers the purpose of the substantive law to construe indemnity provisions narrowly.
[12] Thus, the issue whether extrinsic evidence could be considered to determine the scope of Kaufman's or Seabrook's knowledge to determine the breadth of indemnity need not be reached. The liabilities in issue could not have been known to Kaufman or Seabrook at the date of closing.
[13] Hatco's further argument that its claims constitute "continuing torts" for which the statute of limitations has tolled misconstrues that doctrine. The "continuing tort" doctrine has never been applied to a case like this, but has been restricted to claims of professional and medical malpractice where continuing negligent services have been provided to the plaintiff. See Erlich v. First Nat'l Bank of Princeton, 208 N.J.Super. 264, 299, 505 A.2d 220 (Law Div.1984). Further, it is limited to circumstances in which the negligent acts are continuous, not where, like in this case, the negligent acts were discrete, but damage is continuous. Diamond v. New Jersey Bell Telephone Co., 97 N.J.Super. 1, 3, 234 A.2d 96 (App.Div.1967), rev'd on other grounds, 51 N.J. 594, 242 A.2d 622 (1968).
[14] Those 16 defenses are: estoppel, ¶ 76; laches, ¶ 77; waiver, ¶ 78; unclean hands, ¶ 79; caveat emptor, ¶ 80; offset, ¶ 81; good faith, ¶ 85; governmental compulsion, ¶ 86; third-party causation, ¶ 87; absence of abnormally hazardous or dangerous activity, ¶ 88; contributory negligence, ¶ 89; comparative negligence, ¶ 90; assumption of risk, ¶ 91; secondary or passive liability, ¶ 92; failure to mitigate damages, ¶ 97; and lack of causation, ¶ 99.
[15] That the various substances found present at the site are "hazardous substances" is undisputed. See 42 U.S.C. § 9601(14) and 40 C.F.R. 302.4 (1991).
[16] A factual dispute has been raised by Grace as to whether the remaining $38,829.43 in invoices consisted solely of fees properly categorized as "response costs". | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1432457/ | 405 F. Supp. 698 (1975)
T. G. I. FRIDAY'S, INC.
v.
INTERNATIONAL RESTAURANT GROUP, INC.
INTERNATIONAL RESTAURANT GROUP, INC., et al.
v.
T. G. I. FRIDAY'S, INC.
Civ. A. Nos. 73-387, 74-13.
United States District Court, M. D. Louisiana.
December 16, 1975.
*699 *700 William C. Kaufman, III, Seale, Smith & Phelps, Baton Rouge, La., William D. Harris, Jr., Charles S. Cotropia, Richards, Harris & Medlock, Dallas, Tex., for T.G.I. Friday's, Inc.
John V. Parker, Gerald E. Songy, Sanders, Miller, Downing & Kean, Baton Rouge, La., Charles C. Finch, Batesville, Miss., for Intern. Restaurant Group, Inc., Tiffany English Pub. Inc., F. R. Trainor and Ben E. Pittman.
E. GORDON WEST, District Judge:
These cases involve claims of service mark infringements, unfair trade practices, and breaches of a restaurant licensing agreement. T.G.I. Friday's, Inc. (Friday's), a New York corporation engaged in the restaurant and bar business, brought suit against International Restaurant Group, Inc. (International), alleging service mark infringement, unfair competition, and breach of a licensing agreement entered into between Friday's *701 and a corporation known as Tiffany English Pub, Inc. (Tiffany). It seeks both injunctive relief and monetary damages. International Restaurant Group, Inc. and its two major stockholders, Ben E. Pittman and Frank R. Trainor, brought suit against T.G.I. Friday's, Inc. seeking a declaratory judgment that it, International, was not and is not bound by the licensing agreement referred to in the suit brought by Friday's. The two suits were consolidated for trial. For convenience, in this opinion T.G.I. Friday's, Inc., or Friday's, will be referred to as the plaintiff, and International Restaurant Group, Inc. and its major stockholders will be referred to as the defendants.
The cases involve the operation by International of a restaurant in Baton Rouge, Louisiana, under the name of "Ever Lovin' Saturday's," which Friday's contends is confusingly similar to its restaurants operated under the name of "T.G.I. Friday's." Both restaurants employ what is known in the trade as a "turn of the century" motif.
Plaintiff contends that International's use of the designation "E. L. Saturday's" or "Ever Lovin' Saturday's" for a restaurant business infringes its federal service mark "T.G.I. Friday's" in violation of the Lanham Act, 15 U.S.C. § 1114(1), and its Louisiana service mark "Saturday's" in violation of La.R.S. 51:222. Defendants deny that their adoption and use of the restaurant name "E.L. Saturday's" or "Ever Lovin' Saturday's" would likely cause confusion as to the source of the restaurant services it offers the consuming public, and denies that Friday's federal or state service marks have been infringed.
Plaintiff further contends that International, through its principal owners and operating officers, Ben E. Pittman and Frank R. Trainor, both Mississippi citizens, utilized the name and reputation of the Friday's establishment in Jackson, Mississippi, to organize and promote the Saturday's restaurant in Baton Rouge. Plaintiff alleges that Pittman and Trainor acquired knowledge of the concepts of plaintiff's restaurant operations through their experience as owners and operators of a corporation known as Tiffany English Pub, Inc. (Tiffany), the licensee-operator of the Friday's franchise in Jackson, Mississippi, and that their promotion of Saturday's in Baton Rouge, including the appropriation of Friday's "trade dress," constitutes unfair competition. The defendants deny this contending that plaintiff provided Tiffany no special expertise to operate Friday's in Jackson, Mississippi, which was utilized to operate Saturday's in Baton Rouge, and that plaintiff has no exclusive right to a "turn-of-the-century" theme in its restaurant operations.
Finally, plaintiff contends that the obligations imposed upon Tiffany under the licensing agreement for the Friday's franchise in Jackson were binding upon, and were breached by Pittman and Trainor individually, and by International, in their operation of Saturday's in Baton Rouge. The defendants deny this contention on the grounds that International was not a party to the franchise agreement between Friday's and Tiffany; that it was formed in good faith by Pittman and Trainor for legitimate purposes as a separate business venture from Tiffany; that the assets and liabilities of the two corporations are distinct and have never been commingled; and that the two corporations have never been mere agencies for the transaction of Pittman and Trainor's own private business. Thus, the defendants urge that plaintiff cannot "pierce the corporate veil" to impose personal liability on Pittman and Trainor. The defendants further urge that the licensing agreement between plaintiff and Tiffany was signed by Pittman and Trainor only on behalf of Tiffany, and was not binding upon them individually, nor upon International.
Defendants seek a declaratory judgment to the effect that the restaurant licensing agreement entered into between *702 Tiffany and Friday's, Inc. in no way interferes with their rights to operate the Saturday's establishment in Baton Rouge. They further claim to be entitled to an injunction permanently enjoining Friday's, Inc. from interfering in any way with the operation of the Saturday's restaurant in Baton Rouge or in any other location. Friday's, Inc. counter-claims for a declaratory judgment that International, Tiffany, Pittman, and Trainor either individually or collectively violated Section 14 of the licensing agreement pertaining to "Other Tradenames and Marks." In that section, Tiffany acknowledged plaintiff's "vital interest" in the marks "Tuesday's," "Wednesday's," "Thursday's," and "Sunday's," and agreed not to use "the names of the days of the week, singly or in combination . . . in connection with the operation of a business" other than the Friday's franchise in Jackson, Mississippi. Friday's, Inc. further counter-claims for injunctive relief to permanently enjoin the defendants from any "further violations" of the licensing agreement, and from operating any business, other than the Friday's in Jackson, that "utilizes the names of the days of the week singly or in combination."
These consolidated cases were tried to the Court without a jury on June 11 and 12, 1975. After careful consideration of the evidence and the excellent briefs of counsel, the Court concludes that defendant International's use of the designations "E. L. Saturday's" or "Ever Lovin' Saturday's" did not infringe plaintiff's federal service mark "T.G.I. Friday's"; that plaintiff's Louisiana service mark "Saturday's" is not entitled to infringement protection due to non-use, and that the overall business conduct of International, Pittman, and Trainor did not, as a matter of law, constitute unfair competition. The Court further concludes that Tiffany did not breach the licensing agreement, but assuming arguendo that it did, plaintiff failed to prove any sustained damage as a result. Finally, the Court concludes that the licensing agreement between plaintiff and Tiffany did not bind Pittman and Trainor individually, nor International, and further assuming a breach of the agreement by Tiffany, that corporateness could not be disregarded to impose personal liability on Pittman and Trainor. International, Pittman, and Trainor are thus entitled to declaratory and injunctive relief as requested. In connection herewith, the Court makes the following findings of fact and conclusions of law.
FINDINGS OF FACT
"T.G.I. Friday's" was the brainchild of Alan Stillman, a former beauty oils salesman, who in 1965 founded the first Friday's restaurant on the upper East side of Manhattan in New York City as a "restaurant/bar and gathering place" for upwardly mobile single adults. The timeliness of Stillman and his business partner's decision to capitalize on the burgeoning singles entertainment market soon became evident. Their efforts yielded over one-half million dollars gross profit in their first year of business, and led to other restaurant ventures which apparently have been equally successful. These other establishments, all in New York City, have been variously named "Tuesday's," "Wednesday's," "Thursday's," and "Sunday's," all possessing themes distinct from each other and from "T.G.I. Friday's".
The basic theme of the original Friday's in New York and subsequent Friday's establishments located elsewhere in the United States is "turn-of-the-century," that is, an eclectic collection of Tiffany lamps, stained glass, old pictures, outdoor awnings, beadboard walls, tin ceilings, and other period pieces which suggest an atmosphere circa the late 1800's through the late 1920's.
Stillman and his original partner, Lawrence Horton, initially formed Euromart, Inc. which wholly owned Friday's in New York City. They then formed Friday's, Inc. in 1969 to organize and promote other Friday's franchises in locations outside of the New York City *703 metropolitan area. On October 29, 1970, Euromart, Inc. contractually granted plaintiff the exclusive license to use the name "Friday's" in connection with the operation of restaurants, bars, and grills. This contract further granted plaintiff the right to enter into agreements with third parties conferring the right to use of the name "Friday's." This exclusive licensing authority vested in plaintiff became effective on May 1, 1970.
"T.G.I. Friday's" was registered by Euromart, Inc. as a service mark for restaurant and liquor bar services with the Principal Register of the United States Patent Office on December 14, 1971, based upon use of the mark since March 15, 1965. (Principal Register #925,656) The federal registration is effective for a term of twenty years from the date of registry and has been in effect at all times pertinent to this litigation.
Plaintiff undertook its corporate development by granting licenses to third parties to operate "T.G.I. Friday's" restaurants in Dallas, Memphis, Nashville, and Little Rock. Obviously, plaintiff's federal service mark has been used in interstate commerce. On December 15, 1971, defendant Tiffany, a Mississippi corporation with its principal place of business in that State, entered into the restaurant licensing agreement here at issue with plaintiff, under which Tiffany was granted an exclusive license to operate a "T.G.I. Friday's" restaurant in the Jackson, Mississippi, metropolitan area. Among the provisions of this contract, Tiffany as licensee bound itself in the following manner:
"14. OTHER TRADENAMES AND MARKS
A. Licensee acknowledges (1) that Licensor has a vital interest in the names and marks, `Tuesday's', `Wednesday's', `Thursday's', and `Sunday's' (the `other marks') and expects to develop interest in businesses operated under the other marks; (2) that Licensor's present use of the other marks has materially assisted in the creation of the national image and goodwill associated with `T.G.I. Friday's' and (3) that no rights to the use of the other marks is granted hereby.
B. Licensee covenants and warrants that during the term of this agreement and subsequent to its termination Licensee, its successors or assigns, shall not utilize the names of the days of the week singly or in combination with other words in connection with the operation of a business."
* * * * * *
The negotiations preceding the execution of the agreement were conducted by defendants Pittman and Trainor, who own all of the Tiffany stock and are the chief operating officers of the corporation. The Court finds that Pittman and Trainor signed the licensing agreement on Tiffany's behalf, and not in their individual capacities.
Prior to Friday's opening in Jackson, plaintiff assisted Tiffany by providing an "opening team", recipes, an "Operations Manual", and sources of items needed to furnish the restaurant. The assistance rendered was general in nature and was provided to insure that the franchise would conform to the specifications of the licensing agreement. No showing was made by plaintiff at trial to indicate that any of the information provided Tiffany was to be kept confidential. The Jackson franchise opened for business on October 19, 1972, and has been operating successfully since then pursuant to plaintiff's manual.
During 1972, T.G.I. Friday's Group, Inc., the Dallas licensee, statutorily merged with plaintiff. Plaintiff then redetermined its development strategy, and proceeded to repurchase the existing Friday's franchises in Dallas and Nashville. Plaintiff began directly controlling the day-to-day operation of these establishments through its Dallas office, and planned to open new stores under its own aegis to insure quality control and development of its desired public image.
*704 Plaintiff has promoted its public image by in-store advertising through the use of special placemats, menus, matches, bar napkins, etc., featuring all the days of the week, including Saturday. However, we believe that the use of "Saturday" in this manner was merely decorative and was not intended for use as a service mark.
Plaintiff has also advertised in publications aimed at the affluent 18-40 year age group, such as airline in-flight magazines, but has never advertised locally in the Baton Rouge area. Friday's restaurants have been featured in articles in national publications including Playboy, Newsweek, Holiday, The New York Times, and the old Saturday Evening Post. The Court finds that plaintiff has acquired regional reputations, but not a national reputation, in those metropolitan areas where its establishments are located.
During December 1972, Pittman and Trainor went to Dallas to discuss the possibility of purchasing an additional franchise for a Friday's operation in Baton Rouge or New Orleans. They were informed by plaintiff's Board of Directors that corporate strategy precluded the negotiation of another franchise. Plaintiff made an offer to repurchase the Jackson franchise from Tiffany, which Pittman and Trainor rejected.
Their desires frustrated, Pittman and Trainor formed International on February 15, 1973, for the purpose of opening "Ever Lovin' Saturday's" in Baton Rouge. Pittman and Trainor, President and Vice-President respectively, own controlling interest in International. Both Tiffany and International initially operated out of the same office space in Jackson which was leased by Tiffany, and contributed to by International. Both corporations utilized the services of the same attorneys and accountants. The financial structures and assets of the two corporations, though, have consistently been segregated.
International conducted business for a short while under Friday's letterhead until "Ever Lovin' Saturday's" stationery was ordered. Certain bills incurred by International as organizational costs of "Ever Lovin' Saturday's" were incorrectly addressed to "T.G.I. Friday's" in Jackson. Obviously some of these suppliers furnishing items to International were unsure whether there was any connection between "T.G.I. Friday's" and the embryonic "Ever Lovin' Saturday's". We believe that the evidence of misdirected billings to Friday's in Jackson does not indicate any likely consumer confusion of Saturday's with Friday's, since Saturday's was then only in its conceptual stages.
Pittman and Trainor also used Friday's letterhead to communicate with Ron Evans, the leasing agent for Corporate Mall, Inc., about securing a building lease to locate Saturday's in Baton Rouge. A financial statement of the Jackson Friday's was also sent to Evans under the Friday's letterhead. Various letters of recommendation were sent to Evans by Jackson, Mississippi, businessmen who highly recommended Pittman and Trainor as reputable, successful men whose "T.G.I. Friday's" restaurant had quickly flourished. These recommendations were purely personal in nature and conveyed the feelings of these men that Pittman and Trainor were good people with whom to do business. Their business credentials and references being in order, Pittman and Trainor then met Evans in his Baton Rouge office to discuss the possibility of establishing Saturday's in Corporate Mall, a Baton Rouge shopping center under construction and owned by Corporate Mall, Inc. Evans clearly understood that Pittman and Trainor were only licensees of plaintiff, and that any restaurant venture at Corporate Mall would be theirs alone and would not have the financial backing or sponsorship of plaintiff. They were very candid in their representations, and never pretended that they could bring a Friday's restaurant to Baton *705 Rouge. They did indicate, though, that the proposed establishment would be "Friday's-like" in style and atmosphere.
The Court finds that Pittman and Trainor were only attempting to impress Corporate Mall, Inc. with their track record as the operators of the successful Friday's franchise in Jackson. This they accomplished by furnishing Evans with their franchise's financial statement which reflected their efforts as restaurateurs. They surely were not trying to capitalize on plaintiff's goodwill and reputation since they admitted that they were only the owners of plaintiff's Jackson licensee, and that any venture at Corporate Mall would not be affiliated with the plaintiff. The Court further finds that Pittman and Trainor did not use either Tiffany or International as mere agencies to conduct their own personal business. Both corporations were formed for the purpose of operating restaurants, and that is how their respective affairs have been consistly conducted.
Prior to the time the construction and lease agreements were entered into between International and Corporate Mall, Inc., but after negotiations had begun, Evans contacted plaintiff's Executive Vice-President in Dallas, Daniel R. Scoggin, to see if plaintiff would be interested in expanding to Baton Rouge. Evans, who was charged with securing tenants for Corporate Mall, really preferred having plaintiff locate there because of its superior Dun & Bradstreet report. Walter Henrion, plaintiff's Vice-President in charge of development, went to Baton Rouge at Evans' invitation to investigate Corporate Mall as a potential site for a Friday's restaurant. Evans told Henrion that he was negotiating with International and that plaintiff would have one week to make a decision. After its request for an extension of time was rejected by Corporate Mall, Inc., plaintiff decided that it did not have enough time for preliminary investigation necessary to enable it to make an informed decision whether to locate in Baton Rouge, so it decided against it.
On April 13, 1973, International and Corporate Mall, Inc. entered into the construction and lease agreements. Pittman and Trainor subsequently formed an "opening team" of ten to twelve persons headed by manager Larry Foles to assist in preparation for Saturday's "grand opening." Several of these persons were former employees of Friday's in Jackson, who had been terminated by Tiffany and put on International's payroll. "Ever Lovin' Saturday's" opened for business on or about December 30, 1973, and has been profitably operating ever since.
The Court finds that there is no likelihood of confusion between the marks "T.G.I. Friday's" and "E. L. Saturday's" or "Ever Lovin' Saturday's." Considering the marks in their separate totalities, it is obvious that no reasonably prudent prospective customer would likely confuse Saturday's with Friday's simply by observing the restaurant designation "Ever Lovin' Saturday's." The marks, or names themselves, are just too dissimilar.
Saturday's is virtually identical to a Friday's restaurant thematically. The same illustrative items mentioned at the beginning of these findings which are employed in a Friday's restaurant to create the desired `turn-of-the-century" effect are to be found at Saturday's. It is an inescapable fact that Saturday's "trade dress" mirrors that of Friday's.
The service marks "E. L. Saturday's" and "Ever Lovin' Saturday's" were registered by International with the Louisiana Secretary of State's office on January 14, 1973, for restaurant and bar services. The service mark "Saturday's" was registered by plaintiff with the Louisiana Secretary of State's office on June 14, 1973, likewise, for restaurant and bar services. However, while International has operated "E. L. Saturday's" or "Ever Lovin' Saturday's" since December 30, 1973, plaintiff has never *706 operated any restaurant/bar operation in Louisiana or elsewhere under the mark "Saturday's".
CONCLUSIONS OF LAW
This Court has jurisdiction over the infringement and unfair competition claims asserted in this matter. 15 U.S. C. § 1121; 28 U.S.C. § 1338; 28 U.S.C. § 1331. Because there is complete diversity between the plaintiff and all defendants, we have jurisdiction over the contract claim as well. 28 U.S.C. § 1332.
I. The Federal Infringement Claim
The thrust of plaintiff's federal infringement claim is that defendant International's use of "E. L. Saturday's" or "Ever Lovin' Saturday's" as a restaurant name will likely cause confusion in the public's mind with its service-marked "T.G.I. Friday's" restaurants, in violation of 15 U.S.C. § 1114(1)(a), which provides, in pertinent part, that:
"(1) Any person who shall, without the consent of the registrant
(a) use in commerce any . . . colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any . . . services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive;
* * * * * *
shall be liable in a civil action by the registrant . . ."
Thus, "likelihood of confusion" is the applicable test for determining the existence vel non of infringement both in trademark litigation[1] and in service mark litigation[2]. Though "likelihood of confusion" is treated as a finding of fact in this circuit, Holiday Inns, Inc. v. Holiday Out in America, 481 F.2d 445 (CA 5 1973), and a conclusion of law in the Ninth Circuit, U. S. Jaycees v. San Francisco Chamber of Commerce, 354 F. Supp. 61 (N.D.Calif.1972), aff'd 513 F.2d 1226 (CA 9 1975), we believe it to be a mixed question since the determination carries its own legal effect. Our determination is based upon the factors set forth in the Restatement of Torts, § 729[3], which we believe to be relevant to the facts of this case. McCarthy, J. Thomas, Trademarks and Unfair Competition (1973), § 23:4, p. 41, fn. 17.
The mark "T.G.I. Friday's" and the designations "E. L. Saturday's" or "Ever Lovin' Saturday's" are dissimilar visually and phonetically when compared in their entireties. Massey Junior College, Inc. v. Fashion Institute of Technology, 492 F.2d 1399 (CCPA 1974). We do not believe that they would connote the same idea or mental reaction among reasonably prudent consumers since each mark was coined arbitrarily without being descriptive or suggestive of the respective restaurant services offered. Though the question of intent to avoid infringing a federally registered mark is immaterial, Coca-Cola *707 Co. v. Gemini Rising, Inc., 346 F. Supp. 1183 (D.C.N.Y.1972), there is no doubt but that Pittman and Trainor's intent in adopting the designation "Ever Lovin' Saturday's" was to avoid infringing plaintiff's federally registered service mark, since they had been warned of a possible infringement suit as early as April 13, 1973. We believe that they succeeded. Finally, while the services and marketing methods of these respective parties are essentially identical, we believe that reasonably prudent consumers in the Baton Rouge market would not be likely to confuse "Ever Lovin' Saturdays" with "T.G.I. Friday's" since plaintiff has never directly competed with International in this area and has never advertised locally. Penn Fishing Tackle Mfg. Co. v. Pence, 505 F.2d 657 (CA 5 1974); Safeway Stores v. Stephens, 281 F. Supp. 517 (W.D.La.1967). The evidence of actual confusion among a few restaurant suppliers who misdirected some billings for Saturday's organization costs to Friday's in Jackson we regard as de minimis and not material to the issue of likely consumer confusion. Holiday Inns, Inc. v. Holiday Out in America, supra; Allstate Ins. Co. v. Allstate Investment Corp., 210 F. Supp. 25 (W.D.La.1962).
Based upon our finding that there is no likelihood of confusion between plaintiff's federal service mark "T.G.I. Friday's" and International's designations "E. L. Saturday's" or "Ever Lovin' Saturday's", the Court concludes that plaintiff's mark has not been infringed.
II. The State Infringement Claim
Plaintiff contends that International's use of "E. L. Saturday's" or Ever Lovin' Saturday's" infringes its registered Louisiana service mark "Saturday's", in violation of La.R.S. 51:222(1), which provides in part that:
Any person who shall:
(1) use, without the consent of the registrant, any reproduction . . . or colorable imitation of a mark registered under this Sub-part in connection with the sale, offering for sale, or advertising of any goods or services on or in connection with which such use is likely to cause confusion . . . or to deceive as to the source of origin of such goods or services . . .
* * * * * *
shall be liable to a civil action by the owner of such registered mark . . ."
We disagree. Plaintiff's registration of "Saturday's" with the Louisiana Secretary of State on June 14, 1973, as a State service mark has been substantively ineffective since plaintiff has never operated any restaurant or other business by that name in Louisiana or elsewhere. As stated by the court in Buyers and Traders Service, Inc. v. Car Maintenance Specialists of Baton Rouge, La., Inc., 290 So. 2d 753 (La.App. 1st Cir. 1974), writ refused 294 So. 2d 550:
"It is well settled that the mere registration of a trademark or trade name [or service mark] does not thereby create any substantive rights concerning its use, but confers only procedural advantages and remedies for the protection of the trademark or trade name [or service mark]." At 757.
Priority of appropriation by use determines a party's proprietary interest in a mark. Metalock Corp. v. Metal-Locking of La., Inc., 260 So. 2d 814 (La.App. 4th Cir. 1972), writ denied, 262 La. 189, 262 So. 2d 788; Couhig's Pestaway Co., Inc. v. Pestaway, Inc., 278 So. 2d 519 (La. App. 3rd Cir. 1973).
Thus, plaintiff has never acquired proprietary interest in its State service mark "Saturday's", and that mark is not entitled to infringement protection.
III. The Unfair Competition Claim
Because there is complete diversity between the plaintiff and all defendants in this matter, the Court believes *708 that Louisiana substantive law should govern the unfair competition claim. McCarthy, supra., § 32:13, p. 456; Neal v. Thomas Organ Co., 325 F.2d 978 (CA 9 1963); Volkswagenwerk Aktiengesellschaft v. Church, 256 F. Supp. 626 (S.D.Calif.1966), aff'd 411 F.2d 350 (CA 9 1969); PGA v. Bankers Life & Casualty Co., 514 F.2d 665, 671 (CA 5 1975).
In Louisiana, to sustain an action for unfair competition,
"it is a prerequisite to injunctive relief that fraud be established on the part of the defendant and the burden of establishing that fraud is upon the plaintiff. The law has always been reluctant to presume fraud." Straus Frank Co. v. Brown, 246 La. 999, 169 So. 2d 77, at 80 (La.S.Ct.1964).
Though this jurisprudential requirement has been criticized (see e. g., Martin and Springgate, Protection of a Businessman's Proprietary Information, 32 La. L.Rev. at 526 (1972); Robinson, Tradenames and Trademarks State and Federal; Some Random Observations, 22 La.Bar Journal 179 (1974)), courts have adhered to it. United Distributors, Inc. v. United Distributing of Shreveport, Inc., 273 So. 2d 871 (La.App. 2nd Cir. 1973); Couhig's Pestaway Co., Inc. v. Pestaway, Inc., supra; LeFebure Corp. v. Lefebure, Inc., 284 F. Supp. 617 (E.D.La.1968). However, since at common law "likelihood of consumer confusion and passing off one's goods or services as those of another constitute the gravamen of the [unfair competition] action", PGA v. Bankers Life & Casualty Co., supra., at 671, we believe that this would be tantamount to fraud, with the result being the same whether Louisiana or common law is applied.
In this case, any fraud would had to have been perpetrated either upon Corporate Mall, Inc. or the consuming public. Corporate Mall, Inc. was not deceived, since they were fully aware that Pittman and Trainor did not represent plaintiff. The fact that Evans, the leasing agent, gave plaintiff's representatives an opportunity to locate in Corporate Mall after negotiations with International had begun supports the conclusion that International, through Pittman and Trainor, did not misrepresent itself to secure a location to begin business. Pittman and Trainor's submission of the Jackson franchise's financial statement to Evans did not constitute trading upon plaintiff's goodwill and reputation because, as Tiffany's operating officers, they had every right to utilize their company's financial statement in an effort to impress Evans with their management skills. The fact that Tiffany held plaintiff's franchise is really not significant in view of Pittman and Trainor's straightforward representations to Corporate Mall, Inc. as to International's nonaffiliation with the plaintiff in the venture.
Plaintiff further alleges in support of its unfair competition claim that International simulated Friday's "trade dress" in promoting Saturday's by using identical antiques, outside awnings, Tiffany lamps, stained glass, etc. to furnish the place. We have so found. But as stated by McCarthy, supra., at § 8:2, p. 232,
"In cases of alleged confusingly similar trade dress . . ., most courts hold that proof of secondary meaning is a condition precedent to obtaining protection against such acts under the common law of unfair competition. That is, plaintiff must prove that the public has come to associate the total `image' of plaintiff's package [service] with one source."
While most of the cases revealed by our extensive research dealing with "trade dress" simulation involved similar product labelling, product packaging, building and vehicle designs, we believe the majority view as expressed above would be applied in this instance by Louisiana courts. See, McCarthy, supra., § 7:34-35, and Ch. 8; Annotations in 17 ALR *709 784, 28 A.L.R. 114. The Court concludes that plaintiff has failed to prove that the consuming public in this area associates its "trade dress" exclusively with its restaurants and with no one else's. The fact that there are hundreds of "turn-of-the-century" restaurants in the United States negates any realistic possibility that reasonably prudent consumers in the Baton Rouge area would be likely to confuse Saturday's with Friday's despite the overall resemblance of their images. In arriving at this conclusion, we again take into account, as we must, the obvious dissimilarity between the marks "Ever Lovin' Saturday's" and "T.G.I. Friday's". McCarthy, supra., § 8:1, p. 230, and cases cited under fn. 3. Despite plaintiff's fairly extensive advertising and favorable national press, we are convinced that its restaurants' motif is no more well known in this area than is, for example, Hoolihan's restaurant in New Orleans. Thus, the consuming public has not been deceived or defrauded into confusing the source of Saturday's restaurant services. Bonanza, Int'l v. Double "B", 331 F. Supp. 694 (D.Minn.1971); Shakey's v. Martin, 91 Idaho 758, 430 P.2d 504 (Idaho S.Ct.1967).
Plaintiff finally argues in support of this claim that Pittman and Trainor utilized their "collective know-how" gained as the principal operators of plaintiff's Jackson licensee to promote Saturday's in Baton Rouge. It is a fact that Tiffany was provided with Friday's "Operations Manual", recipes, sources of restaurant supplies, and general organizational assistance. However, we do not believe that anything learned by Pittman and Trainor was in the nature of "trade secrets" which would be protected against unauthorized use. No evidence was adduced at trial which indicated that the proprietary information gained by Pittman and Trainor was unique to plaintiff's operations. Nor was evidence adduced which indicated that the "know-how" imparted to Pittman and Trainor through plaintiff's "Operations Manual" was either expressly or impliedly confidential. Cf. Martin and Springate, supra, 32 La.L.Rev. at 515; contrast McDonald's Corp. v. Moore, 243 F. Supp. 255 (S.D.Ala.1965), aff'd per curiam, 363 F.2d 435 (CA 5 1966). As stated by the Court in Wheelabrator Corp. v. Fogle, 317 F. Supp. 633, at 639 (W.D.La.1970):
"To limit a man in the exercise of his knowledge there must be a strong showing that the knowledge was gained in confidence."
Plaintiff has failed to carry its burden of proving the confidentiality of the information provided Tiffany as its licensee. Pittman and Trainor, as the principal operators of plaintiff's licensee, were not precluded from using their knowledge to promote Saturday's. International, Pittman, and Trainor did indeed toe a very tight line in promoting Saturday's, but the Court concludes for the above reasons that they did not cross it to unfairly compete with the plaintiff.
IV. The Contract Claim
Plaintiff and Tiffany expressly agreed that the provisions of the licensing agreement would be construed in accordance with New York law, and we are so bound. Clurman v. Clurman, 373 N.Y.S.2d 951 (N.Y.Sup.Ct.1975); B. M. Heede, Inc. v. West India Mach. & Supply Co., 272 F. Supp. 236 (D.C.N.Y. 1967).
The contract claim is based upon these parties' dispute over the meaning of sub-Section 14(B) of the licensing agreement, supra. Plaintiff's position is that sub-Sections 14(A) and 14(B) "are reconcilable and that each is free from conflict or ambiguity when considered separately or in conjunction with the other. * * * Had the authors of the contract intended sub-Section 14(B) to be read as limited to the scope of sub-Section 14(A), then its language `the other marks' would have been used in sub-Section (B) instead of the very clear encompassing language `the names of the days of the week'". The defendants' *710 position is that sub-Section 14(B) "does not prohibit the use of the word Saturday or a combination thereof by any party", or stated differently, that the two sub-Sections must be read together to construe the meaning of the language "the names of the days of the week" contained within sub-Section (B). It is this Court's opinion that this language is ambiguous when read in para materiae with sub-Section (A) of section 14.
It is hornbook law that all provisions must be considered together when construing the intent of a particular term of a contract, and "as between possible interpretations of an ambiguous term, that will be chosen which best accords with the sense of the remainder of the contract". Rentways, Inc. v. O'Neill Milk & Cream Co., 308 N.Y. 342, 126 N.E.2d 271, 273 (CANY 1955).
We believe that the most sensible meaning to attribute to the phrase "the names of the days of the week" is to limit it to those days designated as "other marks" in sub-Section (A). While this construction resolves the ambiguity against plaintiff, as the drafter of the contract, Rentways, supra, it does not leave sub-Section (B) without force and effect. Muzak Corp. v. Hotel Taft Corp., 1 N.Y.2d 42, 150 N.Y.S.2d 171, 133 N.E.2d 688 (CANY 1956). Tiffany is still prevented from using those marks in which plaintiff has a "vital interest" and contemplates using in Tiffany's territory. We believe that common sense dictates that utilization of "Saturday" was not proscribed by sub-Section (B)'s terms, since plaintiff expressed no intention to develop "Saturday" as a service mark, and in fact has not done so.
Accepting arguendo plaintiff's assertion that Tiffany breached sub-Section (B), the Court concludes that plaintiff has failed to prove that it suffered any damage as a result. Plaintiff never used the word "Saturday" as a service mark to gain substantive rights of protection against infringement. U. S. v. Steffens, 100 U.S. 550, 25 L. Ed. 78 (1879). Plaintiff's decorative use of "Saturday" on its placemats and napkins did not constitute such a use. It therefore had no propriety interest in the name "Saturday" and was not harmed by any breach of sub-Section (B).
Because we principally have concluded that Tiffany did not breach the contract, we need not deal with the "alter-ego" theory of liability at length. Since Tiffany was not bound to refrain from using "Saturday", the cases relied upon by plaintiff to support this theory are inapposite. No evidence was produced even tending to show that Pittman or Trainor ever disregarded corporateness to use the corporations as mere agencies to conduct their own private business. Texas Industries, Inc. v. Dupuy & Dupuy Developers, Inc., 227 So. 2d 265 (La.App. 2nd Cir. 1969); Altex Ready-Mix C. Corp. v. Employers Com'l U. I. Co., 308 So. 2d 889 (La.App. 1st Cir. 1975). Thus, the "alter-ego" theory is inapplicable to the facts.
Secondly, the only parties to the franchise agreement were plaintiff and Tiffany. Pitman and Trainer were not parties to it, since they signed only in their representative capacities. Cefalu v. N. Cefalu Co., Inc., 253 So. 2d 547 (La.App. 1st Cir. 1971). It hardly needs mentioning that International was not a party since it was not even in existence when the contract was confected.
V. Conclusion
For these reasons, the defendants are entitled to declaratory and injunctive relief as requested. Counsel for defendants shall submit proposed decrees in accordance with these findings as to each of these two cases.
NOTES
[1] Roto-Rooter Corp. v. O'Neal, 513 F.2d 44 (CA5 1975); Continental Motors Corp. v. Continental Aviation Corp., 375 F.2d 857 (CA5 1967); Abramson v. Coro, Inc., 240 F.2d 854 (CA5 1957).
[2] Boston Pro Hockey Ass'n. v. Dallas Cap & Emblem Mfg., Inc., 510 F.2d 1004 (CA5, 1975); Liberty Mutual Ins. Co. v. Liberty Ins. Co., 185 F. Supp. 895 (D.C.Ark.1960); Mr. Travel, Inc. v. VIP Travel Service, Inc., 268 F. Supp. 958 (D.C.Ill.1966), aff'd per curiam 385 F.2d 420.
[3] "In determining whether the actor's designation is confusingly similar to the other's trade-mark or trade name, the following factors are important:
(a) the degree of similarity between the designation and the trade-mark or trade name in
(i) appearance;
(ii) pronunciation of the words used;
(iii) verbal translation of the pictures or designs involved;
(iv) suggestion;
(b) the intent of the actor in adopting the designation;
(c) the relation in use and manner of marketing between the goods or services marketed by the actor and those marketed by the other;
(d) the degree of care likely to be exercised by purchasers." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1801186/ | 370 F. Supp. 403 (1974)
Dolores LEBRON, Plaintiff,
v.
SECRETARY OF HEALTH, EDUCATION AND WELFARE, Defendant.
Civ. No. 1144-72.
United States District Court, D. Puerto Rico.
January 24, 1974.
*404 Jorge Meaux-Davila, Juncos, P. R., for plaintiff.
Asst. U. S. Atty. Ignacio Rivera-Cordero, San Juan, P. R., for defendant.
MEMORANDUM OPINION AND ORDER
CANCIO, Chief Judge.
This is an action seeking review of a final decision of the Secretary of Health, Education and Welfare denying plaintiff an application for disability insurance benefits under Sections 216(i) and 223(d) of the Social Security Act, as amended, 42 U.S.C. §§ 416(i) and 423(d).
Plaintiff filed an application for a period of disability and disability insurance benefits on August 11, 1971 indicating that he became unable to work on December 5, 1970 at the age of 41. His application was denied by the Social Security Administration both at the initial and reconsideration levels and the plaintiff filed for a hearing which was held before the Administrative Law Judge on September 16, 1972. In his decision issued on September 26, 1972, the Administrative Law Judge found that the plaintiff was not disabled for Social Security purposes and the plaintiff thereafter requested a review by the Appeals Council which, on November 20, 1972, confirmed the decision of the Administrative Law Judge thus making such decision the final decision of the Secretary.
The only issue before this Court is whether the decision of the Secretary of Health, Education and Welfare, that plaintiff was not entitled to a period of disability or to disability insurance benefits under the Act, is supported by substantial evidence from the record as a *405 whole. 42 U.S.C.A. Section 423(d) requires the claimant, in order to establish his claim, to show, considering his age, education and work experience, along with his impairment, his inability to engage in any substantial gainful work "which exists in the national economy, regardless of whether such work exists in the immediate area in which he lives, or whether a specific job vacancy exists for him, or whether he would be hired if he applied for work . . ."
Further, "work which exists in the national economy" is defined as "work which exists in significant numbers either in the region where such individual lives or in several regions of the country."
For purposes of this subsection, a "physical or mental impairment" is an impairment that results from anatomical, physiological, or psychological abnormalities which are demonstrable by medically acceptable clinical and laboratory diagnostic techniques.
In addition to the above provisions of the Social Security Act, the Secretary of Health, Education and Welfare, pursuant to the authority vested in him by Sections 205(a) and 223(d)(2)(B) of the Social Security Act, 42 U.S.C.A. Sections 405(a) and 423(d)(2)(B), has adopted regulations (32 CFR 404.1540-06) which set forth general criteria for the evaluation of disability. These regulations, as issued subsequent to the 1967 amendments to the Social Security Act, contain an Appendix (Subpart P) which lists specific impairments which are deemed preclusive of any gainful activity. Among such impairments listed are peptic ulcers. Under Sections 5.04 and 5.08 of the Appendix, an individual suffering from peptic ulcers is presumptively disabled for social security purposes if he meets the criteria established therein.
Under the criteria described by the above-cited regulations for peptic ulcers, a male individual whose height is 68 inches, is presumptively disabled under the Social Security Act if it is shown that he has:
1. Peptic ulcer or residuals or complications therefrom and
2. Weight loss or malnutrition resulting from malabsorption, assimilation or decreased caloric intake and
3. (a) Weight equal to or less than 109 lbs. or
(b) Weight greater than 109 lbs. but 116 lbs. or less and one of the 7 abnormal laboratory test findings listed in Section 5.08(B).
Section 205(g) of the Act provides that "the findings of the Secretary as to any fact, if supported by substantial evidence, shall be conclusive." Accordingly, the Secretary's findings, if reasonable, should not be disturbed by the Court on review. Richardson v. Perales, 402 U.S. 389, 91 S. Ct. 1420, 28 L. Ed. 2d 842 (1971); NLRB v. Walton Manufacturing Co., 369 U.S. 404, 82 S. Ct. 853, 7 L. Ed. 2d 829 (1962). It has also been held that the conclusive effect of the substantial evidence rule applies not only with respect to the Secretary's findings as to basic evidentiary facts, but also to inferences and conclusions drawn therefrom. Levine v. Gardner, 360 F.2d 727 (2d Cir. 1966); Rocker v. Celebrezze, 358 F.2d 119 (2d Cir. 1966); Palmer v. Celebrezze, 334 F.2d 306 (8th Cir. 1963).
Plaintiff is a 43 year old male who has a third grade education (Tr. 26) and has worked all his adult life in arduous unskilled occupations which have included that of farm laborer, construction laborer, maintenance man, dishwasher and warehouseman in a greeting card printing firm (Tr. 27-40). Most of this work the plaintiff performed in the continental United States (Tr. 5-20). He has described his health problem as "stomach ulcers," for which condition he underwent a major operation in 1956 which involved the surgical removal of most of his stomach. Following such operation the plaintiff returned to work and continued to work regularly until 1962 when he stopped working on *406 the advice of his treating physician because of the physical demands of the job and because the chemicals with which he worked were "hurting him" (Tr. 32). Plaintiff again returned to work in 1963 and worked irregularly and intermittently until December, 1970 (Tr. 32-49). He has not been able to do any work since 1970 because of constant stomach pains, vomiting (Tr. 71), diarrhea, loss of weight, weakness, and low pressure (Tr. 43-45). The plaintiff's earnings record reflects no earnings for the year 1962 and a substantial decrease in earnings in all subsequent years except the year 1970 (Tr. 65).
According to the medical evidence the plaintiff has an impairment of the digestive system which has been medically diagnosed as "chronic peptic ulcer." He underwent a subtotal gastrectomy in 1956 (Tr. 76, 78, 80) which is demonstrated by X-rays studies (G.I. series). Following such operation the plaintiff continued to have residuals and complications which have been described by Dr. Miguel E. Martínez, the plaintiff's treating physician, as a "dumping syndrome" (Tr. 77, 78, 79) and by Dr. José M. Berio, the Government's contracted physician, as a "post gastrectomy syndrome" (Tr. 81). The plaintiff's residuals include anemia, diarrhea and failure to gain weight (Tr. 77-80). In this regard it is noted that plaintiff, whose height is 68 inches, weighed 137 pounds prior to his operation, 128 pounds at the time of his examination on December 6, 1971 (Tr. 80), 122 pounds (fully clothed) at the time of the hearing (Tr. 43), and less than 120 pounds at the time of his request for review by the Appeals Council (Tr. 7). Plaintiff has not engaged in any gainful work activity since December 1970 and has depended entirely upon his wife for his support (Tr. 43).
At the hearing, Mrs. Ermida Albizu, a vocational expert,[1] who admittedly had personal familiarity with jobs that existed in the Puerto Rican economy but only second hand knowledge of the characteristics and requirements of jobs in the United States (Tr. 53), testified, among other things, that the physical demands of plaintiff's previous jobs (which almost without exception were performed by plaintiff in the United States) required the ability to stand, kneel, crouch, bend, etc. Also, that such jobs required coordination of eyes, hands and arms and having the physical stamina to do the job (Tr. 43). She considered such work, in terms of physical demands, as ranging from "light" to "heavy" (Tr. 48, 49). In response to the Administrative Law Judge's question as to the existence of jobs plaintiff could perform in the region where he lives, Mrs. Albizu indicated occupations that were "light" and "moderate," in terms of physical demands, if "not disturbed by the on and off periods of the diarrhea" and concluded that plaintiff could certainly go back to most of the jobs he had performed previously (Tr. 50). In response to the query posed by plaintiff's counsel regarding the effect plaintiff's almost constant diarrhea would have on his job performance, the expert witness quibbled uncertainly:
"That is a problem, as I said is going to dependand I think that I mentioned that if he has a machine . . . while the machine is working . . . although I admit that (it might cause) inconvenience of the type." (Tr. 52).
Mrs. Albizu further testified that agricultural seasonal jobs "ran in the thousands" according to a report of the Department of Labor. Also, that the jobs of dishwasher were in hundreds in Puerto Rico and much higher in the United *407 States but regretted not being able to give a specific number (Tr. 53). Mrs. Albizu's testimony does not enlighten us at all on the crucial question of what effect plaintiff's gastro-intestinal impairment, particularly his constant diarrhea and the need to take food every two hours would have on the efficiency of his work performance; nor indeed whether he could deliver on a sustained basis, the performance requirements involved in the various jobs proposed.
As shown by the uncontroverted medical evidence, the plaintiff is suffering from residuals and complications of peptic ulcers which, as we said, have resulted in a gradual loss of weight. His height is 68 inches and his weight (fully clothed) was 122 pounds at the time of the hearing and less than 120 pounds at the time of his request to the Appeals Council for review of the Administrative Law Judge's decision. If reasonable allowance is made for six to eight pounds of shoes and clothing, then it is obvious that the plaintiff actually weighed only 115 to 116 pounds (if not less) at the time of hearing and less than 113 pounds at the time of his request for review to the Appeals Council.
Thus, on the basis of the medical evidence alone and by itself, it seems compelling to conclude that the plaintiff's gastro-intestinal impairment does meet the Secretary's own established levels for a presumptive finding of disability. However, even assuming, arguendo, that at any time during the period at issue the plaintiff did not meet the presumptive disability standards prescribed in 32 CFR 404.1505-06, it is the opinion of this Court that the record does not support the Secretary's decision to the effect that plaintiff is not disabled by reason of his medically-established impairment. Considering the obvious functional limitations imposed by claimant's gastro-intestinal condition amply established by the recordthis Court is not convinced by the vocational expert's projections that the plaintiff can effectively perform the duties of the jobs which are ostensibly available to him in Puerto Rico or in the national economy. This is particularly evident in view of plaintiff's anemic condition, constant diarrhea and other reported medical problems associated with his gastro-intestinal impairment.
This Court is fully aware of the fact that an individual may not be considered disabled for Social Security purposes if he can engage in some kind of substantial and gainful work, regardless of whether a specific job vacancy exists for him, or whether he would be hired if he applied for work. Trujillo v. Cohen, 304 F. Supp. 265 (D.C.1969); Harvey v. Finch, 313 F. Supp. 323 (D.C. 1970). But this Court has also repeatedly stated that it is not sufficient to make a theoretical finding that an individual who has a medically established impairment can perform certain jobs which are purportedly available to him. The true test is whether a particular job is realistically within the physical and mental possibilities of a claimant, i. e., whether he can effectively perform these jobs on a similar level of continuity, stamina and efficiency as one who is not impaired to the same degree of severity. Caraballo v. Secretary of Health, Education and Welfare, 346 F. Supp. 93 (1972).
In the instant case the record does not only fail to support such a finding, but to the extent that plaintiff has carried his burden of proof with substantial, probative, and reliable evidence, the Court is persuaded that the plaintiff's medical condition falls within the scope of 32 CFR 404.1504-06, and also meets the requirements established by the Caraballo v. Secretary doctrine stated above. This persuasion is reinforced by the failure of the Administrative Law Judge to come to grips, and to submit specific findings, so essential in a case of this type, on the issues of (a) the applicability of the standards for presumptive disability under 32 FCR 404.1504-06; and (b) the ability of the plaintiff to perform competitively the jobs which are theoretically available to him, in accordance with this Court's mandate in *408 the Caraballo v. Secretary decision, supra. This failure constitutes an erroneous application of the law to the facts on the record for which judicial relief must be, and is available from the reviewing judiciary.
This Court must find that in this case the decision of the Secretary of Health, Education and Welfare is not supported by substantial evidence in the light of the record as a whole. Universal Camera Corp. v. N.L.R.B., 340 U.S. 474, 71 S. Ct. 456, 95 L. Ed. 456 (1951).
It is the judgment of this Court that the plaintiff, Dolores Lebrón, is entitled to a period of disability and to disability insurance benefits under the Social Security Act, as amended, effective and beginning on December 5, 1970.
It is so ordered.
NOTES
[1] Since it appears from the medical evidence that plaintiff's gastro-intestinal impairment met, at least on a prima facie basis, the standard of disability specified in Subpart P (Appendix) of the Social Security Regulations (32 CFR 404.1505-06) for a finding of presumptive disability without regard to vocational considerations, it is difficult to understand the failure of the Administrative Law Judge to even attempt to explore the possible applicability to this claim of the aforementioned Regulations. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1886402/ | 609 F. Supp. 1055 (1985)
Manuel E. NUNES and Dr. Leroy D. Kane
v.
MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. and Philip C. Poston and Nancy M. Beckwith.
Civ. A. No. M-84-3118.
United States District Court, D. Maryland.
April 2, 1985.
*1056 *1057 Charles Bagley, IV and Council, Baradel, Kosmerl & Nolan, P.A., Annapolis, Md., for plaintiffs.
David F. Albright, G. Randall Whitten-berger and Semmes, Bowen and Semmes, Baltimore, Md., for defendants.
MEMORANDUM AND ORDER
JAMES R. MILLER, Jr., District Judge.
Plaintiffs sue defendants in this civil action alleging various causes of action arising out of defendants' handling of plaintiffs' securities accounts (Paper No. 1). Plaintiffs allege violations of § 17(a) of the Securities Act of 1933, as amended, 15 U.S.C. § 77q(a); and §§ 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, 15 U.S.C. §§ 78j(b) and 78t, and Rule 10b-5 promulgated thereunder, 17 CFR 240.10b-5; violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq.; violations of the Maryland Securities Act, Md. Corp. and Assn. Code Ann. § 11-703; and common law claims of fraud, breach of fiduciary duty, negligence, and breach of contract.
Defendants have filed a motion pursuant to Rules 12 and 56 (Paper No. 3). Plaintiffs have filed an opposition (Paper No. 5), to which defendants have filed a reply (Paper No. 6). In addition, defendants have filed a supplemental memorandum (Paper No. 7), to which plaintiffs have filed an opposing memorandum (Paper No. 8). After reviewing the memoranda submitted by the parties, the court concludes that no hearing is necessary to decide the motion. Local Rule 6(E).
I. Background
Manuel E. Nunes alleges that in 1981 he opened a cash management account with Merrill Lynch, Pierce, Fenner & Smith (Merrill Lynch) (Paper No. 1, ¶ 13). He alleges that he became concerned with the poor condition of his account in June 1982, and turned to defendant Philip C. Poston, then an employee of Merrill Lynch, who in turn sent Nunes to defendant Nancy M. *1058 Beckwith, also a Merrill Lynch employee (id., ¶¶ 14-15). Nunes alleges that Poston and Beckwith represented that they would look after his account and make sure that he did not make any unwise trades (id., ¶ 15). Nevertheless, Nunes alleges, he continued to be faced with recurring maintenance margin calls which required him either to deposit additional funds or to transact additional securities option trades to prevent his account from being closed (id., ¶ 16). Nunes, allegedly relying on Poston's advice, continued to authorize Poston to sell options on securities in order to generate cash to meet margin calls (id.). Nunes further alleges that at no time did Poston ever discourage Nunes from making a particular trade (id.).
Nunes alleges that during this time period the defendants induced transactions in securities and securities options in his account which were excessive and which generated $51,724.00 in commission expense and incurred $17,371.00 in margin expense for Nunes (id., ¶ 17). Nunes alleges that the defendants, without authority, assumed de facto control over his account and engaged in excessive and unwarranted trading in and churning of his account for the purpose of generating commissions and fees for themselves, in total disregard of the needs and objectives of Nunes (id., ¶ 19).
Kane alleges that he opened up a cash account with Merrill Lynch on or about September 25, 1982, which remained open until June 1983 (id., ¶ 56). Kane alleges that, due to his close relationship with Nunes, he executed a power of attorney to Nunes under which Nunes had authority to make transactions in Kane's account (id., ¶ 57), and that Kane's account was therefore subjected to the same problems as Nunes' (id.).
Kane further alleges that sometime between October 30, 1982 and November 26, 1982, his account was changed from a cash account to a margin account without his prior knowledge or permission, and that in January 1983, it was changed to a cash management account, at which time he began receiving increased requests for monies from Poston to meet maintenance costs (id., ¶¶ 58, 59). Kane alleges that during the time when he had an account with Merrill Lynch, defendants, having assumed de facto control over his account, induced excessive transactions which generated $8,222.00 in commission expense and incurred $1,439.00 in margin expense (id., ¶ 62). Kane alleges that, as a result of defendants' actions, he has suffered a diminution in the value of his total investment account of approximately $16,000.00 (id., ¶ 66).
Nunes seeks compensatory damages of $69,000.00, consisting of commissions paid, margin expense, and other fees, while Kane requests compensatory damages of $16,000.00, consisting of the diminution in total value of his investment account. Both plaintiffs also request prejudgment interest, punitive damages of $1,000,000.00 each, and treble damages for all damages awarded to them under their RICO claims, pursuant to 18 U.S.C. § 1964(c).
II. Punitive Damages[1]
A. Section 28(a) of the Securities Exchange Act
Defendants assert that neither federal nor state law permits recovery of punitive damages on the facts alleged in the complaint. First, defendants claim that § 28(a) of the Securities Exchange Act, 15 U.S.C. § 78bb(a)[2], limits the damages available in *1059 this case, on both the federal and the pendent claims, to the actual damages suffered by the plaintiffs.
Punitive damages are not recoverable on the federal securities claims.[3]See, e.g., Carras v. Burns, 516 F.2d 251, 259 (4th Cir.1975); Baumel v. Rosen, 412 F.2d 571, 576 (4th Cir.1969).
The issue of the availability of punitive damages on pendent claims attached to federal securities claims was raised in this district in Goodman v. Poland, 395 F. Supp. 660 (D.Md.1975), where Judge Northrop stated:
"Thus, the general rule today appears to be that while punitive damages are not recoverable in an action solely under Rule 10b-5, see deHaas v. Empire Petroleum Co., 435 F.2d 1223, 1229-32 (10th Cir.1970), Baumel v. Rosen, supra, 412 F.2d at 576 (dictum,) Green v. Wolf Corp., 406 F.2d 291, 302-03 (2nd Cir. 1968), cert. denied, 395 U.S. 977, 89 S. Ct. 2131, 23 L. Ed. 2d 766 (1969), they may be awarded, if allowable under state law, when a state law violation is joined with the Rule 10b-5 claim. Flaks v. Koegel, 504 F.2d 702, 706-07 (2nd Cir.1974); Coffee v. Permian Corp., 474 F.2d 1040, 1044 45 (5th Cir.), cert. denied, 412 U.S. 920, 93 S. Ct. 2736, 37 L. Ed. 2d 146 (1973); Young v. Taylor, 466 F.2d 1329, 1337-38 (10th Cir.1972); Burkhart v. Allson Realty Trust, supra, 363 F.Supp. [1286] at 1290-92 [N.D.Ill.(1973)]; In re Caesars Palace Securities Litigation, 360 F. Supp. 366, 393-94 (S.D.N.Y.1973); Gann v. Bernzomatic Corp., 262 F. Supp. 301, 304 (S.D.N.Y.1966)."
395 F.Supp. at 686. Defendants assert, however, that the holding in Goodman should be reassessed, stating:
"The problems with Goodman are that (1) it fails to follow the spirit of the Fourth Circuit decisions, Carras and Baumel, which limit a plaintiff's recovery to actual damages in securities cases, (2) it fails to follow the explicit language of § 28(a), and (3) its rationale, based on `the general rule today,' in 1975 could not possibly have forseen the great impact the many yet to be written Supreme Court cases would have on the course of statutory construction of the securities laws."
(Paper No. 6 at 4-5).
Judge Northrop in Goodman did acknowledge the decisions in both Carras and Baumel, but apparently determined, correctly in this court's view, that neither of those cases was controlling on the issue. In Baumel, although the plaintiff had also pleaded common law fraud and deceit, the Fourth Circuit panel did not address that claim because no decision was made on it below. 412 F.2d at 572. Similarly, in Carras, the court intentionally left this issue open, stating that it was unnecessary for the court to decide it since the jury in that case had found that the defendants lacked the intent to defraud necessary to support a claim for punitive damages under the applicable state law. 516 F.2d at 260.
There is no merit to defendants' claim that the holding in Goodman fails to follow the explicit language of § 28(a). Defendants have cited no authority supporting its assertion that the explicit language of § 28(a) prohibits recovery of punitive damages under pendent claims, and this court is aware of none. Courts have generally found that the statute and its legislative history are capable of alternate interpretations. See, e.g., deHaas v. Empire Petroleum Co., 435 F.2d 1223, 1230 (10th Cir. 1970); Gilbert v. Bagley, 492 F. Supp. 714, 742-43 (M.D.N.C.1980). This court is in agreement.
While § 28(a) states that "no person permitted to maintain a suit for damages under the provisions of this chapter shall *1060 recover, through satisfaction of judgment in one or more actions, a total amount in excess of his actual damages on account of the act complained of," it also provides that its rights and remedies are "in addition to any and all other remedies that may exist at law or in equity...." This section is capable of being interpreted as defendants request, i.e., that anyone permitted to maintain an action under the Securities Exchange Act is limited to recovery of actual damages on either securities or pendent claims. It is more likely, however, that Congress intended, in reserving common law remedies, to reserve the common law measure of damages as well and to limit recovery to actual damages only with regard to claims under the securities laws. In Goodman, Judge Northrop found this latter position to be the general rule, and subsequent decisions have agreed. See, e.g., Miley v. Oppenheimer & Co., 637 F.2d 318, 329-31 (5th Cir.1981); Nye v. Blyth Eastman Dillon & Co., 588 F.2d 1189, 1200 (8th Cir.1978); Faller Group, Inc. v. Jaffe, 564 F. Supp. 1177, 1185-86 (S.D.N.Y. 1983); Kirkland v. E.F. Hutton and Co., 564 F. Supp. 427, 446 (E.D.Mich.1983); Emmons v. Merrill Lynch, Pierce, Fenner & Smith, 532 F. Supp. 480, 485 (S.D.Ohio 1982); Darling & Co. v. Klouman, 87 F.R.D. 756, 759 (N.D.Ill.1980); Stowell v. Ted S. Finkel Inv. Services, Inc., 489 F. Supp. 1209, 1215-16 (S.D.Fla.1980); Hall v. Security Planning Services, Inc., 462 F. Supp. 1058, 1064-65 (D.Ariz.1978); Holmes v. Bateson, 434 F. Supp. 1365, 1389 (D.R.I.1977).
Finally, defendants assert that Judge Northrop, in stating the general rule in Goodman, could not have foreseen the impact that subsequent Supreme Court cases would have, in support of which defendants cite Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 100 S. Ct. 242, 62 L. Ed. 2d 146 (1979); Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S. Ct. 2479, 61 L. Ed. 2d 82 (1978); Piper v. Chris-Craft Industries, 430 U.S. 1, 97 S. Ct. 926, 51 L. Ed. 2d 124 (1977); Santa Fe Industries v. Green, 430 U.S. 462, 97 S. Ct. 1292, 51 L. Ed. 2d 480 (1977); and Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S. Ct. 1375, 47 L. Ed. 2d 668 (1976). These cases, however, do not address the issue in the present case, and no inconsistency exists between their holdings and the holding in Goodman. Section 28(a) expressly reserves common law remedies, and it would require a strained interpretation to find that it does not also preserve the common law measure of damages for pendent claims. Furthermore, despite these cases, the general rule, as noted above, has not changed, and courts ordinarily permit punitive damages to be recovered on pendent claims filed with federal securities claims. Accordingly, there is no merit to defendants' argument that § 28(a) requires this court to find that punitive damages are not recoverable on the pendent claims involved in this case.
In their supplemental memorandum, defendants state two additional reasons why they feel that plaintiffs' punitive damage claim should be dismissed. First, defendants contend that plaintiffs' state common law claims for punitive damages are preempted by federal securities laws. This argument is without merit. This court has already concluded that the claim for punitive damages does not conflict with the provisions of § 28(a), in light of § 28(a)'s express reservation of other available rights and remedies.
Defendants also contend that plaintiffs' state claim for punitive damages is an unconstitutional burden on interstate commerce. Defendants first base this assertion on their claim that such an award directly burdens interstate commerce because it directly conflicts with § 28(a). As this court has found that such a conflict does not exist, this argument is without merit.
Defendants also assert that an award of punitive damages under state law indirectly burdens interstate commerce, because the states' legitimate interest in protecting their citizens against fraudulent securities practices is outweighed by the burden imposed on Congress' power and interest in protecting the free flow of securities *1061 transactions through the channels of interstate commerce. The burden, if any, imposed on interstate commerce by Maryland's common law fraud remedy is minimal, however, and the state has a legitimate interest in protecting its citizens from fraud. Accordingly, the court finds that the statute is constitutional under the decision in Edgar v. Mite Corp., 457 U.S. 624, 102 S. Ct. 2629, 73 L. Ed. 2d 269 (1982), and the rule announced in Pike v. Bruce Church, Inc., 397 U.S. 137, 90 S. Ct. 844, 25 L. Ed. 2d 174 (1970), that:
"Where the statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits."
397 U.S. at 142, 90 S.Ct. at 847.
B. Punitive Damages under Maryland Law
Defendants also assert that plaintiffs have failed to allege adequately their claim for punitive damages under Maryland law, because they have not pleaded actual malice.
Punitive damages, while not recoverable in a pure breach of contract action, may be recovered for a tort committed in connection with a breach of contract. H & R Block, Inc. v. Testerman, 275 Md. 36, 44, 338 A.2d 48 (1975). Where recovery of punitive damages is based on a tort arising out of a contractual relationship, however, the plaintiff must prove actual malice. General Motors Corp. v. Piskor, 281 Md. 627, 634, 381 A.2d 16 (1977); Henderson v. Maryland National Bank, 278 Md. 514, 519, 366 A.2d 1 (1976); H & R Block, Inc. v. Testerman, 275 Md. at 44-46, 338 A.2d 48. Actual malice has been defined as "the performance of an act without legal justification or excuse, but with an evil or rancorous motive influenced by hate, the purpose being to deliberately and willfully injure the plaintiff." H & R Block, Inc. v. Testerman, 275 Md. at 43, 338 A.2d 48. When a defendant's object is merely to benefit itself, although the plaintiff might coincidentally be injured, there are no grounds to support an award of punitive damages. H & R Block, Inc. v. Testerman, 275 Md. at 48, 338 A.2d 48; St. Paul at Chase v. Mfrs. Life Insurance Co., 262 Md. 192, 238, 278 A.2d 12 (1971); Knickerbocker Co. v. Gardiner Co., 107 Md. 556, 569-70, 69 A. 405 (1908).
Defendants assert that none of the facts pleaded in the complaint describe acts of actual malice and that, therefore, the defendants should be granted summary judgment on the claim for punitive damages. Plaintiffs, however, contend that since evil motive may be proven by circumstantial evidence, Henderson v. Maryland National Bank, 278 Md. at 520, 366 A.2d 1, the motion should be denied. In Goodman v. Poland, 395 F. Supp. 660, Judge Northrop found that the plaintiffs there had alleged sufficient facts to withstand a motion to dismiss and stated that "at the present stage of the proceedings it would be inappropriate to comment as to whether plaintiffs can make a sufficient showing to justify an award of punitive damages under the facts of this case." 395 F.Supp. at 687.
As this court is treating the motions as a motion to dismiss, the "complaint should not be dismissed 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.'" McLain v. Real Estate Board of New Orleans, Inc., 444 U.S. 232, 246, 100 S. Ct. 502, 511, 62 L. Ed. 2d 441 (1980) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102, 2 L. Ed. 2d 80 (1957)); Chertkof v. Mayor & City Council of Baltimore, 497 F. Supp. 1252, 1258 (D.Md.1980).
The complaint alleges, inter alia, that defendants engaged in improper conduct by engaging in options transactions which were not suitable for plaintiffs' investment objectives and by engaging in excessive and unauthorized trading (Paper No. 1, ¶ 7). It further alleges that such actions were engaged in willfully (id., ¶¶ 27, 72). If plaintiffs are able to prove that defendants, in pursuing the alleged *1062 courses of action, were attempting deliberately and willfully to injure the plaintiffs, then actual malice would exist and plaintiffs could be entitled to punitive damages. At this stage of the proceedings, the court cannot say that plaintiffs can prove no set of facts which would entitle them to relief. Therefore, the motion must be denied.
III. Private Right of Action under Private Exchange Rules
Defendants assert that Counts VI, VII, XI, XVI, and XVII should be dismissed to the extent that they are based on alleged violations of the Rules of the New York Stock Exchange, Inc., the National Association of Securities Dealers, Inc., the American Stock Exchange, Inc., and the Chicago Board Options Exchange, Inc.
The general rule in this circuit is that there is no private right of action for a violations of such rules. See, e.g., Carras v. Burns, 516 F.2d 251, 260 (4th Cir.1975); Chapman v. Merrill Lynch, Pierce, Fenner & Smith, Inc., Fed.Sec.L.Rep. (CCH) ¶ 99, 419 (D.Md.1983); Rizika v. Merrill Lynch, Pierce, Fenner & Smith, Fed.Sec. L.Rep. (CCH) ¶ 97, 934 (D.Md.1981); Kaufman v. Merrill Lynch, Pierce, Fenner & Smith, 464 F. Supp. 528 (D.Md.1978); Parsons v. Hornblower & Weeks-Hemphill, Noyes, 447 F. Supp. 482 (M.D.N.C.1977), aff'd per curiam, 571 F.2d 203 (4th Cir. 1978).
Plaintiffs do not contest defendants' assertion that no private right of action exists under those rules, but assert that references to the rules were made to show the existence of a standard of care and duty owed by defendants to plaintiffs. Defendants respond that the legal standards of care for violations of specific statutes or common law are based on the enactments of Congress and the Maryland legislature, or the common law decisions of the Maryland courts, not by rules drafted by private businessmen to govern their private stock exchanges.
Because it is clear that no private right of action exists under such rules, the motion to dismiss will be granted to the extent such a cause of action is alleged. As the counts in question appear adequately to allege otherwise proper causes of action for negligence and securities fraud, the underlying claims will not be dismissed. With respect to defendants' assertion that the applicable standard of care is not governed by the rules, this is an evidentiary issue not properly resolved on a motion to dismiss. Therefore, the court need not decide that issue at this time.
IV. Private Right of Action under § 17(a) of the Securities Act of 1933
Defendants next assert that Counts I, II, XI and XX of the complaint should be dismissed to the extent that they are based on a private right of action under § 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a).
In Newman v. Prior, 518 F.2d 97, 99 (4th Cir.1975), the Fourth Circuit clearly held:
"Although there is authority to the contrary, this circuit is committed to the rule that § 17(a) supports a private damage claim for the fraudulent sale of a security. Johns Hopkins University v. Hutton, 488 F.2d 912 (4th Cir.1973); cf. J.I. Case Co. v. Borak, 377 U.S. 426, 84 S. Ct. 1555, 12 L. Ed. 2d 423 (1964). See generally 6 Loss, Securities Regulation 3913 (1969)."
Defendants assert that the current validity of this holding is questionable. First, defendants point to dicta in SEC v. American Realty Trust, 586 F.2d 1001, 1006 (4th Cir. 1978), where the Fourth Circuit stated, in a case where the SEC brought an action for injunctive relief:
"The question is not now before us in this suit by the Commission, but to hold that § 17(a)(2) creates a private right of action would probably require some substantial disregard of the whole legislative scheme."
Second, defendants assert that Newman was decided prior to the Supreme Court's issuance of a number of cases setting out strict rules of statutory construction to be applied before finding an implied private *1063 right of action, citing Cort v. Ash, 422 U.S. 66, 95 S. Ct. 2080, 45 L. Ed. 2d 26 (1975); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S. Ct. 1375, 47 L. Ed. 2d 668 (1976); Piper v. Chris-Craft Industries, 430 U.S. 1, 97 S. Ct. 926, 51 L. Ed. 2d 124 (1977); Santa Fe Industries v. Green, 430 U.S. 462, 97 S. Ct. 1292, 51 L. Ed. 2d 480 (1977); Touche Ross v. Redington, 442 U.S. 560, 99 S. Ct. 2479, 61 L. Ed. 2d 82 (1979); Transamerica Mortgage Advisors v. Lewis, 444 U.S. 11, 100 S. Ct. 242, 62 L. Ed. 2d 146 (1979); Universities Research Ass'n v. Coutu, 450 U.S. 754, 101 S. Ct. 1451, 67 L. Ed. 2d 662 (1981); and California v. Sierra Club, 451 U.S. 287, 101 S. Ct. 1775, 68 L. Ed. 2d 101 (1981).
The Supreme Court has not yet ruled on whether § 17(a) of the 1933 Act creates a private right of action.[4] The courts which have considered the issue, however, are split. Compare Stephenson v. Calpine Conifers II, Ltd., 652 F.2d 808, 815 (9th Cir.1981) (finding an implied private right of action); Lincoln National Bank v. Herber, 604 F.2d 1038, 1040 n. 2 (7th Cir.1979) (same); Kirshner v. United States, 603 F.2d 234, 241 (2nd Cir.1978), cert. denied sub nom., Goldberg v. Kirshner, 444 U.S. 995, 100 S. Ct. 531, 62 L. Ed. 2d 426 (1979) (same), with Landry v. All American Assurance Co., 688 F.2d 381 (5th Cir.1982) (finding no implied private right of action); Shull v. Dain, Kalman & Quail, Inc., 561 F.2d 152, 159 (8th Cir.1977), cert. denied, 434 U.S. 1086, 98 S. Ct. 1281, 55 L. Ed. 2d 792 (1978) (same); Citizens State Bank v. Continental Assurance Co., 598 F. Supp. 1111, 1115 (W.D.Wisc.1984) (same); Xaphes v. Merrill Lynch, Pierce, Fenner & Smith, 597 F. Supp. 213, 217 (D.Maine 1984) (same); Bruns v. Ledbetter, 583 F. Supp. 1050 (S.D. Cal.1984) (same); Kimmel v. Peterson, 565 F. Supp. 476, 482-88 (E.D.Pa.1983) (same). Still other courts have stated that "it is not a terribly important question," because § 17(a) is so similar to Rule 10b-5, under which a private right of action is well established. Peoria Union Stock Yards Co. v. Penn Mutual Life Insurance Co., 698 F.2d 320, 323 (7th Cir.1983); Banowitz v. State Exchange Bank, 600 F. Supp. 1466 (N.D.Ill.1985).
There does appear to be a trend to deny a private right of action among recent cases which have examined the issue in light of the test for implying a private right of action set forth in Cort v. Ash, 422 U.S. 66, 95 S. Ct. 2080, 45 L. Ed. 2d 26 and its progeny. Nevertheless, this court is bound to follow the Fourth Circuit on this issue, as have other courts in this circuit. See, e.g., Rocco v. Dusseau, No. N-82-2848 (oral opinion issued Jan. 23, 1984); Kaufman v. Merrill Lynch, Pierce, Fenner & Smith, 464 F. Supp. 528, 537 (D.Md.1978); Reid v. Madison, 438 F. Supp. 332, 333 (E.D.Va.1977). Despite the dicta in SEC v. American Realty Trust, 586 F.2d at 1006, to the contrary, the holding in Newman that a private right of action exists under § 17(a) remains the law in this circuit. Accordingly, the motion to dismiss the claims based on § 17(a) must be denied.
V. RICO Counts
In Counts IX, X, XIX, and XX of the Complaint, plaintiffs allege causes of action under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq. Defendants assert that plaintiffs have failed to state a claim, particularly that plaintiffs have failed to plead the predicate acts constituting racketeering activity and that plaintiffs have failed to describe an enterprise separate and apart from Merrill Lynch.[5]
*1064 The civil remedies available under RICO are provided by 18 U.S.C. § 1964(c), which states that:
"(c) Any person injured in his business or property by reason of a violation of section 1962 of this chapter 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."
Section 1962(c) provides:
"(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt."
The definitions for the material terms contained in § 1962 are provided in § 1961 as follows:
"As used in this chapter
(1) `racketeering activity' means ... (B) any act which is indictable under any of the following provisions of title 18, United States Code: ... section 1341 (relating to mail fraud), section 1343 (relating to wire fraud), ... or (D) any offense involving ... fraud in the sale of securities ...;
(3) `person' includes any individual or entity capable of holding a legal or beneficial interest in property;
(4) `enterprise' includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity;
(5) `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;...."
The predicate offenses alleged by plaintiffs in this case include mail fraud, wire fraud, and federal securities fraud. Plaintiffs' complaint alleges that between October 1982 and June 1983, the defendants committed at least two of the predicate acts stated above. Under § 1961(5), a pattern of racketeering activity has been sufficiently established for purposes of a motion to dismiss if the plaintiff has alleged that defendants are guilty of two acts of racketeering activity. See Battlefield Builders, Inc. v. Swango, 743 F.2d 1060, 1063 (4th Cir.1984). As plaintiffs have alleged such acts, they have sufficiently alleged a pattern of racketeering activity and the predicate acts constituting racketeering activity.
Defendants contend, however, that plaintiffs have failed to describe an "enterprise" separate and apart from Merrill Lynch. Plaintiffs assert that they have sufficiently alleged that the defendants, Poston, Beckwith, and Merrill Lynch, have formed an "enterprise" by associating to offer and sell securities to plaintiffs.
An "enterprise" under § 1961(4) must be an entity separate and apart from the pattern of racketeering activity in which it engages, and must be an entity whose members are "associated together for a common purpose of engaging in a course of conduct." United States v. Turkette, 452 U.S. 576, 583, 101 S. Ct. 2524, 2528, 69 L. Ed. 2d 246 (1981). See also United States v. Griffin, 660 F.2d 996, 999 (4th Cir.1981), cert. denied, 454 U.S. 1156, 102 S. Ct. 1029, 71 L. Ed. 2d 313 (1982). An enterprise must have a "common or shared purpose," it must "function as a continuing unit," and it must have an "`ascertainable structure' distinct from that inherent in the conduct of a pattern of racketeering activity." *1065 United States v. Bledsoe, 674 F.2d 647, 665 (8th Cir.1982). Furthermore, the enterprise must "refer to a being different from, not the same as or part of, the person whose behavior the act was designed to prohibit, and, failing that, punish." United States v. Computer Sciences Corp., 689 F.2d 1181, 1190 (4th Cir.1982).
An enterprise, however, may include an association of individuals and corporations. See United States v. Aimone, 715 F.2d 822, 828 (3rd Cir.1983), cert. denied, ___ U.S. ___, 104 S. Ct. 3585, 82 L. Ed. 2d 883 (1984); United States v. Thevis, 665 F.2d 616 (5th Cir.), cert. denied sub nom., Evans v. United States, 456 U.S. 1008, 102 S. Ct. 2300, 73 L. Ed. 2d 1303 (1982).
Defendants assert that plaintiffs have not alleged an enterprise separate and distinct from Merrill Lynch. While plaintiffs concede that Merrill Lynch itself cannot be an "enterprise," they allege that there was an association in fact between Merrill Lynch and either Beckwith (count IX), Poston (counts XIX and XX), or both Beckwith and Poston (count X). The court is of the opinion that plaintiffs' allegation that these defendants associated to offer and sell securities properly alleges an "enterprise" under RICO. See Austin v. Merrill Lynch, Pierce, Fenner & Smith, 570 F. Supp. 667, 669 (W.D.Mich.1983). Therefore, this motion must be denied.
VI. Adequacy of Fraud Allegations Under Rule 9(b)
Defendants contend that Counts I-IV and XI-XIV, in which plaintiffs allege fraud under the federal securities laws, Maryland securities laws, and common law, should be dismissed for failure to plead fraud with adequate particularity.
Allegations of fraud must comply with the pleading requirements set forth in Rule 9(b), Fed.R.Civ.P., which states:
"In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other conditions of mind of a person may be averred generally."
Rule 9(b) must be read in conjunction with the requirement of Rule 8(a), Fed.R.Civ.P., that the complaint consist of "a short and plain statement of the claim" for relief. Windsor Associates, Inc. v. Greenfeld, 564 F. Supp. 273, 280 (D.Md.1983). Furthermore, "`the most basic consideration in making a judgment as to the sufficiency of a pleading is the determination of how much detail is necessary to give adequate notice to an adverse party and enable him to prepare an adverse pleading.'" Windsor Associates, Inc. v. Greenfeld, 564 F.Supp. at 280 (quoting C. Wright and A. Miller, Federal Practice and Procedure, § 1297, p. 415 (1969)).
In the present case, the complaint explains the course of the relationship between plaintiffs and the party defendants and gives dates of relevant contacts. In addition, plaintiffs provide a monthly breakdown of the number of transactions involved, the commissions allegedly made by defendants on the transactions, the average equity of plaintiffs, the commission/equity ratio for the month, and the margin costs.
This case involves an alleged broker churning case, in which "a broker, exercising control over the volume and frequency of trading, abuses his customer's confidence for personal gain by initiating transactions that are excessive in view of the character of the account." Carras v. Burns, 516 F.2d 251, 258 (4th Cir.1975). Churning cases involve numerous transactions which take place over an extended period of time and generally involve disproportionate trading, frequent in and out transactions, and large brokerage commissions. Consequently, in a churning case "it serves no useful purpose to require the plaintiffs to list with particularity every transactions relevant to their claim." Baselski v. Paine, Webber, Jackson & Curtis, Inc., 514 F. Supp. 535, 541 (N.D.Ill.1981).
In light of these considerations, the court finds that the complaint in the present case alleges sufficiently specific facts to put defendants on notice of what plaintiffs allege they did, and that, therefore, the complaint *1066 meets the pleading requirements of Rule 9(b). The motion to dismiss plaintiffs' fraud claims on this basis is denied.
Accordingly, it is this 2nd of April, 1985, by the United States District Court for the District of Maryland, ORDERED:
1) That the defendants' Motion Pursuant to Rule 12 and Rule 56 be, and the same is hereby, GRANTED in part and DENIED in part, as set forth in this Memorandum and Order.
2) That the Clerk mail a copy of this Memorandum and Order to counsel for the parties.
NOTES
[1] Although defendants have entitled this part of their motion as one for summary judgment, a reading of the motion shows that it asserts that plaintiffs have failed to state a claim with respect to the claim for punitive damages. Furthermore, neither party has submitted matters outside the pleadings for consideration by the court. The court shall therefore treat it as a motion to dismiss.
[2] Section 28(a) states in relevant part:
"(a) The rights and remedies provided by this chapter shall be in addition to any and all other rights and remedies that may exist at law or in equity; but no person permitted to maintain a suit for damages under the provisions of this chapter shall recover, through satisfaction of judgment in one or more actions, a total amount in excess of his actual damages on account of the act complained of."
[3] As plaintiffs' damage claim is located at the end of their 20 count complaint, it could be construed as requesting punitive damages under any or all of its counts, including the federal securities claims. In their opposition to defendants' motion, however, plaintiffs indicate that they seek punitive damages only under their pendent state claim.
[4] In several cases, the Court has expressly recognized that this is an open question. See Herman & MacLean v. Huddleston, 459 U.S. 375, 378 n. 2, 103 S. Ct. 683, 685 n. 2, 74 L. Ed. 2d 548 (1983); Aaron v. SEC, 446 U.S. 680, 689, 100 S. Ct. 1945, 1951, 64 L. Ed. 2d 611 (1980); Teamsters v. Daniel, 439 U.S. 551, 557 n. 9, 99 S. Ct. 790, 795 n. 9, 58 L. Ed. 2d 808 (1979); Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 733-34 n. 6, 95 S. Ct. 1917, 1924 n. 6, 44 L. Ed. 2d 539 (1975).
[5] Although not specifically raised by the parties, the court recognizes that the holding in Sedima, S.P.R.L. v. Imrex Co., 741 F.2d 482 (2nd Cir. 1984), cert. granted, ___ U.S. ___, 105 S. Ct. 901, 83 L. Ed. 2d 917 (1985), to the effect that the defendants in a civil RICO action must have been previously convicted of a RICO predicate offense, would act to bar this cause of action if followed by this court. After careful consideration of the applicable case law, and in light of the Fourth Circuit's recent decision in Battlefield Builders, Inc. v. Swango, 743 F.2d 1060 (4th Cir. 1984), this court finds that it cannot follow Sedima for the reasons set forth by Judge Northrop in Wang Laboratories, Inc. v. Burts, Civil No. N-84-1977 (D.Md. Jan. 28, 1985), and by Magistrate Smalkin in Heffron Co. v. Seafarers' Maryland Bldg. Corp., ___ F.R.D. ___, Civil No. HAR-83-3274 (Feb. 27, 1985). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2539329/ | 723 F. Supp. 2d 534 (2010)
In re SEPTEMBER 11 LITIGATION.
World Trade Center Properties LLC, et al., Plaintiffs,
v.
United Airlines, Inc., et al., Defendants.
World Trade Center Properties LLC, et al., Plaintiffs,
v.
American Airlines, Inc., et al., Defendants.
Nos. 21 MC 101 (AKH), 08 Civ. 3719 (AKH) 08, Civ. 3722 (AKH).
United States District Court, S.D. New York.
July 1, 2010.
*535 Richard Arthur Williamson, Alexander Fellows Powell, Gregg Herbert Kanter, Flemming Zulack Williamson Zauderer, LLP, New York, NY, for Plaintiffs.
*536 Desmond Thomas Barry, Jr., Condon and Forsyth LLP, Loretta Anne Redmond, Quirk and Bakalor, P.C., James Francis Gallagher, Gallagher Harnett & Lagalante LLP, Benjamin C. Curcio, Leclairryan LLC, New York, NY, Eric Scott Lent, Perkins Coie LLP, Seattle, WA, Jeffrey W. Moryan, Connell Foley LLP, Roseland, NJ, Kathleen Marie Guilfoyle, Campbell Campbell Edwards & Conroy, Boston, MA, for Defendants.
ORDER AND OPINION GRANTING JOINT MOTION APPROVING PROPERTY DAMAGE SETTLEMENTS
ALVIN K. HELLERSTEIN, District Judge:
Plaintiffs in 18 of the 21 cases asserting property damage claims in the 21 MC 101 master calendar propose to settle with the airlines, security companies and assorted other Aviation Defendants whom they sued for the damage inflicted by the terrorist-related aircraft crashes on September 11, 2001.[1] The settling plaintiffs include subrogated insurers and plaintiffs asserting direct claims for uninsured losses relating to businesses and leasehold properties that were destroyed that fateful day.
After substantial pre-trial discovery more than 180 depositions and millions of pages of documentsand aided by a skilled and resourceful mediator, the Honorable John Martin, retired United States District Judge, the parties involved in these cases agreed to settlements. The settling plaintiffs[2] and defendants (the *537 "Aviation Defendants")[3] filed this motion seeking my approval of the settlement as fair and reasonable.[4]
Several non-settling plaintiffs affiliated with the developer Larry Silverstein, longterm lessee of the World Trade Center (the "WTCP Plaintiffs"),[5] filed objections *538 to the settlement, expressing the concern that the settlement would encroach on the liability ceilings provided by the Air Transportation Safety and System Stabilization Act ("ATSSSA"), codified at 49 U.S.C. § 40101 note, and leave insufficient capacity to pay their claims.
For the reasons that follow, I find the proposed settlements to be fair and reasonable; I approve them; and I order all amounts paid pursuant to the settlement agreement to be credited against the settling defendants* respective liability ceilings. I over-rule the objections of the WTCP Plaintiffs and grant the relief sought by the settling parties.
I. Background
a. The ATSSSA
Congress passed the ATSSSA in the immediate aftermath of the September 11 terrorist attacks to prevent the exposure of the American aviation industry to ruinous liability threatening to compromise the integrity of the industry and to provide just compensation to victims and their families.
The liability provisions of the bill were intended to prevent "two unsatisfactory outcomes: (1) that the airlines, whose liability insurance coverage is insufficient to cover all damage, would be dissolved as their assets were sold to pay off their liability and/or; (2) some or all of the victims who were injured or killed in this tragedy would receive no compensation." See 147 Cong. Rec. S9589-01, S9594 (Sept. 21, 2001) (statement of Senator McCain). The ATSSSA provided a liability cap applicable to any "air carrier, aircraft manufacturer, [or] airport sponsor" for any claims "arising from the terrorist-related aircraft crashes of September 11, 2001," including claims for wrongful death, personal injury, and property damage. ATSSSA § 408(a)(1). The ATSSSA provided also for a Victim Compensation Fund, administered by a Special Master appointed by the Department of Justice to develop regulations and to provide recoveries from Federal funds to the families of those who died, and to those who suffered personal injuries from the terrorist-related aircraft crashes of September 11, 2001, without the need to prove fault or face the complications, risks, and delays of litigation. See id. §§ 401-407. Claimants eligible for the Victim Compensation Fund were given a choice between the Fund and traditional lawsuits. Id. § 405(c)(3)(B). All lawsuits "resulting from or relating to the terroristrelated aircraft crashes of September 11, 2001" were to be brought in the United States District Court for the Southern District of New York, which was given exclusive jurisdiction over all such claims. Id. § 408(b)(3). The law to be applied was to be "derived from the law, including the choice of law principles, of the State in which the crash occurred unless such law is inconsistent with or preempted by federal law." Id. § 408(b)(2).
b. The Litigation and the Settlement Process
Two sets of claimants filed suit against the Aviation Defendants, those alleging personal injury and wrongful death claims and those alleging subrogated and uninsured property damage claims.
i. The Wrongful Death and Personal Injury Cases
I established procedures to govern the settlement process in the wrongful death *539 and personal injury cases in a Stipulation and Order issued April 10, 2006. The procedures were to ensure the fairness of each settlement in light of the ATSSSA's liability cap and give all parties with claims against the Aviation Defendants the opportunity to object. See In re Sept. 11 Litig., 600 F. Supp. 2d 549, 552-53 (S.D.N.Y.2009) ("Because each settlement recovery would erode a limited pool of insurance resources, a procedure of court approvals was provided to assure fairness.").
With the assistance of Sheila L. Birnbaum, Esq., the mediator proposed by the parties and appointed by me, all but three of the wrongful death and personal injury claimants settled.[6]Id. (describing settlement process and approving and incorporating mediator's report). Most settlements were judicially approved as fair and reasonable; several were disapproved because they were disproportionately large and were not approved until the parties renegotiated. See Id. at 558-59; In re Sept. 11 Litig., 21 MC 101(AKH), 2008 U.S. Dist. LEXIS 103894 (S.D.N.Y. Aug. 28, 2008); In re Sept. 11 Litig., 567 F. Supp. 2d 611 (S.D.N.Y.2008).
ii. The Settling Property Damage Cases
In the property damage cases, while the parties engaged in substantial liability discovery, the Aviation Defendants, the subrogated insurer plaintiffs, and certain uninsured property damage plaintiffs, in response to my prodding, developed and implemented a protocol to conduct informal damages discovery that would assist mediation of the claims. The protocol was intended to cut through formal discovery of damages and streamline trial. It built on the Damages Disclosure Forms ("DDFs") and supporting documentation that I ordered produced on April 7, 2005. The DDFs detailed each plaintiff's maximum claimed amounts and included claims-adjustment forms for each subrogation plaintiff's underlying claim, as well as all documents supporting each uninsured plaintiffs claim. The Protocol Order, issued May 22, 2008, addressed all the subrogation plaintiffs' claims and all uninsured loss claims with the exception of those asserted by the WTCP Plaintiffs, the Port Authority of New York and New Jersey ("Port Authority"), and Koudis International, Inc. ("Koudis").[7]
Between May 2008 and September 2009, the Aviation Defendants and the settling plaintiffs engaged in the protocol process with the assistance of a mediator they selected, retired United States District Court Judge John Martin. All proceedings were conducted pursuant to a confidentiality agreement Judge Martin and the parties signed. The Aviation Defendants examined over a million pages of documents regarding the individual settling plaintiffs' damages claims, and experts on both sides held dozens of meetings to review the claims. The parties submitted briefs disputing the value of the settling plaintiffs' damages and argued their positions before Judge Martin, who provided preliminary views. The process provided a common basis for evaluating claims in mediation, eventually resulting in the agreement that is the subject of the motion before me.
Until September 2009, the parties proceeded in dual fashion, pursuing both negotiations *540 and mediation, and pre-trial discovery. In July 2009, I ruled on a spate of evidentiary issues to limit the scope and define the issues remaining to be discovered. See In re Sept. 11 Litig., 621 F. Supp. 2d 131 (S.D.N.Y.2009). The parties proposed a case management order to establish a schedule for continuing discovery, but I rejected their proposal because of the delays and unnecessary proceedings that the parties contemplated, and directed the parties to mediate their claims before Judge Martin.
The mediation began in October 2009 with informal discussions among the parties, their counsel, and Judge Martin, as well as extensive briefing on issues of liability, and categories of recoverable damages. Representatives and counsel for the settling plaintiffs, the contributing insurers, and the Aviation Defendants whose insurers were to contribute to the settlement attended over two weeks of formal mediation sessions before Judge Martin. The sessions began with oral presentations of factual and legal liability issues. The settling plaintiffs argued that the Aviation Defendants had performed their duties to screen passengers and their belongings negligently on the morning of September 11, 2001, and that their negligence proximately caused the damage incurred by the plaintiffs. The Aviation Defendants took the position that they had strong defenses to liability which warranted substantial discounts of plaintiffs' claimed damages. Judge Martin questioned counsel on the factual and legal support for their arguments.
Near the end of the second week of formal mediation sessions, Judge Martin communicated his belief that the parties remained apart and proposed an amount, in the aggregate, which he believed would create reasonable settlement of the claims of all participating plaintiffs. The proposed amount, $1.2 billion, represented a 72% discount from the settling plaintiffs' total claimed damages of $4.4 billion. The discount was based on factors common to all settling parties, including the risk and expense of a trial, and the ability to resolve the case without any party claiming victory or admitting liability. After further informal discussions, all parties accepted Judge Martin's recommendation. The parties signed an agreement on February 23, 2010, and filed this motion for approval on February 25.
iii. The WTCP Plaintiffs' Cases
At a status conference on March 18, 2008, during which 1 discussed the protocol that led to the settling parties' agreement, I also directed the WTCP Plaintiffs to enter into a separate protocol with the Aviation Defendants. Conf. Tr. at 37-46 (March 18, 2008). The WTCP Plaintiffs claimed different categories and quanta of injuries from the other defendants, and were not similarly situated to them. Although the Aviation Defendants expressed reluctance to enter into settlement negotiations with the WTCP Plaintiffs, I urged them to do so on a separate track. It became clear, also, that there were substantial differences concerning the size and scope of their claims, and the parties wished to test the legal criteria for evaluating these claims. I invited motions.
The Aviation Defendants filed motions to limit the amounts that the WTCP Plaintiffs could recover, and I had the benefit of briefs and arguments from both sides. In a series of opinions and orders, I held (1) that the WTCP Plaintiffs' recovery against the Aviation Defendants for the destruction of World Trade Center Towers 1, 2, 4, and 5 is limited to the fair market value of its net leasehold interests in the Towers at the time of their destruction, and not the much higher alleged replacement value, In re Sept. 11 Litig., 590 F. Supp. 2d 535, 540-47 (S.D.N.Y.2008); (2) that the WTCP *541 Plaintiffs failed to show that the market value had changed between the time they purchased the leaseholds for $2.805 billion on July 16, 2001, and the September 11, 2001 terrorist attacks, In re Sept. 11 Litig., No. 21 MC 101(AKH), 2009 WL 1181057, at *4 (S.D.N.Y.2009); and (3) that the WTCP Plaintiffs' insurance recovery was approximately $4.1 billion and could be the basis of a motion for collateral setoff under N.Y. C.P.L.R. § 4545 if expert testimony were to be introduced to show correspondence with potential tort recoveries. See Summary Order Regarding Motion for Collateral Setoff and Summary Judgment, In re Sept. Litig., No. 21 MC 101(AKH) (Doc. No. 945) (S.D.N.Y. Sept. 30, 2009).
The WTCP Plaintiffs moved for an order certifying for interlocutory appeal these orders and decisions. I denied their motion, holding that the issue was fact-intensive and an appeal on an incomplete record would yield few benefits, and were outweighed by the inevitable delay that would result, not only to the other property damage cases but also to the remaining wrongful death actions. In re Sept. 11 Litig., No. 21 MC 101(AKH), 2009 WL 2058385, at *1 (S.D.N.Y. May 26, 2009).
Judge Martin remained in contact with the WTCP Plaintiffs and the Aviation Defendants and there were further negotiations, but he determined that the parties remained too far apart and that further mediation was not likely to succeed. See Declaration of John S. Martin, Jr. ("Martin Decl.") ¶ 9. The settling parties' motion to approve their proposed settlement, and the objections of the WTCP Plaintiffs followed.
The WTCP Plaintiffs argue that I should deny the motion for approval of the settlement on three primary grounds: (1) the liability cap provided under ATSSSA § 408(a)(1) creates a "limited fund" for each defendant, preventing me from approving any settlement until all claims against each fund are liquidated via judgment or settlement and each claimant's equitable share is determined, (2) the settlement process was shrouded in secrecy and resulted in a lump sum figure that was the product of collusion between insurers with interests on both sides of the negotiating table and which, obfuscates the true value of each settled claim, preventing the court from determining the substantive reasonableness of the settlement amounts, and (3) the allocation of settlement contributions based on reasons other than liability, and the use of settlement funds to pay attorney's fees, are contrary to the purpose of the ATSSSA's liability cap.[8]
II. Discussion
a. The WTCP Plaintiffs' Argument that a Liability Ceiling creates a Limited Fund
The WTCP Plaintiffs argue that where a number of claims potentially exceed a limited fund, it would violate due process and be inconsistent with the *542 ATSSSA to liquidate particular claims without liquidating all claims and providing each claimant with an equitable share of the fund. They argue that, because the ATSSSA limits the liability of the Aviation Defendants to their respective insurance coverage as of September 11, 2001, each Aviation Defendant's insurance coverage is the equivalent of a limited fund and every claimant is entitled to an equitable share of that limited fund.
However, a limitation of liability is not a fund. The ATSSSA does not require the Aviation Defendants or their insurers to pay claimants. Unlike the Victims Compensation Fund, claimants at law could end up with no recovery at all. See 147 Cong. Rec. S9589-01, S9494 (2001) (recognizing that courts could determine that airlines and any potential corporate defendants are not liable for harm caused by terrorist-related aircraft crashes of September 11, 2001, and that there might be more claims than insurance capable of paying them).
Under New York law, which governs these suits unless inconsistent with or preempted by Federal law, see ATSSSA § 408(b)(2), an insurer has discretion to settle one or more claims against it even if doing so may jeopardize the ability of later recovering or settling plaintiffs to collect on their claims, as long as the insurer does so in good faith and there are no statutory prohibitions against such settlements. "As long as [the insurer] does not act in bad faith, an insurer has no duty to pay out claims ratably and/or consolidate them." Allstate Insurance Co. v. Russell, 13 A.D.3d 617, 788 N.Y.S.2d 401, 402 (2004). In Allstate, the insurer settled with two of the three claimants who were injured in an automobile accident, exhausting the policy limits. Id. The third claimant demanded arbitration of his claim, but the insurer, having exhausted its policy obligations, obtained a stay. Id. The Appellate Division held that the insurer was entitled to a stay of arbitration because "it had exhausted its policy limits ... by payments to two other injured passengers." Id.; see also STV Group, Inc. v. Am. Cont'l Props., Inc., 234 A.D.2d 50, 650 N.Y.S.2d 204, 205 (1996) ("An insurer may settle with less than all of the claimants under a particular policy even if such settlement exhausts the policy proceeds." (citing Duprey v. Sec. Mut. Cas. Co., 22 A.D.2d 544, 256 N.Y.S.2d 987 (1965))); Pisciotta v. Preston, 170 Misc. 376, 10 N.Y.S.2d 44, 46 (Sup.Ct.1938) ("In the final analysis this Court may not rewrite the policy of insurance to include a clause providing for the ratable distribution of the amount limited by the policy in the event that more than one person is injured in a single accident."). Bankruptcy courts in this district have applied the same rule. In re Drexel Burnham Lambert Group, Inc., 134 B.R. 493, 498 (Bankr. S.D.N.Y.1991) ("[T]o impose a duty upon an insurer to ascertain all claims under a policy before settling any claims, and to require the insurer to settle individual claims at its peril is contrary to the policy of encouraging compromise and speedy settlement, and turns legal common sense on its head.").
The law in New York regarding insurers' discretion to settle on a first-come first-served basis is the conventional rule. See 70 A.L.R. 2d 416 § 2a (2009) ("[I]t has been generally held that a liability insurer can settle with some claimants although to do so may exhaust the insurance fund or so deplete it so that a subsequent judgment creditor is unable to collect his judgment in full from the remaining proceeds."); 46A C.J.S. Insurance § 2318 (2009) ("Where there is no statutory provision which is applicable and there is no pro rata provision in the policy, the contest of multiple plaintiffs for the limited assets of a common uninsured defendant is generally solved in terms of chronological priority, that is, first in time, first in right, so that *543 an insurance company which settles with some injured parties is liable only for the remainder of the policy limits even though it may have been aware that the total claims would probably exceed the policy limits.").
The WTCP Plaintiffs seek to distinguish these clear statements of New York law by arguing from the analogy of a common fund. In Ortiz v. Fibreboard, the Supreme Court addressed the requirements for "limited fund" class action certification under Rule 23(b)(1)(B) of the Federal Rules of Civil Procedure and outlined certain traditional characteristics of a limited fund. 527 U.S. 815, 838-65, 119 S. Ct. 2295, 144 L. Ed. 2d 715 (1999). The Court made clear that a limited fund was one which was to be "devoted to the overwhelming claims" against it. Id. at 839, 119 S. Ct. 2295. The ATSSSA's liability cap does not require the Aviation Defendants to pay out any amounts. It was intended to protect them from liability, not to ensure that claimants are compensated. The only portion of the ATSSSA that provided for guaranteed recoveries was the Victim Compensation Fund, and property damage claimants were excluded from participation. There is nothing in the legislation supporting the WTCP Plaintiffs' limited fund argument.
Moreover, the argument of the WTCP Plaintiffs would prevent multi-party lawsuits like this from being managed efficiently. No party would be able to settle, for a court would have to wait until the claims of the last holdout plaintiff were adjudicated and all appeals exhausted before it could approve any settlement. That is not how a complicated multi-party litigation should be managed, nor how this litigation has been managed. The protocol established early in the history of these cases, see In re September 11 Litig., Stipulation and Order Regarding Settlements, 21 MC 101(AKH), (Doc. No. 82) (S.D.N.Y. April 10, 2006), and agreed to by all, including the WTCP Plaintiffs, has encouraged each case to settle upon agreement between the particular plaintiff and the Aviation Defendants and a finding of reasonableness by the Court. Ninety-two of ninety-five wrongful death actions have settled, with all affected Aviation Defendants having been released and discharged from further liability, and their settlement payouts having been credited against their respective overall caps. No reason has been given to justify an exception for the property damage cases.
b. The WTCP Plaintiffs' Arguments of Secrecy and Collusion
The WTCP Plaintiffs argue that the settlement process was "shrouded in secrecy;" that the settlement amounts were collusive with insurers having interests on both sides of the negotiation; and that the settlement in an aggregate amount prevents the court from evaluating its reasonableness. The arguments are without merit.
Judge Martin's declaration attests to the hard-fought, arms-length, and good faith negotiations that led to the settling parties' agreement. Martin Decl. ¶¶ 7-9. The parties engaged in extensive discovery on the issues of both liability and damages. Motion practice testing the limits of relevance and admissibility was hard fought, and resulted in a number of important rulings. See In re September 11 Litig., 621 F. Supp. 2d 131 (S.D.N.Y.2009). The practice before me was followed by extensive briefings and arguments to Judge Martin, and still the parties remained at impasse. The agreement of the parties reflects Judge Martin's hard work, intelligence and resourcefulness. It was his number, not numbers proposed by the parties, which resulted in agreement. There was no collusiveness and no illegitimate secrecy, and alleged commonality of some *544 insurers had no affect on the settlement. The insurers with the largest stakes on both sides did not participate in negotiations, id. ¶ 8, and, as Judge Martin attests, "[t]here was no evidence that any of the parties was softening its position on a proper settlement amount for some interest other than its own." Id. The WTCP Plaintiffs' allegations of collusion are conjectural and contradicted by the evidence.
Contrary to the WTCP Plaintiffs' assertions, the fact that the settlement is expressed as an aggregate number, applicable to all settlement claims, for distribution to each claimant, does not prevent me from evaluating fairness and reasonableness. The mediation process involved substantial consideration of the legal and factual support for the settling plaintiffs' damages claims and the settlement amount reflects, approximately, a 72% discount from the settling plaintiffs' original claims, from $4.4 billion in damages, as determined through the damages protocol process, to a settlement of $1.2 billion.
Settlements have to be practical and, as Judge Martin describes, if each claim had to be negotiated separately with each set of counsel, the negotiations would have been much more protracted and expensive. Id. ¶ 11. "All of the parties to the agreement recognized that the assessment of damages on an underlying claim by claim and defendant by defendant basis could not have been done in any reasonable amount of time and without substantial cost." Id. ¶ 12. Invidious comparisons among claimants inevitably would have been drawn, and the parties and counsel would have been led into contests of competitiveness, attempting to distinguish and improve one claim in relation to another. The parties agreed to a settlement in an aggregate amount in order to avoid these issues.
The WTCP Plaintiffs give no reason why a settlement should not be made in the aggregate, or why the aggregate settlement amount is itself unreasonable. Nor should there be any difficulty in distributing the settlement proceeds to specific claims according to a common and objective ratio of distribution. I find that the amount of the settlement and the deep 72% discount of claims fairly reflected the parties' perceptions of the merits, the difficulties in marshaling proofs, the difficulties in proving damages, and other risks inherent in court and trial processes. I find that the settlement is fair and reasonable in the aggregate and as it will be distributed.
c. The WTCP Plaintiffs' Objections to Insurers' Allocations
The WTCP Plaintiffs object to (i) the allocation of settlement payments among the contributing insurers, and (ii) the use of settlement proceeds to pay plaintiffs' attorneys' fees.[9]
*545 The WTCP Plaintiffs argue that the fairness of settlements should be measured against each Aviation Defendant's relative culpability, for otherwise the limitations of liability provided by the ATSSSA might protect defendants disproportionately. The argument is without merit, for it would prevent settlements until after a trial determines levels of culpability. This is not the law, particularly where the Aviation Defendants firmly deny their liability, and there has been no ruling to suggest liability. Settlements do not have to be negotiated claim by claim, or defendant by defendant. One strong motivation for this settlement, animating both plaintiffs and defendants, is to avoid the risks, expenses and delays of a trial.
There is no basis to argue that the allocations decided by the Aviation Defendants were made in bad faith. The Aviation Defendants represented that they had determined that approximately 60% of the property damage claims related to American Flight 11 and 40% to United Flight 175, leading to a proportionate division among the respective sets of Aviation Defendants. See Supplemental Declaration of Desmond T. Barry, Jr. ("Supp. Barry Decl.") ¶¶ 27-32. They had determined also that the insurers of the airlines and of their respective security companies should bear the cost of settlement, rather than the insurers of the aircraft manufacturers, and I cannot say that that determination also was not a reasonable reflection of relative merits and other practical considerations.[10] Lastly, because of the differences in extent of insurance coverage, proportions of payments among insurers were determined based on proportions of remaining balances of coverage, and I cannot say that that also was not reasonable. In all, I find that the determinations made by the carriers for allocations among them were reasonable and in good faith.
The WTCP Plaintiffs complain that the insurers of the security company responsible for screening passengers boarding United Air Lines Flight 175 at Logan Airport, Huntleigh USA Corp. ("Huntleigh"), will have paid all its coverage and be entitled to a discharge of further liability. Although Huntleigh's contributions to the settlement will exhaust its insurance coverage, see Declaration of Jonathan J. Ross ¶¶ 3-5 and ex. A., this does not prevent me from approving the settlement as fair and reasonable. The WTCP Plaintiffs have not shown that Huntleigh is the only defendant against whom they can prove a case of liability, or a more important defendant than others. In the absence of bad faith, and I find none, the WTCP Plaintiffs' argument is without merit.
Finally, the WTCP Plaintiffs object to crediting against the ATSSSA liability cap amounts that the settling plaintiffs may apply to pay their attorneys fees, because, they argue, these amounts are not paid on account of the Aviation Defendants' liability. However, there is no evidence *546 that fees paid or owed by claimants to attorneys are being paid by the settling defendants' insurers. How the settling plaintiffs use their recoveries has no relevance to the issue of fairness and reasonableness of the settlement. And, unlike the situation of the wrongful death plaintiffs and limitations of contingent fees, I need not scrutinize the particular fee arrangements of each settling plaintiff and its attorneys, whether based on time rates or contingencies, for these are sophisticated companies accustomed to commercial arrangements with counsel and large and expensive lawsuits. The overall fairness of the settlement amount, which reflected a 72% discount from the settling plaintiffs' claims, along with the hard-fought negotiations and mediation that led to the settlement, and the fact that Judge Martin proposed the amount to which the settling parties eventually agreed, demonstrates that the settlement figure was not inflated by unreasonable attorney's fees, as were certain wrongful death settlements I rejected. See In re Sept. 11 Litig., 567 F.Supp.2d at 620-21.
III. Conclusion
For the reasons discussed in this Opinion, I grant the settling parties' joint motion for Orders approving the Settlement Agreement and Mutual Release of Claims dated February 23, 2010.
I find the proposed settlements to be fair, reasonable and consistent with the ATSSSA, I approve them, I order all amounts paid pursuant to the settlement agreement to be credited against the settling defendants' respective liability ceilings under § 408(a)(1) of the ATSSSA, I dismiss each settling plaintiff's claims with prejudice as to all Aviation Defendants, I direct entry of a final judgment, pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, in each of the settling plaintiffs actions in accordance with the terms of the settlement agreement, and I find that payment by Huntleigh's insurers has exhausted the limits of Huntleigh's liability insurance coverage.
The Clerk shall mark the motion (Doc. No. 1080) as terminated.
SO ORDERED.
NOTES
[1] The settlement resolves all claims in the following cases: (1) World Trade Farmers Mkt., Inc., et al. v. United Airlines, Inc., et al., 02 Civ. 2987; (2) Certain Underwriters at Lloyd's of London, et al. v. AMR Corp., et al., 03 Civ. 131; (3) MVN Assoc., Inc., et al. v. United Airlines, Inc., et al., 04 Civ. 4577; (4) American Alternative Ins. Corp., et al. v. AMR Corp., et al., 04 Civ. 6848; (5) Barcley Dwyer Co., Inc., et al. v. AMR Corp., et al., 04 Civ. 7136; (6) QBE Int'l Ins. Ltd., et al. v. AMR Corp., et al., 04 Civ. 7199; (7) Mayore Estates, LLC, et al. v. AMR Corp., et al., 04 Civ. 7225; (8) Industrial Risk Insurers v. AMR Corp., et al., 04 Civ. 7231; (9) Industrial Risk Insurers v. AMR Corp., et al., 04 Civ. 7234; (10) Assurances Generales de France Iart, et al. v. AMR Corp., et al., 04 Civ. 7238; (11) Woburn Ins., Ltd. v. AMR Corp., et al., 04 Civ. 7240; (12) Great Lakes Reinsurance U.K. PLC v. AMR Corp., et al., 04 Civ. 7241; (13) Underwriter at Lloyd's, et al. v. AMR Corp., et al., 04 Civ. 7244; (14) American Reinsurance Co. v. AMR Corp., et al., 04 Civ. 7246; (15) AXA RE, et al. v. AMR Corp, et al., 04 Civ. 7248; (16) Munich Reinsur. Co. UK General Branch, et al. v. AMR Corp., et al., 04 Civ. 7294; and (17) AXA Corp. Solutions Assurance UK Branch, et al. v. AMR Corp., et al., 04 Civ. 7299. In Aegis Ins. Servs., Inc., et al. v. 7 World Trade Ctr. Co., L.P., et al., 04 Civ. 7272, the settlement resolves only those claims asserted against the Aviation Defendants. The non-settling casesWorld Trade Center Properties, LLC v. United Airlines, Inc., 08 Civ. 3719(AKH); World Trade Center Properties, LLC v. American Airlines, Inc., 08 Civ. 3722(AKH); and Cantor Fitzgerald & Co. v. American Airlines, Inc., 04 Civ. 7318(AKH)involve the claims of the WTCP Plaintiffs and of Cantor Fitzgerald & Co. and its affiliates. An additional case, Cedar & Washington Associates, LLC. v. The Port Authority of New York and New Jersey, 08 Civ. 9146(AKH), involves claims against the Aviation Defendants under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42 U.S.C. § 9601 et seq., and is not included in the 21 MC 101 docket.
[2] The settling plaintiffs are Certain Underwriters at Lloyd's of London Comprising Syndicates No. 33, 1003, 2003, 1208, 1243, 0376; Great Lakes Reinsurance (UK), PLC; Underwriter at Lloyd's, Syndicate No. 1225; Munich-American Risk Partners 7244 GmbH; Greater New York Mutual Insurance Company; Insurance Company of Greater New York; Munich Reinsurance Company UK General Branch; Muenchener Rueckversicherunes-Gesellschaft; Woburn Insurance, Ltd.; Great Lakes Reinsurance U.K. PLC; American Alternative Insurance Corporation; The Princeton Excess & Surplus Lines Insurance Company; Munich Reinsurance America, Inc. formerly known as American Re-Insurance Company; Colisee Re (formerly known as AXA Re and successor to the interests and liabilities of SPS Reassurance); Colisee Re Canadian Branch (formerly known as AXA Re Canadian Branch and formerly known as AXA Corporate Solutions Reassurance Canadian Branch); Colisee Re Madeira Branch (formerly known as Axa Re Madiera Branch); Portman Insurance Limited (formerly known as AXA Global Risks (UK) Ltd. and successor to the interests and liabilities of Axa Reinsurance UK Plc); AXA Corporate Solutions Assurance UK Branch; AXA Insurance Company (formerly AXA CS Insurance Co.); Coliseum Reinsurance Company (formerly AXA CS Reinsurance Co. US); AXA Versicherung AG; AXA Cessions; AXA Corporate Solutions Services UK Ltd. and AXA Corporate Solutions Assurance (for itself and as successor to the interests and liabilities of AXA Corporate Solutions Assurance Canadian Branch); AXA Art Insurance Corporation; Paris Re Asia Pacific Pte. Ltd. (formerly known as AXA Re Asia Pacific Pte. Ltd.); Paris Re (Successor to the Interests and Liabilities of Compagnie Generale De Reassurance De Monte Carlo); Industrial Risk Insurers and its members; Aegis Insurance Services, Inc.; Liberty Insurance Underwriters, Inc.; National Union Insurance Company of Pittsburgh; Nuclear Electric Insurance Limited; Certain Underwriters at Lloyds Comprising Syndicates No. 1225 and 1511; Consolidated Edison Company of New York, Inc.; QBE International Insurance Ltd.; Certain Underwriters at Lloyd's, London, as members of Syndicates Numbered 1212, 1241, 79, 506, and 2791; Assurances Generales De France Iart; Assurances Generales De France; Allianz Global Risks U.S. Insurance Company F/K/A Allianz Insurance Company; Allianz Insurance Company of Canada; Allianz Suisse Versicherungs-Gesellschaft; Allianz Versicherungs-Aktiengesellschaft; Fireman's Fund Insurance Company; Mayore Estates, LLC; 80 Lafayette Associates, LLC; Barcley Dwyer Co., Inc.; Karoon Capital Management, Inc.; N.S. Windows LLC; Tower Computer Services, Inc.; Wall Street Realty Capital, Inc.; World Trade Farmers Market, Inc.; Adem Arici; Omer Ipek; MVN Associates, Inc.; Marsha Van Name; Daniel D'Aquila; and Floyd Van Name.
[3] The Aviation Defendants are American Airlines, Inc.; AMR Corporation; United Air Lines, Inc.; UAL Corporation; US Airways, Inc.; US Airways Group, Inc.; Colgan Air, Inc.; Globe Aviation Services Corporation; Globe Airport Security Services, Inc.; Huntleigh USA Corporation; ICTS International N.V.; The Boeing Company; Massachusetts Port Authority; Burns International Security Services Company, LLC (formerly known as Burns International Security Services Corporation); Burns International Services Company, LLC (formerly known as Burns International Services Corporation); Pinkerton's LLC (formerly known as Pinkerton's Inc.); and Securitas AB.
[4] The parties move for several orders relating to approval of the settlement: (1) an order approving the settlement agreement and the settlement amount as consistent with Air Transportation Safety and System Stabilization Act ("ATSSSA") as it applies to the Aviation Defendants, the settling plaintiffs, and any other actual or potential claimants; (2) an order holding that all amounts paid pursuant to the settlement agreement are to be credited against each respective paying Aviation Defendant's limit of liability established by Section 408(a)(1) of the ATSSSA (including approval of settlement payments among the paying Aviation Defendants); (3) an order dismissing each of the settling plaintiffs' actions with prejudice as to all Aviation Defendants; (4) an order pursuant to Rule 54(b) of the Federal Rules of Civil Procedure directing entry of a final judgment in each of the settling plaintiff's actions in accordance with the terms of the Settlement Agreement; and (5) a finding or order that payment by Huntleigh USA Corp.'s ("Huntleigh") insurers has exhausted the limits of Huntleigh's liability insurance coverage and that the payment is to be credited against Huntleigh's limits of liability under Section 408(a)(1) of the ATSSSA.
[5] The WTCP Plaintiffs are World Trade Center Properties LLC, 1 World Trade Center LLC, 2 World Trade Center LLC, 3 World Trade Center LLC (formerly known as "5 World Trade Center LLC") and 4 World Trade Center LLC. World Trade Center Properties LLC, 2 World Trade Center LLC and 4 World Trade Center LLC are plaintiffs in 08 CIV 3719(AKH). World Trade Center Properties LLC, 1 World Trade Center LLC, 3 World Trade Center LLC and 7 World Trade Company, L.P. are plaintiffs in 08 CIV 3722(AKH).
[6] Motions for approval of settlements in two of the three remaining wrongful death actions, Keating v. American Airlines, Inc., et al., 02 Civ. 7156(AKH), and Low v. U.S. Airways, Inc., et al., 03 Civ. 7040(AKH), are currently pending before me.
[7] The Port Authority and Koudis voluntarily dismissed their claims with prejudice by stipulation. I endorsed these stipulations on September 22, 2009, and February 8, 2010, respectively.
[8] The WTCP Plaintiffs also cross-moved for a preliminary injunction prohibiting the settling parties from distributing settlement monies until all appeals are exhausted. The parties resolved the WTCP Plaintiffs' cross-motion by stipulation dated May 5, 2010. The stipulation provided that the settling parties, if they intend to distribute settlement monies prior to the exhaustion of all appeals, will provide fourteen days advance notice to the WTCP Plaintiffs and to the Court. In addition, several Silverstein affiliates who are defendants in a lawsuit arising out of the collapse of Tower 7 filed a "conditional objection" stating that they would consent to approval of the settlement agreement only if I preserve their right to obtain a jury determination, in the event of a trial, on apportionment of fault under § 15-108 of New York General Obligations Law. The parties have resolved this objection by stipulation as reported to the Court during the May 27, 2010 oral argument on the settling parties' motion for approval.
[9] The WTCP Plaintiffs also object based on their argument that the "made whole" doctrine precludes their subrogated insurers from recovering settlement monies before the WTCP Plaintiffs have been fully compensated. They rely on Fasso v. Doerr, in which the New York Court of Appeals noted that "[i]f the sources of recovery ultimately available are inadequate to fully compensate the insured for its losses, then the insurerwho has been paid by the insured to assume the risk of losshas no right to share in the proceeds of the insured's recovery from the tortfeasor." 12 N.Y.3d 80, 87, 875 N.Y.S.2d 846, 903 N.E.2d 1167 (2009). This, however, is not the case here. The subrogated insurers are not sharing in proceeds received by, or owed to, the WTCP Plaintiffs. The WTCP Plaintiffs have yet to establish entitlement to any recovery from the Aviation Defendants. A subrogee need not "delay seeking recovery from the tortfeasor until the insured has exhausted its efforts to collect from the ... tortfeasor" for there "will be time enough to determine [the insured's] rights vis-a-vis [the subrogee's] when and if it is determined that the ... tortfeasor is unable to pay the remainder of the[ insured's] loss." Winkelmann v. Excelsior Ins. Co., 85 N.Y.2d 577, 583-84, 626 N.Y.S.2d 994, 650 N.E.2d 841 (1995). The WTCP Plaintiffs can, and have, brought actions against their subrogated insurers to recover any proceeds of this settlement that are due to them under their insurance policies. See World Trade Center Properties, LLC, et al. v. Great Lakes Reinsurance (UK) PLC, et al., 10 Civ. 1462(AKH) (S.D.N.Y. filed March 1, 2010); Industrial Risk Insurers v. 7 World Trade Center, L.P., No. 10 Civ. 8036(AKH) (S.D.N.Y. filed April 8, 2010).
[10] The WTCP Plaintiffs contest the procuring of releases for the benefit of non-paying defendants. There are practical reasons to procure such releases, if only to end exposures, cross-claims and continuing discovery obligations should litigation against non-paying parties continue. Procuring of releases by settling parties, in favor of non-settling parties, is not uncommon in large, multi-party cases. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1958889/ | 220 B.R. 543 (1998)
In re Leon WRIGHT, Levmark Corporation, NDI, Inc. NDI Foods, Inc., Consumer Development Corporation, Inc., Consumer Commodities Corp. of America, A/R Resources, Inc. (New York), NDI Video, Inc., International Company for Business Options, Inc., A/R Resources, Inc. (Georgia), Levmark Capital Corp., Debtors.
Misc. No. M-47B.
United States District Court, S.D. New York.
May 22, 1998.
James Gluckman, Rattet, Highlander & Pasternak, Harrison, NY, for Appellant.
Robert E. Bailey, Winthrop, Stimson, Putnam & Roberts, David A. Sifre, Stroock & Stroock & Lavan L.L.P., New York City, for Appellees.
MEMORANDUM DECISION AND ORDER
BARRINGTON D. PARKER, Jr., District Judge.
INTRODUCTION
The Debtors collectively appeal from an order of the United States Bankruptcy Court (Connelly, BJ), dated February 11, 1998, denying Debtors' request for an order that would deem unspecified future pleadings, testimony, and discovery compliance by debtor Leon Wright during the course of these Chapter 11 proceedings not to constitute a waiver of his privilege against compelled self-incrimination under the Fifth Amendment to the United States Constitution and cognate state constitutional provisions. For the reasons *544 stated below, this Court concludes that under Article III, Section 2 of the United States Constitution, the Court lacks jurisdiction over this Appeal because it, in effect, seeks an advisory opinion regarding contingent and hypothetical future events. The Appeal is, therefore, dismissed.
BACKGROUND
On August 21, 1997, Leon Wright filed a petition pursuant to Chapter 11 of the bankruptcy laws. Subsequently, the other debtors (collectively, the "corporate debtors"), each of which is owned or controlled by Wright, also filed Chapter 11 petitions. After Levmark Corporation; NDI, Inc.; and NDI Foods, Inc. filed Chapter 11 petitions on November 3, 1997, the Bankruptcy Court, on November 7, 1997, entered an order providing for joint administration of the estates of these three debtors and of Wright. Mr. David Kittay was appointed Examiner in each of these cases.
In January 1998, seven other corporate entities affiliated with Wright Consumer Development Corporation; Consumer Commodities Corp. of America; A/R Resources Corp. (New York); A/R Resources Inc. (Georgia); NDI Video, Inc.; International Companies for Business Options, Inc.; and Levmark Capital Corp. each filed Chapter 11 petitions. These corporate debtors have each submitted an application for appointment of an Examiner. On January 30, 1998, the Bankruptcy Court entered an order consolidating the cases.
Prior to the filing of the Chapter 11 petitions, Wright and the corporate debtors were in the business of managing high yield and high risk investments. On December 22, 1997, Mezzonen, S.A., a creditor, filed a complaint against Wright and many of the corporate debtors, alleging violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. According to counsel for Wright, there may be an investigation by the FBI and the United States Attorney's Office into the operation by Wright of certain of the corporate debtors. Wright has not filed required schedules, has not allowed himself to be deposed by the Examiner, and has declined to provide other requested information, all due to uncertainty about whether such actions would constitute a waiver of Wright's privilege against compelled self-incrimination.
The Debtors have requested an order that whatever documents Wright produces or whatever statements he makes in connection with the administration of the Debtors' estates will not constitute a waiver of Wright's Fifth Amendment rights. In denying Debtors' request, the Bankruptcy Court described the Debtors' Application as "seek[ing] immunity under the guise of a protective order" and concluded that it is "not for the Bankruptcy Court to exercise what is an Article 3 Court's power and prerogative."
DISCUSSION
Federal courts are barred from rendering opinions with respect to "abstract, hypothetical, or contingent questions." Alabama State Fed. of Labor v. McAdory, 325 U.S. 450, 461, 65 S. Ct. 1384, 1389, 89 L. Ed. 1725 (1945). Rather, federal courts may adjudicate only live controversies and must generally refrain from issuing advisory opinions. United States v. Fruehauf, 365 U.S. 146, 81 S. Ct. 547, 5 L. Ed. 2d 476 (1961).
The Debtors assert, correctly, that Wright may assert his Fifth Amendment rights in a bankruptcy proceeding in order to justify a refusal to provide information otherwise relevant to the administration of an estate. See In re Martin-Trigona, 732 F.2d 170 (2d Cir.1984); In re Salzman, 61 B.R. 878 (Bankr.S.D.N.Y.1986); In re Minton Group, Inc., 43 B.R. 705 (Bankr.S.D.N.Y. 1984). The Debtors are also correct that there is a presumption against finding a waiver of Fifth Amendment rights on the basis of prior testimony. See, e.g., Klein v. Harris, 667 F.2d 274, 287 (2d Cir.1981); In re DG Acquisition Corp., 213 B.R. 883, 887 (S.D.N.Y.1997). The Debtors note that the Court possesses wide latitude, under Fed. R.Civ.P. 26 and Bankruptcy Rules 7026 and 9014, to issue a protective order for the purpose of "protect[ing] a party or person from annoyance, embarrassment, oppression, or undue burden or expense." FedR.Civ.P. 26(c). A protective order may provide "that *545 the disclosure or discovery may be had only on specified terms and conditions." Fed. R.Civ.P. 26(c)(2). Finally, the Debtors cite abundant authority for the proposition that protective orders entered in civil cases are enforceable to prevent discovery by the government for use in a criminal prosecution. See, e.g., Palmieri v. State of New York, 779 F.2d 861, 864 (2d Cir.1985) (citations omitted); Martindell v. Int'l Telephone and Telegraph Corp., 594 F.2d 291, 295-296 (2d Cir. 1979); United States v. Oshatz, 700 F. Supp. 696, 700 (S.D.N.Y.1988) (observing that as "Martindell and its progeny make clear, civil protective orders can be enforced against criminal trial subpoenas").
From these widely accepted legal principles, the Debtors conclude that the Bankruptcy Court could, and should, have issued an order assuring Wright that whatever information or statements he provides in connection with the administration of the bankruptcy estates would not waive his privilege to be free from compelled self-incrimination. The Debtors imply that without the requested relief Wright might be deprived of his Fifth Amendment rights.
However, none of the cases cited by Debtors suggest that a protective order is an appropriate mechanism to secure the relief they seek. By the Debtors' own admission, none of the cases on which they rely involve protective orders issued in a bankruptcy proceeding. Additionally, the Debtors' analysis ignores the fact that while protective orders may be used to elicit otherwise unavailable testimony, in all of the cases they cite, the protective order was consented to by all parties. See United States v. Alex. Brown & Sons, Inc., 963 F. Supp. 235 (S.D.N.Y.1997) (consent decree); Palmieri, 779 F.2d at 865; Martindell, 594 F.2d at 292; Oshatz, 700 F.Supp. at 699. In this case, the proposed order is opposed by Jackson National Life Insurance Company and Mezzonen, S.A., both creditors of the Debtors. Moreover, in none of the cases relied upon by the Debtors did the protective order purport to preclude a waiver of Fifth Amendment rights. In those cases, the central issue concerned disclosure to a third party of voluntary testimony subject to a protective order to which parties to the civil litigation had consented.[1] The proposed order in this case would govern not the disclosure of information so much as its legal effect.
Ultimately, the Debtors' request would require this Court to determine in advance the legal effect of future testimony in a context where the testimony is as yet unspecified. Wright has neither asserted the privilege, nor provided any testimony. A federal court "cannot entertain a claim which is based upon contingent future events that may not occur as anticipated, or indeed may not occur at all." Thomas v. City of New York, 143 F.3d 31, 34 (2d Cir.1998) (quoting Oriental Health Spa v. City of Fort Wayne, 864 F.2d 486, 489 (7th Cir.1988)). This Court is not empowered to issue an advisory opinion regarding the legal effect of such unspecified future testimony.[2]See United Public Workers of America v. Mitchell, 330 U.S. 75, 67 S. Ct. 556, 91 L. Ed. 754 (1947) (refusal to grant relief on speculative claim based upon unspecified future conduct).
CONCLUSION
For the reasons stated, the Clerk of the Court is directed to dismiss the appeal.
SO ORDERED.
NOTES
[1] The Martindell Court explicitly deemed it "unnecessary for us to decide the Fifth Amendment issues raised by the parties." Martindell, 594 F.2d at 297.
[2] The proposed order would also preclude a subsequent finding of waiver that might otherwise be legally required by Wright's future testimony. See Klein v. Harris, 667 F.2d at 287 (waiver should be found if the prior testimony likely distorts the truth and the witness should have known that his prior statements would be interpreted as a waiver of his Fifth Amendment privilege). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2313696/ | 73 F. Supp. 2d 29 (1999)
UNITED STATES
v.
Michael MURRAY, Judith Murray, Eastern Savings Bank, Household Finance Corporation II, Lep Profit International, Inc.
Civil Action No. 97-10602-RGS.
United States District Court, D. Massachusetts.
March 5, 1999.
Order Vacating Opinion in Part on Reconsideration in Part, May 7, 1999.
*30 *31 Carina J. Campobasso, Trial Atty., Tax Div., U.S. Dept. of Labor, Washington, DC, for Plaintiff.
John C. Ottenberg, Berry, Ottenberg & Dunkless, Boston, MA, for Judith E. Murray.
Robert L. Marder, Lynn, MA, for Eastern Savings Bank.
Peter J. Brockmann, Shectman, Litsey, Levy & Halpern, Providence, RI, for Household Finance Corp.
MEMORANDUM AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
STEARNS, District Judge.
The Internal Revenue Service (IRS) is seeking to confirm the validity of a tax lien it holds on Michael Murray's beneficial interest in a home ("Juliette Road") in Saugus, Massachusetts. Judith Murray, Michael Murray's former wife, contends that the entire beneficial interest in the home is hers, and that the lien, while valid, attaches to nothing.
BACKGROUND
The facts construed in the light most favorable to the Murrays are as follows.[1] Judith and Michael Murray were married in 1967. J. Murray Aff. ¶ 5. In 1976, the Murrays purchased a home at 9 Juliette Road in Saugus, taking title as tenants by the entirety. Id., at ¶ 9. In 1980, the Murrays were advised to put the home in trust. An attorney, Richard Reynolds, prepared a trust instrument deeding the property to the trustees of the M & J Murray Realty Trust. Plaintiff's Ex. 4; J. Murray Aff. ¶ 9. The Trust was recorded at the Southern Essex County Registry of Deeds on February 4, 1981. Plaintiffs' Exs. 3 and 4.
The trust instrument named Judith Murray, Michael Murray, and Frederick Chalifoux as trustees. Chalifoux is Judith Murray's step-brother and is "an experienced and trusted business and financial advisor." J. Murray Aff. ¶ 11. Chalifoux participates actively in the management of the Trust. Id. Under the terms of the *32 trust, the trustees have "absolute control, management, and disposition of the Trust Property as if they were the absolute owners thereof, free from the control of the beneficiaries," including the powers to sell, lease or mortgage the property, and to invest the trust's assets without restriction. Plaintiff's Ex. 4, Art. IV. Any action requires the vote of at least two trustees. Id., Art. III, ¶ 12. The Trust has a twenty year term, but it can be terminated at any time by a majority of the trustees. Id., Art. VII. Michael and Judith are the beneficiaries of the Trust, each having an equal share of its income and assets. Id., Art. II, ¶¶ 1 and 2. The Trust provides that at its termination, the Trust Assets will be distributed evenly between Michael Murray and Judith Murray "if they shall be living;" but if either Michael or Judith predecease the other, the survivor takes the decedent's share. Id., Art. II ¶ 3. The trust instrument also contains a spend-thrift clause stating that the interest of the beneficiaries may not be assigned, attached or alienated in any way. Id., Art. II, ¶ 4.
The Murrays were solvent when the Trust was created and had no reason to anticipate any unmanageable debt. The Trust was intended to provide the Murrays with an ownership vehicle for purchases of additional real estate. J. Murray Aff. ¶ 9.[2] Also of concern was a swimming pool that the Murrays had recently installed. The Murrays were advised by their attorney that the Trust would put Juliette Road beyond the reach of any injured judgment creditor. Id.
In March of 1987, Michael Murray's air freight trucking business, All Air Transportation Corp. (AATC), needed capital. The Trust agreed to give a second mortgage on Juliette Road to Household Finance Corporation as security for a loan to AATC of $26,714.05.[3] Id., ¶ 13. The Murrays considered the loan as a distribution from Michael's share in the Trust. Id., ¶¶ 14 and 16; M. Murray Aff. ¶¶ 3 and 6.[4]
Michael has not contributed towards the payment of the Trust's expenses since 1985. Nor has he made the payments on the Household Finance loan.[5] J. Murray Aff. ¶ 14. Judith Murray has since 1985 made all payments on the first and second mortgages. She has also paid the real estate taxes and the costs of maintaining Juliette Road. Id.
Judith and Michael Murray separated in May of 1987. Judith filed for divorce in March of 1988, and obtained an attachment on Michael's interest in Juliette Road. The parties executed a Separation Agreement in September of 1988. The divorce became final in March of 1989. J. Murray Aff. ¶¶ 5 and 16.
On November 21, 1998, the IRS assessed Michael Murray the sum of $105,243.06 for his failure to pay AATC's withholding and employment taxes during calendar 1987 and for the first quarter of 1988. Plaintiff's Exs. 1 and 2. A notice of the assessment and a demand for payment was served on Michael Murray.[6] On March 14, 1989, the IRS recorded a Notice of Federal Tax Lien at the Southern Essex County Registry of Deeds. Plaintiff's Ex. 2.
When Judith and Michael Murray executed their Separation Agreement in September of 1988, "Judith and Michael believed there was no remaining value to Michael's beneficial interest in the Trust." *33 J. Murray Aff. ¶ 16. The Separation Agreement, however, required Michael Murray to convey his "right, title and interest" in Juliette Road to Judith Murray within thirty days.[7] Separation Agreement, at 4; J. Murray Aff. ¶ 16; M. Murray Aff. ¶ 6. Both Judith Murray and Michael Murray state in affidavits that they intended any remaining beneficial interest in the Trust held by Michael to devolve on Judith upon execution of the Separation Agreement. J. Murray Aff. ¶ 16; Michael Murray Aff. ¶ 6. The trustees, however, did not formally transfer Juliette Road to Judith Murray until March 29, 1989. Plaintiff's Ex. 6. The deed transferring the property was recorded on April 5, 1989. Id.
In 1994, Michael Murray was unemployed, suffering from depression and homeless. Judith allowed Michael to resume living at Juliette Road.[8] Michael makes no present contribution towards the maintenance of the property. Id., at ¶ 19.
DISCUSSION
Summary judgment is appropriate if the court finds that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The standard of review of cross-motions for summary judgment
is identical to that for an individual motion, the Court must handle each of the cross motions as if they were two distinct, independent motions. Arnold Pontiac-GMC v. General Motors, 700 F. Supp. 838, 840 (W.D.Pa.1988). Thus, in evaluating each motion, the Court must consider the facts and inferences in the light most favorable to the nonmoving party. Continental Grain Co. v. Puerto Rico Maritime Shipping Auth., 972 F.2d 426, 431 (1st Cir.1992).
Lowel-Light Manufacturing, Inc. v. Federal Deposit Insurance Corp., 848 F. Supp. 278, 281 (D.Mass.1994).
A federal tax lien arises when unpaid taxes are assessed. The lien continues until the tax liability is satisfied or the lien becomes unenforceable because of the running of the statute of limitations. 26 U.S.C. §§ 6321, 6322. Federal tax liens attach to "all property and rights to property, whether real or personal, belonging to [the taxpayer]." 26 U.S.C. § 6321. What is "property" for purposes of the lien is determined by state law. Markham v. Fay, 74 F.3d 1347, 1355-1356 (1st Cir. 1996). While a delinquent taxpayer's vested interest in a trust can ordinarily be attached, the matter becomes complicated when the taxpayer's interest is intermixed with the interests of other beneficiaries. Under federal law "a tax lien extends only to property or rights to property belonging to the delinquent taxpayer, and not to property belonging to innocent third parties."[9]Markham, 74 F.3d at 1356.
The IRS attacks the M & J Murray Family Trust on several fronts. The Murrays, it will be recalled, were the settlors and sole beneficiaries of the Trust. They were also two of the three trustees. Juliette Road constituted the entire corpus of the Trust. Because the Murrays, acting in concert, had the power at any time to terminate the Trust and reclaim their respective shares,[10] the IRS argues that the Trust was in essence a revocable trust. Thus, the IRS contends that the federal *34 tax lien attached to Michael Murray's one-half interest in the property without regard to the niceties of trust. See Markham, 74 F.3d at 1357 ("If Fay revoked the trust, or amended it to make herself the sole beneficiary, the legal title and equitable interest would merge and thereby terminate the trust").
Alternatively, the IRS argues that the Trust was a sham because the Murrays "continued to treat [Juliette Road] in exactly the same manner after the transfers as they did before that time, quite simply, as their own." F.P.P. Enterprises and D & S Trust v. United States, 830 F.2d 114, 117 (8th Cir.1987).[11]
They lived there together continuously from the time they purchased it in 1976 to [the] time that they separated in the spring of 1987. Mrs. Murray continued to live there after the separation. They took the mortgage interest and real estate tax deductions on their personal returns.... In short, the Murrays never acted toward the Property in any way except as its true owners.
IRS Memorandum, at 8-9 (citations omitted).
Finally, the IRS argues that the transfer of Juliette Road to the Trust was a fraudulent conveyance. According to Judith Murray, the residence was put in trust so that
if [she] got into an accident and the limits of my [insurance] policy had expired that they could not come and attach my property. The same thing if anybody got injured in the pool, they could not come and take the house at 9 Juliette Road, attach the property, whatever.[12]
See Plaintiffs Ex. 10, at 39. Under the Uniform Fraudulent Conveyance Act, G.L. c. 109A, § 7,
every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay or defraud either present or future creditors, is fraudulent as to both present and future creditors.
The IRS contends that § 9(1)(b) of the UFCA permits it to "[d]isregard the conveyance and attach or levy execution upon the property conveyed."[13]
Merely because property is held in trust, it is not necessarily immune from creditors. It has long been the law in Massachusetts "that a settlor cannot place property in trust for his own benefit and keep it beyond the reach of creditors." Ware v. Gulda, 331 Mass. 68, 70, 117 N.E.2d 137 (1954), quoting Merchants National Bank v. Morrissey, 329 Mass. 601, 605, 109 N.E.2d 821 (1953). See Restatement (Second) of Trusts § 156. This is true even when a settlor-beneficiary encumbers the trust with a spendthrift provision. State Street Bank and Trust Co. v. Reiser, 7 Mass.App.Ct. 633, 636, 389 N.E.2d 768 (1979). It is also true that where the powers of the trustee may only be exercised at the direction of the beneficiary, the trust may be penetrated by the beneficiary's creditors. Zuroff v. First Wisconsin Trust Co., 41 Mass.App.Ct. 491, 493, 671 N.E.2d 982 (1996). And finally, where a settlor-beneficiary names herself as the sole trustee with unlimited powers over the corpus, a creditor may reach through the trust to its assets. Markham, *35 74 F.3d at 1357 ("The touchstone of the analysis ... is whether the trust instrument as a whole gives [the trustee] the power to eliminate the interests of all others in the trust"). The result is different, however, where the beneficiary of a trust, even a settlor-beneficiary who serves as the sole trustee, is unable under the terms of the trust instrument to treat the trust assets as if the trust did not exist.
Although Fay is the settlor, trustee and a beneficiary, the trust instrument gives her no power to unilaterally alter, amend or revoke the trust, limits her discretion as trustee to distribute income, and limits her right to receive income as a beneficiary to an amount in proportion to the shares owned by her. Fay's rights and powers therefore were not so centralized as to make the entire trust property her own.
Id., at 1363.
The instrument creating the M & J Murray Family Trust names three trustees imbued with broad powers to manage the trust assets.[14] Michael Murray did not, however, as a trustee, have the unilateral right to alter or amend the terms of the trust instrument. While it is true that Michael Murray, acting in concert with Judith Murray, had total control of the assets of the trust, this is legally irrelevant. It is only when a trustee beneficiary has the unilateral power to extinguish the interests of his co-beneficiaries that the separation of legal and equitable title is destroyed. A.W. Scott, The Law of Trusts, § 150.1 (1967).
The IRS's second argument, that the Trust was simply an alter ego for the Murrays, depends for its authority on F.P.P. Enterprises, supra. The trusts that figured in F.P.P. Enterprises, however, were business trusts, organized without regard for the requirements of state law, and for the admitted and sole purpose of sheltering the settlors' assets from creditors. Of even greater significance, the trustees in F.P.P. Enterprises had no control over the trust property. Control rather was vested exclusively in the beneficiaries. 830 F.2d at 117. The trusts, in other words, were de facto nominee trusts whose assets were reachable by creditors under Wyoming law just as they would be under Massachusetts law. See Zuroff, supra, 41 Mass.App.Ct. at 493, 671 N.E.2d 982 (a beneficiary's interest in a nominee trust may be seized to satisfy a tax liability). The M & J Murray Family Trust, on the other hand, is an inter vivos trust, created under a proper instrument and duly recorded. See Markham, 74 F.3d at 1357 ("Traditionally, Massachusetts has given full effect to inter vivos trusts").
The IRS's final argument, that the transfer of Juliette Road to the Trust was a fraudulent conveyance rests on Judith Murray's admission that one of the reasons for creating the Trust was to put Juliette Road beyond the reach of a potential tort claimant. If that had been the only reason, the IRS's argument would be conclusive (as it was in F.P.P. Enterprises). However, Judith Murray testified that the Trust was created for an additional legitimate purpose: to provide an ownership entity for the couple's planned real estate investments.[15] While the Murrays' investment ambitions were never realized (plausibly because of Michael Murray's ensuing financial difficulties), absent any evidence that their stated intentions in this regard were "false when made," there is no basis upon which the Trust can be disregarded. In sum, I conclude that the Trust is a valid legal entity.
Given the validity of the lien and the validity of the Trust, the issue remains whether the lien attaches to Michael Murray's interest in Juliette Road. A federal tax lien as a rule does not attach to *36 property that the delinquent taxpayer has no present right to receive. United States v. Cohn, 855 F. Supp. 572, 576-577 (D.Conn.1994). On the other hand, it does attach to a taxpayer's vested right in a trust.
[W]hether a right in a trust has vested depends on "whether, in substance, the interest is sufficiently established to constitute an interest or right which has accrued to its holder," that is, whether it is subject to defeat only by biological events, in which case the right is vested, or whether it is subject to defeat by another person's decision to exercise a power that he or she holds, in which case the right does not vest until the person holding the power can no longer exercise it.
Markham, 74 F.3d at 1365 (internal citations omitted). The right of a beneficiary to have his share of the trust corpus paid over to his successors upon his death, free of trust, is under Massachusetts law, a present right to property. See Forbes v. Snow, 245 Mass. 85, 91-92, 140 N.E. 418 (1923); Alexander v. McPeck, 189 Mass. 34, 44, 75 N.E. 88 (1905). Similarly, in Markham, the Court found that the trustee-beneficiary's (Fay) right to receive annual distributions until her death or the termination of the trust was a presently vested property right. 74 F.3d at 1364. On the other hand, Fay's right to the corpus was not vested because she could not convey it to a stranger without the co-beneficiaries' consent. Id. Moreover, she could receive her share of the liquidated assets during her lifetime only if a majority of the beneficial shareholders voted to terminate the trust; otherwise, her executors, administrators or assigns succeeded to her rights upon her death. 74 F.3d at 1364-1365. Consequently, Fay's interest in the corpus was "too ethereal" to be a present right to property. 74 F.3d at 1365. This did not mean, however, that the IRS's lien was of no effect. "The lien will attach ... upon Fay's death to whatever beneficial interest [in the corpus] she holds at that time, again assuming the tax debt remains unpaid." Id.
Under Massachusetts law, a properly constituted testamentary or inter vivos trust cannot be prematurely terminated to pay a beneficiary's debt to a creditor (although the beneficiary's right to any eventual distribution from the trust corpus may be vested in the creditor to be paid over when the trust instrument expires). Forbes, 245 Mass. at 92-93, 140 N.E. 418. The M & J Murray Family Trust provides that the Trust will expire on January 9, 2001. At that time the corpus will be divided equally between Michael and Judith Murray "if they shall be living." Plaintiff's Ex. 4, Art. II, ¶ 3. That Michael's right to a share in the distribution is contingent is legally irrelevant. Under Massachusetts law, a "vested interest in a contingent right" is property reachable by an attachment. Clarke v. Fay, 205 Mass. 228, 235-236, 91 N.E. 328 (1910) (analyzing a remainder interest accruing to a debtor on the contingency that he should survive his father). Thus, the IRS's lien, which was recorded before the trustees purported to transfer Juliette Road to Judith Murray, is impressed on Michael's beneficial interest in the trust corpus and will attach to that interest when the Trust expires in 2001, unless the Trust is terminated earlier by the trustees or the tax debt is paid.[16] (The IRS, in the meantime, would be entitled to any distribution of income from the Trust to Michael Murray, although as a practical matter, none is likely to be made).
Judith Murray, however, argues that Michael's interest in the Trust was either dissipated or transferred to her before *37 the IRS lien arose. She first contends that Michael's failure to repay the $26,714 loan guaranteed by the Trust exhausted his rights as a beneficiary. While the trustees had the power (within the constraints of fiduciary duty) to remove Michael as a beneficiary, to do so required
an instrument in writing executed and duly acknowledged in the manner required for deeds and filed at the appropriate Registry of Deeds where any land, if any, conveyed to this Trust lies, and such change, modification, alteration or termination shall become effective upon said filing with the Registry of Deeds.
Plaintiffs Ex. 4, Art. VII ¶ 2. There is no evidence that any writing extinguishing Michael's rights as a beneficiary was ever recorded. See Restatement (Second) of Trusts § 139 (1959) ("If by statute it is provided that all grants and assignments of any trust of land shall be in writing, signed by the party granting or assigning the same, a transfer of the interest of a beneficiary of a trust of land is not enforceable, unless the provisions of the statute are complied with").
In the alternative, Judith Murray argues that the Separation Agreement, executed prior to the IRS lien, transferred Michael's beneficial interest in Juliette Road to her. Whether a separation agreement takes effect on execution is governed by the intent of the parties. Pavluvcik v. Sullivan, 22 Mass.App.Ct. 581, 584, 495 N.E.2d 869 (1986). The Murrays maintain that they did intend the Agreement to have immediate effect. However, the Agreement explicitly states that "[t]he Husband agrees to convey to the Wife, within thirty (30) days, all his right, title and interest in the real estate located at 9 Juliette Road, Saugus, County of Essex, Massachusetts." Art. II(B). There is no evidence that Michael ever did so, nor was any such conveyance ever recorded. What was recorded was the transfer of Juliette Road to Judith Murray on April 5, 1989, well after the IRS had recorded its lien. Consequently, the transfer was a nullity.
Finally, Judith Murray claims that Michael's interest in the Trust should be construed as personal rather than real property, based on the recital in the Separation Agreement that "the parties ha[d] divided their personal property between them to their personal satisfaction." Art. II(A). When a "trust instrument directs that the trust assets be liquidated upon termination of the trust, the beneficiaries' interests are personal property from the trust's inception." Markham, 74 F.3d at 1361. However, the M & J Murray Family Trust instrument does not direct a liquidation of the trust corpus, merely a return of the legal title to the Trust assets to the Murrays.
ORDER
For the foregoing reasons, the court CONFIRMS the validity of the lien held by the Internal Revenue Service on Michael Murray's beneficial interest in the M & J Murray Family Trust. The court also AFFIRMS the validity of the Trust. The court further DETERMINES that Michael Murray's one-half beneficial interest in the Trust has not been dissipated and that any purported transfer of Michael's interest in the assets of the Trust to Judith Murray is a nullity. The IRS's Motion for Summary Judgment is therefore ALLOWED in part. Judith Murray's request that the Complaint be dismissed is DENIED. The IRS, as the prevailing party, shall submit a proposed form of judgment within fourteen (14) days of this ORDER.
SO ORDERED.
MEMORANDUM AND ORDER ON DEFENDANT JUDITH E. MURRAY'S OPPOSITION TO ENTRY OF JUDGMENT AND MOTION TO RECONSIDER
The motion to reconsider will be ALLOWED in part. On further reflection, I am persuaded by defendant Judith Murray's *38 argument that the reasoning of my March 5, 1999 Memorandum is flawed in one respectthe finding that Michael Murray's interest in the M & J Murray Family Trust had vested prior to the filing of the federal tax lien. That determination was based on the holding of Clarke v. Fay, 205 Mass. 228, 235-236, 91 N.E. 328 (1910), that under Massachusetts law, a vested interest in a contingent right is reachable by a creditor (assuming that its value can be ascertained by sale or appraisal). While Clarke is good law, on closer reading of the facts of the case, it is distinguishable. In Clarke, the right of the defendant to share in the fund established by his testator grandfather was "fixed" in the sense that the defendant "could by no contingency be deprived of the certainty of sharing in the fund, provided that he was alive at the death of his father." Id., at 235, 91 N.E. 328. While at the expiration of the Murray Trust, Michael will be entitled to one-half of the remaining corpus so long as he is alive, it is true, as Judith Murray points out, that in the interval, a majority of the Trustees could oust Michael as a beneficiary. Thus, the Murray Trust is, as defendant contends, more like the Highland Avenue Nursing Home Trust in Markham v. Fay, 74 F.3d 1347, 1360-1366 (1st Cir.1996), than the trust described in Clarke. While the March 5 Memorandum, at 10 (quoting from Fay) correctly states the Massachusetts rule as to when a property right in a trust vests, I am now convinced that I incorrectly applied the rule to the Murray facts in the penultimate sentence of page 11. Like Fay, Michael Murray has no title to the trust property or right under the trust instrument to call for a partition. Nor does he have the right to receive or withdraw any part of the trust principal. Id., at 1364. While the March 5 Memorandum correctly concluded that the tax lien attached to Michael's presently vested right to receive a share of any distribution of income from the Trust, as Fay makes clear, "a federal tax lien ... does not attach to the trust corpus when [the taxpayer] has no present right to receive it." Id.[1]
This, however, does not end the matter. The federal tax lien has priority in time over the purported transfer of Michael's interest in Juliette Road to Judith.[2] The issue remains whether the Trustees acted lawfully in attempting to extinguish Michael's beneficial interest in the Trust, or whether they were obligated by their fiduciary duty to Michael and his creditors to refrain from doing so. On this issue, I invite the comments of the parties. Cf. Fine v. Cohen, 35 Mass.App.Ct. 610, 617, 623 N.E.2d 1134 (1993) ("Even where there are broad discretionary powers, a trustee may not exercise his or her discretion so as to shift beneficial interests in the trust").
ORDER
For the foregoing reasons, the Motion to Reconsider is ALLOWED in part. The court vacates so much of its March 5, 1999 Memorandum and Order as rested on a determination that Michael Murray had a vested interest in the M & J Murray Family Trust at the time the IRS perfected its lien. The court concludes instead that he did not, and that the IRS lien did not therefore attach to Michael Murray's one-half beneficial interest in the corpus of the Trust. The parties will have thirty (30) *39 days from the date of this ORDER to submit briefs to the court on the issue of whether the Trustees are constrained by their fiduciary duty from any attempt to extinguish Michael Murray's contingent interest in the corpus of the Trust, and whether the conveyance of the property in deed to Judith Murray is as a result null and void.
SO ORDERED.
NOTES
[1] Several salient counter-facts favorable to the IRS are noted where appropriate, although the material facts are largely undisputed.
[2] There is no evidence that the Murrays ever purchased any additional real estate.
[3] At the time of the Household Finance loan, Juliette Road was appraised at $135,000. J. Murray Aff. ¶ 13.
[4] No Trust document reflects this understanding.
[5] The total payment required over the life of the second mortgage is $61,885.15. The loan presently has an outstanding principal balance of approximately $4,000.
[6] Judith states that she first learned of the tax lien when this case was filed in 1997. J. Murray Aff. ¶ 8.
[7] There is no evidence that Michael Murray did so.
[8] Judith testifies that she and Michael "have not resumed [their] relationship as husband and wife, either legally or de facto." J. Murray Aff. ¶ 18.
[9] Section 6323 of the Code sets out the interests that have priority over a § 6321 lien. Consistent with the statute, the IRS has stipulated to the priority of the Eastern Bank and Household Finance mortgages.
[10] Article III of the Trust states that "at least two of the Trustees shall act with respect to the administration of the Trust hereunder or to exercise any of the powers hereby conferred."
[11] The government notes that in conjunction with her divorce action, Judith Murray filed an attachment against "the right, title and interest" held by Michael Murray in the Juliette Road property, thus evidencing her belief that the Trust had no valid existence.
[12] Michael Murray refused to answer the IRS' questions regarding the purposes of the Trust. Plaintiff's Ex. 13. Based upon this refusal, the IRS contends that an adverse inference may appropriately be drawn. Cf. F.D.I.C. v. Elio, 39 F.3d 1239, 1248 (1st Cir. 1994).
[13] Because Judith Murray is not a "purchaser for fair consideration without knowledge of the fraud," the IRS asserts that any purported conveyance of Michael's interest in Juliette Road to Judith must be disregarded. IRS Memorandum, at 16-17.
[14] "Broad powers are typically conferred on a trustee as an effective way to manage trust property." Markham, 74 F.3d at 1357.
[15] This testimony is corroborated by the trust instrument's statement of purpose.
[16] While the trustees have broad powers in the interval over the trust corpus, their actions are constrained by their fiduciary obligations to Michael Murray as a beneficiary and by the weight of Massachusetts law obligating his assets to his creditors. Ware, 331 Mass. at 71, 117 N.E.2d 137. See also In re Landry, 226 B.R. 507, 512-513 (Bankr. D.Mass.1998).
[1] "The possibility that Fay might receive a share of the trust corpus during her lifetime hinges on whether or not a majority of the holders of the beneficial shares vote to terminate the trust, and whether or not they decide to amend the trust by removing her as a beneficiary. Thus, it does not amount to a present right to property under Massachusetts law." Id., at 1365.
[2] The nature of this transaction is not clear from the record. Attached to the Government's Memorandum is a deed (Exhibit 6) appearing to convey the entirety of Juliette Road to Judith Murray outright. If this is the case, then equitable and legal title in Michael's interest has merged in Judith, thus freeing Juliette Road from the Trust. The parties may wish to address the ramifications of this transaction. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1976189/ | 53 F. Supp. 1018 (1943)
UNITED STATES
v.
SWIFT & CO. et al.
Civ. A. No. 216.
District Court, M. D. Georgia, Macon Division.
December 31, 1943.
T. Hoyt Davis, U. S. Atty., and Chas. W. Walker and Henry S. Barnes, Asst. U. S. Attys., all of Macon, Ga., for plaintiff.
Neal J. Huff, of Chicago, Ill. (Jones, Jones & Sparks, A. O. B. Sparks and Chas. M. Cork, all of Macon, Ga., of counsel), for defendants.
DEAVER, District Judge.
After having heard the evidence and argument of counsel, I make the following findings of fact:
1. Swift & Company is a corporation with an office, agency, and place of business in Macon, Bibb County, Georgia.
2. Between October 10, 1940 and December 19, 1942, the Macon, Georgia, branch of Swift & Company was engaged in manufacturing butter, some of which was shipped in interstate commerce.
3. During said period Swift & Company shipped in interstate commerce butter manufactured from cream, some of which at times had in it rodent hair, feather parts, flies, maggots, and other such filth, and some of which was decomposed and contained mold.
4. The pure and clean cream in the process of manufacture was mixed with the decomposed cream and the cream which contained mold, rodent hair, feather parts, flies, maggots and other such insect filth, and all passed together through the filters, was then pasteurized through the same pasteurizer, held in the same storage vats, and churned together in the same churn.
5. The plant itself is sanitary and the equipment is standard and satisfactory.
6. Some of the butter manufactured from said cream, in spite of filtration through standard filters, contained insect fragments and, in minute quantities, substances which came from broken or partially dissolved insects, and materials which had been a part of the decomposed cream, and mold in such quantities that in ten instances out of fourteen, where the butter was microscopically *1019 examined for mold, 100% of the miscroscopic fields examined by the Wildman Method were found to contain mold.
7. There is a general correlation between the microscopic mold parts found in butter and the quality of the cream from which the butter is produced. The presence of microscopic mold in butter in excessive quantities may be accepted as an indication that the cream from which the butter was made either contained filth or was to an extent decomposed. Mold in butter, therefore, is relevant evidence to be considered along with all the other evidence as to the condition of the cream, but it is not necessary in this case to find just what weight should be given to such evidence.
8. Such butter so produced by Swift & Company at its Macon Plant was filthy and unfit for food.
9. Swift & Company, for a number of years, has engaged in a nation-wide program of cream quality improvement and has advocated quality improvement in its dairy products.
10. H. N. Bates, the Macon Manager of Swift & Company during most of 1942, failed to carry out fully the instructions of the management of Swift & Company with regard to the cream quality improvement program in the State of Georgia and the making of mold tests upon the cream from which butter was made at the Macon plant.
11. In October 1942, partially as a result of requests on the part of Swift & Company, the newly organized Dairy Department of Georgia Agricultural College began to interest itself in a cream quality program within the State of Georgia, and in the latter part of that year, also partially through the efforts of Swift & Company, the Georgia Butter Manufacturers' Association was organized and began to participate in a general program of cream quality improvement within the State.
12. After the inception of such program, experts and other representatives of Swift & Company's Cream Improvement Department did active field work in furtherance of cream quality improvement in Georgia.
13. As a result of all of these efforts, the quality of cream being received at the Macon plant of Swift & Company in the latter part of 1943 and the butter produced during that period showed a marked improvement over that produced at the times referred to in the complaint. The butter now scores 89 and 89½.
14. W. W. Joyner, the present Manager of the Macon plant of Swift & Company, has actively participated in this field work and in the Georgia cream quality improvement program.
15. With a continuation of the work being done by the University of Georgia and the members of the Butter Industry of Georgia, continued improvement in cream quality should result and a higher quality of commercial butter be produced in the State of Georgia, especially if they had the cooperation of the State Agricultural Department. However, it does not appear from the evidence that the State Agricultural Department is taking any active part in the Georgia cream quality program.
16. Cream used at Swift's Macon plan is produced in the main by small producers scattered over a wide area. It is held generally for about a week before i is delivered to the plant. The conditions under which it is produced and held are such that almost inevitably a large part of it will contain insects and become to some extent decomposed. Without the full cooperation of the State Agricultural Department, it is not likely that sufficient pure clean cream can be had from which to make butter in commercial quantities lawful to be shipped in interstate commerce. If all the cream in the state went to interstate shippers of butter, they could require the production of clean cream simply by rejecting all bad cream. But as long as bad cream subject to be rejected by interstate manufacturers can be sold to intrastate manufacturers, the cream situation will probably remain bad. At such time as state law, strictly enforced, may require a high standard for cream, no bad cream can be sold in the state and then conditions of production and manufacture will change. Until that time arrives Swift & Company cannot force the production of clean cream by any amount of good faith or effort and, while the cream quality program, if continued, will no doubt improve cream conditions, it will not likely cure them. These findings are made only as touching the necessity for an injunction and as a basis for the exercise of a discretion in granting or denying an injunction.
Conclusions of Law
1. This Court has jurisdiction of the parties and of the subject matter of this case.
*1020 2. Congress intended that the word "filthy", as used in the Act, should be construed to have its usual and ordinary meaning, and should not be confined to any scientific or medical definition.
3. It is not necessary, in this case, to adjudicate the legal effect of mold alone in butter.
4. In spite of the improvement which has been shown in the quality of cream produced in Georgia and of the butter now being manufactured at the Macon plant of Swift & Company, it does not appear from the evidence that, under the present conditions existing in the Georgia Cream Industry, other and further adulterations can adequately be prevented by the defendant, Swift & Company. Particularly may that be true so long as the State Agricultural Department takes no part in the program.
5. The butter referred to in the findings of fact was adulterated within the meaning of Title 21 U.S.C.A. § 342(a) (3), in that it consisted in part of a filthy and decomposed substance, and was unfit for food.
6. Plaintiff is entitled to an injunction as prayed.
Judgment
Wherefore, it is considered, ordered and adjudged that:
1. The defendants, H. N. Bates and Swift and Company, a corporation, all of its officers, representatives, agents, employees and servants, and all persons acting or claiming to act on behalf of or under the defendants, be and they are perpetually enjoined and restrained under the provisions of Sec. 332, U.S.Code, Title 21, 21 U.S.C.A. § 332, from shipping in interstate commerce, in violation of Sec. 331 and Sec. 342(a) (3), U.S.Code, Title 21, 21 U.S.C.A. § 331, 342(a) (3), adulterated butter manufactured or to be manufactured in its Macon, Georgia, plant.
2. Jurisdiction of this cause is retained for the purpose of enforcing or modifying this decree, and for the purpose of granting such additional or supplemental relief as may hereafter appear necessary or appropriate.
3. The defendant, Swift & Company, shall pay all costs involved in this proceeding. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1989768/ | 23 F. Supp. 643 (1938)
UNITED STATES ex rel. SIEGEL
v.
REIMER, Com'r of Immigration and Naturalization.
District Court, S. D. New York.
March 21, 1938.
Irwin Isaacs, of New York City, for petitioner.
Lamar Hardy, U. S. Atty., of New York City (Samuel Brodsky, Asst. U. S. Atty., of Brooklyn, N. Y., of counsel), for respondent.
PATTERSON, District Judge.
The Secretary of Labor ordered that Charles Fisk be deported as an alien "sentenced to imprisonment for a term of one year or more because of conviction in this country of a crime involving moral turpitude, committed within five years after the entry of the alien, to the United States". 8 U.S.C.A. § 155. The legality of the order is disputed on writ of habeas corpus.
The record on which the order of deportation was issued shows that Fisk came to this country from England in 1907; that in 1932 or 1933 he went to Canada on a sight-seeing trip, returning to the United States two days later; that in 1936 he was sentenced to prison for not less than three years and not more than six years for grand larceny committed on October 3, 1935. The proof as to the trip to Canada consists of an admission to that effect made by Fisk to an immigration inspector prior to issuance of warrant for deportation, and of a similar statement made at a hearing held in prison after issuance of the warrant.
The second coming of an alien from a foreign country into the United States is an "entry". United States ex rel. Claussen v. Day, 279 U.S. 398, 49 S. Ct. 354, 73 L. Ed. 758; United States ex rel. Ciccerelli v. Curran, 2 Cir., 12 F.2d 394. The fact that the alien had resided here for many years prior to the most recent entry, the fact that his later departure to a foreign country was for a temporary purpose, involving no interruption of continuity of residence here, and was followed by almost immediate re-entry into this country, are *644 matters that have no legal significance. A re-entry after a visit to a foreign country, no matter how brief, is an entry within the meaning of the statute. United States ex rel. Kowalenski v. Flynn, 17 F.2d 524, D. C.N.Y.; Ex parte Piazzola, 18 F.2d 114, D.C.N.Y.; United States ex rel. Medich v. Burmaster, 8 Cir., 24 F.2d 57; Ex parte Rocha, 30 F.2d 823, D.C.Tex.; United States ex rel. Covielli v. Commissioner, decided here March 24, 1931, unreported; Jackson v. Zurbrick, 6 Cir., 59 F.2d 937; Ex parte Marinaro, 2 F. Supp. 117, D.C.N. Y.; United States ex rel. Carella v. Karnuth, 2 F. Supp. 998, D.C.N.Y. The relator has a case to the contrary, Annello v. Ward, 8 F. Supp. 797, D.C.Mass.; but it is out of line with controlling authority and cannot be followed.
The alien's re-entry from Canada in 1932 or 1933 was an entry. The alien having been sentenced to imprisonment for more than one year on conviction for grand larceny committed within five years after that entry, he is deportable. There is no merit in the point that the hearing was unfair because held in the prison where the alien was confined. United States ex rel. Ciccerelli v. Curran, supra.
The writ will be dismissed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/110533/ | 452 U.S. 666 (1981)
FIRST NATIONAL MAINTENANCE CORP.
v.
NATIONAL LABOR RELATIONS BOARD.
No. 80-544.
Supreme Court of United States.
Argued April 21, 1981.
Decided June 22, 1981.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT.
*667 Sanford E. Pollack argued the cause for petitioner. With him on the briefs was Perry S. Heidecker.
Norton J. Come argued the cause for respondent. With him on the brief were Solicitor General McCree, Elinor Hadley Stillman, and Linda Sher.[*]
J. Albert Woll, Laurence Gold, George Kaufmann, and John A. Fillion filed a brief for the American Federation of Labor and Congress of Industrial Organizations et al. as amici curiae urging affirmance.
JUSTICE BLACKMUN delivered the opinion of the Court.
Must an employer, under its duty to bargain in good faith "with respect to wages, hours, and other terms and conditions of employment," §§ 8 (d) and 8 (a) (5) of the National Labor Relations Act (Act), as amended, 49 Stat. 452, 29 U.S. C. §§ 158 (d) and 158 (a) (5), negotiate with the certified representative of its employees over its decision to close a part of its business? In this case, the National Labor Relations Board (Board) imposed such a duty on petitioner with respect *668 to its decision to terminate a contract with a customer, and the United States Court of Appeals, although differing over the appropriate rationale, enforced its order.
I
Petitioner, First National Maintenance Corporation (FNM), is a New York corporation engaged in the business of providing housekeeping, cleaning, maintenance, and related services for commercial customers in the New York City area. It supplies each of its customers, at the customer's premises, contracted-for labor force and supervision in return for reimbursement of its labor costs (gross salaries, FICA and FUTA taxes, and insurance) and payment of a set fee. It contracts for and hires personnel separately for each customer, and it does not transfer employees between locations.[1]
During the spring of 1977, petitioner was performing maintenance work for the Greenpark Care Center, a nursing home in Brooklyn. Its written agreement dated April 28, 1976, with Greenpark specified that Greenpark "shall furnish all tools, equiptment [sic], materials, and supplies," and would pay petitioner weekly "the sum of five hundred dollars plus the gross weekly payroll and fringe benefits." App. in No. 79-4167 (CA2), pp. 43, 44. Its weekly fee, however, had been reduced to $250 effective November 1, 1976. Id., at 46. The contract prohibited Greenpark from hiring any of petitioner's employees during the term of the contract and for 90 days thereafter. Id., at 44. Petitioner employed approximately 35 workers in its Greenpark operation.
Petitioner's business relationship with Greenpark, seemingly, *669 was not very remunerative or smooth. In March 1977, Greenpark gave petitioner the 30 days' written notice of cancellation specified by the contract, because of "lack of efficiency." Id., at 52. This cancellation did not become effective, for FNM's work continued after the expiration of that 30-day period. Petitioner, however, became aware that it was losing money at Greenpark. On June 30, by telephone, it asked that its weekly fee be restored at the $500 figure and, on July 6, it informed Greenpark in writing that it would discontinue its operations there on August 1 unless the increase were granted.[2]Id., at 47. By telegram on July 25, petitioner gave final notice of termination. Id., at 48.
While FNM was experiencing these difficulties, District 1199, National Union of Hospital and Health Care Employees, Retail, Wholesale and Department Store Union, AFL-CIO (union), was conducting an organization campaign among petitioner's Greenpark employees. On March 31, 1977, at a Board-conducted election, a majority of the employees selected the union as their bargaining agent.[3] On July 12, the union's vice president, Edward Wecker, wrote petitioner, notifying it of the certification and of the union's right to bargain, and stating: "We look forward to meeting with you or your representative for that purpose. Please advice when it will be convenient." Id., at 49. Petitioner neither responded nor sought to consult with the union.
On July 28, petitioner notified its Greenpark employees that they would be discharged three days later. Wecker immediately telephoned petitioner's secretary-treasurer, Leonard Marsh, to request a delay for the purpose of bargaining. Marsh refused the offer to bargain and told Wecker that the termination of the Greenpark operation was purely a matter *670 of money, and final, and that the 30 days' notice provision of the Greenpark contract made staying on beyond August 1 prohibitively expensive. Id., at 79-81, 83, 85-86, 94. Wecker discussed the matter with Greenpark's management that same day, but was unable to obtain a waiver of the notice provision. Id., at 91-93, 98-99. Greenpark also was unwilling itself to hire the FNM employees because of the contract's 90-day limitation on hiring. Id., at 100-101, 106-107. With nothing but perfunctory further discussion, petitioner on July 31 discontinued its Greenpark operation and discharged the employees. Id., at 110-116.
The union filed an unfair labor practice charge against petitioner, alleging violations of the Act's §§ 8 (a) (1) and (5). After a hearing held upon the Regional Director's complaint, the Administrative Law Judge made findings in the union's favor. Relying on Ozark Trailers, Inc., 161 N. L. R. B. 561 (1966), he ruled that petitioner had failed to satisfy its duty to bargain concerning both the decision to terminate the Greenpark contract and the effect of that change upon the unit employees.[4] The judge reasoned:
"That the discharge of a man is a change in his conditions of employment hardly needs comment. In these obvious facts, the law is clear. When an employer's work complement is represented by a union and he wishes to alter the hiring arrangements, be his reason lack of money or a mere desire to become richer, the law is no less clear that he must first talk to the union about it. . . . If Wecker had been given an opportunity to talk, something might have been worked out to transfer these people to other parts of [petitioner's] business. . . . Entirely apart from whether open discussion between the partieswith the Union speaking on behalf of the employees *671 as was its rightmight have persuaded [petitioner] to find a way of continuing this part of its operations, there was always the possibility that Marsh might have persuaded Greenpark to use these same employees to continue doing its maintenance work, either as direct employees or as later hires by a replacement contractor." 242 N. L. R. B. 462, 465 (1979).[5]
The Administrative Law Judge recommended an order requiring petitioner to bargain in good faith with the union about its decision to terminate its Greenpark service operation and its consequent discharge of the employees, as well as the effects of the termination. He recommended, also, that petitioner be ordered to pay the discharged employees backpay from the date of discharge until the parties bargained to agreement, or the bargaining reached an impasse, or the union failed timely to request bargaining, or the union failed to bargain in good faith.
The National Labor Relations Board adopted the Administrative Law Judge's findings without further analysis, and additionally required petitioner, if it agreed to resume its Greenpark operations, to offer the terminated employees reinstatement to their former jobs or substantial equivalents; conversely, if agreement was not reached, petitioner was *672 ordered to offer the employees equivalent positions, to be made available by discharge of subsequently hired employees, if necessary, at its other operations. Id., at 463.
The United States Court of Appeals for the Second Circuit, with one judge dissenting in part, enforced the Board's order, although it adopted an analysis different from that espoused by the Board. 627 F.2d 596 (1980).[6] The Court of Appeals reasoned that no per se rule could be formulated to govern an employer's decision to close part of its business. Rather, the court said, § 8 (d) creates a presumption in favor of mandatory bargaining over such a decision, a presumption that is rebuttable "by showing that the purposes of the statute would not be furthered by imposition of a duty to bargain," for example, by demonstrating that "bargaining over the decision would be futile," or that the decision was due to "emergency financial circumstances," or that the "custom of the industry, shown by the absence of such an obligation from typical collective bargaining agreements, is not to bargain over such decisions." Id., at 601-602.
The Court of Appeals' decision in this case appears to be at odds with decisions of other Courts of Appeals,[7] some of which *673 decline to require bargaining over any management decision involving "a major commitment of capital investment" or a "basic operational change" in the scope or direction of an enterprise,[8] and some of which indicate that bargaining is not mandated unless a violation of § 8 (a) (3) (a partial closing motivated by antiunion animus) is involved.[9] The Court of Appeals for the Fifth Circuit has imposed a duty to bargain over partial closing decisions. See NLRB v. Winn-Dixie Stores, Inc., 361 F.2d 512, cert. denied, 385 U.S. 935 (1966). The Board itself has not been fully consistent in its rulings applicable to this type of management decision.[10]
*674 Because of the importance of the issue and the continuing disagreement between and among the Board and the Courts of Appeals, we granted certiorari. 449 U.S. 1076 (1981).
II
A fundamental aim of the National Labor Relations Act is the establishment and maintenance of industrial peace to preserve the flow of interstate commerce. NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1 (1937). Central to achievement of this purpose is the promotion of collective bargaining as a method of defusing and channeling conflict between labor and management.[11] § 1 of the Act, as amended, 29 U.S. C. § 151. Congress ensured that collective bargaining would go forward by creating the Board and giving it the power to condemn as unfair labor practices certain conduct by unions and employers that it deemed deleterious to the process, including the refusal "to bargain collectively." §§ 3 and 8, 29 U.S. C. §§ 153 and 158.
Although parties are free to bargain about any legal subject, Congress has limited the mandate or duty to bargain to matters of "wages, hours, and other terms and conditions of employment."[12] A unilateral change as to a subject within *675 this category violates the statutory duty to bargain and is subject to the Board's remedial order. NLRB v. Katz, 369 U.S. 736 (1962). Conversely, both employer and union may bargain to impasse over these matters and use the economic weapons at their disposal to attempt to secure their respective aims. NLRB v. American National Ins. Co., 343 U.S. 395 (1952).[13] Congress deliberately left the words "wages, hours, and other terms and conditions of employment" without further definition, for it did not intend to deprive the Board of the power further to define those terms in light of specific industrial practices.[14]
*676 Nonetheless, in establishing what issues must be submitted to the process of bargaining, Congress had no expectation that the elected union representative would become an equal partner in the running of the business enterprise in which the union's members are employed. Despite the deliberate open-endedness of the statutory language, there is an undeniable limit to the subjects about which bargaining must take place:
"Section 8 (a) of the Act, of course, does not immutably fix a list of subjects for mandatory bargaining. . . . But it does establish a limitation against which proposed topics must be measured. In general terms, the limitation includes only issues that settle an aspect of the relationship between the employer and the employees." Chemical & Alkali Workers v. Pittsburgh Plate Glass Co., 404 U.S. 157, 178 (1971).
See also Ford Motor Co. v. NLRB, 441 U.S. 488 (1979); Fibreboard Paper Products Corp. v. NLRB, 379 U.S. 203 (1964); Teamsters v. Oliver, 358 U.S. 283 (1959).
Some management decisions, such as choice of advertising *677 and promotion, product type and design, and financing arrangements, have only an indirect and attenuated impact on the employment relationship. See Fibreboard, 379 U. S., at 223 (STEWART, J., concurring). Other management decisions, such as the order of succession of layoffs and recalls, production quotas, and work rules, are almost exclusively "an aspect of the relationship" between employer and employee. Chemical Workers, 404 U. S., at 178. The present case concerns a third type of management decision, one that had a direct impact on employment, since jobs were inexorably eliminated by the termination, but had as its focus only the economic profitability of the contract with Greenpark, a concern under these facts wholly apart from the employment relationship. This decision, involving a change in the scope and direction of the enterprise, is akin to the decision whether to be in business at all, "not in [itself] primarily about conditions of employment, though the effect of the decision may be necessarily to terminate employment." Fibreboard, 379 U. S., at 223 (STEWART, J., concurring). Cf. Textile Workers v. Darlington Co., 380 U.S. 263, 268 (1965) ("an employer has the absolute right to terminate his entire business for any reason he pleases"). At the same time, this decision touches on a matter of central and pressing concern to the union and its member employees: the possibility of continued employment and the retention of the employees' very jobs. See Brockway Motor Trucks v. NLRB, 582 F.2d 720, 735-736 (CA3 1978); Ozark Trailers, Inc., 161 N. L. R. B. 561, 566-568 (1966).
Petitioner contends it had no duty to bargain about its decision to terminate its operations at Greenpark. This contention requires that we determine whether the decision itself should be considered part of petitioner's retained freedom to manage its affairs unrelated to employment.[15] The aim of *678 labeling a matter a mandatory subject of bargaining, rather than simply permitting, but not requiring, bargaining, is to "promote the fundamental purpose of the Act by bringing a problem of vital concern to labor and management within the framework established by Congress as most conducive to industrial peace," Fibreboard, 379 U. S., at 211. The concept of mandatory bargaining is premised on the belief that collective discussions backed by the parties' economic weapons will result in decisions that are better for both management and labor and for society as a whole.[16]Ford Motor Co., 441 U. S., at 500-501; Borg-Warner, 356 U. S., at 350 (condemning employer's proposal of "ballot" clause as weakening the collective-bargaining process). This will be true, however, only if the subject proposed for discussion is amenable to resolution through the bargaining process. Management must be free from the constraints of the bargaining process[17]*679 to the extent essential for the running of a profitable business. It also must have some degree of certainty beforehand as to when it may proceed to reach decisions without fear of later evaluations labeling its conduct an unfair labor practice. Congress did not explicitly state what issues of mutual concern to union and management it intended to exclude from mandatory bargaining.[18] Nonetheless, in view of an employer's need for unencumbered decisionmaking, bargaining over management decisions that have a substantial impact on the continued availability of employment should be required only if the benefit, for labor-management relations and the collective-bargaining process, outweighs the burden placed on the conduct of the business.
The Court in Fibreboard implicitly engaged in this analysis with regard to a decision to subcontract for maintenance work previously done by unit employees. Holding the employer's decision a subject of mandatory bargaining, the Court relied not only on the "literal meaning" of the statutory words, but also reasoned:
"The Company's decision to contract out the maintenance work did not alter the Company's basic operation. The maintenance work still had to be performed in the plant. *680 No capital investment was contemplated; the Company merely replaced existing employees with those of an independent contractor to do the same work under similar conditions of employment. Therefore, to require the employer to bargain about the matter would not significantly abridge his freedom to manage the business." 379 U.S., at 213.
The Court also emphasized that a desire to reduce labor costs, which it considered a matter "peculiarly suitable for resolution within the collective bargaining framework," id., at 214, was at the base of the employer's decision to subcontract:
"It was induced to contract out the work by assurances from independent contractors that economies could be derived by reducing the work force, decreasing fringe benefits, and eliminating overtime payments. These have long been regarded as matters peculiarly suitable for resolution within the collective bargaining framework, and industrial experience demonstrates that collective negotiation has been highly successful in achieving peaceful accommodation of the conflicting interests." Id., at 213-214.
The prevalence of bargaining over "contracting out" as a matter of industrial practice generally was taken as further proof of the "amenability of such subjects to the collective bargaining process." Id., at 211.
With this approach in mind, we turn to the specific issue at hand: an economically motivated decision to shut down part of a business.
III
A
Both union and management regard control of the decision to shut down an operation with the utmost seriousness. As has been noted, however, the Act is not intended to serve either party's individual interest, but to foster in a neutral *681 manner a system in which the conflict between these interests may be resolved. It seems particularly important, therefore, to consider whether requiring bargaining over this sort of decision will advance the neutral purposes of the Act.
A union's interest in participating in the decision to close a particular facility or part of an employer's operations springs from its legitimate concern over job security. The Court has observed: "The words of [§ 8 (d)] . . . plainly cover termination of employment which . . . necessarily results" from closing an operation. Fibreboard, 379 U. S., at 210. The union's practical purpose in participating, however, will be largely uniform: it will seek to delay or halt the closing. No doubt it will be impelled, in seeking these ends, to offer concessions, information, and alternatives that might be helpful to management or forestall or prevent the termination of jobs.[19] It is unlikely, however, that requiring bargaining over the decision itself, as well as its effects, will augment this flow of information and suggestions. There is no dispute that the union must be given a significant opportunity to bargain about these matters of job security as part of the "effects" bargaining mandated by § 8 (a) (5). See, e. g., NLRB v. Royal Plating & Polishing Co., 350 F.2d 191, 196 (CA3 1965); NLRB v. Adams Dairy, Inc., 350 F.2d 108 (CA8 1965), cert. denied, 382 U.S. 1011 (1966). And, under § 8 (a) (5), bargaining *682 over the effects of a decision must be conducted in a meaningful manner and at a meaningful time, and the Board may impose sanctions to insure its adequacy. A union, by pursuing such bargaining rights, may achieve valuable concessions from an employer engaged in a partial closing. It also may secure in contract negotiations provisions implementing rights to notice, information, and fair bargaining. See BNA, Basic Patterns in Union Contracts 62-64 (9th ed., 1979).
Moreover, the union's legitimate interest in fair dealing is protected by § 8 (a) (3), which prohibits partial closings motivated by antiunion animus, when done to gain an unfair advantage. Textile Workers v. Darlington Co., 380 U.S. 263 (1965). Under § 8 (a) (3) the Board may inquire into the motivations behind a partial closing. 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."
Thus, although the union has a natural concern that a partial closing decision not be hastily or unnecessarily entered into, it has some control over the effects of the decision and indirectly may ensure that the decision itself is deliberately considered. It also has direct protection against a partial closing decision that is motivated by an intent to harm a union.
Management's interest in whether it should discuss a decision of this kind is much more complex and varies with the particular circumstances. If labor costs are an important factor in a failing operation and the decision to close, management will have an incentive to confer voluntarily with the union to seek concessions that may make continuing the business profitable. Cf. U. S. News & World Report, Feb. 9, 1981, p. 74; BNA, Labor Relations Yearbook-1979, p. 5 (UAW agreement with Chrysler Corp. to make concessions on wages and fringe benefits). At other times, management may have great need for speed, flexibility, and secrecy in *683 meeting business opportunities and exigencies.[20] It may face significant tax or securities consequences that hinge on confidentiality, the timing of a plant closing, or a reorganization of the corporate structure. The publicity incident to the normal process of bargaining may injure the possibility of a successful transition or increase the economic damage to the business. The employer also may have no feasible alternative to the closing, and even good-faith bargaining over it may both be futile and cause the employer additional loss.[21]
There is an important difference, also, between permitted bargaining and mandated bargaining. Labeling this type of decision mandatory could afford a union a powerful tool for achieving delay, a power that might be used to thwart management's intentions in a manner unrelated to any feasible solution the union might propose. See Comment, "Partial Terminations"A Choice Between Bargaining Equality and Economic Efficiency, 14 UCLA L. Rev. 1089, 1103-1105 (1967). In addition, many of the cases before the Board have involved, as this one did, not simply a refusal to bargain over the decision, but a refusal to bargain at all, often coupled with other unfair labor practices. See, e. g., Electrical Products Div. of Midland-Ross Corp. v. NLRB, 617 F.2d 977 (CA3 1980), cert. denied, 449 U.S. 871 (1981); NLRB v. Amoco Chemicals Corp., 529 F.2d 427 (CA5 1976); Royal Typewriter Co. v. NLRB, 533 F.2d 1030 (CA8 1976); NLRB *684 v. American Mfg. Co., 351 F.2d 74 (CA5 1965) (subcontracting); Smyth Mfg. Co., 247 N. L. R. B. 1139 (1980). In these cases, the employer's action gave the Board reason to order remedial relief apart from access to the decisionmaking process. It is not clear that a union would be equally dissatisfied if an employer performed all its bargaining obligations apart from the additional remedy sought here.
While evidence of current labor practice is only an indication of what is feasible through collective bargaining, and not a binding guide, see Chemical Workers, 404 U. S., at 176, that evidence supports the apparent imbalance weighing against mandatory bargaining. We note that provisions giving unions a right to participate in the decisionmaking process concerning alteration of the scope of an enterprise appear to be relatively rare. Provisions concerning notice and "effects" bargaining are more prevalent. See II BNA, Collective Bargaining Negotiations and Contracts § 65:201-233 (1981); U. S. Dept. of Labor, Bureau of Labor Statistics, Bull. 2065, Characteristics of Major Collective Bargaining Agreements, Jan. 1, 1978, pp. 96, 100, 101, 102-103 (1980) (charting provisions giving interplant transfer and relocation allowances; advance notice of layoffs, shutdowns, and technological changes; and wage-employment guarantees; no separate tables on decision-bargaining, presumably due to rarity). See also U. S. Dept. of Labor, Bureau of Labor Statistics, Bull. No. 1425-10, Major Collective Bargaining Agreements, Plant Movement, Transfer, and Relocation Allowances (July 1969).
Further, the presumption analysis adopted by the Court of Appeals seems ill-suited to advance harmonious relations between employer and employee. An employer would have difficulty determining beforehand whether it was faced with a situation requiring bargaining or one that involved economic necessity sufficiently compelling to obviate the duty to bargain. If it should decide to risk not bargaining, it might be faced ultimately with harsh remedies forcing it to pay large amounts of backpay to employees who likely would have been *685 discharged regardless of bargaining, or even to consider reopening a failing operation. See, e. g., Electrical Products Div. of Midland-Ross Corp., 239 N. L. R. B. 323 (1978), enf'd, 617 F.2d 977 (CA3 1980), cert. denied, 449 U.S. 871 (1981). Cf. Lever Brothers Co. v. International Chemical Workers Union, 554 F.2d 115 (CA4 1976) (enjoining plant closure and transfer to permit negotiations). Also, labor costs may not be a crucial circumstance in a particular economically based partial termination. See, e. g., NLRB v. International Harvester Co., 618 F.2d 85 (CA9 1980) (change in marketing structure); NLRB v. Thompson Transport Co., 406 F.2d 698 (CA10 1969) (loss of major customer). And in those cases, the Board's traditional remedies may well be futile. See ABC Trans-National Transport, Inc. v. NLRB, 642 F.2d 675 (CA3 1981) (although employer violated its "duty" to bargain about freight terminal closing, court refused to enforce order to bargain). If the employer intended to try to fulfill a court's direction to bargain, it would have difficulty determining exactly at what stage of its deliberations the duty to bargain would arise and what amount of bargaining would suffice before it could implement its decision. Compare Burns Ford, Inc., 182 N. L. R. B. 753 (1970) (one week's notice of layoffs sufficient), and Hartmann Luggage Co., 145 N. L. R. B. 1572 (1964) (entering into executory subcontracting agreement before notifying union not a violation since contract not yet final), with Royal Plating & Polishing Co., 148 N. L. R. B. 545, 555 (1964), enf. denied, 350 F.2d 191 (CA3 1965) (two weeks' notice before final closing of plant inadequate). If an employer engaged in some discussion, but did not yield to the union's demands, the Board might conclude that the employer had engaged in "surface bargaining," a violation of its good faith. See NLRB v. Reed & Prince Mfg. Co., 205 F.2d 131 (CA1), cert. denied, 346 U.S. 887 (1953). A union, too, would have difficulty determining the limits of its prerogatives, whether and when it could use its economic powers to try to alter an employer's *686 decision, or whether, in doing so, it would trigger sanctions from the Board. See, e. g., International Offset Corp., 210 N. L. R. B. 854 (1974) (union's failure to realize that shutdown was imminent, in view of successive advertisements, sales of equipment, and layoffs, held a waiver of right to bargain); Shell Oil Co., 149 N. L. R. B. 305 (1964) (union waived its right to bargain by failing to request meetings when employer announced intent to transfer a few days before implementation).
We conclude that the harm likely to be done to an employer's need to operate freely in deciding whether to shut down part of its business purely for economic reasons outweighs the incremental benefit that might be gained through the union's participation in making the decision,[22] and we hold that the decision itself is not part of § 8 (d)'s "terms and conditions," see n. 12, supra, over which Congress has mandated bargaining.[23]
*687 B
In order to illustrate the limits of our holding, we turn again to the specific facts of this case. First, we note that when petitioner decided to terminate its Greenpark contract, it had no intention to replace the discharged employees or to move that operation elsewhere. Petitioner's sole purpose was to reduce its economic loss, and the union made no claim of antiunion animus. In addition, petitioner's dispute with Greenpark was solely over the size of the management fee Greenpark was willing to pay. The union had no control or authority over that fee. The most that the union could *688 have offered would have been advice and concessions that Greenpark, the third party upon whom rested the success or failure of the contract, had no duty even to consider. These facts in particular distinguish this case from the subcontracting issue presented in Fibreboard. Further, the union was not selected as the bargaining representative or certified until well after petitioner's economic difficulties at Greenpark had begun. We thus are not faced with an employer's abrogation of ongoing negotiations or an existing bargaining agreement. Finally, while petitioner's business enterprise did not involve the investment of large amounts of capital in single locations, we do not believe that the absence of "significant investment or withdrawal of capital," General Motors Corp., GMC Truck & Coach Div., 191 N. L. R. B., at 952, is crucial. The decision to halt work at this specific location represented a significant change in petitioner's operations, a change not unlike opening a new line of business or going out of business entirely.
The judgment of the Court of Appeals, accordingly, is reversed, and the case is remanded to that court for further proceedings consistent with this opinion.
It is so ordered.
JUSTICE BRENNAN, with whom JUSTICE MARSHALL joins, dissenting.
Section 8 (d) of the National Labor Relations Act, as amended, requires employers and employee representatives "to meet at reasonable times and confer in good faith with respect to wages, hours, and other terms and conditions of employment." 29 U.S. C. § 158 (d). The question in this case is whether First National Maintenance Corporation's decision to terminate its Greenpark Care Center operation and to discharge the workers employed in that operation was a decision with respect to "terms and conditions of employment" within the meaning of the Act, thus rendering its failure to negotiate with the union unlawful.
*689 As this Court has noted, the words "terms and conditions of employment" plainly cover termination of employment resulting from a management decision to close an operation. Fibreboard Paper Products Corp. v. NLRB, 379 U.S. 203, 210 (1964). As the Court today admits, the decision to close an operation "touches on a matter of central and pressing concern to the union and its member employees." Ante, at 677. Moreover, as the Court today further concedes, Congress deliberately left the words "terms and conditions of employment" indefinite, so that the NLRB would be able to give content to those terms in light of changing industrial conditions. Ante, at 675, and n. 14. In the exercise of its congressionally delegated authority and accumulated expertise, the Board has determined that an employer's decision to close part of its operations affects the "terms and conditions of employment" within the meaning of the Act, and is thus a mandatory subject for collective bargaining. Ozark Trailers, Inc., 161 N. L. R. B. 561 (1966). Nonetheless, the Court today declines to defer to the Board's decision on this sensitive question of industrial relations, and on the basis of pure speculation reverses the judgment of the Board and of the Court of Appeals. I respectfully dissent.
The Court bases its decision on a balancing test. It states that "bargaining over management decisions that have a substantial impact on the continued availability of employment should be required only if the benefit, for labor-management relations and the collective-bargaining process, outweighs the burden placed on the conduct of the business." Ante, at 679. I cannot agree with this test, because it takes into account only the interests of management; it fails to consider the legitimate employment interests of the workers and their union. Cf. Brockway Motor Trucks v. NLRB, 582 F.2d 720, 734-740 (CA3 1978) (balancing of interests of workers in retaining their jobs against interests of employers in maintaining unhindered control over corporate direction). This one-sided approach hardly serves "to foster in a neutral manner" *690 a system for resolution of these serious, two-sided controversies. See ante, at 680-681.
Even if the Court's statement of the test were accurate, I could not join in its application, which is based solely on speculation. Apparently, the Court concludes that the benefit to labor-management relations and the collective-bargaining process from negotiation over partial closings is minimal, but it provides no evidence to that effect. The Court acknowledges that the union might be able to offer concessions, information, and alternatives that might obviate or forestall the closing, but it then asserts that "[i]t is unlikely, however, that requiring bargaining over the decision . . . will augment this flow of information and suggestions." Ante, at 681. Recent experience, however, suggests the contrary. Most conspicuous, perhaps, were the negotiations between Chrysler Corporation and the United Auto Workers, which led to significant adjustments in compensation and benefits, contributing to Chrysler's ability to remain afloat. See Wall Street Journal, Oct. 26, 1979, p. 3, col. 1. Even where labor costs are not the direct cause of a company's financial difficulties, employee concessions can often enable the company to continue in operationif the employees have the opportunity to offer such concessions.[*]
The Court further presumes that management's need for "speed, flexibility, and secrecy" in making partial closing decisions would be frustrated by a requirement to bargain. Ante, at 682-683. In some cases the Court might be correct. In others, however, the decision will be made openly and deliberately, *691 and considerations of "speed, flexibility, and secrecy" will be inapposite. Indeed, in view of management's admitted duty to bargain over the effects of a closing, see ante, at 677-678, n. 15, it is difficult to understand why additional bargaining over the closing itself would necessarily unduly delay or publicize the decision.
I am not in a position to judge whether mandatory bargaining over partial closings in all cases is consistent with our national labor policy, and neither is the Court. The primary responsibility to determine the scope of the statutory duty to bargain has been entrusted to the NLRB, which should not be reversed by the courts merely because they might prefer another view of the statute. Ford Motor Co. v. NLRB, 441 U.S. 488, 495-497 (1979); see NLRB v. Erie Resistor Corp., 373 U.S. 221, 236 (1963). I therefore agree with the Court of Appeals that employers presumptively have a duty to bargain over a decision to close an operation, and that this presumption can be rebutted by a showing that bargaining would be futile, that the closing was due to emergency financial circumstances, or that, for some other reason, bargaining would not further the purposes of the National Labor Relations Act. 627 F.2d 596, 601 (CA2 1980). I believe that this approach is amply supported by recent decisions of the Board. E. g., Brooks-Scanlon, Inc., 246 N. L. R. B. 476, 102 LRRM 1606 (1979); Raskin Packing Co., 246 N. L. R. B. 78, 102 LRRM 1489 (1979); M. & M. Transportation Co., 239 N. L. R. B. 73 (1978). With respect to the individual facts of this case, however, I would vacate the judgment of the Court of Appeals, and remand to the Board for further examination of the evidence. See SEC v. Chenery Corp., 318 U.S. 80, 94-95 (1943).
NOTES
[*] Briefs of amici curiae urging reversal were filed by Robert J. Fenlon for the American Society for Personnel Administration; by Marvin E. Frankel, Saul G. Kramer, and Stephen A. Bokat for the Chamber of Commerce of the United States; and by Daniel Popeo and Paul D. Kamenar for the Washington Legal Foundation.
[1] The record does not show the precise dimension of petitioner's business. See 242 N. L. R. B. 462, 464 (1979). One of the owners testified that petitioner at that time had "between two and four" other nursing homes as customers. Ibid. The Administrative Law Judge hypothesized, however: "This is a large Company. For all I know, the 35 men at this particular home were only a small part of its total business in the New York area." Id., at 465.
[2] The record does not disclose how the contract's 30-day written notice provision was satisfied. In any event, the parties make no point of any shortage in the notice.
[3] The union was certified on May 11, 1977. App. in No. 79-4167 (CA2), p. 50.
[4] The Administrative Law Judge rejected petitioner's contention that it had satisfied, by that single phone call to Wecker, its duty to bargain about the termination.
[5] The judge further found that petitioner's "regular and usual" method of operation involved "taking on, finishing, or discontinuing this or that particular job," 242 N. L. R. B., at 466, and that "[t]here was no capital involved when it decided to terminate the Greenpark job. The closing of this one spot in no sense altered the nature of its business, nor did it substantially affect its total size." Ibid. The Administrative Law Judge therefore found inapplicable the Board's ruling in Brockway Motor Trucks, Division of Mack Trucks, Inc., 230 N. L. R. B. 1002, 1003 (1977), enf. denied, 582 F.2d 720 (CA3 1978), that an employer's decision to close part of its business is not a mandatory subject of bargaining if it involves such a "`significant investment or withdrawal of capital' as to `affect the scope and ultimate direction of an enterprise,'" quoting from General Motors Corp., GMC Truck & Coach Div., 191 N. L. R. B. 951, 952 (1971).
[6] Because the court adopted different grounds for enforcement of the Board's order, it was error to enforce without a remand to the Board for further examination of the evidence and proper factfinding. NLRB v. Pipefitters, 429 U.S. 507, 522, n. 9 (1977); SEC v. Chenery Corp., 318 U.S. 80, 95 (1943).
[7] The Court of Appeals in this case, for example, agreed, 627 F.2d, at 601, with the Third Circuit in Brockway Motor Trucks v. NLRB, 582 F.2d 720 (1978), that a presumption in favor of bargaining was to be established, but it analyzed differently how that presumption would be rebutted. The Third Circuit had decided that the competing interests of the employer and the employees, under the particular circumstances, must be weighed, and it had remanded the case before it to the Board for fact-finding into the circumstances behind the partial closing. See also Equitable Gas Co. v. NLRB, 637 F.2d 980 (CA3 1981) (subcontracting); ABC Trans-National Transport, Inc. v. NLRB, 642 F.2d 675 (CA3 1981) (partial closing); NLRB v. Royal Plating & Polishing Co., 350 F.2d 191 (CA3 1965) (partial closing). Several courts have agreed with the Second Circuit. See, e. g., Davis v. NLRB, 617 F.2d 1264 (CA7 1980) (change of full-service restaurant to self-service cafeteria); NLRB v. Production Molded Plastics, Inc., 604 F.2d 451 (CA6 1979) (plant closing).
[8] See, e. g., NLRB v. International Harvester Co., 618 F.2d 85 (CA9 1980); NLRB v. Adams Dairy, Inc., 350 F.2d 108 (CA8 1965), cert. denied, 382 U.S. 1011 (1966); NLRB v. Transmarine Navigation Corp., 380 F.2d 933 (CA9 1967); Royal Typewriter Co. v. NLRB, 533 F.2d 1030 (CA8 1976); NLRB v. Rapid Bindery, Inc., 293 F.2d 170 (CA2 1961); NLRB v. Thompson Transport Co., 406 F.2d 698 (CA10 1969).
[9] See, e. g., Morrison Cafeterias Consolidated, Inc. v. NLRB, 431 F.2d 254 (CA8 1970); NLRB v. Drapery Mfg. Co., 425 F.2d 1026 (CA8 1970); NLRB v. William J. Burns International Detective Agency, Inc., 346 F.2d 897 (CA8 1965).
[10] Compare National Car Rental System, Inc., 252 N. L. R. B. 159, 161 (1980) (employer's decision to terminate car leasing operations at one location not a mandatory subject because "`essentially financial and managerial in nature,' involving a `significant investment or withdrawal of capital, affecting the scope and ultimate direction of an enterprise,'" quoting from General Motors Corp., GMC Truck & Coach Div., 191 N. L. R. B., at 952), and Summit Tooling Co., 195 N. L. R. B. 479, 480 (1972) (decision to close a subsidiary not a mandatory subject because "its practical effect was to take the Respondent out of the business of manufacturing tool and tooling products"), with Ozark Trailers, Inc., 161 N. L. R. B. 561, 567, 568 (1966) (employer's decision to shut down one of multiple plants was a mandatory subject because it was "a decision directly affecting terms and conditions of employment" and "interests of employees are of sufficient importance that their representatives ought to be consulted in matters affecting them"). See also Kingwood Mining Co., 210 N. L. R. B. 844 (1974), aff'd sub nom. United Mine Workers v. NLRB, 169 U. S. App. D. C. 301, 515 F.2d 1018 (1975).
[11] "Experience has abundantly demonstrated that the recognition of the right of employees to self-organization and to have representatives of their own choosing for the purpose of collective bargaining is often an essential condition of industrial peace. Refusal to confer and negotiate has been one of the most prolific causes of strife. This is such an outstanding fact in the history of labor disturbances that it is a proper subject of judicial notice and requires no citation of instances." NLRB v. Jones & Laughlin Steel Corp., 301 U. S., at 42 (upholding the constitutionality of the Act).
[12] Sections 8 (a) (5) and 8 (b) (3) of the Act make it an unfair labor practice for an employer and union representative, respectively, "to refuse to bargain collectively." 29 U.S. C. §§ 158 (a) (5) and 158 (b) (3). Section 8 (d), added, as was § 8 (b) (3), to the Act by the amendatory Labor Management Relations Act, 1947, 61 Stat. 136, defines the duty to bargain as
"the performance of the mutual obligation of the employer and the representative of the employees to meet at reasonable times and confer in good faith with respect to wages, hours, and other terms and conditions of employment . . . ." 29 U.S. C. § 158 (d).
Section 9 (a) further specifies that
"[r]epresentatives designated or selected for the purposes of collective bargaining by the majority of the employees in a unit appropriate for such purposes, shall be the exclusive representatives of all the employees in such unit for the purposes of collective bargaining in respect to rates of pay, wages, hours of employment, or other conditions of employment . . . ." 29 U.S. C. § 159 (a).
[13] A matter that is not a mandatory subject of bargaining, unless it is illegal, may be raised at the bargaining table to be discussed in good faith, and the parties may incorporate it into an enforceable collective-bargaining agreement. Labor and management may not, however, insist on it to the point of impasse. NLRB v. Borg-Warner Corp., 356 U.S. 342 (1958).
[14] In enacting the Labor Management Relations Act, 1947, Congress rejected a proposal in the House to limit the subjects of bargaining to
"(i) [w]age rates, hours of employment, and work requirements; (ii) procedures and practices relating to discharge, suspension, lay-off, recall, seniority, and discipline, or to promotion, demotion, transfer and assignment within the bargaining unit; (iii) conditions, procedures, and practices governing safety, sanitation, and protection of health at the place of employment; (iv) vacations and leaves of absence; and (v) administrative and procedural provisions relating to the foregoing subjects." H. R. 3020 § 2 (11), 80th Cong., 1st Sess. (1947).
The adoption, instead, of the general phrase now part of § 8 (d) was clearly meant to preserve future interpretation by the Board. See H. R. Rep. No. 245, 80th Cong., 1st Sess., 71 (1947) (minority report) ("The appropriate scope of collective bargaining cannot be determined by a formula; it will inevitably depend upon the traditions of an industry, the social and political climate at any given time, the needs of employers and employees, and many related factors. What are proper subject matters for collective bargaining should be left in the first instance to employers and trade-unions, and in the second place, to any administrative agency skilled in the field and competent to devote the necessary time to a study of industrial practices and traditions in each industry or area of the country, subject to review by the courts. It cannot and should not be strait-jacketed by legislative enactment"); H. R. Conf. Rep. No. 510, 80th Cong., 1st Sess., 34-35 (1947). Specific references in the legislative history to plant closings, however, are inconclusive. See 79 Cong. Rec. 7673, 9682 (1935) (comments of Sen. Walsh and Rep. Griswold).
[15] There is no doubt that petitioner was under a duty to bargain about the results or effects of its decision to stop the work at Greenpark, or that it violated that duty. Petitioner consented to enforcement of the Board's order concerning bargaining over the effects of the closing and has reached agreement with the union on severance pay. App. in No. 79-4167 (CA2), pp. 21-22.
[16] "The Act does not compel agreements between employers and employees. It does not compel any agreement whatever. It does not prevent the employer `from refusing to make a collective contract and hiring individuals on whatever terms' the employer `may by unilateral action determine.' . . . The theory of the Act is that free opportunity for negotiation with accredited representatives of employees is likely to promote industrial peace and may bring about the adjustments and agreements which the Act in itself does not attempt to compel." NLRB v. Jones & Laughlin Steel Corp., 301 U. S., at 45. Cf. John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 549 (1964) ("The objectives of national labor policy, reflected in established principles of federal law, require that the rightful prerogative of owners independently to rearrange their businesses and even eliminate themselves as employers be balanced by some protection to the employees from a sudden change in the employment relationship").
[17] The employer has no obligation to abandon its intentions or to agree with union proposals. On proper subjects, it must meet with the union, provide information necessary to the union's understanding of the problem, and in good faith consider any proposals the union advances. In concluding to reject a union's position as to a mandatory subject, however, it must face the union's possible use of strike power. See generally Fleming, The Obligation to Bargain in Good Faith, 47 Va. L. Rev. 988 (1961).
[18] The subjects over which mandatory bargaining has been required have changed over time. Employers and unions have been required to bargain over such diverse topics as profit-sharing plans, Winn-Dixie Stores, Inc. v. NLRB, 567 F.2d 1343 (CA5), cert. denied, 439 U.S. 985 (1978); layoffs and recalls, see Awrey Bakeries, Inc. v. NLRB, 548 F.2d 138 (CA6 1976); contractual clauses concerning race discrimination, see Wichita Eagle & Beacon Publishing Co., 222 N. L. R. B. 742 (1976); and "most favored nation" clauses, Dolly Madison Industries, Inc., 182 N. L. R. B. 1037 (1970). See also Borg-Warner, 356 U. S., at 353 (Harlan, J., concurring in part and dissenting in part).
[19] We are aware of past instances where unions have aided employers in saving failing businesses by lending technical assistance, reducing wages and benefits or increasing production, and even loaning part of earned wages to forestall closures. See S. Slichter, J. Healy, & E. Livernash, The Impact of Collective Bargaining on Management 845-851 (1960); C. Golden & H. Rutenberg, The Dynamics of Industrial Democracy 263-291 (1942). See also United Steel Workers of America, Local No. 1330, v. United States Steel Corp., 492 F. Supp. 1 (ND Ohio), aff'd in part and vacated in part, 631 F.2d 1264 (CA6 1980) (union sought to purchase failing plant); 104 LRR 239 (1980) (employee ownership plan instituted to save company); id., at 267-268 (union accepted pay cuts to reduce plant's financial problems). These have come about without the intervention of the Board enforcing a statutory requirement to bargain.
[20] See International Assn. of Machinists & Aerospace Workers v. Northeast Airlines, Inc., 473 F.2d 549, 556-557 (CA1), cert. denied, 409 U.S. 845 (1972); Raskin Packing Co., 246 N. L. R. B. No. 15 (1979); M & M Transportation Co., 239 N. L. R. B. 73 (1978); Goetz, The Duty to Bargain About Changes in Operations, 1964 Duke L. J. 1, 9-10. Cf. Detroit Edison Co. v. NLRB, 440 U.S. 301, 316 (1979) (noting the "danger of inadvertent leaks" in giving union confidential information).
[21] See ABC Trans-National Transport, Inc. v. NLRB, 642 F.2d 675 (CA3 1981); Loomis & Herman, Management's Reserved Rights and the NLRBAn Employer's View, 19 Lab. L. J. 695 (1968); Comment, "Partial Terminations"A choice Between Bargaining Equality and Economic Efficiency, 14 UCLA L. Rev. 1089 (1967).
[22] In this opinion we of course intimate no view as to other types of management decisions, such as plant relocations, sales, other kinds of subcontracting, automation, etc., which are to be considered on their particular facts. See, e. g., International Ladies' Garment Workers Union v. NLRB, 150 U. S. App. D. C. 71, 463 F.2d 907 (1972) (plant relocation predominantly due to labor costs); Weltronic Co. v. NLRB, 419 F.2d 1120 (CA6 1969) (decision to move plant three miles), cert. denied, 398 U.S. 938 (1970); Dan Dee West Virginia Corp., 180 N. L. R. B. 534 (1970) (decision to change method of distribution, under which employee-drivers became independent contractors); Young Motor Truck Service, Inc., 156 N. L. R. B. 661 (1966) (decision to sell major portion of business). See also Schwarz, Plant Relocation or Partial TerminationThe Duty to Decision-Bargain, 39 Ford. L. Rev. 81, 100-102 (1970).
[23] Despite the contentions of amicus AFL-CIO our decision in Railroad Telegraphers v. Chicago & N. W. R. Co., 362 U.S. 330 (1960), does not require that we find bargaining over this partial closing decision mandatory. In that case, a union certified as bargaining agent for certain railroad employees requested that the railroad bargain over its decision to close down certain stations thereby eliminating a number of jobs. When the union threatened to strike over the railroad's refusal to bargain on this issue, the railroad sought an injunction in federal court. Construing the scope of bargaining required by § 2, First, of the Railway Labor Act, 45 U.S. C. § 152, First, the Court held that the union's effort to negotiate was not "an unlawful bargaining demand," 362 U.S., at 341, and that the District Court was precluded from enjoining the threatened strike by § 4 of the Norris-LaGuardia Act, 29 U.S. C. § 104, which deprives federal courts of "jurisdiction to issue any restraining order or temporary or permanent injunction in any case involving or growing out of any labor dispute to prohibit any person or persons participating or interested in such dispute . . . from . . . [c]easing or refusing to perform any work. . . ." Although the Court in part relied on an expansive interpretation of § 2, First, which requires railroads to "exert every reasonable effort to make and maintain agreements concerning rates of pay, rules, and working conditions," and § 13 (c) of the Norris-LaGuardia Act, 29 U.S. C. § 113 (c), defining "labor dispute" as "any controversy concerning terms or conditions of employment," its decision also rested on the particular aims of the Railway Labor Act and national transportation policy. See 362 U.S., at 336-338. The mandatory scope of bargaining under the Railway Labor Act and the extent of the prohibition against injunctive relief contained in Norris-LaGuardia are not coextensive with the National Labor Relations Act and the Board's jurisdiction over unfair labor practices. See Chicago & N. W. R. Co. v. Transportation Union, 402 U.S. 570, 579, n. 11 (1971) ("parallels between the duty to bargain in good faith and the duty to exert every reasonable effort, like all parallels between the NLRA and the Railway Labor Act, should be drawn with the utmost care and with full awareness of the differences between the statutory schemes"). Cf. Boys Markets, Inc. v. Retail Clerks, 398 U.S. 235 (1970); Buffalo Forge Co. v. Steelworkers, 428 U.S. 397 (1976).
[*] Indeed, in this case, the Court of Appeals found: "On the record, . . . there is sufficient reason to believe that, given the opportunity, the union might have made concessions, by accepting reduction in wages or benefits (take-backs) or a reduction in the work force, which would in part or in whole have enabled Greenpark to give FNM an increased management fee. At least, if FNM had bargained over its decision to close, that possibility would have been tested, and management would still have been free to close the Greenpark operation if bargaining did not produce a solution." 627 F.2d 596, 602 (CA2 1980). | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/112310/ | 491 U.S. 600 (1989)
UNITED STATES
v.
MONSANTO
No. 88-454.
Supreme Court of United States.
Argued March 21, 1989
Decided June 22, 1989
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
*602 Acting Solicitor General Bryson argued the cause for the United States. With him on the briefs were Assistant Attorney General Dennis, Edwin S. Kneedler, and Sara Criscitelli.
Edward M. Chikofsky argued the cause and filed a brief for respondent.[*]
JUSTICE WHITE delivered the opinion of the Court.
The questions presented here are whether the federal drug forfeiture statute authorizes a district court to enter a pretrial order freezing assets in a defendant's possession, even where the defendant seeks to use those assets to pay an attorney; if so, we must decide whether such an order is permissible under the Constitution. We answer both of these questions in the affirmative.
I
In July 1987, an indictment was entered, alleging that respondent had directed a large-scale heroin distribution enterprise. The multicount indictment alleged violations of racketeering laws, creation of a continuing criminal enterprise (CCE), and tax and firearm offenses. The indictment also alleged that three specific assets a home, an apartment, and $35,000 in cash had been accumulated by respondent as a result of his narcotics trafficking. These assets, the indictment *603 alleged, were subject to forfeiture under the Comprehensive Forfeiture Act of 1984 (CFA), 98 Stat. 2044, as amended, 21 U.S. C. § 853(a) (1982 ed., Supp. V), because they were "property constituting, or derived from . . . proceeds. . . obtained" from drug-law violations.[1]
On the same day that the indictment was unsealed, the District Court granted the Government's ex parte motion, pursuant to § 853(e)(1)(A),[2] for a restraining order freezing *604 the above-mentioned assets pending trial. Shortly thereafter, respondent moved to vacate this restraining order, to permit him to use the frozen assets to retain an attorney. Respondent's motion further sought a declaration that if these assets were used to pay an attorney's fees, § 853(c)'s third-party transfers provision would not subsequently be used to reclaim such payments if respondent was convicted and his assets forfeited.[3] Respondent raised various statutory challenges to the restraining order, and claimed that it interfered with his Sixth Amendment right to counsel of choice. The District Court denied the motion to vacate.
*605 On appeal, the Second Circuit concluded that respondent's statutory and Sixth Amendment challenges were lacking, but remanded the case to the District Court for an adversarial hearing "at which the government ha[d] the burden to demonstrate the likelihood that the assets are forfeitable"; if the Government failed its burden at such a hearing, the Court of Appeals held, any fees paid to an attorney would be exempt from forfeiture irrespective of the final outcome at respondent's trial. 836 F.2d 74, 84 (1987). Pursuant to this mandate, on remand, the District Court held a 4-day hearing on whether continuing the restraining order was proper. At the end of the hearing, the District Court ruled that it would continue the restraining order because the Government had "overwhelmingly established a likelihood" that the property in question would be forfeited at the end of trial. App. to Pet. for Cert. 86a. Ultimately, respondent's criminal case proceeded to trial, where he was represented by a Criminal Justice Act-appointed attorney.[4]
In the meantime, the Second Circuit vacated its earlier opinion and heard respondent's appeal en banc.[5] The en *606 banc court, by an 8-to-4 vote, ordered that the District Court's restraining order be modified to permit the restrained assets to be used to pay attorney's fees. 852 F.2d 1400 (1988). The Court was sharply divided as to its rationale. Three of the judges found that the order violated the Sixth Amendment, while three others questioned it on statutory grounds; two judges found § 853 suspect under the Due Process Clause for its failure to include a statutory provision requiring the sort of hearing that the panel had ordered in the first place. The four dissenting judges would have upheld the restraining order.
We granted certiorari, 488 U.S. 941 (1988), because the Second Circuit's decision created a conflict among the Courts of Appeals over the statutory and constitutional questions presented.[6] We now reverse.
II
We first must address the question whether § 853 requires, upon conviction, forfeiture of assets that an accused intends to use to pay his attorneys.
A
"In determining the scope of a statute, we look first to its language." United States v. Turkette, 452 U.S. 576, 580 (1981). In the case before us, the language of § 853 is plain and unambiguous: all assets falling within its scope are to be forfeited upon conviction, with no exception existing for the assets used to pay attorney's fees or anything else, for that matter.
*607 As observed above, § 853(a) provides that a person convicted of the offenses charged in respondent's indictment "shall forfeit . . . any property" that was derived from the commission of these offenses. After setting out this rule, § 853(a) repeats later in its text that upon conviction a sentencing court "shall order" forfeiture of all property described in § 853(a). Congress could not have chosen stronger words to express its intent that forfeiture be mandatory in cases where the statute applied, or broader words to define the scope of what was to be forfeited. Likewise, the statute provides a broad definition of "property" when describing what types of assets are within the section's scope: "real property . . . tangible and intangible personal property, including rights, privileges, interests, claims, and securities." 21 U.S. C. § 853(b) (1982 ed., Supp. V). Nothing in this all-inclusive listing even hints at the idea that assets to be used to pay an attorney are not "property" within the statute's meaning.
Nor are we alone in concluding that the statute is unambiguous in failing to exclude assets that could be used to pay an attorney from its definition of forfeitable property. This argument, advanced by respondent here, see Brief for Respondent 12-19, has been unanimously rejected by every Court of Appeals that has finally passed on it,[7] as it was by the Second Circuit panel below, see 836 F.2d, at 78-80; id., at 85-86 (Oakes, J., dissenting); even the judges who concurred on statutory grounds in the en banc decision did not accept this position, see 852 F.2d, at 1405-1410 (Winter, J., concurring). We note also that the Brief for American Bar *608 Association as Amicus Curiae 6 frankly admits that the statute "on [its] face, broadly cover[s] all property derived from alleged criminal activity and contain[s] no specific exemption for property used to pay bona fide attorneys' fees."
Respondent urges us, nonetheless, to interpret the statute to exclude such property for several reasons. Principally, respondent contends that we should create such an exemption because the statute does not expressly include property to be used for attorneys' fees, and/or because Congress simply did not consider the prospect that forfeiture would reach assets that could be used to pay for an attorney. In support, respondent observes that the legislative history is "silent" on this question, and that the House and Senate debates fail to discuss this prospect.[8] But this proves nothing: the legislative *609 history and congressional debates are similarly silent on the use of forfeitable assets to pay stockbroker's fees, laundry bills, or country club memberships; no one could credibly argue that, as a result, assets to be used for these purposes are similarly exempt from the statute's definition of forfeitable property. The fact that the forfeiture provision reaches assets that could be used to pay attorney's fees, even though it contains no express provisions to this effect, " `does not demonstrate ambiguity' " in the statute: " `It demonstrates breadth.' " Sedima, S. P. R. L. v. Imrex Co., 473 U.S. 479, 499 (1985) (quoting Haroco, Inc. v. American Nat. Bank & Trust Co. of Chicago, 747 F.2d 384, 398 (CA7 1984)). The statutory provision at issue here is broad and unambiguous, and Congress' failure to supplement § 853(a)'s comprehensive phrase "any property" with an exclamatory "and we even mean assets to be used to pay an attorney" does not lessen the force of the statute's plain language.
*610 We also find unavailing respondent's reliance on the comments of several legislators made following enactment to the effect that Congress did not anticipate the use of the forfeiture law to seize assets that would be used to pay attorneys. See Brief for Respondent 15-16, and n. 9 (citing comments of Sen. Leahy and Reps. Hughes and Shaw). As we have noted before, such postenactment views "form a hazardous basis for inferring the intent" behind a statute, United States v. Price, 361 U.S. 304, 313 (1960); instead, Congress' intent is "best determined by [looking to] the statutory language that it chooses," Sedima, S. P. R. L., supra, at 495, n. 13. Moreover, we observe that these comments are further subject to question because Congress has refused to act on repeated suggestions by the defense bar for the sort of exemption respondent urges here,[9] even though it has amended § 853 in other respects since these entreaties were first heard. See Pub. L. 99-570, §§ 1153(b), 1864, 100 Stat. 3207-13, 3207-54.
In addition, we observe that in the very same law by which Congress adopted the CFA Pub. L. 98-473, 98 Stat. 1837 Congress also adopted a provision for the special forfeiture of collateral profits (e. g., profits from books, movies, etc.) that a convicted defendant derives from his crimes. See Victims of Crime Act of 1984, 98 Stat. 2175-2176 (now codified at 18 U.S. C. §§ 3681-3682 (1982 ed., Supp. V)). That forfeiture provision expressly exempts "pay[ments] for legal representation of the defendant in matters arising from the offense for which such defendant has been convicted, but no more than 20 percent of the total [forfeited collateral profits] may be so used." § 3681(c)(1)(B)(ii). Thus, Congress adopted expressly in a statute enacted simultaneously with the one under review in this case the precise exemption from forfeiture *611 which respondent asks us to imply into § 853. The express exemption from forfeiture of assets that could be used to pay attorney's fees in Chapter XIV of Pub. L. 98-473 indicates to us that Congress understood what it was doing in omitting such an exemption from Chapter III of that enactment.
Finally, respondent urges us, see Brief for Respondent 20-29, to invoke a variety of general canons of statutory construction, as well as several prudential doctrines of this Court, to create the statutory exemption he advances; among these doctrines is our admonition that courts should construe statutes to avoid decision as to their constitutionality. See, e. g., Edward J. DeBartolo Corp. v. Florida Gulf Coast Building & Constr. Trades Council, 485 U.S. 568, 575 (1988); NLRB. v. Catholic Bishop of Chicago, 440 U.S. 490, 500 (1979). We respect these canons, and they are quite often useful in close cases, or when statutory language is ambiguous. But we have observed before that such "interpretative canon[s are] not a license for the judiciary to rewrite language enacted by the legislature." United States v. Albertini, 472 U.S. 675, 680 (1985). Here, the language is clear and the statute comprehensive: § 853 does not exempt assets to be used for attorney's fees from its forfeiture provisions.
In sum, whatever force there might be to respondent's claim for an exemption from forfeiture under § 853(a) of assets necessary to pay attorney's fees based on his theories about the statute's purpose, or the implications of interpretative canons, or the understandings of individual Members of Congress about the statute's scope "[t]he short answer is that Congress did not write the statute that way." United States v. Naftalin, 441 U.S. 768, 773 (1979).
B
Although § 853(a) recognizes no general exception for assets used to pay an attorney, we are urged that the provision *612 in § 853(e)(1)(A) for pretrial restraining orders on assets in a defendant's possession should be interpreted to include such an exemption. It was on this ground that Judge Winter concurred below. 852 F.2d, at 1405-1411.
The restraining order subsection provides that, on the Government's application, a district court "may enter a restraining order or injunction . . . or take any other action to preserve the availability of property . . . for forfeiture under this section." 21 U.S. C. § 853(e)(1) (1982 ed., Supp. V). Judge Winter read the permissive quality of the subsection (i. e., "may enter") to authorize a district court to employ "traditional principles of equity" before restraining a defendant's use of forfeitable assets; a balancing of hardships, he concluded, generally weighed against restraining a defendant's use of forfeitable assets to pay for an attorney. 852 F.2d, at 1406. Judge Winter further concluded that assets not subjected to pretrial restraint under § 853(e), if used to pay an attorney, may not be subsequently seized for forfeiture to the Government, notwithstanding the authorization found in § 853(c) for recoupment of forfeitable assets transferred to third parties.
This reading seriously misapprehends the nature of the provisions in question. As we have said, § 853(a) is categorical: it contains no reference at all to § 853(e) or § 853(c), let alone any reference indicating that its reach is limited by those sections. Perhaps some limit could be implied if these provisions were necessarily inconsistent with § 853(a). But that is not the case. Under § 853(e)(1), the trial court "may" enter a restraining order if the United States requests it, but not otherwise, and it is not required to enter such an order if a bond or some other means to "preserve the availability of property described in subsection (a) of this section for forfeiture" is employed. Thus, § 853(e)(1)(A) is plainly aimed at implementing the commands of § 853(a) and cannot sensibly be construed to give the district court discretion to permit *613 the dissipation of the very property that § 853(a) requires be forfeited upon conviction.
We note that the "equitable discretion" that is given to the judge under § 853(e)(1)(A) turns out to be no discretion at all as far as the issue before us here is concerned: Judge Winter concludes that assets necessary to pay attorney's fees must be excluded from any restraining order. See 852 F.2d, at 1407-1409. For that purpose, the word "may" becomes "may not." The discretion found in § 853(e) becomes a command to use that subsection (and § 853(c)) to frustrate the attainment of § 853(a)'s ends. This construction is improvident. Whatever discretion Congress gave the district courts in §§ 853(e) and 853(c), that discretion must be cabined by the purposes for which Congress created it: "to preserve the availability of property . . . for forfeiture." We cannot believe that Congress intended to permit the effectiveness of the powerful "relation-back" provision of § 853(c), and the comprehensive "any property . . . any proceeds" language of § 853(a), to be nullified by any other construction of the statute.
This result may seem harsh, but we have little doubt that it is the one that the statute mandates. Section 853(c) states that "[a]ll right, title, and interest in [forfeitable] property. . . vests in the United States upon the commission of the act giving rise to forfeiture." Permitting a defendant to use assets for his private purposes that, under this provision, will become the property of the United States if a conviction occurs cannot be sanctioned. Moreover, this view is supported by the relevant legislative history, which states that "[t]he sole purpose of [§ 853's] restraining order provision . . . is to preserve the status quo, i. e., to assure the availability of the property pending disposition of the criminal case." S. Rep. No. 98-225, p. 204 (1983). If, instead, the statutory interpretation adopted by Judge Winter's concurrence were applied, this purpose would not be achieved.
*614 We conclude that there is no exemption from § 853's forfeiture or pretrial restraining order provisions for assets which a defendant wishes to use to retain an attorney. In enacting § 853, Congress decided to give force to the old adage that "crime does not pay." We find no evidence that Congress intended to modify that nostrum to read, "crime does not pay, except for attorney's fees." If, as respondent and supporting amici so vigorously assert, we are mistaken as to Congress' intent, that body can amend this statute to otherwise provide. But the statute, as presently written, cannot be read any other way.
III
Having concluded that the statute authorized the restraining order entered by the District Court, we reach the question whether the order violated respondent's right to counsel of choice as protected by the Sixth Amendment or the Due Process Clause of the Fifth Amendment.
A
Respondent's most sweeping constitutional claims are that, as a general matter, operation of the forfeiture statute interferes with a defendant's Sixth Amendment right to counsel of choice, and the guarantee afforded by the Fifth Amendment's Due Process Clause of a "balance of forces" between the accused and the Government. In this regard, respondent contends, the mere prospect of post-trial forfeiture is enough to deter a defendant's counsel of choice from representing him.
In another decision we announce today, Caplin & Drysdale, Chartered v. United States, post, p. 617, we hold that neither the Fifth nor the Sixth Amendment to the Constitution requires Congress to permit a defendant to use assets adjudged to be forfeitable to pay that defendant's legal fees. We rely on our conclusion in that case to dispose of the similar constitutional claims raised by respondent here.
*615 B
In addition to the constitutional issues raised in Caplin & Drysdale, respondent contends that freezing the assets in question before he is convicted and before they are finally adjudged to be forfeitable raises distinct constitutional concerns. We conclude, however, that assets in a defendant's possession may be restrained in the way they were here based on a finding of probable cause to believe that the assets are forfeitable.[10]
We have previously permitted the Government to seize property based on a finding of probable cause to believe that the property will ultimately be proved forfeitable. See, e. g., United States v. $8,850, 461 U.S. 555 (1983); Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663 (1974). Here, where respondent was not ousted from his property, but merely restrained from disposing of it, the governmental intrusion was even less severe than those permitted by our prior decisions.
Indeed, it would be odd to conclude that the Government may not restrain property, such as the home and apartment in respondent's possession, based on a finding of probable cause, when we have held that (under appropriate circumstances), the Government may restrain persons where there *616 is a finding of probable cause to believe that the accused has committed a serious offense. See United States v. Salerno, 481 U.S. 739 (1987). Given the gravity of the offenses charged in the indictment, respondent himself could have been subjected to pretrial restraint if deemed necessary to "reasonably assure [his] appearance [at trial] and the safety of . . . the community," 18 U.S. C. § 3142(e) (1982 ed., Supp. V); we find no constitutional infirmity in § 853(e)'s authorization of a similar restraint on respondent's property to protect its "appearance" at trial and protect the community's interest in full recovery of any ill-gotten gains.
Respondent contends that both the nature of the Government's property right in forfeitable assets, and the nature of the use to which he would have put these assets (i. e., retaining an attorney), require some departure from our established rule of permitting pretrial restraint of assets based on probable cause. We disagree. In Caplin & Drysdale, we conclude that a weighing of these very interests suggests that the Government may without offending the Fifth or Sixth Amendment obtain forfeiture of property that a defendant might have wished to use to pay his attorney. Post, p. 617. Given this holding, we find that a pretrial restraining order does not "arbitrarily" interfere with a defendant's "fair opportunity" to retain counsel. Cf. Powell v. Alabama, 287 U.S. 45, 69, 53 (1932). Put another way: if the Government may, post-trial, forbid the use of forfeited assets to pay an attorney, then surely no constitutional violation occurs when, after probable cause is adequately established, the Government obtains an order barring a defendant from frustrating that end by dissipating his assets prior to trial.
IV
For the reasons given above, the judgment of the Second Circuit is reversed, and the case is remanded for further proceedings consistent with this opinion.
It is so ordered.
NOTES
[*] Briefs of amici curiae urging reversal were filed for the State of California by John K. Van de Kamp, Attorney General, Steve White, Chief Assistant Attorney General, John A. Gordnier, Senior Assistant Attorney General, and Gary W. Schons, Deputy Attorney General; and for Eugene R. Anderson, pro se.
Briefs of amici curiae urging affirmance were filed for the Committees on Criminal Advocacy and Criminal Law of the Association of the Bar of the City of New York et al. by Arthur L. Liman; and for the National Association of Criminal Defense Lawyers et al. by Joseph Beeler and Bruce J. Winick.
Briefs of amici curiae were filed for the American Bar Association by Robert D. Raven, Charles G. Cole, Antonia B. Ianniello, and Terrance G. Reed; and for the Appellate Committee of the California District Attorneys Association by Ira Reiner, Harry B. Sondheim, and Arnold T. Guminski.
[1] The CFA added or amended forfeiture provisions for two classes of violations under federal law, racketeering offenses and CCE offenses, see 98 Stat. 2040-2053, as amended. The CCE forfeiture statute at issue here, now provides:
"§ 853. Criminal forfeitures
"(a) Property subject to criminal forfeiture
"Any person convicted of a violation of this subchapter or subchapter II of this chapter punishable by imprisonment for more than one year shall forfeit to the United States, irrespective of any provision of State law
"(1) any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of such violation;
"(2) any of the person's property used, or intended to be used, in any manner or part, to commit, or to facilitate the commission of, such violation; and
"(3) in the case of a person convicted of engaging in a continuing criminal enterprise in violation of section 848 of this title, the person shall forfeit, in addition to any property described in paragraph (1) or (2), any of his interest in, claims against, and property or contractual rights affording a source of control over, the continuing criminal enterprise.
"The court, in imposing sentence on such person, shall order, in addition to any other sentence imposed pursuant to this subchapter or subchapter II of this chapter, that the person forfeit to the United States all property described in this subsection. In lieu of a fine otherwise authorized by this part, a defendant who derives profits or other proceeds from an offense may be fined not more than twice the gross profits or other proceeds."
[2] This statutory provision, the principal focus of this petition, says that:
"Upon application of the United States, the court may enter a restraining order or injunction . . . or take any other action to preserve the availability of property described in subsection (a) of [§ 853] for forfeiture under this section
"(A) upon the filing of an indictment or information charging a violation. . . for which criminal forfeiture may be ordered under [§ 853] and alleging that the property with respect to which the order is sought would, in the event of conviction, be subject to forfeiture under this section."
[3] Section 853(c), the third-party transfer provision, states that:
"All right, title, and interest in property described in [§ 853] vests in the United States upon the commission of the act giving rise to forfeiture under this section. Any such property that is subsequently transferred to a person other than the defendant may be the subject of a special verdict of forfeiture and thereafter shall be ordered forfeited to the United States, unless the transferee [establishes his entitlement to such property pursuant to § 853(n)]."
As noted in the quotation of § 853(c), a person making a claim for forfeited assets must file a petition with the court pursuant to § 853(n)(6):
"If, after [a] hearing [on the petition], the court determines that the petitioner has established . . . that
"(A) the petitioner has a legal right, title, or interest in the property . . . [that predates] commission of the acts which gave rise to the forfeiture of the property under [§ 853]; or
"(B) the petitioner is a bona fide purchaser for value of the . . . property and was at the time of purchase reasonably without cause to believe that the property was subject to forfeiture under this section;
"the court shall amend the order of forfeiture in accordance with its determination."
An attorney seeking a payment of fees from forfeited assets under § 853(n)(6) would presumably rest his petition on subsection (B) quoted above, though (for reasons we explain in Caplin & Drysdale, Chartered v. United States, post, at 632, n. 10) it is highly doubtful that one who defends a client in a criminal case that results in forfeiture could prove that he was "without cause to believe that the property was subject to forfeiture." Cf. 852 F. 2d, 1400, 1410 (CA2 1988) (Winter, J., concurring).
[4] At the end of the trial, respondent was convicted of the charges against him, and the jury returned a special verdict finding the assets in question to be forfeitable beyond a reasonable doubt. Accordingly, the District Court entered a judgment of conviction and declared the assets forfeited.
We do not believe that these subsequent proceedings render the dispute over the pretrial restraining order moot. The restraining order remains in effect pending the appeal of respondent's conviction, see App. to Pet. for Cert. 77a-78a, which has not yet been decided. Consequently, the dispute before us concerning the District Court's order remains a live one.
[5] Respondent's trial had commenced on February 16, 1988, after the Court of Appeals had agreed to hear the case en banc, but before it rendered its ruling. Consequently, respondent's assets remained frozen, and respondent was defended by appointed counsel.
In the midst of respondent's trial on July 1, 1988 the en banc Court of Appeals rendered its decision for respondent. At a hearing held four days later, the District Court offered to permit respondent to use the frozen assets to hire private counsel. Respondent rejected this offer, coming as summations were about to get underway at the end of a 4 1/2-month trial, and instead continued with his appointed attorney. Three weeks later, on July 25, 1988, the jury returned a guilty verdict.
[6] See, e. g., United States v. Moya-Gomez, 860 F.2d 706 (CA7 1988); United States v. Nichols, 841 F.2d 1485 (CA10 1988); United States v. Jones, 837 F.2d 1332 (CA5), rehearing granted, 844 F.2d 215 (1988); In re Forfeiture Hearing as to Caplin & Drysdale, Chartered, 837 F.2d 637 (CA4 1988) (en banc), aff'd sub nom. Caplin & Drysdale, Chartered v. United States, post, p. 617.
[7] See United States v. Bissell, 866 F.2d 1343, 1348-1350 (CA11 1989); United States v. Moya-Gomez, supra, at 722-723; United States v. Nichols, 841 F. 2d, at 1491-1496; id., at 1509 (Logan, J., dissenting); In re Forfeiture Hearing as to Caplin & Drysdale, Chartered, 837 F. 2d, at 641-642 (en banc); id., at 651 (Phillips, J., dissenting). Only one Court of Appeals the Fifth Circuit has issued any decisions providing support for this reading of the statute, see, e. g., United States v. Jones, supra, but this ruling is currently being reconsidered en banc, 844 F.2d 215 (1988).
[8] Respondent is correct that, by and large, the relevant House and Senate Reports make no mention of the attorney's fees question. However, in discussing the background motivating the adoption of the CFA, the House Judiciary Committee discussed the failure of previous, more lax forfeiture statutes:
"One highly publicized case . . . is illustrative of the problem. That case was United States v. Meinster . . . . In this prosecution . . . a Florida based criminal organization had . . . grossed about $300 million over a 16-month period. The Federal Government completed a successful prosecution in which the three primary defendants were convicted and this major drug operation was aborted. However, forfeiture was attempted on only two [residences] worth $750,000 . . . .
"Of the $750,000 for the residences, $175,000 was returned to the wife of one of the defendants, and $559,000 was used to pay the defendant's attorneys. . . .
"The Government wound up with $16,000. . . .
"It is against this background that present Federal forfeiture procedures are tested and found wanting." H. R. Rep. No. 98-845, pt. 1, p. 3 (1984) (emphasis added).
This passage suggests, at the very least, congressional frustration with the diversion of large amounts of forfeitable assets to pay attorney's fees. It certainly does not suggest an intent on Congress' part to exempt from forfeiture such fees.
Respondent claims support from only one piece of preenactment legislative history: a footnote in the same House Report quoted above, which discussed the newly proposed provision for pretrial restraint on forfeitable assets. The footnote stated that:
"Nothing in this section is intended to interfere with a person's Sixth Amendment right to counsel. The Committee, therefore, does not resolve the conflict in District Court opinions on the use of restraining orders that impinge on a person's right to retain counsel in a criminal case." Id., at 19, n. 1.
Respondent argues that the Committee's disclaimer of any interest in resolving the conflict among the District Courts indicates the Committee's understanding that the statute would not be employed to freeze assets that might be used to pay legitimate attorney's fees. See Brief for Respondent 14, and n. 8.
This ambiguous passage however, can be read for the opposite proposition as well, as the Report expressly refrained from disapproving of cases where pretrial restraining orders similar to the one issued here were imposed. See H. R. Rep. No. 98-845, supra, at 19, n. 1 (citing United States v. Bello, 470 F. Supp. 723, 724-725 (SD Cal. 1979)). Moreover, the Committee's statement that the statute should not be applied in a manner contrary to the Sixth Amendment appears to be nothing more than an exhortation for the courts to tread carefully in this delicate area.
[9] See, e. g., Attorneys' Fees Forfeiture: Hearing before the Senate Committee on the Judiciary, 99th Cong., 2d Sess., 148-213 (1986); Forfeiture Issues: Hearing before the Subcommittee on Crime of the House Committee on the Judiciary, 99th Cong., 1st Sess., 187-242 (1985).
[10] We do not consider today, however, whether the Due Process Clause requires a hearing before a pretrial restraining order can be imposed. As noted above, in its initial consideration of this case, a panel of the Second Circuit ordered that such a hearing be held before permitting the entry of a restraining order; on remand, the District Court held an extensive, 4-day hearing on the question of probable cause.
Though the United States petitioned for review of the Second Circuit's holding that such a hearing was required, see Pet. for Cert. I, given that the Government prevailed in the District Court notwithstanding the hearing, it would be pointless for us now to consider whether a hearing was required by the Due Process Clause. Furthermore, because the Court of Appeals, in its en banc decision, did not address the procedural due process issue, we also do not inquire whether the hearing if a hearing was required at all was an adequate one. | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/1158994/ | 312 U.S. 457 (1941)
FASHION ORIGINATORS' GUILD OF AMERICA, INC., ET AL.
v.
FEDERAL TRADE COMMISSION.
No. 537.
Supreme Court of United States.
Argued February 10, 1941.
Decided March 3, 1941.
CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT.
*458 Mr. Charles B. Rugg, with whom Messrs. Milton C. Weisman, Archibald Cox, and Melvin A. Albert were on the brief, for petitioners.
Solicitor General Biddle, with whom Assistant Attorney General Arnold and Messrs. James C. Wilson and Wilber Stammler were on the brief, for respondent.
*460 MR. JUSTICE BLACK delivered the opinion of the Court.
The Circuit Court of Appeals, with modifications not here challenged, affirmed a Federal Trade Commission decree ordering petitioners to cease and desist from certain practices found to have been done in combination and to constitute "unfair methods of competition" tending to monopoly.[1] Determination of the correctness of the decision below requires consideration of the Sherman, Clayton, and Federal Trade Commission Acts.[2]
*461 Some of the members of the combination design, manufacture, sell and distribute women's garments chiefly dresses. Others are manufacturers, converters or dyers of textiles from which these garments are made. Fashion Originators' Guild of America (FOGA), an organization controlled by these groups, is the instrument through which petitioners work to accomplish the purposes condemned by the Commission. The garment manufacturers claim to be creators of original and distinctive designs of fashionable clothes for women, and the textile manufacturers claim to be creators of similar original fabric designs. After these designs enter the channels of trade, other manufacturers systematically make and sell copies of them, the copies usually selling at prices lower than the garments copied. Petitioners call this practice of copying unethical and immoral, and give it the name of "style piracy." And although they admit that their "original creations" are neither copyrighted nor patented, and indeed assert that existing legislation affords them no protection against copyists, they nevertheless urge that sale of copied designs constitutes an unfair trade practice and a tortious invasion of their rights. Because of these alleged wrongs, petitioners, while continuing to compete with one another in many respects, combined among themselves to combat and, if possible, destroy all competition from the sale of garments which are copies of their "original creations." They admit that to destroy such competition they have in combination purposely boycotted and declined to sell their products to retailers who follow a policy of selling garments copied by other manufacturers from designs put out by Guild members. As a result of their efforts, approximately 12,000 retailers throughout the country have signed agreements to "cooperate" with the Guild's boycott program, but more than half of these signed the *462 agreements only because constrained by threats that Guild members would not sell to retailers who failed to yield to their demands threats that have been carried out by the Guild practice of placing on red cards the names of non-cooperators (to whom no sales are to be made), placing on white cards the names of cooperators (to whom sales are to be made), and then distributing both sets of cards to the manufacturers.
The one hundred and seventy-six manufacturers of women's garments who are members of the Guild occupy a commanding position in their line of business. In 1936, they sold in the United States more than 38% of all women's garments wholesaling at $6.75 and up, and more than 60% of those at $10.75 and above. The power of the combination is great; competition and the demand of the consuming public make it necessary for most retail dealers to stock some of the products of these manufacturers. And the power of the combination is made even greater by reason of the affiliation of some members of the National Federation of Textiles, Inc. that being an organization composed of about one hundred textile manufacturers, converters, dyers, and printers of silk and rayon used in making women's garments. Those members of the Federation who are affiliated with the Guild have agreed to sell their products only to those garment manufacturers who have in turn agreed to sell only to cooperating retailers.
The Guild maintains a Design Registration Bureau for garments, and the Textile Federation maintains a similar Bureau for textiles. The Guild employs "shoppers" to visit the stores of both cooperating and non-cooperating retailers, "for the purpose of examining their stocks, to determine and report as to whether they contain . . . copies of registered designs . . ." An elaborate system of trial and appellate tribunals exists, for the determination of whether a given garment is in fact a copy of *463 a Guild member's design. In order to assure the success of its plan of registration and restraint, and to ascertain whether Guild regulations are being violated, the Guild audits its members' books. And if violations of Guild requirements are discovered, as, for example, sales to red-carded retailers, the violators are subject to heavy fines.[3]
In addition to the elements of the agreement set out above, all of which relate more or less closely to competition by so-called style copyists, the Guild has undertaken to do many things apparently independent of and distinct from the fight against copying. Among them are the following: the combination prohibits its members from participating in retail advertising; regulates the discount they may allow; prohibits their selling at retail; cooperates with local guilds in regulating days upon which special sales shall be held; prohibits its members from selling women's garments to persons who conduct businesses in residences, residential quarters, hotels or apartment houses; and denies the benefits of membership to retailers who participate with dress manufacturers in promoting fashion shows unless the merchandise used is actually purchased and delivered.
If the purpose and practice of the combination of garment manufacturers and their affiliates runs counter to the public policy declared in the Sherman and Clayton Acts, the Federal Trade Commission has the power to suppress it as an unfair method of competition.[4] From *464 its findings the Commission concluded that the petitioners, "pursuant to understandings, arrangements, agreements, combinations and conspiracies entered into jointly and severally" had prevented sales in interstate commerce, had "substantially lessened, hindered and suppressed" competition, and had tended "to create in themselves a monopoly." And paragraph 3 of the Clayton Act (15 U.S.C. § 14) declares "It shall be unlawful for any person engaged in commerce, . . . to . . . make a sale or contract for sale of goods, . . . on the condition, agreement, or understanding that the . . . purchaser thereof shall not use or deal in the goods, . . . of a competitor or competitors of the .. . seller, where the effect of such . . . sale, or contract for sale . . . may be to substantially lessen competition or tend to create a monopoly in any line of commerce." The relevance of this section of the Clayton Act to petitioners' scheme is shown by the fact that the scheme is bottomed upon a system of sale under which (1) textiles shall be sold to garment manufacturers only upon the condition and understanding that the buyers will not use or deal in textiles which are copied from the designs of textile manufacturing Guild members; (2) garment manufacturers shall sell to retailers only upon the condition and understanding that the retailers shall not use or deal in such copied designs. And the Federal Trade Commission concluded in the language of the Clayton Act that these understandings substantially lessened competition and tended to create a monopoly. We hold that the Commission, upon adequate and unchallenged findings, correctly concluded that this practice constituted an unfair method of competition.[5]
*465 Not only does the plan in the respects above discussed thus conflict with the principles of the Clayton Act; the findings of the Commission bring petitioners' combination in its entirety well within the inhibition of the policies declared by the Sherman Act itself. Section 1 of that Act makes illegal every contract, combination or conspiracy in restraint of trade or commerce among the several states; § 2 makes illegal every combination or conspiracy which monopolizes or attempts to monopolize any part of that trade or commerce. Under the Sherman Act "competition not combination, should be the law of trade." National Cotton Oil Co. v. Texas, 197 U.S. 115, 129. And among the many respects in which the Guild's plan runs contrary to the policy of the Sherman Act are these: it narrows the outlets to which garment and textile manufacturers can sell and the sources from which retailers can buy (Montague & Co. v. Lowry, 193 U.S. 38, 45; Standard Sanitary Mfg. Co. v. United States, 226 U.S. 20, 48-49); subjects all retailers and manufacturers who decline to comply with the Guild's program to an organized boycott (Eastern States Retail Lumber Dealers' Assn. v. United States, 234 U.S. 600, 609-611); takes away the freedom of action of members by requiring each to reveal to the Guild the intimate details of their individual affairs (United States v. American Linseed Oil Co., 262 U.S. 371, 389); and has both as its necessary tendency and as its purpose and effect the direct suppression of competition from the sale of unregistered textiles and copied designs (United States v. American Linseed Oil Co., supra, at 389). In addition to all this, the combination is in reality an extra-governmental agency, which prescribes rules for the regulation and restraint of interstate commerce, and provides extra-judicial tribunals for determination and punishment of violations, and thus "trenches upon the power of the national legislature and violates the statute." *466 Addyston Pipe & Steel Co. v. United States, 175 U.S. 211, 242.
Nor is it determinative in considering the policy of the Sherman Act that petitioners may not yet have achieved a complete monopoly. For "it is sufficient if it really tends to that end and to deprive the public of the advantages which flow from free competition." United States v. E.C. Knight Co., 156 U.S. 1, 16; Addyston Pipe & Steel Co. v. United States, 175 U.S. 211, 237. It was, in fact, one of the hopes of those who sponsored the Federal Trade Commission Act that its effect might be prophylactic and that through it attempts to bring about complete monopolization of an industry might be stopped in their incipiency.[6]
Petitioners, however, argue that the combination cannot be contrary to the policy of the Sherman and Clayton Acts, since the Federal Trade Commission did not find that the combination fixed or regulated prices, parcelled out or limited production, or brought about a deterioration in quality. But action falling into these three categories does not exhaust the types of conduct banned by the Sherman and Clayton Acts. And as previously pointed out, it was the object of the Federal Trade Commission Act to reach not merely in their fruition but also in their incipiency combinations which could lead to these and other trade restraints and practices deemed undesirable. In this case, the Commission found that the combination exercised sufficient control and power in the women's garments and textile businesses "to exclude from the industry those manufacturers and distributors who do not conform to the rules and regulations of said respondents, and thus tend to *467 create in themselves a monopoly in the said industries." While a conspiracy to fix prices is illegal, an intent to increase prices is not an ever-present essential of conduct amounting to a violation of the policy of the Sherman and Clayton Acts; a monopoly contrary to their policies can exist even though a combination may temporarily or even permanently reduce the price of the articles manufactured or sold. For as this Court has said, "Trade or commerce under those circumstances may nevertheless be badly and unfortunately restrained by driving out of business the small dealers and worthy men whose lives have been spent therein, and who might be unable to readjust themselves to their altered surroundings. Mere reduction in the price of the commodity dealt in might be dearly paid for by the ruin of such a class, and the absorption of control over one commodity by an all-powerful combination of capital."[7]
But petitioners further argue that their boycott and restraint of interstate trade is not within the ban of the policies of the Sherman and Clayton Acts because "the practices of FOGA were reasonable and necessary to protect the manufacturer, laborer, retailer and consumer against the devastating evils growing from the pirating of original designs and had in fact benefited all four." The Commission declined to hear much of the evidence that petitioners desired to offer on this subject. As we have pointed out, however, the aim of petitioners' combination was the intentional destruction of one type of manufacture and sale which competed with Guild members. The purpose and object of this combination, its potential power, its tendency to monopoly, the coercion it could and did practice upon a rival method of competition, all brought it within the policy of the prohibition *468 declared by the Sherman and Clayton Acts. For this reason, the principles announced in Appalachian Coals, Inc. v. United States, 288 U.S. 344, and Sugar Institute v. United States, 297 U.S. 553, have no application here. Under these circumstances it was not error to refuse to hear the evidence offered, for the reasonableness of the methods pursued by the combination to accomplish its unlawful object is no more material than would be the reasonableness of the prices fixed by unlawful combination. Cf. Thomsen v. Cayser, 243 U.S. 66, 85; United States v. Trenton Potteries Co., 273 U.S. 392, 398; United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 212-224. Nor can the unlawful combination be justified upon the argument that systematic copying of dress designs is itself tortious, or should now be declared so by us. In the first place, whether or not given conduct is tortious is a question of state law, under our decision in Erie R. Co. v. Tompkins, 304 U.S. 64. In the second place, even if copying were an acknowledged tort under the law of every state, that situation would not justify petitioners in combining together to regulate and restrain interstate commerce in violation of federal law. And for these same reasons, the principles declared in International News Service v. Associated Press, 248 U.S. 215, cannot serve to legalize petitioners' unlawful combination. The decision below is accordingly
Affirmed.
NOTES
[1] 114 F.2d 80. Because of inconsistency between the holding below and that of the First Circuit Court of Appeals in Wm. Filene's Sons Co. v. Fashion Originators' Guild of America, 90 F.2d 556, we granted certiorari. 311 U.S. 641.
[2] 26 Stat. 209, 15 U.S.C. § 1 et seq.; 38 Stat. 730, 15 U.S.C. § 12 et seq.; 38 Stat. 717, 15 U.S.C. § 41 et seq.
[3] In one instance a fine of $1500 was imposed, and the Guild notified its membership that a fine of $5000 would be assessed in case of future violation.
[4] Federal Trade Comm'n v. Beech-Nut Packing Co., 257 U.S. 441, 453-455. See 26 Stat. 209, 15 U.S.C. § 1 et seq.; 38 Stat. 730, 15 U.S.C. § 12 et seq.; 38 Stat. 717, 15 U.S.C. § 41 et seq. By 38 Stat. 734, 15 U.S.C. § 21, the Federal Trade Commission is expressly given authority to enforce the Clayton Act.
[5] Cf. Federal Trade Comm'n v. R.F. Keppel & Bro., 291 U.S. 304, 314; Standard Fashion Co. v. Magrane-Houston Co., 258 U.S. 346, 357.
[6] Federal Trade Comm'n v. Raladam Co., 283 U.S. 643, 647, And see remarks of Senator Cummins, Chairman of the Committee which reported the bill, 51 Cong. Rec. 11455, quoted by Brandois, J., in Federal Trade Comm'n v. Gratz, 253 U.S. 421, 435.
[7] United States v. Trans-Missouri Freight Assn., 166 U.S. 290, 323. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2324001/ | 240 F.Supp.2d 488 (2002)
UNITED STATES of America, Plaintiff,
v.
Lorinda J. CHARLES a/k/a Lorinda Gonzalez, Defendant.
No. 1:98-CV-00177.
United States District Court, M.D. North Carolina.
October 17, 2002.
GILL P. Beck, Office of U.S. Attorney, Greensboro, NC, for Plaintiff.
William E. Wheeler, Wyatt Early Harris & Wheeler, High Point, NC, for Defendant.
Lorinda J. Charles, High Point, NC, pro se.
MEMORANDUM OPINION
TILLEY, Chief Judge.
This case is now before the Court on the Government's Motion to Alter or Amend Judgment [Doc. # 34], its Supplemental Motion to Alter or Amend Judgment [Doc. # 41], and the Defendant's Application for Fees and Other Expenses [Doc. #39]. For the reasons set forth below, the Government's motions for Reconsideration are accordingly GRANTED and its Motion for *489 Judgment in its Favor [Doc. # 34] is DENIED. The Defendant's request for attorneys' fees is DENIED.
I.
The Defendant, Ms. Lorinda J. Charles, borrowed $2,050.00 to attend the University of Tampa between 1970 and 1972. Ms. Charles contends that in 1973 she repaid the loan in full by mailing a check. The Plaintiff, on the other hand, claims that its records show the Defendant in default as of November 2, 1974. In 1991, Congress retroactively abrogated any statute of limitations applying to student loan collection and thus revived actions regarding any federally insured student loans regardless of the date on which the loans were considered in default. 20 U.S.C. § 1091a(a) (1991). Early in 1998, the Government filed this suit against Ms. Charles, seeking over $3,000 in principal, interest, and fees.
In a Judgment dated April 11, 2000, the Court granted Ms. Charles' Motion for Summary Judgment on the ground that the collection action violated her due process rights. [Doc. # 31]. Relying on Chase Securities Corp. v. Donaldson, 325 U.S. 304, 65 S.Ct. 1137, 89 L.Ed. 1628 (1945), the Court found that while retroactively abolishing a statute of limitations is normally permissible, it offends due process when it creates "special hardships or oppressive effects." Id. at 316, 65 S.Ct. 1137. Because Ms. Charles disputes that she owes the alleged debt, because crucial records no longer exist, and because of what the Court termed a "lengthy and apparently unjustifiable delay," (Mem. Order [Doc. # 30], at 7-8), between her alleged default and the filing of this suit, the Court found that the retroactive abolition of the statute of limitations caused special hardships in this case. The Government has now moved, pursuant to Federal Rule of Civil Procedure 59, to alter or amend the Judgment.
Rule 59(e) "permits a district court to correct its own errors, `sparing the parties and the appellate courts the burden of unnecessary appellate proceedings.' " Pacific Ins. Co. v. American Nat. Fire Ins. Co., 148 F.3d 396, 403 (4th Cir.1998) (quoting Russell v. Delco Remy Div. of Gen. Motors Corp., 51 F.3d 746, 749 (7th Cir. 1995). While Rule 59(e) does not provide a standard under which a district court may alter or amend a judgment, the Fourth Circuit has recognized three grounds on which a district court may alter or amend a previous judgment: (1) to accommodate an intervening change in controlling law; (2) to account for new evidence not available at trial; or (3) to correct a clear error of law or prevent manifest injustice. Pacific Ins. Co., 148 F.3d at 403. Upon reconsideration, it is determined that the record does not support a finding of summary judgment for either of the parties, that the judgment previously entered should be STRICKEN and that the matter should be calendared for trial at the January 2003 session.
II.
This case graphically illustrates the difficulties that arise when legislation revives claims that were once barred by a statute of limitations. On one hand, the Government has a legitimate interest in pursuing collection of defaulted student loan debts. It is beyond question that many students with government assured student loans would not have been able to attend or graduate from schools of higher learning without the low interest money made available through federally guaranteed student loan programs. It is also evident from cases that pass through this court that a number of people have not repaid those loans. There is nothing facially unfair or arbitrary with the idea that, having made the money available to citizens at low interest *490 rates, the Government's opportunity to recover it should not be time-barred.
On the other hand, there is an obvious difficulty for a person who repaid a student loan in full and then receives a demand letter, years or even decades after the fact, stating that the loan had never been repaid. People do not keep records indefinitely, especially when there is no apparent purpose to do so. Society is mobile, people move and, in doing so, throw away old papers for which there is no reason to believe there will ever be a use. It is reasonable to believe after paying a debt that if anyone claimed the debt had not been paid, there would be some contact within several years of the time payment was due. In the meantime, memories fade and, as in this case, universities may have purged records relating to payment. Banks that handled the transaction may have been acquired by other banks that were subsequently acquired by still larger banks.
The significant question to be answered upon the Government's motion for a reconsideration is whether there was a sufficient showing in this record to support the Court's finding that Ms. Charles' due process rights had been violated. After reconsideration, the Court determines that to make a showing of an "as applied" due process violation, Ms. Charles needs to show more than a bare assertion of payment accompanied by a present inability to retrieve pertinent records.
Several cases have found no "as applied" due process violation and granted summary judgment for the Government based on a defendant's failure to present any "testimony ... suitable for consideration on summary judgment" that the student loan was repaid. United States v. Distefano, 279 F.3d 1241, 1245 (2002); see also United States v. Brown, No. 00-1994, 2001 WL 303362 (6th Cir. March 19, 2001); United States v. Daley, No. CS-91-0280-JBH, 1992 WL 106799 (E.D.Wash. May 13, 1992). Ms. Charles's case is distinguishable, however, because she has testified under oath that she had paid the loan in full in 1973. Because of her testimony, there certainly is a material issue of fact sufficient to deny the Government's motion for summary judgment.
The Court does not question Ms. Charles' subjective good faith belief that she repaid the loan in full in 1973. Her bare assertion, however, is the only evidence of payment in the present record before the Court and is, by itself, insufficient to support a finding of objective good faith. The record raises many questions and contains answers for none of them; perhaps, because memories naturally fade over thirteen[1] or more years, perhaps because the answers have just not made it into the record. For example, in her deposition, Ms. Charles was unable to recall who told her the amount of a final payoff, where the information came from, the name of the bank through which payment was made, or to whom it was mailed. She testified that she believed herself entitled to some loan reduction based upon having taught five years in schools that may have been designated by the Department of Education as being within a class of schools serving low income students.[2] However, she has no knowledge of whether the *491 schools in which she taught were ever so designated, and there is no explanation for why, if she fully repaid the debt in 1973 in her first year of teaching, she would be entitled to some reduction for the next four years. If she thought in 1973 that the school system was so designated, why did she elect to pay off the loan when the note would have been reduced fifteen percent in principal and interest for each year of that service?
In addition, the amount of a payoff would have been unusually large for a first year teacher in 1973, the year after she graduated. Where did the money come from? If it was saved, was it kept in an account and where was it deposited? Might that bank still be in business and might records of an account and a withdrawal of the approximate amount owed if paid-off in 1973 be available? If the money was borrowed from a relative, then from whom and might that person have some recollection of the terms or even the event? If not from a relative, then from another financial institution? And is it reasonable to believe a better interest rate was available from another institution so that a person would borrow to completely repay a low interest student loan? Why was it not paid over time according to the loan installment schedule? Finally, Ms. Charles recalls a one time payment. In fact, the record shows payment of $307.50 Could that be what she now recalls as a full payment?
Several courts have suggested that there are possible cases of "as applied" due process violations when a statute of limitations is removed after some period of time or a statute is passed creating retrospective liability. Connolly v. Pension Benefit Guaranty Corp., 475 U.S. 211, 228, 106 S.Ct. 1018, 1028, 89 L.Ed.2d 166 (1986) (J. O'Connor and J. Powell concurring); United States v. Distefano, 279 F.3d 1241, 1244 (10th Cir.2002). However, the question is what showing of undue hardship a claimant must make to support a finding that due process has been denied under particular circumstances. While there are no cases providing guidance, the Court believes that when the finding of special hardship is dependant in large part upon a claim that a debt in question has been fully paid, there must be some showing of objective good faith or reasonableness in support of a bare allegation of payment.
Because neither the due process question nor the ultimate issue of liability can be determined on the record of conflicting evidence before the Court, the finding of summary judgment entered on behalf of Ms. Charles on April 11, 2000 is STRICKEN and the motion for summary judgment by each party, upon reconsideration, is DENIED. This matter will be placed on the January civil trial calendar.
III.
Ms. Charles has requested an award of attorneys' fees under the Equal Access to Justice Act (hereinafter "EAJA"). See generally 28 U.S.C. § 2412. However, this motion is premature. The Act states that "[a] party seeking an award of fees ... shall, within thirty days of final judgment in the action," submit an application to the district court. 28 U.S.C. § 2414(d)(1)(B). The EAJA defines "final judgment" as "a judgment that is final and not appealable." 28 U.S.C. § 2412(d)(1)(G). Because no final judgment has been entered, the Defendant's request for fees is DENIED.
IV.
For the reasons given above, the Government's Motion to Alter or Amend Judgment [Doc. # 34] and the Government's Supplemental Motion to Alter or Amend Judgment [Doc. #41] are GRANTED. The Court's Order Granting Summary Judgment for the Plaintiff is STRICKEN. *492 The Defendant's Application for Fees and Other Expenses [Doc. #39] is DENIED as premature.
ORDER
For the reasons stated in a contemporaneously filed Memorandum Opinion, the Government's Motion to Alter or Amend Judgment [Doc. #34] and the Government's Supplemental Motion to Alter or Amend Judgment [Doc. # 41] are GRANTED. The Government's Motion for Judgment in its Favor [Doc. # 34] is DENIED. The Court's Order Granting Summary Judgment for the Plaintiff is STRICKEN. The Defendant's Application for Fees and Other Expenses [Doc. # 39] is DENIED as premature.
This matter will be placed on the January trial calendar.
NOTES
[1] While Ms. Charles does not recall having been contacted by anyone about the debt until 1988, the Government printout shows letters being mailed beginning in September, 1986.
[2] The student loan notes signed by Ms. Charles provided in Paragraph 111.(4) that when the loan recipient taught at a school designated by the Commissioner of Education as one with a high concentration of students from low income families, the principal and interest would be reduced by fifteen percent for each complete academic year. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2500667/ | 333 F. Supp. 2d 1360 (2004)
Terry MOORE, Sr., Plaintiff,
v.
EQUIFAX INFORMATION SERVICES LLC, et al., Defendants.
Civ.A. No. 1:03-CV-2378-MHS.
United States District Court, N.D. Georgia, Atlanta Division.
August 23, 2004.
*1361 *1362 Lisa Dionne Wright, Law Office of Lisa D. Wright, Atlanta, GA, for Plaintiff.
John J. Friedline, Kilpatrick Stockton, Albert J. Decusati, McLain & Merritt, Chad D. Graddy, Karen Smiley Focia, Finley & Buckley, Atlanta, GA, for Defendants.
ORDER
SHOOB, Senior District Judge.
This action under the Fair Credit Reporting Act and the Fair Debt Collection Practices Act is before the Court on cross-motions for summary judgment. For the following reasons, the Court denies plaintiff's motion and grants in part and denies in part defendants' motions.
Background
Defendant Equifax Information Services, LLC (Equifax), is a consumer reporting agency that assembles and produces credit reports for use by its clients in evaluating the potential credit risk of consumers. Defendant Marlin Integrated Capital, LLC (Marlin), is an accounts management firm that purchases and attempts to collect debts for businesses. In this action, plaintiff Terry Moore, Sr., seeks to recover from defendants for damages he allegedly suffered as the result of their reporting and including in his credit file a debt that actually belongs to his son, Terry Moore, Jr.
In 1994, Terry Moore, Jr., wrote a check to Jarman Shoes for $64.19 on a closed checking account. Some time later, a report of the bad check appeared in plaintiff's credit file at Equifax. When plaintiff disputed the report, Equifax sought to verify the debt with Marlin, the source of the information. According to Equifax, Marlin responded by verifying the report as accurate.
According to Marlin, it has no account for plaintiff, and it never provided any information to Equifax regarding plaintiff. Instead, Marlin claims that the information it provided to Equifax related to plaintiff's son, Terry Moore, Jr., and that Equifax placed the information in plaintiff's credit file by mistake.
When Equifax sought verification of Marlin's report following plaintiff's complaint, it used a form that identified the debtor simply as "Terry Moore." The other information on the form, including the debtor's address, Social Security number, and date of birth, were those of plaintiff. Marlin responded to the verification request by adding "Junior" to the name on *1363 the form and checking boxes indicating that the "Address" and "Prev Name/Prev Gen Code" listed were the same as its records.[1] Marlin also checked a box indicating that the information it had previously provided had been "Verified as Reported." Marlin did not check the boxes next to the debtor's previous address, Social Security number/date of birth, or telephone number, indicating that it had not verified these items of information.
After receiving the completed verification form, Equifax notified plaintiff that it had investigated his complaint and that Marlin had verified the accuracy of the report. Consequently, Equifax declined to remove the bad check report from plaintiff's credit file.
Plaintiff then filed this lawsuit against Equifax and Marlin alleging violations of the federal Fair Credit Reporting Act and the Fair Debt Collection Practices Act. Plaintiff also asserted a state law claim against Marlin for defamation.
Shortly after the lawsuit was filed, Equifax sent another verification request to Marlin containing the same information as before. This time Marlin responded by checking the box labeled "Delete Account." Equifax then deleted the bad check report from plaintiff's credit file.
Now before the Court are plaintiff's motion for summary judgment on his claims against Equifax, and Equifax's and Marlin's motions for summary judgment on plaintiff's claims against them.
Summary Judgment Standard
Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate when there is "no genuine issue as to any material fact ... and the moving party is entitled to judgment as a matter of law." In Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986), the Supreme Court held that this burden could be met if the moving party demonstrates that there is "an absence of evidence to support the non-moving party's case." Id. at 325, 106 S. Ct. 2548. At that point, the burden shifts to the non-moving party to go beyond the pleadings and present specific evidence giving rise to a triable issue. Id. at 324, 106 S. Ct. 2548.
The Court, however, must construe the evidence and all inferences drawn from the evidence in the light most favorable to the non-moving party. WSB-TV v. Lee, 842 F.2d 1266, 1270 (11th Cir.1988). Moreover, because the summary judgment standard mirrors that required for a judgment as a matter of law, summary judgment is not appropriate unless "under the governing law, there can be but one reasonable conclusion as to the verdict." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986) (citation omitted).
The Rule 56 standard is not affected by the filing of cross motions for summary judgment: "The court must rule on each party's motion on an individual and separate basis, determining, for each side, whether a judgment may be entered in accordance with the Rule 56 standard." 10A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 2720 at 335-36 (3d ed.1998). Cross-motions may, however, be probative of the absence of a factual dispute where they reflect general agreement by the parties as to the controlling legal theories and material facts. See United States v. Oakley, 744 F.2d 1553, 1555 (11th Cir.1984).
Discussion
I. Plaintiff's Claims Against Equifax
Plaintiff asserts two claims against Equifax under the Fair Credit Reporting *1364 Act (FCRA). First, plaintiff seeks recovery under 15 U.S.C. § 1681e(b), which requires consumer reporting agencies like Equifax to use "reasonable procedures to assure maximum possible accuracy of the information" in their consumer reports. Second, plaintiff seeks recovery under 15 U.S.C. § 1681i(a), which requires consumer reporting agencies to reinvestigate disputed information and to delete such information if it is inaccurate or cannot be verified.
Plaintiff contends he is entitled to summary judgment as to Equifax's liability on both claims because the evidence establishes that Equifax (1) failed to follow reasonable procedures to assure the accuracy of plaintiff's credit file and (2) failed to fully and adequately investigate the disputed bad check report. Plaintiff contends that, as a result, he had an application for a checking account denied, he was required to pay a higher interest rate for a mortgage loan, he suffered embarrassment and frustration, and he lost time from work. Finally, plaintiff contends that he is entitled to recover punitive damages from Equifax because its conduct was willful.
Equifax contends that it is entitled to summary judgment on plaintiff's claims because there is no evidence that Equifax ever published inaccurate information about plaintiff to a third party, and thus plaintiff cannot establish any damages. Specifically, Equifax argues that (1) the denial of plaintiff's application for a checking account was not based on information supplied by Equifax and, in any event, occurred outside the applicable two-year limitations period and concerned a commercial account to which the FCRA does not apply; (2) there is no evidence that Equifax information was used to increase plaintiff's mortgage interest rate; and (3) plaintiff's claim of emotional distress is not supported by any evidence of an objective manifestation of such distress. Equifax argues that plaintiff's claim under 15 U.S.C. § 1681i(a) must also fail because Equifax fulfilled its duty to reinvestigate the disputed bad check report, and the accuracy of the report was verified by Marlin. Finally, Equifax contends that there is no evidence to support plaintiff's claim that Equifax willfully violated the FCRA.
The Court concludes that there are genuine factual issues which preclude summary judgment in favor of either party as to Equifax's liability and as to plaintiff's claims for damages arising from emotional distress and an increased mortgage interest rate. However, the Court further concludes that Equifax is entitled to summary judgment on plaintiff's claims for punitive damages and for damages arising from denial of his application for a checking account.
First, there is a genuine issue as to whether Equifax failed to follow reasonable procedures to assure the maximum possible accuracy of the information in its credit files and whether any such failure was the cause of the inaccurate report in plaintiff's credit file. Although there is no evidence explaining how the bad check report relating to Terry Moore, Jr., became associated with plaintiff's credit file, there is evidence that Equifax did not have reasonable procedures in place to prevent the erroneous assignment of a report to the wrong individual's credit file.[2] Thus, a factual question remains as to whether it was Equifax's negligence that caused the *1365 bad check report to be improperly placed in plaintiff's credit file.
Second, there is a genuine issue as to whether Equifax fully and adequately investigated the disputed bad check report. Equifax did seek verification of the report from Marlin, and Marlin did indicate that the information had been "verified as reported." However, the evidence shows that under Equifax's procedures, if the furnisher of the information verified any two of the items of information listed on the verification form "Name/Gen Code," "Address," "Prev Name/Prev Gen Code," "Prev Address," "SSN/DOB," and "Telephone Number" then Equifax would accept the verification as a "complete ID" and would retain the report in the individual's credit file. (Fluellen Dep. at 29-30.) Following this established procedure, Equifax apparently retained the bad check report in plaintiff's credit file because Marlin verified two of the listed items of information "Address" and "Previous Name/Prev Gen Code" even though Marlin's response also indicated that "Junior" should be added to the name, and that none of the other listed information, including Social Security number and date of birth, matched its records. This evidence creates a genuine issue for trial as to whether Equifax fulfilled its duty to reinvestigate disputed information and delete such information if it was inaccurate or could not be verified.
Third, there is a genuine issue as to plaintiff's claims for damages for emotional distress and for damages arising from a mortgage lender's imposing a higher mortgage interest rate. Plaintiff testified that he suffered humiliation and embarrassment as a result of Equifax's inaccurate credit report. Such damages for mental distress are recoverable under the FCRA even if the consumer has suffered no out-of-pocket losses.[3]Thompson v. San Antonio Retail Merch. Ass'n, 682 F.2d 509, 513 (5th Cir.1982). There is also evidence that, as a result of Equifax's publication of the inaccurate bad check report in plaintiff's credit file, a lender required plaintiff to pay a higher interest rate on his mortgage loan than he would have otherwise.
Finally, the evidence does not support plaintiff's claims for punitive damages or for damages arising from the denial of his application for a checking account. Punitive damages are recoverable only for "willful" noncompliance with the FCRA. 15 U.S.C. § 1681n(a). "To be found in willful noncompliance, a defendant must have `knowingly and intentionally committed an act in conscious disregard for the rights of others.'" Stevenson v. TRW, Inc., 987 F.2d 288, 293 (5th Cir.1993)(quoting Pinner v. Schmidt, 805 F.2d 1258, 1263 (5th Cir.1986)). In this case, as in Stevenson, "[t]he record does not reveal ... any intention to thwart consciously [plaintiff's] right to have inaccurate information removed promptly from his report." Id. at 294. At most, the evidence supports a finding of negligence. Accordingly, Equifax is entitled to summary judgment on plaintiff's claim for punitive damages.
The evidence also does not support plaintiff's claim for damages arising from denial of his application for a checking account. There is no evidence that the denial was based on information supplied *1366 by Equifax. Furthermore, the denial admittedly occurred outside the applicable two-year limitations period and involved a commercial transaction that is not covered by the FCRA. See 15 U.S.C. § 1681p (two-year statute of limitations under FCRA); Yeager v. TRW, Inc., 961 F. Supp. 161, 162 (E.D.Tex.1997)("FCRA does not apply to business transactions, even those involving consumers and their consumer credit information"). Accordingly, Equifax is entitled to summary judgment as to this claim for damages.
II. Plaintiff's Claims Against Marlin
Plaintiff asserts three claims against Marlin. First, plaintiff seeks recovery under 15 U.S.C. § 1681s-2(b) of the FCRA, which requires furnishers of information to consumer reporting agencies, upon notice of a dispute as to the accuracy of the information, to conduct an investigation with respect to the disputed information, review all relevant information provided by the consumer reporting agency, and report the results of the investigation to the consumer reporting agency. Second, plaintiff seeks recovery under 15 U.S.C. § 1692e(2)(A) of the FDCPA, which prohibits a debt collector from using false, deceptive, or misleading representations or means in connection with the collection of any debt. Finally, plaintiff seeks recovery under state law for defamation based on Marlin's alleged publication to third parties of misleading and/or inaccurate information regarding his creditworthiness.
Marlin contends that it is entitled to summary judgment on the FCRA claim because the evidence shows that it properly investigated the disputed bad check report and reported accurate information to Equifax. As for the FDCPA claim, Marlin contends that the evidence establishes that it never attempted to collect the Terry Moore, Jr., debt from plaintiff, and that, in any event, the claim is barred by the applicable statute of limitations. Finally, Marlin contends that plaintiff's state law defamation claim is preempted by the express terms of the FCRA.
In response, plaintiff argues that the evidence supports a finding that Marlin failed to conduct an adequate investigation of the disputed bad check report and that its response to Equifax's verification request was inaccurate and incomplete. Plaintiff also argues that the evidence shows Marlin engaged in collection efforts against plaintiff by making several telephone calls to his home in April 2001. Finally, plaintiff argues that his defamation claim should survive summary judgment because the FCRA does not preempt a defamation claim if the defendant acted willfully or with legal malice, and in this case there is sufficient evidence to support a finding that Marlin acted with reckless disregard of the truth and thus with legal malice.
The Court concludes that there are genuine issues for trial on plaintiff's FCRA claim, but that Marlin is entitled to summary judgment on plaintiff's FDCPA and defamation claims.
With regard to the FCRA claim, there is sufficient evidence to create a factual issue as to whether, in response to Equifax's verification request, Marlin failed to conduct an adequate investigation and supplied Equifax with incomplete and inaccurate information. First, in response to the request, Marlin verified the address listed by Equifax as that of Terry Moore, Jr., when in fact it was plaintiff's address. Second, even though Marlin had a copy of the returned check, which showed Terry Moore, Jr.'s, date of birth as December 9, 1976, it did not correct the date of birth listed by Equifax July 14, 1959 which was actually plaintiff's date of birth.
As for the FDCPA claim, even assuming that the telephone calls made in April 2001 constituted improper collection efforts, *1367 plaintiff's suit was not filed until August 7, 2003, well outside the one-year FDCPA statute of limitations period. See 15 U.S.C. § 1692k(d). There is no other evidence to support this claim. Therefore, Marlin is entitled to summary judgment on this claim.
Finally, plaintiff's defamation claim must fail because it is preempted by the FCRA. Under the FCRA, anyone who furnishes information to a consumer reporting agency is immune from state law defamation actions "except as to false information furnished with malice or willful intent to injure such consumer." 15 U.S.C. § 1681h(e). Here, plaintiff has failed to point to any evidence that Marlin reported information to Equifax with malice or willful intent to injure plaintiff. There is no evidence, as plaintiff contends, that Marlin acted with reckless disregard of the truth. Reckless disregard "requires evidence that the speaker entertained actual doubt about the truth of the statement." Corbin v. Regions Bank, 258 Ga.App. 490, 497, 574 S.E.2d 616 (2002)(quoting Wiggins v. Equifax Svcs. Inc., 848 F. Supp. 213, 223 (D.D.C.1993)). Here, there is no evidence that Marlin doubted the accuracy of the information it reported to Equifax.
Summary
For the foregoing reasons, the Court DENIES plaintiff's motion for summary judgment [# 24-1]; GRANTS IN PART AND DENIES IN PART defendant Equifax's motion for summary judgment [# 27-1]; and GRANTS IN PART AND DENIES IN PART defendant Marlin's motion for summary judgment [# 28-1].
NOTES
[1] The "Prev Name/Prev Gen Code" on the form was blank.
[2] An Equifax representative testified that if Equifax received a report on an individual from a subscriber without a Social Security number or an identifying suffix such as "Sr." or "Jr.," then the report might be matched to the credit file of either the "Sr." or the "Jr.," or both. (Fluellen Dep. at 39.)
[3] Equifax's contention that the Eleventh Circuit requires evidence of an objective manifestation of emotional distress is without merit. The Eleventh Circuit vacated the only authority cited by Equifax for this proposition. See Jones v. CSX Transp., 337 F.3d 1316 (11th Cir.2003), vacating in relevant part Jones v. CSX Transp., 287 F.3d 1341 (11th Cir.2002). Other courts have not applied this tort rule to FCRA cases. See Johnson v. Dep't of Treasury, 700 F.2d 971, 984-85 (5th Cir.1983). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1768471/ | 720 F. Supp. 1445 (1988)
In re AIR CRASH DISASTER AT STAPLETON INTERNATIONAL AIRPORT, DENVER, COLORADO, ON NOVEMBER 15, 1987.
Hugh FORD and Julia Ford
v.
CONTINENTAL AIRLINES CORP. and Texas Air Corp.
Brenda A. SELLEH and J. Mark Selleh
v.
CONTINENTAL AIRLINES CORP. and Texas Air Corp.
Diane Mae McELHENEY and Gary McElheney
v.
CONTINENTAL AIRLINES CORP. and Texas Air Corp.
Libby SMOOT
v.
CONTINENTAL AIRLINES CORP.
Kathleen A. COOPER and Dale Cooper, husband and wife
v.
CONTINENTAL AIRLINES CORP. and Texas Air Corp.
Karen Svea JOHNSON and Robert Cooke, Jr., wife and husband
v.
CONTINENTAL AIRLINES CORP. and Texas Air Corp.
Shirley Jean WELTZ and Marvin Richard Weltz, wife and husband
v.
CONTINENTAL AIRLINES CORP. and Texas Air Corp.
Christopher DAVIS, a minor, by Jerry DAVIS and Linda Davis, and Jerry Davis, individually
v.
CONTINENTAL AIRLINES CORP. and Texas Air Corp.
Angela TLUCEK, a minor, by Jerry TLUCEK and Mary Lou Tlucek, and Jerry Tlucek and Mary Lou Tlucek, individually
v.
CONTINENTAL AIRLINES CORP. and Texas Air Corp.
Wayne DAVIS
v.
CONTINENTAL AIRLINES CORP. and Texas Air Corp.
David DANIEL
v.
CONTINENTAL AIRLINES CORP. and Texas Air Corp.
Robert O. LINCK and Joanne Linck, his wife
v.
CONTINENTAL AIRLINES CORP. and Texas Air Corp.
Deborah PASCHKOV, for herself, and as guardian ad litem for Melissa Richard
v.
CONTINENTAL AIRLINES CORP. and Texas Air Corp.
Patti L. HALFORD and Donald M. Halford
v.
CONTINENTAL AIRLINES CORP. and Texas Air Corp.
Jeffrey HOAGLAND, a minor, by Mark W. HOAGLAND and Marie Hoagland
v.
CONTINENTAL AIRLINES CORP. and Texas Air Corp.
Ann C. STEWART, for John McCabe STEWART, a minor, Donald Douglas Stewart, Lueann Stewart, and Linda Butterfield, widow
v.
CONTINENTAL AIRLINES CORP., Texas Air Corp.
Keith SMITH and Loretta Smith
v.
CONTINENTAL AIRLINES CORP. and Texas Air Corp.
v.
Byron OWENS (subject to realignment).
Micheal SPICER
v.
CONTINENTAL AIRLINES CORP.
Douglas SELF and Debbie Self
v.
CONTINENTAL AIRLINES CORP. and Texas Air Corp., jointly and severally.
MDL No. 751, Nos. 87-F-1922, 88-F-346, 88-F-348, 88-F-661, 88-F-663 to 88-F-665, 88-F-667, 88-F-668, 88-F-670, 88-F-671, 88-F-787, 88-F-830 to 88-F-832, 88-F-898, 88-F-990, 88-F-991 and 88-F-1358.
United States District Court, D. Colorado.
November 15, 1988.
*1447 ORDER MDL 751-16
MEMORANDUM OPINION AND ORDER ON STATE LAW CONTROLLING ISSUES OF PUNITIVE DAMAGES
SHERMAN G. FINESILVER, Chief Judge.
This multidistrict action deals with damages claimed as a result of injuries and fatalities incurred in an airplane crash on November 15, 1987 in Denver, Colorado. The instant matter involves motions pre-trial determination of the law controlling issues of punitive damages. Through substantial briefing and oral argument, the parties have advanced and criticized contentions that the law of Colorado, Idaho or Texas should prevail. The court conducted independent research of the legal authority regarding the complex choice of law questions and carefully reviewed the submissions of the parties.
We find that Texas has the most significant relationship to punitive damage claims in this litigation and thus hold that Texas law applies to these claims. Defendants' corporate accountability, if any, is best evaluated by the application of Texas law.
I.
By way of background, these cases arise out of the November 15, 1987 crash of a Continental Airlines DC-9 airplane en route from Denver, Colorado, to Boise, Idaho. During a snow storm at Stapleton International Airport, Continental Flight 1713 crashed as it attempted take-off. The aircraft overturned and the passenger compartment broke into several pieces. The accident killed 28 persons and injured 54 others. The pilot, copilot and a flight attendant were among the deceased. Actions pending in this court are for both personal injury and wrongful death.
Plaintiffs are residents of various states, including Arizona, Colorado, Idaho, New Jersey, and Washington. They claim the crash of Flight 1713 was the result of pilot inexperience, ineffectual pilot training and the willful, wanton and reckless disregard for passenger safety exhibited by defendant Continental Airlines. Plaintiffs contend that Continental engaged in a pattern and practice of falsifying pilot training records, check airmen, and other records in order to meet its demand for newhire pilots and to pass Federal Aviation Administration ("FAA") inspections. Plaintiffs further contend that the actions of employees at Continental's dispatch center violated FAA regulations regarding inclement weather operations and that these violations were due to the fact that dispatchers responsible for Flight 1713 and other Denver departures were stationed in Houston, Texas, rather than Denver.[1]
Defendants deny that negligence or any wrongdoing caused the crash. Defendants assert that plaintiffs' damages were caused by the acts, omissions, and/or fault of third parties over whom Continental has no control. *1448 Specifically, defendants have designated the City and County of Denver and the Federal Aviation Administration as culpable parties pursuant to § 13-21-111.5 of the Colorado Revised Statutes. Defendants also contend that if the acts of any Continental employees caused the crash, those acts were limited to the decisions of the cockpit and de-ice crews stationed in Denver, Colorado.
The court has jurisdiction over these civil actions pursuant to 28 U.S.C. § 1332, diversity of citizenship. On April 14, 1988, the Judicial Panel on Multidistrict Litigation conferred jurisdiction upon this court for consolidated pretrial proceedings pursuant to 28 U.S.C. § 1407. In re Air Crash Disaster at Stapleton Int'l Airport, 683 F. Supp. 266 (J.P.M.L.1988).
II.
A transferee court presiding over diversity actions consolidated as multidistrict litigation must apply the choice of law rules of the various jurisdictions in which the transferred actions were originally filed. In re Air Crash Disaster Near Chicago, Illinois, 644 F.2d 594, 610 (7th Cir.), cert. denied sub nom., 454 U.S. 878, 102 S. Ct. 358, 70 L. Ed. 2d 187 (1981); In re Eastern Airlines, Inc., Engine Failure, 629 F. Supp. 307, 315 (S.D.Fla.1986); see also Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941) (choice of law of the forum to be applied); VanDusen v. Barrack, 376 U.S. 612, 84 S. Ct. 805, 11 L. Ed. 2d 945 (1964) (law applied in 28 U.S.C. § 1404 transfers). The actions pending before this court were commenced in Idaho, Colorado and New Jersey.
New Jersey applies "government interest analysis" to choice of law problems. See Veazey v. Doremus, 103 N.J. 244, 510 A.2d 1187 (1986). Idaho and Colorado apply the "most significant relationship" analysis codified at §§ 145 et seq. of the Restatement (Second) of Conflict of Laws. First National Bank v. Rostek, 182 Colo. 437, 514 P.2d 314 (1973); Johnson v. Pischke, 108 Idaho 397, 700 P.2d 19 (Idaho 1985). Because the latter test is a more formalized approach to the interests considered in the former, we consolidate our analysis under the Restatement approach to identify the state with the most significant relationship to the parties and the occurrence.[2]
The parties presenting choice of law motions on the issue of punitive damages contend that Idaho, the residence of most of the injured passengers, Colorado, the site of the crash, and Texas, the principal place of business and corporate residence of defendants, each have interests in this litigation. Our analysis begins with a comparison of the punitive damages law of each jurisdiction to determine whether a conflict exists upon which choice of law principles must be brought to bear. Chicago, 644 F.2d at 605. If a conflict exists, the interests of each state in a potential award of punitive damages in this case must be weighed to determine which state bears the most significant relationship to the issue.[3]
*1449 III.
The punitive damage laws of Texas, Idaho and Colorado are in irreconcilable conflict. The laws of Idaho and Texas provide for punitive damages in wrongful death actions as well as contract and personal injury cases.[4] Colorado law provides for punitive damage awards only in personal injury casesexemplary damages are prohibited in actions for wrongful death or breach of contract.[5] While the amount of punitive damages awarded in Texas and Idaho must bear some relation to the circumstances and injury suffered, neither state imposes a maximum on the amount of an award. By statute, Colorado limits the amount to be awarded to the amount of actual damages incurred in the underlying injury unless specific circumstances are proven at trial. While courts in both Texas and Idaho admit evidence of a defendant's wealth as a basis for calculating the size of a punitive damage award, Colorado statutory law prohibits introduction of such evidence. Furthermore, although all three states generally apply similar standards to determine liability for punitive damages, Colorado law requires that the plaintiff prove that standard beyond a reasonable doubt.
During the past decade, the Colorado legislature has substantially reformed the state's tort law. Colorado statutes now limit availability of punitive damage remedies and the amount of such an award. Colorado's tort reform manifests a balancing of the policies of deterrence and punishment against the interests of protecting resident corporations and the local economy. See 1986 Report of the Governor's Task Force on the Insurance Crisis (Colo. Advisory Panel 1986); In re Air Crash Disaster Near Chicago, Illinois, 644 F.2d 594, 613 (7th Cir.), cert. denied sub nom., 454 U.S. 878, 102 S. Ct. 358, 70 L. Ed. 2d 187 (1981); see also Peoples Bank & Trust v. Piper Aircraft Corp., 598 F. Supp. 377, 380 (S.D.Fla.1984); Sibley v. KLMRoyal Dutch Airways, 454 F. Supp. 425, 428 (S.D.N.Y.1978).
When such a conflict of policy exists, there can be no "moderate or restrained interpretation" which would serve to avoid a true conflict of laws. Chicago, 644 F.2d at 615. Accordingly, we proceed to determine which law should apply to these cases.
IV.
The Restatement (Second) of Conflicts approach applied in each of the transfer jurisdictions suggests a two step choice of law analysis of the issues involved. The first step is an identification of the states having contacts with the parties and the crash of Flight 1713.[6] The second step is a determination of the relative significance of these contacts made by considering six elements set out in the Restatement.
*1450 A. The Situs of Relevant Contacts.
All but one of the contacts relevant to this litigation are in dispute.[7]
1. Place of Injury.
Plaintiffs were injured when Flight 1713 crashed on take-off from Continental Airlines' connection "hub" for the western United States at Denver, Colorado.
2. Place of Conduct.
Colorado and Texas provide the most prominent locality of the conduct to be considered in this litigation. We are persuaded that the conduct for which Continental may be liable for punitive damages occurred primarily in Texas. In Colorado, Idaho and Texas, corporate liability for punitive damages is not based purely on the theory of vicarious liability for the actions of ones employees. Note, Corporate Vicarious Liability for Punitive Damages, 1985 B.Y.U.L.Rev. 317, 318 and n. 8. Corporate liability for punitive damages requires the complicity or involvement of corporate principals in the specific occurrence at issue in the litigation.[8] Only if that complicity is wanton and willful will a corporation be liable for punitive damages. The Restatement of Law's focus on the policy goals of rules regulating conduct requires consideration of the conduct to which liability would attach in each jurisdiction.[9]
Plaintiffs contend that their case for punitive damages turns on (a) negligent hiring of the pilots assigned to Flight 1713, (b) decisions to "pair" the pilots assigned to that flight, (c) training of flight and deice crews, and significantly (d) responsibilities and participation of Continental's Houston, Texas flight dispatch center in the departure of Flight 1713. Defendants contend that plaintiffs' case actually focuses on the decisions of the flight and deice crews in Denver, Colorado, and that plaintiffs' remaining contentions merely allege predisposing acts of negligence.[10]
The corporate activity causally linked to the departure of Flight 1713 occurred in Texas. Defendants concede that Federal Aviation Regulations vest substantial responsibility in an airline's dispatch center to monitor flight crew preparation, ground crew activities, and weather conditions, to communicate pertinent information to the flight crew, and to certify the aircraft's readiness by formally releasing it for departure. 14 C.F.R. 121.533 & 121.591-.667 (1988). While we express no view on the alleged involvement of the FAA in alerting *1451 Continental to deficiencies at its dispatch center, we find it significant that the government agency views dispatch center operations as critical to the safe departure of each flight. Such operations are not analogous to the training programs other courts have appeared to dismiss as merely peripheral to the causes of a particular accident. See, e.g., In re Air Crash Disaster at Washington, D.C., 559 F. Supp. 333, 349 (D.D.C.1983); In re Air Crash at Dallas/Fort Worth Airport on August 2, 1985, slip. op., MDL 657 (N.D.Tex. Sept. 22, 1988). This case differs in that the decisions and actions upon which liability for punitive damages turn are not limited to the pre-flight decisions of the flight and ground crews in Denver. Compare Freeman v. World Airways, Inc., 596 F. Supp. 841, 846-47 (D.Mass.1984) with In re Air Crash Disaster Near Chicago, Illinois, 644 F.2d 594, 613-14 (7th Cir.), cert. denied sub nom., 454 U.S. 878, 102 S. Ct. 358, 70 L. Ed. 2d 187 (1981) (Missouri manufacturing operations of California corporation focus of conduct analysis).
Whether the dispatch center or personnel managers located in Texas acted responsibly in regard to the preparation and departure of Flight 1713 is a matter for trial. What is clear is that this corporate conduct potentially giving rise to an award of punitive damages occurred in Texas. See Emmart v. Piper Aircraft Corp., 659 F. Supp. 843, 846 (S.D.Fla.1987).
3. Domicile and Principal Place of Business.
In air crash cases, the residence of plaintiffs is generally of little significance as to the issue of punitive damages. Chicago, 644 F.d at 612-13; Freeman, 596 F.Supp. at 848; Jackson v. K.L.M., 459 F. Supp. 953, 955 (S.D.N.Y.1978); Sibley v. KLM-Royal Dutch Airlines, 454 F. Supp. 425, 428 (S.D. N.Y.1978); see also Washington, D.C., 559 F.Supp. at 353 (significance of minor factor increases when residence is also state of injury). The interests of the domicile state are served by application of that state's law to see that plaintiffs are fully compensated for their injuries and that they do not become dependent on the state. Id. In this litigation, individual compensatory damage trials applying the law of a plaintiff's domicile will be held following exemplar trial on issues of liability and punitive damages.[11] Accordingly, we find that the interests of plaintiffs' domicile states are protected and reject the assertion of certain plaintiffs that Idaho has the most significant interest in the parties or occurrence.
Continental contends that it has more than one principal place of business relevant to our choice of law analysis. An airline's principal place of business is its "corporate nerve center." Chicago, 644 F.d at 620; Dallas, slip op. The fact that an aircraft crashes at its owner's "hub" increases the weight afforded the significance of the relationship between the state of injury and the occurrence. Courts do not view an airline's "hub" as its principal place of business.[12]Id. Defendants concede that their corporate nerve center is located in Houston, Texas. Furthermore, Continental and Texas Air are incorporated under the laws of the state of Texas. Texas is defendants' principal place of business.
4. Center of the Parties' Relationships.
Generally, courts find that the relationship between a passenger and a carrier is centered either in the flight's point of departure or point of return. Bryant v. Silverman, 146 Ariz. 41, 703 P.2d 1190, 1195 (1985); Freeman, 596 F.Supp. at 848; Rest. (Second) Conflict of Laws § 145, comment e. The significance of Denver as the point of passenger departure in this case, however, is lessened by the fact that the majority of passengers boarding Flight 1713 were routed through Denver to connect with that flight by Continental or another *1452 airline. Most were returning on round trip tickets from Boise, Idaho to states other than Colorado. Most purchased their tickets in Boise. Accordingly, as it regards most passengers, Idaho is the state where the relationship was centered.
V.
As discussed above, the states having relevant contacts with this litigation are: 1) Coloradoplace of injury; 2) Texasplace of the wrongful conduct; 3) Texasdefendant airline's principal place of business and state of incorporation; and 4) Idaho principal state where the relationship between the parties was centered. The relative significance of these contacts is considered in light of the policies underlying the remedy of punitive damages.[13]
In personal injury and wrongful death actions, the language of the Restatement of Conflicts suggests that the law of the state of injury should apply unless some other state has a more significant relationship to the litigation. See Washington, D.C., 559 F.Supp. at 350; Rest. (Second) Conflict of Laws §§ 146 and 175. In air crash cases, the Restatement's suggestion is easily overcome because courts view the situs of injury as fortuitous.[14]See Chicago, 644 F.2d at 615; Pittway Corp. v. Lockheed Aircraft Corp., 641 F.2d 524, 527-28 (7th Cir.1981); In re Air Crash Near Chicago, 500 F. Supp. 1044, 1048 (N.D.Ill.1980) (lower court opinion later reversed in part on other grounds); In re Air Crash at Boston, Mass., 399 F. Supp. 1106, 1112 (D.Mass.1975); Bryant, 703 P.2d at 1195. When an air crash occurs on landing or take-off, some courts find that additional contacts with the site of injury raise the significance of that relationship. See Chicago, 644 F.2d at 615; Washington, D.C., 559 F.Supp. at 348-50; Freeman, 596 F.Supp. at 847; Dallas, slip op.[15] In our view, the crash at Stapleton International Airport was less than fortuitous. Continental's substantial flight operations at this airport in the Rocky Mountain region raise the likelihood of a weather effected crash in this region. See Washington, D.C., 559 F.Supp. at 344. Nonetheless, the combination of factors allegedly causing the accident could have occurred at any airport where pilots and the Houston dispatch center were forced to monitor preparations for take-off in inclement weather, e.g. Boise, Idaho, Cheyenne, Wyoming, etc. Accordingly, the significance of the relationship between Colorado and this litigation is less than that normally attributed to the site of injury in other tort cases. See Florum v. Elliot Mfg. Co., 629 F. Supp. 1145, 1148 (D.Colo.1986).
In air crash cases, the interests of the domicile of the plaintiffs and the center of the relationship is relatively low in regard to the issue of punitive damages. Bryant, 703 P.2d at 1195; Chicago, 644 F.2d at 612; Freeman, 596 F.Supp. at 848; Washington, D.C., 559 F.Supp. at 353; Rest. (second) Conflict of Laws § 145, comment e. Accordingly, the significance of *1453 the relationship of Idaho to this litigation through these two contacts does not surpass that of Colorado.
Texas, however, has the most significant relationship to the parties and occurrence in regard to the issue of punitive damages. If any rule can be identified from the various air crashchoice of law cases, it is that articulated by the Seventh Circuit in Chicago:
Because the place of injury is much more fortuitous than the place of misconduct or the principal place of business, its interest in and ability to control behavior by deterrence or punishment, or to protect defendants from liability is lower than that of the place of misconduct or the principal place of business.
644 F.2d at 615; Washington, D.C., 559 F.Supp. at 355-57; Bryant, 703 P.2d at 1194; K. Redden, L. Schlueter, Punitive Damages § 3.3(F) (1981 & Supp.1986); Note, Conflict of Laws, 47 J. of Air L. & Comm. 339 (1982). The rule is in accord with the Restatement's guidance that in regard to rules of conduct, the predominant consideration focuses on the policies of the relevant states. Rest. (Second) Conflict of Laws § 145, comment c, § 6(2) & (3); see also Dresser Industries, Inc. v. Sandvick, 732 F.2d 783, 786 (10th Cir.1984); see also Bryant, 703 P.2d at 1194-95 holding corporation accountable to its principal place of business serves choice of law interests in certainty, predictability and expectation); Rest. (Second) Conflict of Laws § 6(4) & (5). Texas is both the site of the conduct to which an award of punitive damages could attach and defendants' principal place of business thus its relationship to this litigation is most significant. See Emmart v. Piper Aircraft Corp., 659 F. Supp. 843, 845-46 (S.D.Fla.1987).
A comparison of the interests of Colorado and Texas further substantiates this conclusion. While Colorado has an interest in regulating the conduct of corporations entering its jurisdiction to do business, it interest in air safety is somewhat lessened when a foreign corporation attempts to shield itself from the more onerous laws of its home state by seeking refuge under Colorado law. See Chicago, 644 F.2d at 613-14; Bryant, 703 P.2d at 1195-96. The shared goal of safe air travel is served by applying the law of a home state to an airline like Continental. See id. Furthermore, Colorado's decision to maintain its economy will not be frustrated by applying the law of Texas. The knowledge that the law of a corporation's principal place of business and responsible operations will be applied in the event of litigation is not likely to discourage corporations like Continental from doing business in Colorado. Id.; cf. Freeman, 596 F.Supp. at 847 (damage award against company domiciled in country which does not allow such damages discourages entry).[16]
Finally, application of Colorado law would prejudicially frustrate the progress of this litigation. The Restatement of Conflicts advises a court to consider the relative ease of determination and application of each state's law. Rest. (Second) § 6(6). The parties have jointly proposed a trial plan common to mass disaster cases. See In re Air Crash Disaster at Gander, Newfoundland, on December 12, 1985, MDL 683, slip ops. (W.D.Ky. July 17, 1987 & August 28, 1987); In re Air Crash at Dallas/Fort Worth Airport on August 2, 1985, MDL 657, slip op. (N.D.Tex. June 13, 1988). Once pretrial proceedings in these consolidated cases have been completed, these cases will be consolidated for determination of liability for actual and punitive damages through an exemplar case. At trial, if the jury finds Continental liable for punitive damages, that jury will determine the amount of the award in a second phase of the trial. The individual cases will then be transferred to the districts in which they were filed for compensatory damage trials. This court will retain jurisdiction over the punitive damage award for a final determination of the propriety of the amount awarded. Continental's interest in this procedure is not only one of convenience, but *1454 also in eliminating the risk of prejudicially disparate liability verdicts which might result from determinations of liability in each of those individual trials. Colorado law requires precise calculation of a punitive damage award based on the amount of actual damages awarded in a personal injury case.[17] Texas law requires that the award bears a factual relationship to the injuries, circumstances, and conduct involved. Colorado law requires severance of claims at the liability phase of this litigation.[18] Continental would then be exposed to the injustice consolidation procedures attempt to avoid where several plaintiffs allege injuries stemming from the same acts of one defendant.
Accordingly, the law of Texas will apply to issues of punitive damages in these consolidated cases.
VI.
Defendants have also moved for the dismissal of punitive damage claims brought in actions originally filed in state and federal courts in Idaho. By statute, Idaho provides that punitive damage claims may only be brought once the trial court grants leave to amend the complaint following a hearing on the sufficiency of the claims. Idaho Code § 6-1604(2). Federal courts sitting in diversity in Idaho hold that the provision is substantive law that controls the course of state law trials in that jurisdiction. Windsor v. Guarantee Trust Life Ins., 684 F. Supp. 630, 633 (D.Idaho 1988). Because we find the substantive law of Texas controls issues of punitive damages in this litigation, defendants' motion to dismiss based on Idaho law is moot.[19]
VII.
The choice of law problems inherent in air crash and mass disaster litigation cry out for federal statutory resolution. We urge Congress to pursue enactment of uniform federal tort law to apply to liability and damages in the context of commercial airline disasters and other mass torts.[20] While the issues we address are significant due to the current posture of federal law, the burden these decisions place on judicial resources frustrates the early and orderly resolution of issues which should demand greater attentioncompensating the victims or vindicating accused commercial entities.[21] Specifically, state laws on the issue *1455 of punitive damages are not harmonious. Uncertainty on the choice of law question requires a considerable expenditure of time, money and other resources on the by litigants and counsel. Federal law would eliminate costly uncertainty and create uniformity. This approach would lead to a quick and efficient resolution of mass disaster cases. See Fed.R.Civ.P. 1.
ORDER
Plaintiffs' consolidated motions to apply Texas law to issues of punitive damages are GRANTED.
Motion of defendants Continental Airlines and Texas Air to apply Colorado law to issues of punitive damages is DENIED.
Motion of certain plaintiffs to apply Idaho law to issues of punitive damages is DENIED.
Defendants' motion to dismiss punitive damage claims brought in Idaho pending hearing is DENIED AS MOOT.
Defendants' motion to extend time to file motion for summary judgment on punitive damage claims, filed November 7, 1988, is GRANTED IN PART. Defendants are DIRECTED to file their motion motion for summary judgment on issues of punitive damages on or before November 24, 1988. Plaintiffs are DIRECTED to file responses to defendants' motion for summary judgment on or before December 1, 1988. This case is set for trial beginning December 12, 1988.
NOTES
[1] Plaintiffs also allege that Continental's 1987 national advertising campaign constitutes a deceptive trade practice. The applicability of the Texas Deceptive Trade Practices-Consumer Protection Act to the conduct and injuries involved in this litigation is also at issue.
[2] New Jersey courts acknowledge that the results produced by either test are usually the same. See Veazey v. Doremus, 103 N.J. 244, 510 A.2d 1187 (1986); see also In re Air Crash Disaster Near Chicago, Illinois, 644 F.2d 594, 604 (7th Cir.). cert. denied sub nom., 454 U.S. 878, 102 S. Ct. 358, 70 L. Ed. 2d 187 (1981). Other courts performing choice of law analysis in air crash cases have also consolidated their opinions under the Restatement's "most significant relationship" test. See, e.g., Emmart v. Piper Aircraft Corp., 659 F. Supp. 843 (S.D.Fla.1987); see also W. Turley, Aviation Litigation § 11.03 (1986 and Supp.1987); S. Speiser & C. Krause, Aviation Tort Law § 2:5 (1978 and Supp.1987). The approach was applied in briefs submitted by defendants and the Plaintiffs Steering Committee. Neither New Jersey plaintiff represented by the Plaintiffs Steering Committee has objected to this approach.
[3] Choice of law issues in this litigation will be resolved through the principle of decepage. By decepage we mean the search for the rule of law most appropriately applied within the context of a particular issue. See Reese, Decepage: A Common Phenomenon In Choice of Law, 73 Colum.L.Rev. 58, 58-59 (1973). Although decepage may lead to the application of the law of different jurisdictions to different issues within the same case, the approach is widely applied to the multifaceted issues involved in aviation litigation. See, e.g., Sabell v. Pacific Intermountain Express, 36 Colo. App. 60, 536 P.2d 1160, 1165-66 (1975); Bryant v. Silverman, 146 Ariz. 41, 703 P.2d 1190, 1193 n. 1 (1985); Chicago, 644 F.2d at 611. The Restatement test itself advises that the contacts of a state with certain litigation "are to be evaluated according to their relative importance with respect to the particular issue." Rest. (Second) Conflicts of Law § 145.
[4] For Idaho law, see Soria v. Sierra Pacific Airlines, Inc., 111 Idaho 594, 726 P.2d 706 (1986); Cheney v. Palos Verdes Investment Corp., 104 Idaho 897, 665 P.2d 661 (1983); Volk v. Baldazo, 103 Idaho 570, 651 P.2d 11 (Idaho 1982); Idaho Code § 6-1604. For Texas law, see Lunsford v. Morris, 746 S.W.2d 471 (Tex.1988); Alamo Nat'l Bank v. Kraus, 616 S.W.2d 908 (Tex.1981); Burk Realty Co. v. Wall, 616 S.W.2d 911 (Tex.1981); Tex. Const. art. 16 § 26; Tex.Civ.Prac. and Rem. Code § 71.009.
[5] For Colorado law, see Mortgage Finance, Inc. v. Podleski, 742 P.2d 900 (Colo.1987); Tri-Aspen Construction Co. v. Johnson, 714 P.2d 484 (Colo. 1986); Herbertson v. Russel, 150 Colo. 110, 371 P.2d 422 (1962); Murphy v. Colorado Aviation, Inc., 41 Colo. App. 237, 588 P.2d 877 (1978); Kinnett v. Sky's West Parachute Center, 596 F. Supp. 1039 (D.Colo.1984); Colo.Rev.Stat. §§ 13-21-102 & 203.
[6] The Restatement (Second) of Conflict of Laws, § 145 provides:
(1) The rights and liabilities of the parties with respect to an issue in tort are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the occurrence and the parties under the principles stated in § 6.
(2) Contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:
(a) the place where the injury occurred,
(b) the place where the conduct causing the injury occurred,
(c) the domicil, residence, nationality, place of incorporation and place of business of the parties, and
(d) the place where the relationship, if any, between the parties is centered.
These contacts are to be evaluated according to their relative importance with respect to the particular issue.
[7] The parties view the configuration of contacts as determinative due to their efforts to divine absolute "rules" from other air crash cases. While we realize the importance of certainty and predictability to choice of law issues, neither the Restatement (Second) of Conflicts nor previous cases provide clear rules of applicable law. The significance of a state's relationship to a particular accident or certain parties depends on the circumstances of each case. Rest. (Second) of Conflict of Laws §§ 147, 146 and 175 (provisions on tort, personal injury and wrongful death). Cases arriving at different outcomes frequently arise out of similarly configured contact states. Thus, case law serves as a source for analogy rather than absolute rules.
[8] Alley v. Gubser Development Co., 785 F.2d 849, 855 (10th Cir.), cert. denied, 479 U.S. 961, 107 S. Ct. 457, 93 L. Ed. 2d 403 (1986) and Malandris v. Merrill, Lynch, Pierce, Fenner & Smith, 703 F.2d 1152, 1174-75 & nn. 17-18 (10th Cir.1981), cert. denied, 464 U.S. 824, 104 S. Ct. 92, 78 L. Ed. 2d 99 (1983) (Colorado law); Martin v. Texaco, 726 F.2d 207, 213 (5th Cir.1984) and Fort Worth Cab & Baggage Co., 735 S.W.2d 303, 306 (Tex.App.1987) (Texas law); Soria v. Sierra Pacific Airlines, Inc., 111 Idaho 594, 726 P.2d 706, 722-23 (1986) (Idaho law).
[9] See Dresser Indus., Inc. v. Sandvick, 732 F.2d 783, 786 (10th Cir.1984); Vandeventer v. Four Corners Electric Co., 663 F.2d 1016, 1018 (10th Cir.1981); Emmart v. Piper Aircraft Corp., 659 F. Supp. 843, 845 (S.D.Fla.1987); Freeman v. World Airways, 596 F. Supp. 841, 848 (S.D.Fla. 1984); Sibley v. KLM-Royal Dutch Airlines, 454 F. Supp. 425, 428 (S.D.N.Y.1978); Murphy v. Colorado Aviation Inc., 41 Colo. App. 237, 588 P.2d 877, 880 (1978); Rest. (Second) Conflict of Laws §§ 145, comment c, 146 comment d; Reese, The Law Governing Airplane Accidents, 39 Wash. & Lee L.Rev. 1303, 1317 (1982).
[10] Defendants state that acceptance of plaintiffs' characterization of the case would amount to summary judgment on issues of causation. We reject defendants' argument. Acceptance of defendants' characterization of the case would itself amount to a dismissal of plaintiffs claims that corporate principles acting in Texas directly caused the accident. Neither approach is appropriate at this juncture. We need only make limited findings to serve the purpose of this order.
[11] Our order establishing the trial plan for this consolidation is covered elsewhere.
[12] We reject Continental's assertion that its hubs are additional principal places of business. Courts applying choice of law rules to multifaceted corporations emphasize that focusing on satellite operations as "principal" would encourage companies to separate decision makers from operators thus taking advantage of favorable punitive damage statutes in a matter tantamount to forum shopping. See, e.g., Chicago, 644 F.2d at 613-14. (corporate nerve center distinct from defendants' manufacturing and repair facilities).
[13] The Restatement lists six factors to be considered in weighing contacts in choice of law disputes: (1) needs of the interstate and international systems; (2) relevant policies of the forum; (3) relevant policies of other interested states and the relative interests of the states in the determination of the particular issue; (4) protection of justified expectations; (5) certainty, predictability and uniformity of result; and (6) ease of determination and application of the law. Rest. (Second) of Conflict of Laws § 6. The relative importance of each factor varies depending on whether the action sounds in tort or contract. Comments to § 145 direct our attention to the main features we discuss above.
[14] The use of the word "fortuitous" in air crash cases stands for the proposition that an air crash could occur in any state over which a particular aircraft was scheduled to fly. See, e.g., Chicago, 644 F.2d at 615 ("That the injury in our case occurred in Illinois can only be described as fortuitous. Had the DC-10's engine fallen off later, the injury might have occurred in any number of states.").
[15] We note that in each of these cases the courts found the burden of the crash on local emergency resources to be significant. We do not see this feature as distinguishing a take-off accident from other accidents. In every fortuitous plane crash, emergency resources are taxed in the locality where the plane lands. Only in the Washington, D.C., crash, which destroyed a bridge and disrupted commuter traffic in the region for several weeks, was the impact of the crash at all distinctive from the burdens imposed on any state in which a commercial jet crashes. Washington, D.C., 559 F.Supp. at 350 & n. 26.
[16] In providing that one-third of all punitive damage judgments awarded in Colorado should be disbursed to the state's general fund, the Colorado legislature specifically stated that the provision should bear no significance in determining the interests of Colorado in a punitive damage award. Colo.Rev.Stat. § 13-21-102(4).
[17] See discussion of state laws, supra.
[18] Effectively, under Colorado law the actual damages verdict establishes a range for punitive damage awards in that case. A punitive damage award must bear a relationship to a defendant's culpability as shown by the evidence. Accordingly, in these consolidated cases, the liability phase jury could only determine the amount of punitive damages to be awarded once the range has been established in the transferred compensatory damage trials. Because several plaintiffs have alleged injuries which are not likely to run their course for several months, the exact amount of actual damages suffered from this air crash will not be determinable at trial or in the immediate future.
[19] We note further for the purposes of comity, that our hearing on punitive damages choice of law motions served the spirit of that statute. Plaintiffs have presented theories of punitive damages sufficient to withstand a motion to dismiss and accordingly would be granted leave to amend their complaints pursuant to Rule 15 of the Federal Rules of Civil Procedure.
[20] Other courts and several scholars have also suggested that federal action is necessary. See Washington, D.C., 559 F.Supp. at 335; Chicago, 644 F.2d at 632-33; Chicago, 500 F.Supp. at 1054 (Judges Robson and Will); Kohr v. Allegheny Airlines, Inc., 504 F.2d 400, 403-05 (7th Cir.1974), cert. denied sub nom., 421 U.S. 978, 95 S. Ct. 1979, 44 L. Ed. 2d 470 (1975); see also Jackson v. Johns-Manville Sales Corp., 750 F.2d 1314, 1329-41 (5th Cir.1985) (en banc) (Clark, J., dissenting), cert. denied, 478 U.S. 1022, 106 S. Ct. 3339, 92 L. Ed. 2d 743 (1986); In re "Agent Orange" Products Liab. Litig., 506 F. Supp. 737 (E.D.N.Y.1979), rev'd, 635 F.2d 987 (2d Cir. 1980), cert. denied sub nom., 454 U.S. 1128, 102 S. Ct. 980, 71 L. Ed. 2d 116 (1981).
[21] See In re Paris Air Crash of March 3, 1974, 399 F. Supp. 732, 739 (C.D.Cal.1975) (discussing the frustration of an "informed guess" as opposed to the more appropriate derivation of a "rule of action"); Kennelly, Litigation Implications of the Chicago O'Hare Airport Crash of American Airlines Flight 191, 15 J.Mar.L.Rev. 273, 297-300 (1982); Atwood, The Choice of Law in Mass Tort Litig., 19 Conn.L.Rev. 9, 28 (1986); Note, Conflict of Laws, 47 J. Air L. & Comm. 339, 359-60 (1982; Leflar, Choice of Law: A Well Watered Matter, 41 Lans. Ch. & Contemp. Probs. 10, 24-25 (1977); Note, The Case for Federal Common Law on Aircraft Disaster Litigation, 51 N.Y.U.L.Rev. 232 (1976). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2484867/ | 217 F.Supp.2d 935 (2002)
State of WISCONSIN, Plaintiff,
v.
AT&T CORPORATION, Defendant.
No. 02-C-288-S.
United States District Court, W.D. Wisconsin.
July 31, 2002.
*936 Edwin Hughes, Asst. Attorney General, Madison, WI, for Plaintiff.
Dennis P. Birke, Dewitt, Ross & Stevens, Madison, WI, for Defendant.
*937 MEMORANDUM AND ORDER
SHABAZ, District Judge.
Plaintiff State of Wisconsin commenced this action for forfeitures and injunctive relief in the Circuit Court for Dane County, Wisconsin, alleging that defendant AT & T Corporation's consumer telecommunications contracts violate certain consumer protection provisions of the Wisconsin Administrative Code. Defendant removed the matter to this Court alleging that complete federal preemption renders the nominally state claims federal and supports federal question jurisdiction. The matter is presently before the Court on plaintiff's motion to remand for lack of jurisdiction. The following undisputed background is relevant to the jurisdictional issue.
BACKGROUND
Prior to August 1, 2001 the Federal Communications Act and Federal Communications Commission rules required telecommunication providers including defendant to file tariffs with the FCC which specified rates, terms and conditions for long distance telephone service. On August 1, 2001, pursuant to authority granted by the Telecommunications Act of 1996, the FCC eliminated federal tariffs for interstate long distance service.
In the absence of filed tariffs defendant began mailing to its residential subscribers a "Consumer Services Agreement" which set forth contractual terms for long distance service. Among the terms of the Consumer Services Agreement are provisions that permit defendant to unilaterally change prices and charges with limited notice, require arbitration of disputes, preclude class actions and require application of New York law. Subscribers who continued to use defendant's services after August 1, 2001 became subject to the terms of the Consumer Services Agreement.
Plaintiff alleges among other things that the notice provisions of the agreement violate Wisconsin Administrative Code ATCP § 123.04 and that the arbitration and New York choice of law provisions violate ATCP § 123.10(9) by improperly waiving consumer protection rights. The complaint seeks monetary penalties and injunctive relief under Wisconsin law.
MEMORANDUM
Plaintiff seeks remand on the basis that defendant's preemption defense is inadequate to support removal on the basis of federal question jurisdiction pursuant to 28 U.S.C. § 1441. Defendant argues that removal was proper under the complete preemption doctrine or because a substantial federal question is raised. The Court concludes that it lacks jurisdiction and remands to the Circuit Court for Dane County, Wisconsin.
A complaint states a federal claim within the meaning of 28 U.S.C. § 1331 only when a claim for relief depends on federal law. Anticipated federal defenses, including a preemption defense, will not convert a state claim into a federal question, even though the federal defense may be the predominant issue in the case. Vorhees v. Naper Aero Club, Inc., 272 F.3d 398, 403 (7th Cir.2001). When a complaint raises only state claims federal question jurisdiction arises only if federal law has so occupied a field that it displaces all state law. Id. at 402. The Supreme Court has thus far found only federal labor and pension laws to be completely preemptive of state law. Id. at 403.
Plaintiff's complaint is based exclusively on state law and is removable only if a federal law completely occupies the field of consumer telephone contracts. When the filed tariff requirement was in place federal law occupied the field concerning state contract claims. Cahnmann v. Sprint Corp., 133 F.3d 484, 489 (7th Cir.1998). This is because by law a filed *938 tariff displaces all other contracts and "defines the entire contractual relation between the parties, [so] there is no contractual undertaking left over that state law might enforce." Id. at 489. With the demise of filed tariffs, however, complete preemption clearly no longer exists. In the absence of a filed tariff which defines the contract between telecommunication providers and consumers the reasoning of Cahnmann does not apply. Indeed, the Consumer Services Agreement under attack by the complaint purports to be a state law contract governed by New York law, and the FCC has itself opined that state law, including state contract and consumer protection law, now governs long distance telephone service contracts. Ting v. AT & T, 182 F.Supp.2d 902, 909 (N.D.Cal.2002) (quoting FCC web page).
At least three courts have found that complete preemption does not exist in the wake of detariffing. Ting, 182 F.Supp.2d at 938; Frontline Communications Intern., Inc. v. Sprint Communications Co., L.P., 178 F.Supp.2d 432, 438 (S.D.N.Y.2001); Boomer v. AT&T Corp., 2002 WL 1315621 (N.D.Ill.2002). The FCC concurs in this opinion. In the Matter of Petitions of Sprint PCS and AT&T Corp., FCC 02-203, fn. 39, 2002 WL 1438578 (F.C.C. July 3, 2002) (citing Ting with approval). The Court has not found nor have the parties cited contrary precedent. Accordingly, there is not complete preemption by the FCA which would warrant the exercise of federal question jurisdiction. Any issue of conflict preemption is a defense subject to resolution in state court. Vorhees, 272 F.3d at 403.
Defendant's argument that jurisdiction is supported by the existence of a "substantial federal issue" must suffer the same fate. In the present context of a preemption argument, invocation of substantial federal issue jurisdiction would swallow the well established rule that a conflict preemption defense does not support federal question jurisdiction. In fact, defendant relies on the same authority, Cahnmann, in support of its argument to retain jurisdiction. The argument is effectively a restatement of the failed complete preemption argument.
ORDER
IT IS ORDERED that plaintiff's motion to remand for lack of jurisdiction is GRANTED.
IT IS FURTHER ORDERED that this matter is remanded to the Circuit Court for Dane County, Wisconsin. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/117853/ | 512 U.S. 136 (1994)
IBANEZ
v.
FLORIDA DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION, BOARD OF ACCOUNTANCY
No. 93-639.
United States Supreme Court.
Argued April 19, 1994.
Decided June 13, 1994.
CERTIORARI TO THE DISTRICT COURT OF APPEAL OF FLORIDA, first district
*138 Ginsburg, J., delivered the opinion for a unanimous Court with respect to Part IIB, and the opinion of the Court with respect to Parts I, IIA, and IIC, in which Blackmun, Stevens, Scalia, Kennedy, Souter, and Thomas, JJ., joined. O'Connor, J., filed an opinion concurring in part and dissenting in part, in which Rehnquist, C. J., joined, post, p. 149.
Silvia Safille Ibanez, pro se, argued the cause for petitioner. With her on the briefs were J. Lofton Westmoreland and Robert J. Shapiro.
Lisa S. Nelson argued the cause and filed a brief for respondent.[*]
*138 Justice Ginsburg delivered the opinion of the Court.
Petitioner Silvia Safille Ibanez, a member of the Florida Bar since 1983, practices law in Winter Haven, Florida. She is also a Certified Public Accountant (CPA), licensed by respondent Florida Board of Accountancy (Board)[1] to "practice public accounting." In addition, she is authorized by the Certified Financial Planner Board of Standards, a private organization, to use the trademarked designation "Certified Financial Planner" (CFP).
Ibanez referred to these credentials in her advertising and other communication with the public. She placed CPA and CFP next to her name in her yellow pages listing (under "Attorneys") and on her business card. She also used those designations at the left side of her "Law Offices" stationery. Notwithstanding the apparently truthful nature of her communicationit is undisputed that neither her CPA license nor her CFP certification has been revokedthe Board reprimanded her for engaging in "false, deceptive, and misleading" advertising. Final Order of the Board of Accountancy (May 12, 1992) (hereinafter Final Order), App. 178, 194.
The record reveals that the Board has not shouldered the burden it must carry in matters of this order. It has not *139 demonstrated with sufficient specificity that any member of the public could have been misled by Ibanez' constitutionally protected speech or that any harm could have resulted from allowing that speech to reach the public's eyes. We therefore hold that the Board's decision censuring Ibanez is incompatible with First Amendment restraints on official action.
I
Under Florida's Public Accountancy Act, only licensed CPA's may "[a]ttest as an expert in accountancy to the reliability or fairness of presentation of financial information," Fla. Stat. § 473.322(1)(c) (1991),[2] or use the title "CPA" or other title "tending to indicate that such person holds an active license" under Florida law. § 473.322(1)(b). Furthermore, only licensed CPA's may "[p]ractice public accounting." § 473.322(1)(a). "Practicing public accounting" is defined as an "offe[r] to perform . . . one or more types of services involving the use of accounting skills, or . . . management advisory or consulting services," Fla. Stat. § 473.302(5) (Supp. 1992), made by one who either is, § 473.302(5)(a), or "hold[s] himself . . . out as, " § 473.302(5)(b) (emphasis added), a certified public accountant.[3]
The Board learned of Ibanez' use of the designations CPA and CFP when a copy of Ibanez' yellow pages listing was mailed, anonymously, to the Board's offices; it thereupon commenced an investigation and, subsequently, issued a complaint against her. The Board charged Ibanez with (1) *140 "practicing public accounting" in an unlicensed firm, in violation of § 473.3101 of the Public Accountancy Act;[4] (2) using a "specialty designation"CFPthat had not been approved by the Board, in violation of Board Rule 24.001(1)(g), Fla. Admin. Code § 61H1-24.001(1)(g) (1994);[5] and (3) appending the CPA designation after her name, thereby "impl[ying] that she abides by the provisions of [the Public Accountancy Act]," in violation of Rule 24.001(1)'s ban on "fraudulent, false, deceptive, or misleading" advertising. Amended Administrative Complaint (filed June 30, 1991), 1 Record 32-35.
At the ensuing disciplinary hearing, Ibanez argued that she was practicing law, not "public accounting," and was therefore not subject to the Board's regulatory jurisdiction. Response to Amended Administrative Complaint (filed Aug. 26, 1991), ¶ 25, id., at 108.[6] Her use of the CPA and CFP designations, she argued further, constituted "nonmisleading, truthful, commercial speech" for which she could not be sanctioned. ¶ 24, ibid. Prior to the close of proceedings before the hearing officer, the Board dropped the charge that Ibanez was practicing public accounting in an unlicensed firm. Order on Reconsideration (filed Aug. 22, 1991), ¶ 2, id., at 103-104. The hearing officer subsequently found in Ibanez' favor on all counts, and recommended to the Board that, *141 for want of the requisite proof, all charges against Ibanez be dismissed. Recommended Order (filed Jan. 15, 1992), App. 147.
The Board rejected the hearing officer's recommendation, and declared Ibanez guilty of "false, deceptive and misleading" advertising. Final Order, id. , at 194. The Board reasoned, first, that Ibanez was "practicing public accounting" by virtue of her use of the CPA designation and was thus subject to the Board's disciplinary jurisdiction. Id., at 183. Because Ibanez had insisted that her law practice was outside the Board's regulatory jurisdiction, she had, in the Board's judgment, rendered her use of the CPA designation misleading:
"[Ibanez] advertises the fact that she is a CPA, while performing the same `accounting' activities she performed when she worked for licensed CPA firms, but she does not concede that she is engaged in the practice of public accounting so as to bring herself within the jurisdiction of the Board of Accountancy for any negligence or errors [of which] she may be guilty when delivering her services to her clients. "[Ibanez] is unwilling to acquiesce in the requirements of [the Public Accountancy Act] and [the Board's rules] by complying with those requirements. She does not license her firm as a CPA firm; forego certain forms of remuneration denied to individuals who are practicing public accountancy; or limit the ownership of her firm to other CPAs. . . . [She] has, in effect, told the public that she is subject to the provisions of [the Public Accountancy Act] and the jurisdiction of the Board of Accountancy when she believes and acts as though she is not." Id., at 184-185. Next, the Board addressed Ibanez' use of the CFP designation. On that matter, the Board stated that any designation using the term "certified" to refer to a certifying organization *142 other than the Board itself (or an organization approved by the Board) "inherently mislead[s] the public into believing that state approval and recognition exists." Id., at 193-194. Ibanez appealed to the District Court of Appeal, First District, which affirmed the Board's final order per curiam without opinion. Id., at 196, judgt. order reported at 621 So. 2d 435 (1993). As a result, Ibanez had no right of review in the Florida Supreme Court. We granted certiorari, 510 U. S. 1067 (1994), and now reverse.
II
A
The Board correctly acknowledged that Ibanez' use of the CPA and CFP designations was "commercial speech." Final Order, App. 186. Because "disclosure of truthful, relevant information is more likely to make a positive contribution to decisionmaking than is concealment of such information," Peel v. Attorney Registration and Disciplinary Comm'n of Ill., 496 U. S. 91, 108 (1990), only false, deceptive, or misleading commercial speech may be banned. Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, 471 U. S. 626, 638 (1985), citing Friedman v. Rogers, 440 U. S. 1 (1979); see also In re R. M. J., 455 U. S. 191, 203 (1982) ("Truthful advertising related to lawful activities is entitled to the protections of the First Amendment. . . . Misleading advertising may be prohibited entirely.").
Commercial speech that is not false, deceptive, or misleading can be restricted, but only if the State shows that the restriction directly and materially advances a substantial state interest in a manner no more extensive than necessary to serve that interest.[7]Central Hudson Gas & Elec. Corp. v. Public Serv. Comm'n of N. Y., 447 U. S. 557, 566 (1980); *143 see also id., at 564 (regulation will not be sustained if it "provides only ineffective or remote support for the government's purpose"); Edenfield v. Fane, 507 U. S. 761, 767 (1993) (regulation must advance substantial state interest in a "direct and material way" and be in "reasonable proportion to the interests served"); In re R. M. J., 455 U. S., at 203 (State can regulate commercial speech if it shows that it has "a substantial interest" and that the interference with speech is "in proportion to the interest served").
The State's burden is not slight; the "free flow of commercial information is valuable enough to justify imposing on would-be regulators the costs of distinguishing the truthful from the false, the helpful from the misleading, and the harmless from the harmful." Zauderer, 471 U. S., at 646. "[M]ere speculation or conjecture" will not suffice; rather the State "must demonstrate that the harms it recites are real and that its restriction will in fact alleviate them to a material degree." Edenfield, 507 U. S., at 770, 771; see also Zauderer, 471 U. S., at 648-649 (State's "unsupported assertions" insufficient to justify prohibition on attorney advertising; "broad prophylactic rules may not be so lightly justified if the protections afforded commercial speech are to retain their force"). Measured against these standards, the order reprimanding Ibanez cannot stand.
B
We turn first to Ibanez' use of the CPA designation in her commercial communications. On that matter, the Board's position is entirely insubstantial. To reiterate, Ibanez holds a currently active CPA license which the Board has never sought to revoke. The Board asserts that her truthful communication is nonetheless misleading because it "[tells] the public that she is subject to the provisions of [the Accountancy Act] and the jurisdiction of the Board of Accountancy when she believes and acts as though she is not." Final Order, App. 185; see also Brief for Respondent 20 ("[T]he use *144 of the CPA designation . . . where the licensee is unwilling to comply with the provisions of the [statute] under which the license was granted, is inherently misleading and may be prohibited.").
Ibanez no longer contests the Board's assertion of jurisdiction, see Brief for Petitioner 28 (Ibanez "is, in fact, a licensee subject to the rules of the Board"), and in any event, what she "believes" regarding the reach of the Board's authority is not sanctionable. See Baird v. State Bar of Ariz., 401 U. S. 1, 6 (1971) (First Amendment "prohibits a State from excluding a person from a profession or punishing him solely because . . . he holds certain beliefs"). Nor can the Board rest on a bare assertion that Ibanez is "unwilling to comply" with its regulation. To survive constitutional review, the Board must build its case on specific evidence of noncompliance. Ibanez has neither been charged with, nor found guilty of, any professional activity or practice out of compliance with the governing statutory or regulatory standards.[8] And as long as Ibanez holds an active CPA license from the Board we cannot imagine how consumers can be misled by her truthful representation to that effect.
C
The Board's justifications for disciplining Ibanez for using the CFP designation are scarcely more persuasive. The Board concluded that the words used in the designation particularly, the word "certified"so closely resemble "the terms protected by state licensure itself, that their use, when not approved by the Board, inherently mislead[s] the public into believing that state approval and recognition exists." Final Order, App. 193-194. This conclusion is difficult to maintain in light of Peel. We held in Peel that an attorney's use of the designation "Certified Civil Trial Specialist By the *145 National Board of Trial Advocacy" was neither actually nor inherently misleading. See 496 U. S., at 106 (rejecting contention that use of National Board of Trial Advocacy certification on attorney's letterhead was "actually misleading"); id., at 110 ("State may not . . . completely ban statements that are not actually or inherently misleading, such as certification as a specialist by bona fide organizations such as NBTA"); id., at 111 (Marshall, J., joined by Brennan, J., concurring in judgment) (agreeing that attorney's letterhead was "neither actually nor inherently misleading"). The Board offers nothing to support a different conclusion with respect to the CFP designation.[9] Given "the complete absence of any evidence of deception," id., at 106, the Board's "concern about the possibility of deception in hypothetical cases is not sufficient to rebut the constitutional presumption favoring disclosure over concealment," id., at 111.[10]
*146 The Board alternatively contends that Ibanez' use of the CFP designation is "potentially misleading," entitling the Board to "enact measures short of a total ban to prevent deception or confusion." Brief for Respondent 33, citing Peel, 496 U. S., at 116 (Marshall, J., joined by Brennan, J., concurring in judgment). If the "protections afforded commercial speech are to retain their force," Zauderer, 471 U. S., at 648-649, we cannot allow rote invocation of the words "potentially misleading" to supplant the Board's burden to "demonstrate that the harms it recites are real and that its restriction will in fact alleviate them to a material degree." Edenfield, 507 U. S., at 771.
The Board points to Rule 24.001(1)(j), Fla. Admin. Code § 61H1-24.001(1)(j) (1994), which prohibits use of any "specialist" designation unless accompanied by a disclaimer, made "in the immediate proximity of the statement that implies formal recognition as a specialist"; the disclaimer must "stat[e] that the recognizing agency is not affiliated with or sanctioned by the state or federal government," and it must set out the recognizing agency's "requirements for recognition, including, but not limited to, educatio[n], experience[,] and testing." See Brief for Respondent 33-35. Given the state of this recordthe failure of the Board to point to any harm that is potentially real, not purely hypotheticalwe are satisfied that the Board's action is unjustified. We express no opinion whether, in other situations or on a different record, the Board's insistence on a disclaimer might serve as an appropriately tailored check against deception or confusion, rather than one imposing "unduly burdensome disclosure requirements [that] offend the First Amendment." Zauderer, 471 U. S., at 651. This much is plain, however: The detail required in the disclaimer currently described by the Board effectively rules out notation of the "specialist" *147 designation on a business card or letterhead, or in a yellow pages listing.[11]
The concurring Justices, on whom the Board relies, did indeed find the "[NBTA] Certified Civil Trial Specialist" statement on a lawyer's letterhead "potentially misleading," but they stated no categorical rule applicable to all specialty designations. Thus, they recognized that "[t]he potential for misunderstanding might be less if the NBTA were a commonly recognized organization and the public had a general understanding of its requirements." Peel, 496 U. S., at 115. In this regard, we stress again the failure of the Board to back up its alleged concern that the designation CFP would mislead rather than inform.
The Board never adverted to the prospect that the public potentially in need of a civil trial specialist, see Peel, supra, is wider, and perhaps less sophisticated, than the public with financial resources warranting the services of a planner. Noteworthy in this connection, "Certified Financial Planner" and "CFP" are well-established, protected federal trademarks that have been described as "the most recognized designation[s] in the planning field." Financial Planners: Report of Staff of United States Securities and Exchange Commission to the House Committee on Energy and Commerce's Subcommittee on Telecommunications and Finance 53 (1988), reprinted in Financial Planners and Investment Advisors, Hearing before the Subcommittee on Consumer Affairs of the Senate Committee on Banking, Housing and Urban Affairs, 100th Cong., 2d Sess., 78 (1988). Approximately *148 27,000 persons have qualified for the designation nationwide. Brief for Certified Financial Planner Board of Standards, Inc., et al. as Amici Curiae 3. Over 50 accredited universities and colleges have established courses of study in financial planning approved by the CFP Board of Standards, and standards for licensure include satisfaction of certain core educational requirements, a passing score on a certification examination "similar in concept to the Bar or CPA examinations," completion of a planning-related work experience requirement, agreement to abide by the CFP Code of Ethics and Professional Responsibility, and an annual continuing education requirement. Id., at 10-15.
Ibanez, it bears emphasis, is engaged in the practice of law and so represents her offices to the public. Indeed, she performs work reserved for lawyers but nothing that only CPA's may do. See supra, at 139, n. 3. It is therefore significant that her use of the designation CFP is considered in all respects appropriate by the Florida Bar. See Brief for Florida Bar as Amicus Curiae 9-10 (noting that Florida Bar, Rules of Professional Conduct, and particularly Rule 4-7.3, "specifically allo[w] Ibanez to disclose her CPA and CFP credentials [and] contemplate that Ibanez must provide this information to prospective clients (if relevant)").
Beyond question, this case does not fall within the caveat noted in Peel covering certifications issued by organizations that "had made no inquiry into petitioner's fitness," or had "issued certificates indiscriminately for a price"; statements made in such certifications, "even if true, could be misleading." 496 U. S., at 102. We have never sustained restrictions on constitutionally protected speech based on a record so bare as the one on which the Board relies here. See Edenfield, 507 U. S., at 771 (striking down Florida ban on CPA solicitation where Board "presents no studies that suggest personal solicitation . . . creates the dangers . . . the Board claims to fear" nor even "anecdotal evidence . . . that validates the Board's suppositions"); Zauderer, 471 U. S., at *149 648-649 (striking down restrictions on attorney advertising where "State's arguments amount to little more than unsupported assertions" without "evidence or authority of any kind"). To approve the Board's reprimand of Ibanez would be to risk toleration of commercial speech restraints "in the service of . . .objectives that could not themselves justify a burden on commercial expression." Edenfield, 507 U. S., at 171.
Accordingly, the judgment of the Florida District Court of Appeal is reversed, and the case is remanded for proceedings not inconsistent with this opinion.
It is so ordered. Justice O'Connor, with whom The Chief Justice joins, concurring in part and dissenting in part.
Once again, we are confronted with a First Amendment challenge to a state restriction on professional advertising. Petitioner, who has been licensed as an attorney and as a certified public accountant (CPA) by the State of Florida, and who also has been recognized as a "Certified Financial Planner" (CFP) by a private organization, identified herself in telephone listings under the "attorneys" heading as "IBANEZ SILVIA S CPA CFP." App. 4. Respondent, the Florida Board of Accountancy, determined that petitioner's use of both the CPA and the CFP designations was inherently misleading, and sanctioned her for false advertising. Fla. Stat. § 473.323(1)(f) (1991) (accountants subject to disciplinary action if they "[a]dvertis[e] goods or services in a manner which is fraudulent, false, deceptive, or misleading in form or content").
I
Because petitioner's use of the CFP designation is both inherently and potentially misleading, I would uphold the Board's sanction of petitioner. I therefore respectfully dissent from Parts IIA and IIC of the opinion of the Court.
*150 A
States may prohibit inherently misleading speech entirely. In re R. M. J., 455 U. S. 191, 203 (1982). In Peel v. Attorney Registration and Disciplinary Comm'n of Ill., 496 U. S. 91 (1990), we considered an attorney advertisement that proclaimed the lawyer to be a "`Certified Civil Trial Specialist By the National Board of Trial Advocacy.' " See id., at 96. A majority of the Court concluded that this statement was not inherently misleading, although the discussion of this issue was joined by only four Justices. See id., at 100-106 (plurality opinion); id., at 111 (Marshall, J., concurring in judgment). The plurality reasoned that the certification was a statement of verifiable fact; that the certification had been conferred by a reputable organization that had applied objectively clear standards to determining the attorney's qualifications; and that consumers would not confuse the attorney's claim of certification as a specialist with formal state recognition.
Although the Certified Financial Planner Board of Standards, Inc., appears to be a reputable organization that applies objectively clear standards before conferring the CFP designation on accountants, the other factors relied on by the Peel plurality are not present in this case. First, it was important in Peel that "[t]he facts stated on [the attorney's] letterhead are true and verifiable. " Id., at 100 (emphasis added); see also id., at 101 ("A lawyer's certification by [the recognizing organization] is a verifiable fact, as are the predicate requirements for that certification"). Of course, petitioner's recognition as a CFP can be verifiedbut only if the consumer knows where to call or write. Unlike the advertisement in Peel, petitioner's advertisements did not identify the organization that had conferred the certification. The average consumer has no way to verify the accuracy or value of petitioner's use of the CFP designation.
Related to this point is the fact that, in the absence of an identified conferring organization, the consumer is likely to *151 conclude that the CFP designation is conferred by the State. The Peel plurality stressed that "it seems unlikely that [the attorney's] statement about his certification as a `specialist' by an identified national organization necessarily would be confused with formal state recognition." Id., at 104-105 (emphasis added). Because here there is no such identification, the converse is true. It is common knowledge that "many States prescribe requirements for, and `certify' public accountants as, `Certified Public Accountants.' " Id., at 113 (Marshall, J., concurring in judgment). Petitioner has of course been licensed as a CPA by the State of Florida. But her use of the CFP designation in close connection with the identification of herself as a CPA ("IBANEZ SILVIA S CPA CFP") would lead a reasonable consumer to conclude that the two "certifications" were conferred by the same entity the State of Florida.
The Board of Accountancy has recognized this likelihood of consumer confusion: "[The term `certified'] in conjunction with the term `CPA' and the practice of public accounting, [is] so close to the terms protected by state licensure itself, that [its] use, when not approved by the Board, inherently mislead[s] the public into believing that state approval and recognition exists." App. 193-194. For this reason, the Board's regulations provide that an advertisement will be deemed misleading if it "[s]tates a form of recognition by any entity other than the Board that uses the ter[m] `certified.' " Fla. Admin. Code 61H1-24.001(1)(i) (1994). Petitioner's advertising is in clear violation of this prohibition. Because the First Amendment does not prevent a State from protecting consumers from such inherently misleading advertising, in my view the Board's blanket prohibition on the use of the term "certified" in CPA advertising is constitutional as applied to petitioner.
B
But even if petitioner's use of "certified" was not inherently misleading, it seems clear beyond cavil that some consumers *152 would conclude that the State conferred the CFP designation, just as it does the CPA license, and thus that the advertisement is potentially misleading. Indeed, this conclusion follows a fortiori from Peel, where five Justices concluded that the attorney's specialty designation was at least potentially misleading. See 496 U. S., at 118 (White, J., dissenting). The advertisement in Peel, which identified the certifying organization, provided substantially more information to consumers than does petitioner's advertisement; if the one was potentially misleading (and we said that it was), so too is the other.
States may not completely ban potentially misleading commercial speech if narrower limitations can ensure that the information is presented in a nonmisleading manner. In re R. M. J., supra, at 203. But if a professional's certification claim has the potential to mislead, the State may "requir[e] a disclaimer about the certifying organization or the standards of a specialty." Peel, 496 U. S., at 110 (plurality opinion); see also id., at 116-117 (Marshall, J., concurring in judgment); In re R. M. J., supra, at 203. The Board has done just that: An advertisement that "[s]tates or implies that the licensee has received formal recognition as a specialist in any aspect of the practice of public accounting" will be deemed false or misleading, "unless the statement contains a disclaimer stating that the recognizing agency is not affiliated with or sanctioned by the state or federal government." Fla. Admin. Code 61H1-24.001(1)(j) (1994). "The advertisement must also contain the agency's requirements for recognition, including, but not limited to, educatio[n], experience and testing. These statements must be in the immediate proximity of the statement that implies formal recognition as a specialist." Ibid. There is no question but that the CFP designation "implies that [petitioner] has received formal recognition as a specialist" in financial planning, an "aspect of the practice of public accounting," and her advertisements do not contain the required disclaimer. If the absolute *153 prohibition on the use of the term "certified" cannot be applied to petitioner (as the Court today holds), then the disclaimer requirement applies to petitioner's advertising that she is a specialist in financial planning. Because petitioner failed to comply with it, the Board properly disciplined her.
II
Petitioner is a certified public accountant, and her use of the CPA designation in advertising conveyed this truthful information to the public. I agree with the Court that the State of Florida may not prohibit petitioner's use of the CPA designation under the circumstances in which this case is presented to us, and I therefore join Part IIB of the Court's opinion. I would only point out that it is open to the Board to proceed against petitioner for practicing public accounting in violation of statutory or regulatory standards applicable to Florida accountants. See Brief for Petitioner 28 ("Petitioner is, in fact, a licensee subject to the rules of the Board of Accountancy"). And if petitioner's public accounting license is revoked, the State may constitutionally prohibit her from advertising herself as a CPA.
NOTES
[*] Briefs of amici curiae urging reversal were filed for the Alliance of Practicing Certified Public Accountants et al. by Donald B. Verrilli, Jr., David W. DeBruin, and Maureen F. Del Duca; for the American Association of Attorney-Certified Public Accountants, Inc., by David Ostrove, Sydney S. Traum, and Philip D. Brent; for the Certified Financial Planner Board of Standards et al.by Peter E. Zwanzig; and for the Florida Bar by Steven E. Stark and Scott D. Makar.
Briefs of amici curiae urging affirmance were filed for the American Institute of Certified Public Accountants by Louis A. Craco, Richard I. Miller, Michael R. Young, and Kelly M. Hnatt; and for the Florida Institute of Certified Public Accountants by Kenneth R. Hart and Steven P. Seymoe.
[1] The Board of Accountancy, created by the Florida Legislature, Fla. Stat. § 473.303 (1991), is authorized to "adopt all rules necessary to administer" the Public Accountancy Act (chapter 473 of the Florida Statutes). Fla. Stat. § 473.304 (Supp. 1992). The Board is responsible for licensing CPA's, see Fla. Stat. § 473.308 (1991), and every licensee is subject to the governance of the Act and the rules adopted by the Board. Fla. Stat. § 473.304 (Supp. 1992).
[2] This "attest" function is more commonly referred to as "auditing."
[3] Florida's Public Accountancy Act is known as a "Title Act" because, with the exception of the "attest" function, activities performed by CPA's can lawfully be performed by non-CPA's. See Brief for Respondent 11 12. The Act contains additional restrictions on the conduct of licensed CPA's. For example, a partnership or corporation cannot "practice public accounting" unless all partners or shareholders are CPA's, Fla. Stat. § 473.309 (1991), nor may licensees "engaged in the practice of public accounting" pay or accept referral fees, § 473.3205, or accept contingency fees, § 473.319.
[4] Florida Stat. § 473.3101 (Supp. 1994) requires that "[e]ach partnership, corporation, or limited liability company seeking to engage in the practice of public accounting" apply for a license from the Board, and § 473.309 requires that each such partnership or corporation hold a current license.
[5] Rule 24.001(1) states, in pertinent part, that "[n]o licensee shall disseminate . . . any . . . advertising which is in any way fraudulent, false, deceptive, or misleading, if it . . . (g) [s]tates or implies that the licensee has received formal recognition as a specialist in any aspect of the practice of public accountancy unless . . . [the] recognizing agency is approved by the Board." Fla. Admin. Code § 61H1-24.001(1) (1994). The CFP Board of Standards, the "recognizing agency" in regard to Ibanez' CFP designation, has not been approved by the Board.
[6] Ibanez pointed out that she does not perform the "attest" function in her law practice, and that no service she performs requires a CPA license. See supra, at 139, n. 3.
[7] "It is well established that `[t]he party seeking to uphold a restriction on commercial speech carries the burden of justifying it.' " Edenfield v. Fane, 507 U. S. 761, 770 (1993), quoting Bolger v. Youngs Drug Products Corp., 463 U. S. 60, 71, n. 20 (1983).
[8] Notably, the Board itself withdrew the only charge against Ibanez of this kind, viz., the allegation that she practiced public accounting in an unlicensed firm. See supra, at 140.
[9] Justice O'Connor writes that "[t]he average consumer has no way to verify the accuracy or value of [Ibanez'] use of the CFP designation" because her advertising, "[u]nlike the advertisement in Peel, . . . did not identify the organization that had conferred the certification." Post, at 150. We do not agree that the consumer of financial planning services is thus disarmed.
To verify Ibanez' CFP credential, a consumer could call the CFP Board of Standards. The Board that reprimanded Ibanez never suggested that such a call would be significantly more difficult to make than one to the certifying organization in Peel, the National Board of Trial Advocacy. We note in this regard that the attorney's letterhead in Peel supplied no address or telephone number for the certifying agency. Most instructive on this matter, we think, is the requirement of the Rules of Professional Conduct of the Florida Bar, to which attorney Ibanez is subject, that she provide "written information setting forth the factual details of [her] experience, expertise, background, and training" to anyone who so inquires. See Florida Bar, Rule of Professional Conduct 4-7.3(a)(2).
[10] The Board called only three witnesses at the proceeding against Ibanez, all of whom were employees or former employees of the Department of Professional Regulation. Neither the witnesses, nor the Board in its submissions to this Court, offered evidence that any member of the public has been misled by the use of the CFP designation. See Peel, 496 U. S., at 100-101 (noting that there was "no contention that any potential client or person was actually misled or deceived," nor "any factual finding of actual deception or misunderstanding").
[11] Under the Board's regulations, moreover, it appears that even a disclaimer of the kind described would not have saved Ibanez from censure. Rule 24.001(i) flatly bans "[s]tat[ing] aform of recognition by any entity other than the Board that uses the ter[m] `certified.' " Separate and distinct from that absolute prohibition, the regulations further proscribe "[s]tat[ing] or impl[ying] that the licensee has received formal recognition as a specialist in any aspect of the practice of public accounting, unless the statement contains" a copiously detailed disclaimer. Rule 24.001(j). | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/117866/ | 512 U.S. 532 (1994)
CONSOLIDATED RAIL CORPORATION
v.
GOTTSHALL
No. 92-1956.
United States Supreme Court.
Argued February 28, 1994.
Decided June 24, 1994.[*]
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
*534 *534 Thomas, J., delivered the opinion of the Court, in which Rehnquist, C. J., and O'Connor, Scalia, Kennedy, and Souter, JJ., joined. Souter, J., filed a concurring opinion, post, p. 558. Ginsburg, J., filed a dissenting opinion, in which Blackmun and Stevens, JJ., joined, post, p. 559.
*535 Ralph G. Wellington argued the cause for petitioner in both cases. With him on the briefs were Nancy Winkelman, Bruce B. Wilson, and Lucy S. L. Amerman.
William L. Myers, Jr., argued the cause and filed a brief for respondent Gottshall. J. Michael Farrell argued the cause for respondent Carlisle. With him on the brief was William L. Bowe.[]
Justice Thomas, delivered the opinion of the Court.
These cases require us to determine the proper standard for evaluating claims for negligent infliction of emotional distress that are brought under the Federal Employers' Liability Act. Because the standard adopted by the Court of Appeals is inconsistent with the principles embodied in the statute and with relevant common-law doctrine, we reverse the judgments below.
I
Respondents James Gottshall and Alan Carlisle each brought suit under the Federal Employers' Liability Act (FELA), 35 Stat. 65, as amended, 45 U. S. C. §§ 51-60, against their former employer, petitioner Consolidated Rail Corporation (Conrail). We set forth the facts of each case in turn.
A
Gottshall was a member of a Conrail work crew assigned to replace a stretch of defective track on an extremely hot and humid day. The crew was under time pressure, and so the men were discouraged from taking scheduled breaks. *536 They were, however, allowed to obtain water as needed. Two and one-half hours into the job, a worker named Richard Johns, a longtime friend of Gottshall, collapsed. Gottshall and several others rushed to help Johns, who was pale and sweating profusely. They were able to revive him by administering a cold compress. Michael Norvick, the crew supervisor, then ordered the men to stop assisting Johns and to return to work. Five minutes later, Gottshall again went to Johns' aid after seeing his friend stand up and collapse. Realizing that Johns was having a heart attack, Gottshall began cardiopulmonary resuscitation. He continued the process for 40 minutes.
Meanwhile, Norvick attempted to summon assistance, but found that his radio was inoperative; unbeknownst to him, Conrail had temporarily taken the nearest base station off the air for repairs. Norvick drove off to get help, but by the time he returned with paramedics, Johns had died. The paramedics covered the body with a sheet, ordered that it remain undisturbed until the coroner could examine it, and directed the crew not to leave until the coroner had arrived. Norvick ordered the men back to work, within sight of Johns' covered body. The coroner, who arrived several hours later, reported that Johns had died from a heart attack brought on by the combined factors of heat, humidity, and heavy exertion.
The entire experience left Gottshall extremely agitated and distraught. Over the next several days, during which he continued to work in hot and humid weather conditions, Gottshall began to feel ill. He became preoccupied with the events surrounding Johns' death, and worried that he would die under similar circumstances. Shortly after Johns' funeral, Gottshall was admitted to a psychiatric institution, where he was diagnosed as suffering from major depression and posttraumatic stress disorder. During the three weeks he spent at the institution, Gottshall experienced nausea, insomnia, cold sweats, and repetitive nightmares concerning *537 Johns' death. He lost a great deal of weight and suffered from suicidal preoccupations and anxiety. Gottshall has continued to receive psychological treatment since his discharge from the hospital.
Gottshall sued Conrail under FELA for negligent infliction of emotional distress. He alleged that Conrail's negligence had created the circumstances under which he had been forced to observe and participate in the events surrounding Johns' death. The District Court granted Conrail's motion for summary judgment, holding that FELA did not provide a remedy for Gottshall's emotional injuries.
A divided panel of the United States Court of Appeals for the Third Circuit reversed and remanded for trial. Gottshall v. Consolidated Rail Corp., 988 F. 2d 355 (1993). The court observed that most States recognize a common-law cause of action for negligent infliction of emotional distress, but limit recovery to certain classes of plaintiffs or categories of claims through the application of one or more tests. Id., at 361 (discussing "physical impact," "zone of danger," and "relative bystander" tests). The Third Circuit suggested that because "an emotional injury is easier to fake" than a physical injury, these tests have been "judicially developed to screen causes of action and send only the meritorious ones to juries." Ibid.
The court below identified what it considered to be a fundamental tension between the restrictive attitude of the common law toward claims for negligent infliction of emotional distress on the one hand, and the general policy underlying FELA on the other. According to the Third Circuit, the common law places harsh and arbitrary limits on recovery for emotional injury, while FELA has consistently been interpreted to accord liberal relief to railroad workers injured through the negligence of their employers. Id., at 367-368 (discussing cases).
In the Third Circuit's view, the only way to reconcile the apparent tension was to give preference to the liberal recovery *538 policy embodied in FELA over the common law: "[D]octrinal common law distinctions are to be discarded when they bar recovery on meritorious FELA claims." Id., at 369. Determining that judges could weed out fraudulent emotional injury claims through careful scrutiny of the facts, the court held that the facts alleged in support of a claim under FELA for negligent infliction of emotional distress must "provide a threshold assurance that there is a likelihood of genuine and serious emotional injury." Id., at 371. The Third Circuit suggested that a court's factual inquiry might include consideration of the plaintiff's claim in light of the present state of the common law.
After reviewing the facts of Gottshall's case, the Third Circuit concluded that Gottshall had made a sufficient showing that his injuries were genuine and severe. Id., at 374. Because his claim had met the court's threshold "genuineness" test, the court next considered whether the claim adequately alleged the usual FELA elements of breach of a duty of care (that is, conduct unreasonable in the face of a foreseeable risk of harm), injury, and causation. The panel majority concluded that there were genuine issues of material fact concerning whether Gottshall's injuries were foreseeable by Conrail, whether Conrail had acted unreasonably, and whether Conrail's conduct had caused cognizable injury to Gottshall. The court therefore remanded for trial. Id., at 383.
Judge Roth dissented in part because she believed that there was no triable issue regarding breach of duty. She reasoned that "outside of the interruption of the communications link, the allegedly negligent conditions created by Conrail at the time of Johns' collapse consisted in fact of the members of the work gang performing the negotiated duties of their jobs under conditions which may indeed have been difficult but which had occurred in the past and will probably occur again in the future." Id., at 385. In her view, these *539 negotiated duties could not support a finding of negligence. Judge Roth concluded that "Conrail could not reasonably have foreseen that its negligence in interrupting the work gang's communication[s] link might cause James Gottshall's severe emotional reaction to the death of Richard Johns." Id., at 386.
B
Respondent Carlisle began working as a train dispatcher for Conrail in 1976. In this position, he was responsible for ensuring the safe and timely movement of passengers and cargo. Aging railstock and outdated equipment made Carlisle's job difficult. Reductions in Conrail's work force required Carlisle to take on additional duties and to work long hours. Carlisle and his fellow dispatchers frequently complained about safety concerns, the high level of stress in their jobs, and poor working conditions. In 1988, Carlisle became trainmaster in the South Philadelphia yards. With this promotion came added responsibilities that forced him to work erratic hours. Carlisle began to experience insomnia, headaches, depression, and weight loss. After an extended period during which he was required to work 12- to 15-hour shifts for weeks at a time, Carlisle suffered a nervous breakdown.
Carlisle sued Conrail under FELA for negligent infliction of emotional distress. He alleged that Conrail had breached its duty to provide him with a safe workplace by forcing him to work under unreasonably stressful conditions, and that this breach had resulted in foreseeable stress-related health problems. At trial, Carlisle called medical experts who testified that his breakdown and ensuing severe depression were caused at least in part by the strain of his job. The jury awarded Carlisle $386,500 in damages.
The Third Circuit affirmed, "uphold[ing] for the first time a claim under the FELA for negligent infliction of emotional distress arising from work-related stress." Carlisle v. Con- *540 solidated Rail Corp., 990 F. 2d 90, 97-98 (1993). In rejecting Conrail's argument that Carlisle had failed to make out a claim under FELA because he had not alleged any accident or physical injury or impact, the court noted that in Gottshall (decided the month before), it had "upheld recovery under the FELA for negligent infliction of emotional distress without proof of any physical impact." 990 F. 2d, at 96. Restating its holding in Gottshall, the court advised that, when evaluating a claim under FELA for negligently inflicted emotional distress, district courts within the Third Circuit "should engage in an initial review of the factual indicia of the genuineness of a claim, taking into account broadly used common law standards, then should apply the traditional negligence elements of duty, foreseeability, breach, and causation in weighing the merits of that claim." 990 F. 2d, at 98.
In the case before it, however, the court did not examine Carlisle's suit in light of any of the various common-law tests for dealing with negligent infliction of emotional distress claims. Instead, it shifted its primary emphasis to the foreseeability of the alleged injury and held that "when it is reasonably foreseeable that extended exposure to dangerous and stressful working conditions will cause injury to the worker, the employer may be held to be liable under the FELA for the employee's resulting injuries." Id., at 97. The Third Circuit held that Carlisle had produced sufficient evidence that his injury had been foreseeable to Conrail. The court also found sufficient evidence that Conrail had breached its duty to provide Carlisle with a safe workplace by making his employment too demanding, and that this breach had caused Carlisle's injury. Ibid.
Pursuant to this Court's Rule 12.2, Conrail petitioned for review of the Third Circuit's decisions in Gottshall and Carlisle. We granted certiorari, 510 U. S. 912 (1993), to resolve a conflict among the Courts of Appeals concerning the threshold standard that must be met by plaintiffs bringing *541 claims for negligent infliction of emotional distress under FELA.[1]
II
In these cases, we address questions left unanswered in Atchison, T. & S. F. R. Co. v. Buell, 480 U. S. 557 (1987). That case involved a FELA complaint filed by a railroad carman who alleged that the intentional and negligent actions of his employer had caused him to suffer emotional injuries. We rejected the railroad's contention that the FELA action should be barred because the conduct complained of was subject to arbitration under the terms of the Railway Labor Act, 44 Stat. 577, as amended, 45 U. S. C. § 151 et seq. See 480 U. S., at 564-567. Because the record was not fully developed, however, we were unable to reach the railroad's alternative argument that purely emotional injury was not compensable under FELA. Today, we must resolve one of the questions reserved in Buell: whether recovery for negligent infliction of emotional distress is available under FELA.[2] If we conclude that it is, we must consider the proper scope of that availability. Our FELA jurisprudence outlines the analysis we must undertake when deciding whether, and to what extent, this new category of claims should be cognizable under the statute.
First, as in other cases involving the scope of the statute, we must look to FELA itself, its purposes and background, and the construction we have given it over the years. See, e. g., id., at 561-562. Second, because "FELA jurisprudence gleans guidance from common-law developments," id., at 568, we must consider the common law's treatment of the right *542 of recovery asserted by respondents. See, e. g., Monessen Southwestern R. Co. v. Morgan, 486 U. S. 330, 336-339 (1988) (disallowing prejudgment interest under FELA in large part because such interest was unavailable at common law when FELA was enacted); Buell, supra, at 568-570. Cf. Urie v. Thompson, 337 U. S. 163, 174 (1949); Kernan v. American Dredging Co., 355 U. S. 426, 432 (1958).
A
We turn first to the statute. Section 1 of FELA provides that "[e]very common carrier by railroad . . . shall be liable in damages to any person suffering injury while he is employed by such carrier . . . for such injury or death resulting in whole or in part from the negligence of any of the officers, agents, or employees of such carrier." 45 U. S. C. § 51. Our task today is determining under what circumstances emotional distress may constitute "injury" resulting from "negligence" for purposes of the statute. As we previously have recognized when considering § 51, when Congress enacted FELA in 1908, its "attention was focused primarily upon injuries and death resulting from accidents on interstate railroads." Urie, supra, at 181. Cognizant of the physical dangers of railroading that resulted in the death or maiming of thousands of workers every year, Congress crafted a federal remedy that shifted part of the "`human overhead' " of doing business from employees to their employers. Tiller v. Atlantic Coast Line R. Co., 318 U. S. 54, 58 (1943). See also Wilkerson v. McCarthy, 336 U. S. 53, 68 (1949) (Douglas, J., concurring) (FELA "was designed to put on the railroad industry some of the cost for the legs, eyes, arms, and lives which it consumed in its operations"). In order to further FELA's humanitarian purposes, Congress did away with several common-law tort defenses that had effectively barred recovery by injured workers. Specifically, the statute abolished the fellow servant rule, rejected the doctrine of contributory negligence in favor of that of comparative negligence, *543 and prohibited employers from exempting themselves from FELA through contract; a 1939 amendment abolished the assumption of risk defense. See 45 U. S. C. §§ 51, 53-55.
We have liberally construed FELA to further Congress' remedial goal. For example, we held in Rogers v. Missouri Pacific R. Co., 352 U. S. 500 (1957), that a relaxed standard of causation applies under FELA. We stated that "[u]nder this statute the test of a jury case is simply whether the proofs justify with reason the conclusion that employer negligence played any part, even the slightest, in producing the injury or death for which damages are sought." Id., at 506. In Kernan, supra, we extended the reach of the principle of negligence per se to cover injuries suffered by employees as a result of their employers' statutory violations, even if the injuries sustained were not of a type that the relevant statute sought to prevent. See id., at 432-436. And in Urie, supra, we held that occupational diseases such as silicosis constitute compensable physical injuries under FELA, thereby rejecting the argument that the statute covered only injuries and deaths caused by accidents. See id., at 181.
That FELA is to be liberally construed, however, does not mean that it is a workers' compensation statute. We have insisted that FELA "does not make the employer the insurer of the safety of his employees while they are on duty. The basis of his liability is his negligence, not the fact that injuries occur." Ellis v. Union Pacific R. Co., 329 U. S. 649, 653 (1947). Accord, Inman v. Baltimore & Ohio R. Co., 361 U. S. 138, 140 (1959); Wilkerson, supra, at 61. And while "[w]hat constitutes negligence for the statute's purposes is a federal question," Urie, 337 U. S., at 174, we have made clear that this federal question generally turns on principles of common law: "[T]he Federal Employers' Liability Act is founded on common-law concepts of negligence and injury, subject to such qualifications as Congress has imported into those terms," id., at 182. Those qualifications, discussed above, *544 are the modification or abrogation of several common-law defenses to liability, including contributory negligence and assumption of risk. See 45 U. S. C. §§ 51, 53-55. Only to the extent of these explicit statutory alterations is FELA "an avowed departure from the rules of the common law." Sinkler v. Missouri Pacific R. Co., 356 U. S. 326, 329 (1958). Thus, although common-law principles are not necessarily dispositive of questions arising under FELA, unless they are expressly rejected in the text of the statute, they are entitled to great weight in our analysis. Cf. Buell, 480 U. S., at 568. Because FELA is silent on the issue of negligent infliction of emotional distress, common-law principles must play a significant role in our decision.
B
We turn, therefore, to consider the right of recovery pursued by respondents in light of the common law. Cf. Monessen, supra, at 336-339; Buell, 480 U. S., at 568-570. The term "negligent infliction of emotional distress" is largely self-explanatory, but a definitional point should be clarified at the outset. The injury we contemplate when considering negligent infliction of emotional distress is mental or emotional injury, cf. id., at 568, apart from the tort law concepts of pain and suffering. Although pain and suffering technically are mental harms, these terms traditionally "have been used to describe sensations stemming directly from a physical injury or condition." Pearson, Liability to Bystanders for Negligently Inflicted Emotional HarmA Comment on the Nature of Arbitrary Rules, 34 U. Fla. L. Rev. 477, 485, n. 45 (1982). The injury we deal with here is mental or emotional harm (such as fright or anxiety) that is caused by the negligence of another and that is not directly brought about by a physical injury, but that may manifest itself in physical symptoms.
Nearly all of the States have recognized a right to recover for negligent infliction of emotional distress, as we have defined *545 it.[3] No jurisdiction, however, allows recovery for all emotional harms, no matter how intangible or trivial, that might be causally linked to the negligence of another. Indeed, significant limitations, taking the form of "tests" or "rules," are placed by the common law on the right to recover for negligently inflicted emotional distress, and have been since the right was first recognized late in the last century.
Behind these limitations lie a variety of policy considerations, many of them based on the fundamental differences between emotional and physical injuries. "Because the etiology of emotional disturbance is usually not as readily apparent as that of a broken bone following an automobile accident, courts have been concerned . . . that recognition of a cause of action for [emotional] injury when not related to any physical trauma may inundate judicial resources with a flood of relatively trivial claims, many of which may be imagined or falsified, and that liability may be imposed for highly remote consequences of a negligent act." Maloney v. Conroy, 208 Conn. 392, 397-398, 545 A. 2d 1059, 1061 (1988). The last concern has been particularly significant. Emotional injuries may occur far removed in time and space from the negligent conduct that triggered them. Moreover, in contrast to the situation with physical injury, there are no necessary finite limits on the number of persons who might suffer emotional injury as a result of a given negligent act.[4] The *546 incidence and severity of emotional injuries are also more difficult to predict than those of typical physical injuries because they depend on psychological factors that ordinarily are not apparent to potential tortfeasors.
For all of these reasons, courts have realized that recognition of a cause of action for negligent infliction of emotional distress holds out the very real possibility of nearly infinite and unpredictable liability for defendants. Courts therefore have placed substantial limitations on the class of plaintiffs that may recover for emotional injuries and on the injuries that may be compensable. See, e. g., Thing v. La Chusa, 48 Cal. 3d 644, 654, 771 P. 2d 814, 819 (1989) ("[P]olicy considerations mandat[e] that infinite liability be avoided by restrictions that . . . narrow the class of potential plaintiffs"); Tobin v. Grossman, 24 N. Y. 2d 609, 616, 249 N. E. 2d 419, 423 (1969).[5] Some courts phrase the limitations in terms of proximate causation; that is, only certain plaintiffs or injuries are reasonably foreseeable. Other courts speak of the limitations in terms of duty; the defendant owes only a certain class of plaintiffs a duty to avoid inflicting emotional harm. See, e. g., Pearson, supra, at 489, n. 72 (discussing Palsgraf v. Long Island R. Co., 248 N. Y. 339, 162 N. E. 99 (1928)). These formulations are functionally equivalent. We shall refer to the common-law limitations as outlining the duty of defendants with regard to negligent infliction of emotional distress.
Three major limiting tests for evaluating claims alleging negligent infliction of emotional distress have developed in the common law. The first of these has come to be known *547 as the "physical impact" test. It originated a century ago in some of the first cases recognizing recovery for negligently inflicted emotional distress. At the time Congress enacted FELA in 1908, most of the major industrial States had embraced this test. See Throckmorton, Damages for Fright, 34 Harv. L. Rev. 260, 263-264, and n. 25 (1921).[6] Under the physical impact test, a plaintiff seeking damages for emotional injury stemming from a negligent act must have contemporaneously sustained a physical impact (no matter how slight) or injury due to the defendant's conduct. Most jurisdictions have abandoned this test, but at least five States continue to adhere to it.[7]
The second test has come to be referred to as the "zone of danger" test. It came into use at roughly the same time as the physical impact test, and had been adopted by several jurisdictions at the time FELA was enacted. See Throckmorton, supra, at 264-265, and n. 28.[8] See also Bohlen, Right to Recover for Injury Resulting from Negligence Without Impact, 50 Am. L. Reg. 141, and nn. 3-5 (1902). Perhaps based on the realization that "a near miss may be as frightening as a direct hit," Pearson, U. Fla. L. Rev., at 488, the zone of danger test limits recovery for emotional injury to those plaintiffs who sustain a physical impact as a result *548 of a defendant's negligent conduct, or who are placed in immediate risk of physical harm by that conduct. That is, "those within the zone of danger of physical impact can recover for fright, and those outside of it cannot." Id., at 489. The zone of danger test currently is followed in 14 jurisdictions.[9]
The third prominent limiting test is the "relative bystander" test, which was first enunciated in Dillon v. Legg, 68 Cal. 2d 728, 441 P. 2d 912 (1968). In Dillon, the California Supreme Court rejected the zone of danger test and suggested that the availability of recovery should turn, for the most part, on whether the defendant could reasonably have foreseen the emotional injury to the plaintiff. The court offered three factors to be considered as bearing on the question of reasonable foreseeability:
"(1) Whether plaintiff was located near the scene of the accident as contrasted with one who was a distance away from it. (2) Whether the shock resulted from a direct emotional impact upon plaintiff from the sensory and contemporaneous observance of the accident, as contrasted with learning of the accident from others after its occurrence. (3) Whether plaintiff and the victim were closely related, as contrasted with an absence of any relationship or the presence of only a distant relationship." Id., at 740-741, 441 P. 2d, at 920. *549 The courts of nearly half the States now allow bystanders outside of the zone of danger to obtain recovery in certain circumstances for emotional distress brought on by witnessing the injury or death of a third party (who typically must be a close relative of the bystander) that is caused by the defendant's negligence.[10] Most of these jurisdictions have adopted the Dillon factors either verbatim or with variations and additions, and have held some or all of these factors to be substantive limitations on recovery.[11]
III
A
Having laid out the relevant legal framework, we turn to the questions presented. As an initial matter, we agree *550 with the Third Circuit that claims for damages for negligent infliction of emotional distress are cognizable under FELA. A combination of many of the factors discussed above makes this conclusion an easy one. A right to recover for negligently inflicted emotional distress was recognized in some form by many American jurisdictions at the time FELA was enacted, see nn. 6 and 8, supra, and this right is nearly universally recognized among the States today. See supra, at 546-549. Moreover, we have accorded broad scope to the statutory term "injury" in the past in light of FELA's remedial purposes. Cf. Urie, 337 U. S., at 181. We see no reason why emotional injury should not be held to be encompassed within that term, especially given that "severe emotional injuries can be just as debilitating as physical injuries." Gottshall, 988 F. 2d, at 361. We therefore hold that, as part of its "duty to use reasonable care in furnishing its employees with a safe place to work," Buell, 480 U. S., at 558, a railroad has a duty under FELA to avoid subjecting its workers to negligently inflicted emotional injury. This latter duty, however, is not self-defining. Respondents defend the Third Circuit's definition of the duty we recognize today; Conrail offers its own proposed delineation. We consider the proposals in turn.
B
When setting out its view of the proper scope of recovery for negligently inflicted emotional distress under FELA, the Third Circuit explicitly refused to adopt any of the commonlaw tests described above; indeed, the court in Gottshall went so far as to state that "doctrinal common law distinctions are to be discarded when they bar recovery on meritorious FELA claims." 988 F. 2d, at 369. Instead, the court developed its own test, under which "[t]he issue is whether the factual circumstances . . . provide a threshold assurance that there is a likelihood of genuine and serious emotional injury." Id., at 371. If this threshold test is satisfied, the claim should be evaluated in light of traditional tort concepts *551 such as breach of duty, injury, and causation, with the focus resting on the foreseeability of the plaintiff's injury. Id., at 374-375. In Gottshall, the Third Circuit did at least consider the plaintiff's claim in light of the common law of negligent infliction of emotional distress as part of its factual "genuineness" inquiry. By the time the court next applied the Gottshall genuineness test, however, the common-law aspect of its analysis had completely disappeared; Carlisle's stress-related claim was not evaluated under any of the common-law tests. In Carlisle, the Third Circuit refined its test to two questionswhether there was convincing evidence of the genuineness of the emotional injury claim (with "genuine" meaning authentic and serious), and if there was, whether the injury was foreseeable. If these questions could be answered affirmatively by the court, there was "no bar to recovery under the FELA." 990 F. 2d, at 98.
The Third Circuit's standard is fatally flawed in a number of respects. First, as discussed above, because negligent infliction of emotional distress is not explicitly addressed in the statute, the common-law background of this right of recovery must play a vital role in giving content to the scope of an employer's duty under FELA to avoid inflicting emotional injury. Cf. Monessen, 486 U. S., at 336-339; Buell, supra, at 568-570; Urie, supra, at 182. By treating the common-law tests as mere arbitrary restrictions to be disregarded if they stand in the way of recovery on "meritorious" FELA claims, the Third Circuit put the cart before the horse: The common law must inform the availability of a right to recover under FELA for negligently inflicted emotional distress, so the "merit" of a FELA claim of this type cannot be ascertained without reference to the common law.
Perhaps the court below believed that its focus on the perceived genuineness of the claimed emotional injury adequately addressed the concerns of the common-law courts in dealing with emotional injury claims. But the potential for fraudulent and trivial claimsthe concern identified by the *552 Third Circuitis only one of the difficulties created by allowing actions for negligently inflicted emotional distress. A more significant problem is the prospect that allowing such suits can lead to unpredictable and nearly infinite liability for defendants. The common law consistently has sought to place limits on this potential liability by restricting the class of plaintiffs who may recover and the types of harm for which plaintiffs may recover. This concern underlying the common-law tests has nothing to do with the potential for fraudulent claims; on the contrary, it is based upon the recognized possibility of genuine claims from the essentially infinite number of persons, in an infinite variety of situations, who might suffer real emotional harm as a result of a single instance of negligent conduct.
Second, we question the viability of the genuineness test on its own terms. The Third Circuit recognized that "there must be some finite limit to the railway's potential liability" for emotional injury claims under FELA, and suggested that liability could be restricted through application of the genuineness test. Gottshall, supra, at 379. But as just explained, testing for the "genuineness" of an injury alone cannot appreciably diminish the possibility of infinite liability. Such a fact-specific test, moreover, would be bound to lead to haphazard results. Judges would be forced to make highly subjective determinations concerning the authenticity of claims for emotional injury, which are far less susceptible to objective medical proof than are their physical counterparts. To the extent the genuineness test could limit potential liability, it could do so only inconsistently. Employers such as Conrail would be given no standard against which to regulate their conduct under such an ad hoc approach. In the context of claims for intangible harms brought under a negligence statute, we find such an arbitrary result unacceptable. Cf. Stadler v. Cross, 295 N. W. 2d 552, 554 (Minn. 1980).
Third, to the extent the Third Circuit relied on the concept of foreseeability as a meaningful limitation on liability, we *553 believe that reliance to be misplaced. If one takes a broad enough view, all consequences of a negligent act, no matter how far removed in time or space, may be foreseen. Conditioning liability on foreseeability, therefore, is hardly a condition at all. "Every injury has ramifying consequences, like the ripplings of the waters, without end. The problem for the law is to limit the legal consequences of wrongs to a controllable degree." Tobin, 24 N. Y. 2d, at 619, 249 N. E. 2d, at 424. See also Thing, 48 Cal. 3d, at 668, 771 P. 2d, at 830 ("[T]here are clear judicial days on which a court can foresee forever and thus determine liability but none on which that foresight alone provides a socially and judicially acceptable limit on recovery").
This is true as a practical matter in the FELA context as well, even though the statute limits recovery to railroad workers. If emotional injury to Gottshall was foreseeable to Conrail, such injury to the other seven members of his work crew was also foreseeable. Because one need not witness an accident to suffer emotional injury therefrom, however, the potential liability would not necessarily have to end there; any Conrail employees who heard or read about the events surrounding Johns' death could also foreseeably have suffered emotional injury as a result. Of course, not all of these workers would have been as traumatized by the tragedy as was Gottshall, but many could have been. Under the Third Circuit's standard, Conrail thus could face the potential of unpredictable liability to a large number of employees far removed from the scene of the allegedly negligent conduct that led to Johns' death.[12]
*554 Finally, the Third Circuit in Carlisle erred in upholding "a claim under the FELA for negligent infliction of emotional distress arising from work-related stress." 990 F. 2d, at 97 98. We find no support in the common law for this unprecedented holding, which would impose a duty to avoid creating a stressful work environment, and thereby dramatically expand employers' FELA liability to cover the stresses and strains of everyday employment. Indeed, the Third Circuit's ruling would tend to make railroads the insurers of the emotional well-being and mental health of their employees. We have made clear, however, that FELA is not an insurance statute. See, e. g., Ellis, 329 U. S., at 653. For the foregoing reasons, we reject the Third Circuit's approach.
C
Conrail suggests that we adopt the common-law zone of danger test as delimiting the proper scope of an employer's duty under FELA to avoid subjecting its employees to negligently inflicted emotional injury. We agree that the zone of danger test best reconciles the concerns of the common law with the principles underlying our FELA jurisprudence.
As we did in Monessen, we begin with the state of the common law in 1908, when FELA was enacted. In determining in Monessen whether prejudgment interest was available under FELA, we recognized that the common law in 1908 did not allow such interest in personal injury and wrongful-death suits. Because in enacting FELA, "Congress expressly dispensed with other common-law doctrines of that era, such as the defense of contributory negligence," but "did not deal at all with the equally well established doctrine barring the recovery of prejudgment interest," we concluded that Congress intended to leave the common-law rule intact. 486 U. S., at 337-338. In contrast, the right to recover for negligently inflicted emotional distress was well established in many jurisdictions in 1908. Although at that time, "the weight of American authority" favored the physical *555 impact test, Throckmorton, 34 Harv. L. Rev., at 264, the zone of danger test had been adopted by a significant number of jurisdictions. See n. 8, supra. Moreover, because it was recognized as being a progressive rule of liability that was less restrictive than the physical impact test, the zone of danger test would have been more consistent than the physical impact test with FELA's broad remedial goals. See Waube v. Warrington, 216 Wis. 603, 608, 258 N. W. 497, 499 (1935) (discussing early emotional injury cases and referring to zone of danger test as "the liberal rule"). Considering the question "in the appropriate historical context," Monessen, supra, at 337, then, it is reasonable to conclude that Congress intended the scope of the duty to avoid inflicting emotional distress under FELA to be coextensive with that established under the zone of danger test. That is, an emotional injury constitutes "injury" resulting from the employer's "negligence" for purposes of FELA only if it would be compensable under the terms of the zone of danger test. See 45 U. S. C. § 51. Cf. Urie, 337 U. S., at 182.
Current usage only confirms this historical pedigree. The zone of danger test presently is followed by 14 jurisdictions. It therefore remains to this day a well-established "common-law concep[t] of negligence," ibid., that is suitable to inform our determination of the federal question of what constitutes negligence for purposes of FELA. Cf. Buell, 480 U. S., at 568-570; Kernan, 355 U. S., at 432.
The zone of danger test also is consistent with FELA's central focus on physical perils. We have recognized that FELA was intended to provide compensation for the injuries and deaths caused by the physical dangers of railroad work by allowing employees or their estates to assert damages claims. Cf. Urie, supra, at 181. By imposing liability, FELA presumably also was meant to encourage employers to improve safety measures in order to avoid those claims. Cf. Wilkerson, 336 U. S., at 68 (Douglas, J., concurring). As the Seventh Circuit has observed, FELA was (and is) aimed *556 at ensuring "the security of the person from physical invasions or menaces." Lancaster v. Norfolk & Western R. Co., 773 F. 2d 807, 813 (1985), cert. denied, 480 U. S. 945 (1987). But while the statute may have been primarily focused on physical injury, it refers simply to "injury," which may encompass both physical and emotional injury. We believe that allowing recovery for negligently inflicted emotional injury as provided for under the zone of danger test best harmonizes these considerations. Under this test, a worker within the zone of danger of physical impact will be able to recover for emotional injury caused by fear of physical injury to himself, whereas a worker outside the zone will not. Railroad employees thus will be able to recover for injuries physical and emotionalcaused by the negligent conduct of their employers that threatens them imminently with physical impact. This rule will further Congress' goal in enacting the statute of alleviating the physical dangers of railroading.
The physical impact test, of course, would achieve many of the same ends as the zone of danger test. We see no reason, however, to allow an employer to escape liability for emotional injury caused by the apprehension of physical impact simply because of the fortuity that the impact did not occur. And the physical impact test has considerably less support in the current state of the common law than the zone of danger test. See supra, at 546-549.
As for the relative bystander test, we conclude that it is an inappropriate rule in the FELA context. As an initial matter, it was not developed until 60 years after FELA's enactment, and therefore lacks historical support. Cf. Monessen, supra. Moreover, in most jurisdictions that adhere to it, this test limits recovery to persons who witness the severe injury or death of a close family member. Only railroad employees (and their estates) may bring FELA claims, however, and presumably it would be a rare occurrence for a worker to witness during the course of his employment the injury or death of a close family member. In *557 any event, we discern from FELA and its emphasis on protecting employees from physical harms no basis to extend recovery to bystanders outside the zone of danger. Cf. Gaston v. Flowers Transp., 866 F. 2d 816, 820-821 (CA5 1989).
Respondents decry the zone of danger test as arbitrarily excluding valid claims for emotional injury. But "[c]haracterizing a rule limiting liability as `unprincipled' or `arbitrary' is often the result of overemphasizing the policy considerations favoring imposition of liability, while at the same time failing to acknowledge any countervailing policies and the necessary compromise between competing and inconsistent policies informing the rule." Cameron v. Pepin, 610 A. 2d 279, 283 (Me. 1992). Our FELA cases require that we look to the common law when considering the right to recover asserted by respondents, and the common law restricts recovery for negligent infliction of emotional distress on several policy grounds: the potential for a flood of trivial suits, the possibility of fraudulent claims that are difficult for judges and juries to detect, and the specter of unlimited and unpredictable liability. Although some of these grounds have been criticized by commentators, they all continue to give caution to courts. We believe the concerns that underlie the common-law tests, and particularly the fear of unlimited liability, to be well founded.
Perhaps the zone of danger test is "arbitrary" in the sense that it does not allow recovery for all emotional distress. But it is fully consistent with our understanding of the statute. And for the reasons discussed above, we conclude that the policy considerations of the common law as they are embodied in the zone of danger test best accord with the concerns that have motivated our FELA jurisprudence.
IV
Because the Third Circuit applied an erroneous standard for evaluating claims for negligent infliction of emotional *558 distress brought under FELA, we reverse the judgments below. In Gottshall, we remand for reconsideration under the zone of danger test announced today. Gottshall asserts before this Court that he would in fact meet the requirements of the zone of danger test, while Conrail disagrees. The question was not adequately briefed or argued before us, however, and we believe it best to allow the Third Circuit to consider the question in the first instance in light of relevant common-law precedent.
In Carlisle, however, we remand with instructions to enter judgment for Conrail. Carlisle's work-stress-related claim plainly does not fall within the common law's conception of the zone of danger, and Carlisle makes no argument that it does. Without any support in the common law for such a claim, we will not take the radical step of reading FELA as compensating for stress arising in the ordinary course of employment. In short, the core of Carlisle's complaint was that he "had been given too muchnot too dangerouswork to do. That is not our idea of an FELA claim." Lancaster, supra, at 813.
The judgments of the Court of Appeals are reversed, and the cases are remanded for further proceedings consistent with this opinion.
So ordered.
Justice Souter, concurring.
I join the Court's opinion holding that claims for negligent infliction of emotional distress are cognizable under the Federal Employers' Liability Act (FELA), and that the zone of danger test is the appropriate rule for determining liability for such claims. I write separately to make explicit what I believe the Court's duty to be in interpreting FELA. That duty is to develop a federal common law of negligence under FELA, informed by reference to the evolving common law. See Atchison, T. & S. F. R. Co. v. Buell, 480 U. S. 557, 568 570 (1987). As we have explained:
*559 "[I]nstead of a detailed statute codifying common-law principles, Congress saw fit to enact a statute of the most general terms, thus leaving in large measure to the courts the duty of fashioning remedies for injured employees in a manner analogous to the development of tort remedies at common law. But it is clear that the general congressional intent was to provide liberal recovery for injured workers . .. and itis also clear that Congress intended the creation of no static remedy, but one which would be developed and enlarged to meet changing conditions and changing concepts of industry's duty toward its workers." Kernan v. American Dredg- ing Co., 355 U. S. 426, 432 (1958).
Because I believe the Court's decision today to be a faithful exercise of that duty, and because there can be no question that adoption of the zone of danger test is well within the discretion left to the federal courts under FELA, I join in its opinion.
Justice Ginsburg, with whom Justice Blackmun and Justice Stevens join, dissenting.
The Federal Employers' Liability Act (FELA or Act), 45 U. S. C. § 51 et seq., instructs interstate railroads "`to use reasonable care in furnishing [their] employees with a safe place to work.' " Ante, at 550, quoting Atchison, T. & S. F. R. Co. v. Buell, 480 U. S. 557, 558 (1987). As the Court today recognizes, the FELA-imposed obligation encompasses "a duty . . . to avoid subjecting [railroad] workers to negligently inflicted emotional injury." Ante, at 550.
The Court limits the scope of the railroad's liability, however, by selecting one of the various "tests" state courts have applied to restrict recovery by members of the public for negligently inflicted emotional distress. The Court derives its limitation largely from a concern, often expressed in state court opinions, about the prospect of "infinite liability" to an "infinite number of persons." See ante, at 552. This *560 concern should not control in the context of the FELA, as I see it, for the class of potential plaintiffs under the FELA is not the public at large; the Act covers only railroad workers who sustain injuries on the job. In view of the broad language of the Act,[1] and this Court's repeated reminders that the FELA is to be liberally construed, I cannot regard as faithful to the legislation and our case law under it the restrictive test announced in the Court's opinion.
I
The FELA was designed to provide a federal "statutory negligence action . . .significantly different from the ordinary common-law negligence action." Rogers v. Missouri Pacific R. Co., 352 U. S. 500, 509-510 (1957). An "avowed departure" from prevailing common-law rules, Sinkler v. Missouri Pacific R. Co., 356 U. S. 326, 329 (1958), the Act advanced twin purposes: "to eliminate a number of traditional defenses to tort liability and to facilitate recovery in meritorious cases." Buell, supra, at 561.[2] "Congress intended the creation of no static remedy, but one which would be developed and enlarged to meet changing conditions and changing concepts of industry's duty toward its workers." Kernan v. American Dredging Co., 355 U. S. 426, 432 (1958). Relying upon "the breadth of the statutory language, [and] the Act's humanitarian purposes," this Court has accorded the FELA a notably "liberal construction in order to accomplish *561 [Congress'] objects." Urie v. Thompson, 337 U. S. 163, 180 (1949); see Buell, supra, at 562.
In particular, the Court has given full scope to the key statutory term "injury." The Act prescribes that "[e]very common carrier by railroad . . . shall be liable in damages to any person suffering injury while he is employed by such carrier." 45 U. S. C. § 51. That prescription, this Court observed, is "not restrictive as to . . . the particular kind of injury." Urie, 337 U. S., at 181. "[W]hen the statute was enacted," it is true, "Congress' attention was focused primarily upon . . . accidents on interstate railroads," for "these were the major causes of injury and death resulting from railroad operations." Ibid. But "accidental injuries were not the only ones likely to occur," and Congress chose "allinclusive wording." Ibid. "To read into [language as broad as could be framed] a restriction [tied] to . . . the particular sorts of harms inflicted," the Court recognized, "would be contradictory to the wording, the remedial and humanitarian purpose, and the constant and established course of liberal construction of the Act followed by this Court." Id., at 181-182.
II
Seven years ago, in Atchison, T. & S. F. R. Co. v. Buell, 480 U. S. 557 (1987), the Court left unresolved the question whether emotional injury is compensable under the FELA, because the record in that case did not adequately present the issue. Id., at 560-561, 570-571. In his unanimous opinion for the Court, Justice Stevens explained why the question could not be resolved on a fact-thin record:
"[W]hether `emotional injury' is cognizable under the FELA is not necessarily an abstract point of law or a pure question of statutory construction that might be answerable without exacting scrutiny of the facts of the case. Assuming, as we have, that FELA jurisprudence gleans guidance from common-law developments, see
*562 Urie v. Thompson, 337 U. S., at 174, whether one can recover for emotional injury might rest on a variety of subtle and intricate distinctions related to the nature of the injury and the character of the tortious activity." Id., at 568.
. . . . .
"[T]he question whether one can recover for emotional injury may not be susceptible to an all-inclusive `yes' or `no' answer. As in other areas of law, broad pronouncements in this area may have to bow to the precise application of developing legal principles to the particular facts at hand." Id., at 570.
In deciding the cases now under review, the Court of Appeals endeavored to "`field the Buell pitch.' " 988 F. 2d 355, 365 (CA3 1993), quoting Plaisance v. Texaco, Inc., 937 F. 2d 1004, 1009 (CA5 1991).
A
In respondent Gottshall's case, the Court of Appeals first described the various rules state courts have applied to common-law actions for negligent infliction of emotional distress. 988 F. 2d, at 361-362. That court emphasized, however, that "[d]etermining FELA liability is distinctly a federal question." Id., at 362. State common-law decisions, the Court of Appeals observed, "do not necessarily etch the contours of the federal right," ibid., for the common law that courts develop to fill the FELA's interstices is "federal" in character. See id., at 367.
In addition to the FELA's express abolition of traditional employer defenses, the Court of Appeals next noted, this Court's decisions interpreting the FELA served as pathmarkers. The Court of Appeals referred to decisions that had relaxed "the strict requirements of causation in common law," id., at 368, citing Rogers, 352 U. S., at 506, broadened the conception of negligence per se, see 988 F. 2d, at 368, citing Kernan, 355 U. S., at 437-439, and generously construed *563 the FELA's injury requirement, 988 F. 2d, at 368, citing Urie, 337 U. S., at 181-182. The FELA, the Court of Appeals concluded:
"imposes upon carriers a higher standard of conduct and has eliminated many of the refined distinctions and restrictions that common law imposed to bar recovery (even on meritorious claims). FELA liability and common law liability are thus different." 988 F. 2d, at 369.
Accordingly, the Court of Appeals "refused to designate a particular common law test as the test" applicable in FELA cases. Id., at 365. Instead, the court looked to the purposes of those tests: to distinguish "the meritorious [claim] from the feigned and frivolous," id., at 369, and to assure that liability for negligently inflicted emotional distress does not expand "into the `fantastic realm of infinite liability.' " Id., at 372, quoting Amaya v. Home Ice, Fuel & Supply Co., 59 Cal. 2d 295, 315, 379 P. 2d 513, 525 (1963); see also 988 F. 2d, at 381-382.
FELA jurisprudence, the Court of Appeals reasoned, has evolved not through a "rules first" approach, but in the traditional, fact-bound, case-by-case common-law way. See id., at 371. The court therefore undertook to determine "whether the factual circumstances [in Gottshall's case] provide a threshold assurance that there is a likelihood of genuine and serious emotional injury." Ibid. "[O]ne consideration" in that inquiry, the court said, "is whether plaintiff has a `solid basis in the present state of common law to permit him to recover.' " Ibid., quoting Outten v. National Railroad Passenger Corp., 928 F. 2d 74, 79 (CA3 1991).
Gottshall's claim, the Court of Appeals held, presented the requisite "threshold assurance." His emotional distress, diagnosed by three doctors as major depression and posttraumatic stress disorder, 988 F. 2d, at 374, was unquestionably genuine and severe: He was institutionalized for three weeks, followed by continuing outpatient care; he lost 40 pounds; and he suffered from "suicidal preoccupations, anxiety, *564 sleep onset insomnia, cold sweats, . . . nausea, physical weakness, repetitive nightmares and a fear of leaving home." Ibid.; see also id., at 373 (noting that Conrail "wisely declined" to attack Gottshall's claim as fraudulent). Gottshall's afflictions, the Court of Appeals observed, satisfied the "physical manifestation" limitation that some States, and the Second Restatement of Torts, place on emotional distress recovery. See id., at 373-374 (citing cases); Restatement (Second) of Torts § 436A (1965) (no liability for emotional distress without "bodily harm or other compensable damage"); ibid., Comment c ("[L]ong continued nausea or headaches may amount to physical illness, which is bodily harm; . . . long continued mental disturbance . . . may be classified by the courts as illness" and thus be compensable). Cf. Buell, 480 U. S., at 570, n. 22 (suggesting a distinction between claims for "pure emotional injury" and those involving "physical symptoms in addition to . . . severe psychological illness").
The Court of Appeals also inspected the facts under the "bystande[r]" test, versions of which have been adopted by nearly half the States. See ante, at 549. While acknowledging that Gottshall did not satisfy the more restrictive versions of the "bystander" test, the court observed that several States have allowed recovery even where, as here, the plaintiff and the victim of physical injury were unrelated by blood or marriage. See 988 F. 2d, at 371 (citing cases). Further, the court noted, given "the reality of the railway industry," rarely will one "se[e] another family member injured while working in the railroad yard." Id., at 372. A strict version of the bystander rule, therefore, would operate not to limit recovery to the most meritorious cases, but almost to preclude bystander recovery altogether.
To adapt the bystander rule to the FELA context, the court looked to the reasons for limiting bystander recovery: to avoid compensating plaintiffs with fraudulent or trivial claims, and to prevent liability from becoming "an intolerable *565 burden upon society." Id., at 369, 372. The court held that neither concern barred recovery in Gottshall's case. The genuineness of Gottshall's claim appeared not just in the manifestations of his distress, the court said, but also in the extraordinarily close, 15-year friendship between Gottshall and Johns, the decedent. Id., at 371. Liability to bystanders, the court concluded, would be far less burdensome in the FELA context, where only close co-workers are potential plaintiffs, than in the context of a common-law rule applicable to society as a whole. Id., at 372. In this regard, the Court of Appeals again recalled, this Court has constantly admonished lower courts that "recovery [under the FELA] should be liberally granted," ibid., "so that the remedial and humanitarian goals of the statute can be fully implemented," id., at 373.
Satisfied that Gottshall had crossed the "genuine and severe" injury threshold, the Court of Appeals inquired whether he had a triable case on breach of duty and causation. Id., at 374. Here, the court emphasized that Gottshall's distress was attributable not to "the ordinary stress of the job," id., at 375, but instead, to Conrail's decision to send a crew of men, most of them 50 to 60 years old and many of them overweight, out into 97-degree heat at high noon, in a remote, sun-baked location, requiring them to replace heavy steel rails at an extraordinarily fast pace without breaks, and without maintaining radio contact or taking any other precautions to protect the men's safety, id., at 376-377.
The Court of Appeals stated, further, that even if Conrail could be said to have acted reasonably up to the time of Johns' death, "its conduct after the death raises an issue of whether it breached a legal duty." Id., at 378. The Conrail supervisor required the crew to return to work immediately after Johns' corpse was laid by the side of the road, covered but still in view. Ibid. The next day, Gottshall alleged, the supervisor "reprimanded him for administering CPR to Johns," id., at 359, then pushed the crew even harder under *566 the same conditions, requiring a full day, plus three or four hours of overtime, id., at 378. These circumstances, the Court of Appeals concluded, "created not only physical hazards, but constituted emotional hazards which can equally debilitate and scar an employee, particularly one who had just witnessed a friend die under the same conditions." Id., at 378.
B
Upholding a jury verdict for plaintiff in Carlisle, the Court of Appeals "reaffirm[ed]" its Gottshall holding that "no single common law standard" governs in "weighing the genuineness of emotional injury claims." Instead, the court said:
"[C]ourts . . . should engage in an initial review of the factual indicia of the genuineness of a claim, taking into account broadly used common law standards, then should apply the traditional negligence elements of duty, foreseeability, breach, and causation in weighing the merits of that claim." 990 F. 2d 90, 98 (CA3 1993).
The Court of Appeals held that the evidence submitted to the jury amply established the claim's genuineness. Carlisle testified that, after Conrail's 1984 reduction in force, the pressure on train dispatchers in Philadelphia, already substantial, increased dramatically. As the person chiefly responsible for ensuring the safety of "trains carrying passengers, freight and hazardous materials," Carlisle became "increasingly anxious" over the sharp reduction in staff, together with the outdated equipment and "Conrail's repeated instructions to ignore safety concerns, such as malfunctioning equipment or poor maintenance." Id., at 92. When Carlisle was compelled to work 12- to 15-hour shifts for 15 consecutive days, the resulting additional pressures, and the difficulty of working for "an abusive, alcoholic supervisor," led, according to Carlisle's expert witness, to the nervous breakdown he suffered. Ibid.
*567 Other evidence confirmed Carlisle's testimony. Depositions taken from "Carlisle's co-workers and subordinates" averred that "their jobs as dispatchers and supervisors in the Philadelphia Conrail offices had caused them to suffer cardiac arrests, nervous breakdowns, and a variety of emotional problems such as depression, paranoia and insomnia." Ibid. An official report prepared by the Federal Railway Administration "criticized the outdated equipment and hazardous working conditions at Conrail's Philadelphia dispatching office." Id., at 93. Furthermore, the Court of Appeals pointed out, Carlisle's emotional injury was "accompanied by obvious physical manifestations": "insomnia, fatigue, headaches, . . . sleepwalking and substantial weight-loss." Id., at 97, n. 11, 92. The court specifically noted: "We do not face and do not decide the issue of whether purely emotional injury, caused by extended exposure to stressful, dangerous working conditions, would be compensable under the FELA." Id., at 97, n. 11.
Satisfied that the jury could indeed find Carlisle's injury genuine, and continuing to follow the path it had marked in Gottshall, the court next examined the negligence elements of Carlisle's claim. Emphasizing that "Conrail had ample notice of the stressful and dangerous conditions under which Carlisle was forced to work," including actual notice of physical and emotional injuries sustained by Carlisle's co-workers, 990 F. 2d, at 97, the Court of Appeals affirmed the District Court's denial of Conrail's motions for judgment n.o.v. or in the alternative for a new trial. Carlisle's "extended exposure to dangerous and stressful working conditions," the court concluded, constituted a breach of Conrail's duty to provide a safe workplace, and the breach caused Carlisle's injuries. Id., at 97-98.
III
The Court initially "agree[s] with the Third Circuit that claims for damages for negligent infliction of emotional distress are cognizable under FELA." Ante, at 549-550. *568 This conclusion, "an easy one" for the Court, ante, at 550, is informed by prior decisions giving full scope to the FELA's term "injury." The Court had explained in Urie that an occupational disease incurred in the course of employment silicosis in that particular caseis as much "injury . . . as scalding from a boiler's explosion." 337 U. S., at 187. Rejecting a reading of the statute that would confine coverage to "accidental injury" of the kind that particularly prompted the 1908 Congress to enact the FELA, the Court said of the occupational disease at issue:
"[W]hen the employer's negligence impairs or destroys an employee's health by requiring him to work under conditions likely to bring about such harmful consequences, the injury to the employee is just as great when it follows, often inevitably, from a carrier's negligent course pursued over an extended period of time as when it comes with the suddenness of lightning." Id., at 186-187.
Similarly, as the Court recognizes today, "`severe emotional injuries can be just as debilitating as physical injuries,' " hence there is "no reason why emotional injury should not be held to be encompassed within th[e] term [`injury']." Ante, at 550, quoting Gottshall, 988 F. 2d, at 361.
In my view, the Court of Appeals correctly determined that Gottshall's submissions should survive Conrail's motion for summary judgment, and that the jury's verdict in favor of Carlisle should stand. Both workers suffered severe injury on the job, and plausibly tied their afflictions to Conrail's negligence. Both experienced not just emotional, but also physical, distress: Gottshall lost 40 pounds and suffered from insomnia, physical weakness, and cold sweats, while Carlisle experienced "insomnia, fatigue, headaches, . . . sleepwalking and substantial weight-loss." Id., at 374; 990 F. 2d, at 92, 97, n. 11. The Court emphasizes the "significant role" that "common-law principles must play." Ante, at 544. Notably *569 in that regard, both Gottshall and Carlisle satisfy the "physical manifestation" test endorsed by the Restatement of Torts. See supra, at 564, 567; see also W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of Torts 364 (5th ed. 1984) ("the great majority of courts have now repudiated the requirement of `impact,' regarding as sufficient the requirement that the mental distress be certified by some physical injury, illness or other objective physical manifestation"); id., at 364, n. 55 (citing cases). Thus, without gainsaying that "FELA jurisprudence gleans guidance from common-law developments," Buell, 480 U. S., at 568, one can readily conclude that both Gottshall and Carlisle have made sufficient showings of "injuries" compensable under the FELA.[3]
Notwithstanding its recognition that the word "injury," as used in the FELA, "may encompass both physical and emotional injury," the Court elects to render compensable only emotional distress stemming from a worker's placement in the "zone of danger." Ante, at 556. In other words, to recover for emotional distress, the railroad employee must show that negligence attributable to his employer threatened him "imminently with physical impact." Ibid. Based on the "zone" test, the Court reverses the judgment for Carlisle outright and remands Gottshall's case for reconsideration under that standard. Ante, at 557-558.
The Court offers three justifications for its adoption of the "zone of danger" test. First, the Court suggests that the "zone" test is most firmly rooted in "the common law." The Court mentions that several jurisdictions had adopted the zone of danger test by 1908, ante, at 546, 547, n. 8 (citing cases from eight States), and that the test "currently is followed in 14 jurisdictions." Ante, at 548. But that very exposition *570 tells us that the "zone" test never held sway in a majority of States.
Moreover, the Court never decides firmly on the point of reference, present or historical, from which to evaluate the relative support the different common-law rules have enjoyed. If the Court regarded as decisive the degree of support a rule currently enjoys among state courts, the Court would allow bystander recovery, permitted in some form in "nearly half the States." Ante, at 549. But cf. ante, at 556 (bystander rule "was not developed until 60 years after FELA's enactment, and therefore lacks historical support"). If, on the other hand, the Court decided that historical support carried the day, then the impact rule, preferred by most jurisdictions in 1908, would be the Court's choice. But cf. ibid. (preferring the zone of danger test to the impact rule, because, inter alia, the latter "has considerably less support in the current state of the common law" than the former).
The Court further maintains that the zone of danger test is preferable because it is "consistent with FELA's central focus on physical perils." Ante, at 555. But, as already underscored, see supra, at 561, the FELA's language "is as broad as could be framed . . . . On its face, every injury suffered [on the job] by any employee . . . by reason of the carrier's negligence was made compensable." Urie, 337 U. S., at 181. And the FELA's strikingly broad language, characteristically, "has been construed even more broadly," in line with Congress' dominant remedial objective. Buell, 480 U. S., at 562; Urie, supra, at 181 ("[N]othing in either the language or the legislative history discloses expressly any intent to exclude from the Act's coverage any injury resulting `in whole or in part from the negligence' of the carrier").
The Court's principal reason for restricting the FELA's coverage of emotional distress claims is its fear of "infinite liability" to an "infinite number of persons." See ante, at 552; see also ante, at 557 (referring to "the specter of unlimited and unpredictable liability," and stating that "the fear of unlimited liability . . . [is] well founded"). The universe *571 of potential FELA plaintiffs, however, is hardly "infinite." The statute does not govern the public at large. Only persons "suffering injury . . . while employed" by a railroad may recover under the FELA, and to do so, the complainant must show that the injury resulted from the railroad's negligence. 45 U. S. C. § 51. The Court expresses concern that the approach Gottshall and Carlisle advocate would require "[j]udges . . . to make highly subjective determinations concerning the authenticity of claims for emotional injury, which are far less susceptible to objective medical proof than are their physical counterparts." Ante, at 552. One solution to this problema solution the Court does not explorewould be to require such "objective medical proof" and to exclude, as too insubstantial to count as "injury," claims lacking this proof.
IV
While recognizing today that emotional distress may qualify as an "injury" compensable under the FELA, the Court rejects the Court of Appeals' thoughtfully developed and comprehensively explained approach as "inconsistent with the principles embodied in the statute and with relevant common-law doctrine." Ante, at 535. The Court's formulation, requiring consistency with both the FELA and "common-law doctrine," is odd, for there is no unitary common law governing claims for negligent infliction of emotional distress.[4] The "common law" of emotional distress *572 exists not in the singular, but emphatically in the plural; and while the rule the Court has selected is consistent with one common-law rule that some States have adopted, it is inevitably inconsistent with others.
Most critically, the Court selects a common-law rule perhaps appropriate were the task to choose a law governing the generality of federal tort claims. The "zone" rule the Court selects, however, seems to me inappropriate for a federal statute designed to govern the discrete category of on-the-job injuries sustained by railroad workers. In that domain our charge from Congress is to fashion remedies constantly "liberal," and appropriately "enlarged to meet changing conditions and changing concepts of industry's duty toward its workers." Kernan v. American Dredging Co., 355 U. S.,at 432. The Court's choice does not fit that bill. Instead of the restrictive "zone" test that leaves severely harmed workers remediless, however negligent their employers, the appropriate FELA claim threshold should be keyed to the genuineness and gravity of the worker's injury.
In my view, the Court of Appeals developed the appropriate FELA common-law approach and correctly applied that approach in these cases. I would therefore affirm the Court of Appeals' judgments.
NOTES
[*] Together with Consolidated Rail Corporation v. Carlisle, also on certiorari to the same court (see this Court's Rule 12.2).
[] Briefs of amici curiae urging reversal were filed for the State of New Jersey et al. by Fred DeVesa and Joseph L. Yannotti; for the Association of American Railroads by Charles F. Clarke and Robert W. Blanchette; for the Product Liability Advisory Council, Inc., by Robert N. Weiner; and for the Washington Legal Foundation by Betty Jo Christian, Charles G. Cole, David A. Price, Daniel J. Popeo, and Paul D. Kamenar.
Norman Hegge filed a brief for the Southeastern Pennsylvania Transportation Authority as amicus curiae.
[1] Compare the decisions below with Ray v. Consolidated Rail Corp., 938 F. 2d 704 (CA7 1991), cert. denied, 502 U. S. 1048 (1992); Elliott v. Norfolk & Western R. Co., 910 F. 2d 1224 (CA4 1990); Adams v. CSX Transp., Inc., 899 F. 2d 536 (CA6 1990); Gaston v. Flowers Transp., 866 F. 2d 816 (CA5 1989).
[2] We are not concerned here with the separate tort of intentional infliction of emotional distress.
[3] There are a few exceptions. Negligent infliction of emotional distress is not actionable in Alabama. See Allen v. Walker, 569 So. 2d 350 (Ala. 1990). It is unclear whether such a claim is cognizable in Arkansas. Compare Mechanics Lumber Co. v. Smith, 296 Ark. 285, 752 S. W. 2d 763 (1988), with M. B. M. Co. v. Counce, 268 Ark. 269, 596 S. W. 2d 681 (1980).
[4] See Pearson, Liability to Bystanders for Negligently Inflicted Emotional HarmA Comment on the Nature of Arbitrary Rules, 34 U. Fla. L. Rev. 477, 507 (1982) ("The geographic risk of physical impact caused by the defendant's negligence in most cases is quite limited, which accordingly limits the number of people subjected to that risk. There is no similar finite range of risk for emotional harm").
[5] See also W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of Torts § 54, p. 366 (5th ed. 1984) ("It would be an entirely unreasonable burden on all human activity if the defendant who has endangered one person were to be compelled to pay for the lacerated feelings of every other person disturbed by reason of it, including every bystander shocked at an accident, and every distant relative of the person injured, as well as all his friends").
[6] See, e. g., Spade v. Lynn & B. R. Co., 168 Mass. 285, 47 N. E. 88 (1897); Mitchell v. Rochester R. Co., 151 N. Y. 107, 45 N. E. 354 (1896); Ewing v. Pittsburgh, C., C. & St. L. R. Co., 147 Pa. 40, 23 A. 340 (1892).
[7] See OBGYN Assocs. of Albany v. Littleton, 259 Ga. 663, 386 S. E. 2d 146 (1989); Shuamber v. Henderson, 579 N. E. 2d 452 (Ind. 1991); Anderson v. Scheffler, 242 Kan. 857, 752 P. 2d 667 (1988); Deutsch v. Shein, 597 S. W. 2d 141 (Ky. 1980); Hammond v. Central Lane Communications Center, 312 Ore. 17, 816 P. 2d 593 (1991).
[8] See, e. g., Simone v.Rhode Island Co., 28 R. I. 186, 66 A. 202 (1907); Kimberly v. Howland, 143 N. C. 398, 55 S. E. 778 (1906); Gulf, C. & S. F. R. Co. v. Hayter, 93 Tex. 239, 54 S. W. 944 (1900); Mack v. South-Bound R. Co., 52 S. C. 323, 29 S. E. 905 (1898); Purcell v. St. Paul City R. Co., 48 Minn. 134, 50 N. W. 1034 (1892). See also Pankopf v. Hinkley, 141 Wis. 146, 123 N. W. 625 (1909); Stewart v. Arkansas Southern R. Co., 112 La. 764, 36 So. 676 (1904); Watson v. Dilts, 116 Iowa 249, 89 N. W. 1068 (1902).
[9] See Keck v. Jackson, 122 Ariz. 114, 593 P. 2d 668 (1979); Towns v. Anderson, 195 Colo. 517, 579 P. 2d 1163 (1978); Robb v. Pennsylvania R. Co., 58 Del. 454, 210 A. 2d 709 (1965); Williams v. Baker, 572 A. 2d 1062 (D. C. App. 1990); Rickey v. Chicago Transit Authority, 98 Ill. 2d 546, 457 N. E. 2d 1 (1983); Resavage v. Davies, 199 Md. 479, 86 A. 2d 879 (1952); Stadler v. Cross, 295 N. W. 2d 552 (Minn. 1980); Asaro v. Cardinal Glennon Memorial Hosp., 799 S. W. 2d 595 (Mo. 1990); Bovsun v. Sanperi, 61 N. Y. 2d 219, 461 N. E. 2d 843 (1984); Whetham v. Bismarck Hosp., 197 N. W. 2d 678 (N. D. 1972); Shelton v. Russell Pipe & Foundry Co., 570 S. W. 2d 861 (Tenn. 1978); Boucher v. Dixie Medical Center, A Div. of IHC Hosps., Inc., 850 P. 2d 1179 (Utah 1992); Jobin v. McQuillen, 158 Vt. 322, 609 A. 2d 990 (1992); Garrett v. New Berlin, 122 Wis. 2d 223, 362 N. W. 2d 137 (1985).
[10] See Croft v. Wicker, 737 P. 2d 789 (Alaska 1987); Thing v. La Chusa, 48 Cal. 3d 644, 771 P. 2d 814 (1989); Champion v. Gray, 478 So. 2d 17 (Fla. 1985); Fineran v. Pickett, 465 N. W. 2d 662 (Iowa 1991); Lejeune v. Rayne Branch Hosp., 556 So. 2d 559 (La. 1990); Cameron v. Pepin, 610 A. 2d 279 (Me. 1992); Stockdale v. Bird & Son, Inc., 399 Mass. 249, 503 N. E. 2d 951 (1987); Nugent v. Bauermeister, 195 Mich. App. 158, 489 N. W. 2d 148 (1992), appeal denied, 442 Mich. 929, 503 N. W. 2d 904 (1993); Entex, Inc. v. McGuire, 414 So. 2d 437 (Miss. 1982); Maguire v. State, 254 Mont. 178, 835 P. 2d 755 (1992); James v. Lieb, 221 Neb. 47, 375 N. W. 2d 109 (1985); Buck v. Greyhound Lines, Inc., 105 Nev. 756, 783 P. 2d 437 (1989); Wilder v. Keene, 131 N. H. 599, 557 A. 2d 636 (1989); Frame v. Kothari, 115 N. J. 638, 560 A. 2d 675 (1989); Folz v. State, 110 N. M. 457, 797 P. 2d 246 (1990); Johnson v. Ruark Obstetrics and Gynecology Assocs., 327 N. C. 283, 395 S. E. 2d 85 (1990); Paugh v. Hanks, 6 Ohio St. 3d 72, 451 N. E. 2d 759 (1983); Sinn v. Burd, 486 Pa. 146, 404 A. 2d 672 (1979); Reilly v. United States, 547 A. 2d 894 (R. I. 1988); Kinard v. Augusta Sash & Door Co., 286 S. C. 579, 336 S. E. 2d 465 (1985); Boyles v. Kerr, 855 S. W. 2d 593 (Tex. 1993); Gain v. Carroll Mill Co., 114 Wash. 2d 254, 787 P. 2d 553 (1990); Heldreth v. Marrs, 188 W. Va. 481, 425 S. E. 2d 157 (1992); Contreras v. Carbon County School Dist. No. 1, 843 P. 2d 589 (Wyo. 1992).
[11] Many jurisdictions that follow the zone of danger or relative bystander tests also require that a plaintiff demonstrate a "physical manifestation" of an alleged emotional injury, that is, a physical injury or effect that is the direct result of the emotional injury, in order to recover. See, e. g., Garvis v. Employers Mut. Casualty Co., 497 N. W. 2d 254 (Minn. 1993).
[12] The Third Circuit did require that the emotional injury be "reasonably" foreseeable, see Carlisle v. Consolidated Rail Corp., 990 F. 2d 90, 97 (1993), but under the circumstances, that qualifier seems to add little. Suffice it to say that if Gottshall's emotional injury stemming from Johns' death was reasonably foreseeable to Conrail, nearly any injury could also be reasonably foreseeable.
[1] Section 1 of the FELA provides, in relevant part, that "[e]very common carrier by railroad . . . shall be liable in damages to any person suffering injury while he isemployed by such carrier . .. [when such injury results] in whole or in part from the negligence of any of the officers, agents, or employees of such carrier." 45 U. S. C.§ 51.
[2] The FELA, as enacted in 1908, abolished the employer's "fellow servant" defense and provided that an employee's negligence would not bar, but only reduce, recovery; the Act further prohibited employers from exempting themselves contractually from statutory liability. §§ 51,53, 55. As amended in 1939, the Act also abolished the employer's assumption of risk defense. § 54.
[3] The Gottshall and Carlisle cases do not call for decision of the question whether physical manifestations would be necessary for recovery in every case.
[4] Throughout its opinion, the Court invokes "the common law" in the singular. See, e. g., ante, at 551 ("The common law must inform the availability of a right to recover under FELA"); ante, at 552 ("The common law consistently has sought to place limits on . . . potential liability"); ante, at 554 ("[T]he common law in 1908 did not allow [prejudgment] interest"); ante, at 557 ("[T]he common law restricts recovery"); ante, at 558 ("Carlisle's . . . claim plainly does not fall within the common law's conception of the zone of danger"). But see Southern Pacific Co. v. Jensen, 244 U. S. 205, 222 (1917) (Holmes, J., dissenting) ("The common law is not a brooding omnipresence in the sky but the articulate voice of some sovereign or quasi-sovereign that can be identified . . . . It always is the law of some State . . . ."). | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/2307618/ | 295 F.Supp.2d 840 (2003)
UNITED STATES of America
v.
Jason D. COOPER
United States of America
v.
Alton C. Craig
United States of America
v.
Randy T. Jones
United States of America
v.
Juvenile Offender
United States of America
v.
Allen K. Person
United States of America
v.
Scott A. Odom
United States of America
v.
Tabitha A. Scott
Nos. P221545 TM12, P221548 TM12, P221781 TM12, P221801 TM12, P221604 TM12, P221792 TM12, P221784 TM12.
United States District Court, M.D. Tennessee, Nashville Division.
November 14, 2003.
*841 ORDER
BROWN, United States Magistrate Judge.
All of these cases present a single question of law. May the United States exercise criminal jurisdiction through the regulations of the National Park Service over individuals traveling on state and county roads within the boundaries of the Natchez Trace Parkway, when such individuals are not operating their vehicles on the Natchez Trace Parkway itself.
A hearing was held on all of these cases on November 4, 2003. For the reasons stated below, the motions to dismiss for lack of jurisdiction are DENIED.
Background
As an initial matter, the Government, through Maps 16, 17, and 18, established that the alleged offenses occurred while the individuals charged were within the boundaries of the Natchez Trace Parkway. It was also established through testimony that the individuals charged were not operating their vehicles on the actual Natchez Trace Parkway itself but were operating their vehicles on state or county roads, which transitioned through portions of the Natchez Trace Parkway boundaries. The individuals charged were all stopped by the Rangers for violation of park regulations involving seat belts, inoperative lights, or other regulations set forth by the C.F.Rs. governing the Natchez Trace Parkway. At the consequence of these stops, many of the defendants were charged with more serious violations, such as possession of controlled substances and driving under the influence. The only question before the Court at this point is the jurisdiction of the Rangers.
Ranger Gagnon testified that he had been a ranger in the Tennessee district for some 4 years and was familiar with the boundaries of the Natchez Trace Parkway. He stated that within the boundaries of the Parkway, and in addition to the Parkway itself, were county and state roads, as well as horse and bike trails. He testified concerning three primary areas on the Parkway which were identified on Exhibits 16, 17, and 18. An additional number of color photographs were taken of the areas depicted by these charts. The first five photographs depict the area of the Visitor Center on Pinewood Road as shown on Map 16. Photographs 6 through 13 depict the area near the intersection of Old Natchez Trace Road and Highway 7, as shown on Map 17. Photographs 14 and 15 depict the area along Keg Springs Road and New Shebass Road as shown on Map 18.
The Government further introduced various memoranda of understanding with the State of Tennessee, Williamson, Murray, and Hickman Counties (Docket Entry Nos. 19, 20, 21, and 22). The memorandum of understanding with the State of Tennessee purports to provide for concurrent jurisdiction at National Park Service units within the State of Tennessee and is dated April 23, 1997. The memorandum recites that the United States and the State of Tennessee cede to each other concurrent criminal law jurisdiction over park lands. The State of Tennessee uses T.C.A. 4-1-106 and such jurisdictions accepted by the United States, in accordance with 40 *842 U.S.C. § 255. The United States retrocedes to the State of Tennessee criminal law enforcement jurisdiction subject to exclusive jurisdiction of the United States, in accordance with 16 U.S.C. § 1a-3, and such retrocession of jurisdiction was accepted by the State of Tennessee, in accordance with T.C.A. § 4-1-105.
Paragraph 3 provides that both the United States and the State of Tennessee shall concurrently exercise law enforcement jurisdiction over lands within the boundaries of the park lands as they exist or as they may hereafter be changed or altered.
Paragraph 4 provides that the statutory authority of the National Park Service and its regulations promulgated thereunder shall remain in full force and effect.
Paragraph 5 provides that the National Park Service shall have primary responsibility for maintaining law and order and for the protection of persons, property, and resources on park lands.
Paragraph 11 provides that the Park Service may enter into supplemental agreements with local law enforcement agencies as may be prudent.
Paragraph 13 provides that the agreement may be modified by written agreement between the parties specifying the provisions are subject to the compliance with cited statutes.
There is no indication in this document that it is in any way limited to a particular duration of time. It purports on its face to be valid until properly amended in writing by the parties. The Natchez Trace Parkway is specifically mentioned as being included within this agreement.
In addition, Exhibits 20, 21, and 22 are supplemental agreements with the Williamson County, Murray County, and Hickman County Sheriff's offices respectively. The agreements are substantially the same except for the name of the Sheriff's office. The agreements in general provide for mutual aid between the respective parties and provide that the agreements shall remain in effect for five years, subject to reaffirmation by the parties for an additional five years.
Article II.C.7. of the agreement provides that the respective parties will work in close harmony on matters relating to, among other things, public safety.
These agreements were signed on various dates in 2001 and 2002.
Ranger Gagnon testified that the Rangers had attempted to put up boundary markers along roads leading into the Natchez Trace Parkway property. A picture of a boundary marker stake is depicted in Exhibits 1 and 3, as it would appear on the highway, and Exhibit 14 as it would appear close up. The lettering on the stake simply says "U.S. Boundary NPS". Various photographs also showed other larger markings notifying individuals that they were within one mile of the Natchez Trace Parkway or were approaching a Visitor Center or similar large signage.
For the purpose of this motion, the Court will assume that a motorist proceeding by one of the sign stakes at the posted speed limit would not necessarily be able to read the sign itself. Anyone on foot or bicycle would likely be able to read such a boundary sign.
Further, for the purpose of this motion, the Court will assume that the individuals cited were in the process of transitioning through the Natchez Trace Parkway boundaries and were not and did not intend to actually enter on to the Natchez Trace Parkway proper. However, the Magistrate Judge does find that all of the individuals were initially seen committing the alleged offenses while within the boundaries of the Natchez Trace Parkway.
*843 The defendants introduced several exhibits attempting to show that the defendants would not necessarily know that they were within the boundaries of the Natchez Trace Parkway. For example, a map of the Natchez Trace Parkway does not delineate the boundaries of the Parkway (Defense Exhibit A). Additionally, the defendants argue that there is no valid agreement between the State of Tennessee and the United States, pointing out a letter dated June 3, 1997, from the Chief Ranger Activities Division in Washington, D.C. concerning concurrent jurisdiction (Defense Exhibit B). This cover memorandum transmits the agreement subsequently signed to the various Park superintendents for execution (Docket Entry No. 19). The memorandum refers to the fact that the agreement is effective April 23, 1997, the date on which the Governor of the State of Tennessee signed it, and is good for five years. It further states that the agreement is not enforceable in a particular park until it is filed with the appropriate county.
During the course of the hearing it appeared that the agreement was not filed with the counties but has subsequently been filed with the Secretary of State. Ranger Cyr testified that he personally went with another Ranger to file the document with the Tennessee Secretary of State on February 7, 2000.
The defendants, based on this memorandum, make the logical argument that the agreement expired five years after April 23, 1997, and thus there was no agreement allowing concurrent jurisdiction at the time of these offenses.
The Government offered no explanation as to why this memorandum would have been sent out, except that it had to be wrong. The Government did argue that the memorandum was in full force and effect, since the laws upon which the agreement was based and the agreement itself do not have any five-year limitation, and in fact expressly provide that the agreement may only be amended in writing.
The Magistrate Judge believes that this argument is correct. The agreement speaks for itself and the Magistrate Judge does not believe that a memorandum from the Park Service can change the actual written agreement. It may well be the memorandum was meant to apply to the memorandum of understanding with the counties and not the agreement with the state. Despite the sloppiness with which the agreement was apparently handled, as depicted by the cover memorandum and by the failure of the Government to file the document for some three years with the Secretary of State, nevertheless, the agreement is signed and the Magistrate Judge is satisfied it was in full force and effect at the time each of the citations in these cases was issued.
Accordingly, the Magistrate Judge finds that the United States and the State of Tennessee exercise concurrent jurisdiction over the lands within the Natchez Trace Parkway boundaries.
The citations for which the individuals were initially stopped involving seat belts, license tag, lights, and stop sign violations, are all violations of both state laws and Park regulations. Accordingly, the Magistrate Judge does not believe that the fact an individual defendant may not have realized he was within the boundaries of the Natchez Trace Parkway has any particular effect. Were this a case where an individual was cited for riding a bicycle along a state road within the park boundary, in accordance with state law, but there was a park regulation prohibiting bicycles within the park boundaries, a more difficult question would be posed. Certainly that could raise significant issues of due process and notice as applied to the *844 bicyclist. The facts of these cases, however, are substantially different. All of the defendants were cited for acts which would be violations of both state law and park regulations. Thus, there is no risk of unfairness or surprise to a defendant for being so stopped.
The next issue is whether the Park Service regulations in effect can be applied to the state roads that run through the Park boundaries. The Magistrate Judge believes that the Government has correctly cited the law in this case, particularly in their supplemental memorandum in support of federal jurisdiction filed October 30, 2003. The case of Free Enterprise Canoe Renters Assn. of Missouri v. Watt, 711 F.2d 852 (8th Cir.1983) appears to be the closest case on point to this matter. While recognizing that this is not a Sixth Circuit case, nevertheless, it is a case by a Court of Appeals dealing with an issue almost identical to the one in question here. The defendants in the Free Enterprise case were cited for violation of regulations occurring on county roads within the Ozark National Scenic Riverways (ONSR). They upheld convictions even though the defendants may never have entered fully federally owned property. The roads in the ONSR were variously owned by state, county, and federal government. The Court upheld the application of the Park regulations as applied to the defendants.
The Magistrate Judge also believes that the Government's original memorandum of law in support of federal jurisdiction filed September 30, 2003, also correctly sets out the law that the regulations in question were validly enacted by the National Park Service and published in 36 C.F.R. In all of the cases the Magistrate Judge finds that the defendants were observed committing alleged violations within the Park boundaries. The fact that one or more of the defendants may have been physically stopped after exiting the Park boundaries does not change the fact that he was observed by the Ranger, allegedly committing a violation within the Park boundaries. In all cases, the stops were made immediately after the violation was observed. The case law seems well settled that a violation does not evaporate simply because the defendant drives outside the jurisdiction.
Accordingly, the motions to dismiss for lack of jurisdiction are DENIED. These matters are set for disposition or trial at 1:30 p.m. on Friday, December 5, 2003, 816 S. Garden Street, U.S. Post Office Building, Columbia, Tennessee.
It is so ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1998078/ | 260 B.R. 698 (2001)
In re Eric J. BLATSTEIN
718 Arch Street Associates, Ltd. et al., Plaintiffs,
v.
Eric J. Blatstein et al., Defendants.
No. CIV. A. 00-CV-954.
United States District Court, E.D. Pennsylvania.
March 19, 2001.
*699 *700 *701 *702 *703 Leslie Beth Baskin, Suzanne Ilene Schiller, Spector, Gadon and Rosen, P.C., Philadelphia, PA, for Eric J. Blatstein.
Steven M. Coren, Kaufman, Coren & Ress, Philadelphia, PA, David Dormont, Kaufman, Coren, Ress and Weidman, Philadelphia, PA, for Michael H. Kaliner, Trustee, 718 Arch Street Associates, and Mitchell Miller, Trustee.
Samuel E. Cohen, Carl Oxholm, III, Kevin J. Carey, Allison M. Berger, Fox Rothschild, O'Brien & Frankel, Philadelphia, PA, for Lori Blatstein.
Paul B. Maschmeyer, Philadelphia, PA, for Main, Inc.
Morris Lift, CPA, Bala Cynwyd, PA, pro se.
Columbusco, Inc., Philadelphia, PA, pro se.
B. Christopher Lee, Jacoby Donner, P.C., Philadelphia, PA, for Delawareco, Inc., Engine 46 Steak House, Inc., Reedco, Inc., Waterfront Management Corp., Airbev, Inc., and Pier 53 North, Inc.
Frederick J. Baker, Philadelphia, PA, United States Trustee.
Memorandum and Order
YOHN, District Judge.
Michael H. Kaliner ("Trustee"), the trustee of Eric J. Blatstein's bankruptcy estate, and 718 Arch Street Associates ("Arch Street")[1] appeal from a final order of the bankruptcy court determining that Eric J. Blatstein ("Blatstein") fraudulently transferred $1,533,428.65 to his wife, Lori Blatstein ("Lori"),[2] and entering judgment against Blatstein and in favor of the Trustee for that amount. See 718 Arch St. Assoc., Ltd. et al. v. Blatstein et al. (In re Blatstein), 244 B.R. 290 (Bankr.E.D.Pa. 2000) ("Blatstein V"). The appellants challenge the bankruptcy court's refusal: 1) to include transfers made prior to October 3, 1995 in the judgment; 2) to include transfers made after Blatstein filed for bankruptcy in the judgment; 3) to enter judgment against Lori; 4) to enter judgment against the Blatsteins jointly and severally; 5) to award prejudgment interest; and 6) to provide for equitable relief. *704 See Appeal Br. of Pl./Appellants (Doc. No. 3)("Appeal Br."). After considering the Appeal Brief, the opposition by the Blatsteins, Br. of Appellees (Doc. No. 5)("Blatsteins' Br."), and supplementary filings, I conclude that the bankruptcy court's order should be affirmed in part and vacated in part.
FACTUAL AND PROCEDURAL BACKGROUND
The litigation involving the Main, Inc. and Blatstein bankruptcy estates has a convoluted history. That history will be repeated here only to the extent that it is necessary to resolve the issues before the court.
On November 12, 1992, Arch Street obtained a confessed judgment in state court against Blatstein in the amount of $2,774,803.09 for breach of a commercial lease. See 718 Arch St. Assoc., Ltd. et al. v. Blatstein et al. (In re Main, Inc.; In re Blatstein), 213 B.R. 67, 75 (Bankr.E.D.Pa. 1997) ("Main II"). Blatstein filed a personal Chapter 7 proceeding on December 19, 1996,[3] and Michael H. Kaliner was appointed interim trustee. See id. at 72. Arch Street brought these adversary proceedings in the bankruptcy court accusing Blatstein of, inter alia, fraudulently transferring his shares in a number of corporations and his income to Lori in order to avoid paying his creditors. See id. at 93-95. The Trustee was allowed to intervene in the proceedings.
The bankruptcy court held that Blatstein did not fraudulently transfer his assets to Lori. See id. In reaching this decision, the bankruptcy court concluded that the plaintiffs failed to prove that Blatstein transferred assets to Lori, and, even if Blatstein did make such transfers, the plaintiffs failed to prove that he did so with an actual intent to defraud his creditors. See id. at 94. On reconsideration, the bankruptcy court also rejected the plaintiffs' "constructive fraud" theory of intent. See 718 Arch St. Assoc., Ltd. et al. v. Blatstein et al. (In re Main, Inc.; In re Blatstein), No. 96-19098DAS, 96-31813DAS, 97-0004DAS, 97-0008DAS, 1997 WL 626544, at *5-*6 (Bankr.E.D.Pa. Oct.7, 1997) ("Main III"). In rejecting this claim, the bankruptcy court emphasized that the plaintiffs failed to prove that Blatstein did not receive a "reasonably equivalent value" in return for any transfers that he allegedly made to Lori. See id. at *6.
On appeal, the district court (prior to the reassignment of this case to me) affirmed the bankruptcy court's refusal to set aside Blatstein's deposit of assets in accounts maintained in his wife's name. See 718 Arch St. Assoc., Ltd. et al. v. Blatstein et al. (In re Blatstein; In re Main, Inc.), 226 B.R. 140, 159-60 (E.D.Pa. 1998) ("Blatstein II").
The Third Circuit affirmed the district court's order affirming the bankruptcy court's finding that Blatstein did not fraudulently transfer corporate shares to his wife. See 718 Arch St. Assoc., Ltd. et al. v. Blatstein et al. (In re Blatstein; In re Main, Inc.), 192 F.3d 88, 96 (3d Cir.1999) ("Blatstein IV") However, the Third Circuit reversed the district court's order affirming "the bankruptcy court's conclusions with respect to Blatstein's income transfers to Lori's personal bank accounts." Id. at 96-97. First, the Third Circuit concluded that the money Lori received was earned income and not dividends or equity distributions. See id. at *705 97. Second, the Third Circuit held that Blatstein transferred this income with an actual intent to defraud his creditors. See id. at 97-99.
On remand, the bankruptcy court addressed basically one legal issue: "the proper remedy when a husband is found to have engaged in actual fraud by conveying his income, all of which has now apparently been spent at his direction, to his wife." Blatstein V, 244 B.R. at 292. The bankruptcy court found that Blatstein fraudulently transferred $1,533,428.65 from his bankruptcy estate. See id. at 298-300. However, because the bankruptcy court found that Lori was not an "initial transferee," it entered judgment for that amount against Blatstein alone. See id. at 301-03.
STANDARD OF REVIEW
The district court, sitting as an appellate tribunal, applies a clearly erroneous standard to review the bankruptcy court's factual findings and a de novo standard to review its conclusions of law. See In re Siciliano, 13 F.3d 748, 750 (3d Cir. 1994). A finding of fact is clearly erroneous if a reviewing court has a "definite and firm conviction that a mistake has been committed." Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S. Ct. 1504, 84 L. Ed. 2d 518 (1985) (quotation omitted). Mixed questions of fact and law require a mixed standard of review, under which the court reviews findings of historical or narrative fact for clear error but exercises plenary review over the bankruptcy court's "choice and interpretation of legal precepts and its application of those precepts to the historical facts." Mellon Bank, N.A. v. Metro Communications, Inc., 945 F.2d 635, 642 (3d Cir.1991) (quotation omitted), cert. denied, Committee of Unsecured Creditors v. Mellon Bank, N.A., 503 U.S. 937, 112 S. Ct. 1476, 117 L. Ed. 2d 620 (1992); see Chemetron Corp. v. Jones, 72 F.3d 341, 345 (3d Cir.1995), cert. denied, 517 U.S. 1137, 116 S. Ct. 1424, 134 L. Ed. 2d 548 (1996). When reviewing a decision that falls within the bankruptcy court's discretionary authority, the district court may only determine whether or not the lower court abused its discretion. See In re Top Grade Sausage, 227 F.3d 123, 125 (3d Cir.2000). "An abuse of discretion exists where the [lower] court's decision rests upon a clearly erroneous finding of fact, an errant conclusion of law, or an improper application of law to fact." International Union, UAW v. Mack Trucks, Inc., 820 F.2d 91, 95 (3d Cir.1987).
DISCUSSION
There are two categories of issues involved in this appeal. First, the appellants claim that Blatstein fraudulently transferred more than $3 million to his wife Lori between 1994 and 1997. In particular, the appellants argue that the bankruptcy court erred as a matter of law by only including fraudulent transfers made between October 3, 1995 and December 19, 1996 in the judgment. Second, the appellants contend that the scope of the remedy should be enlarged to ensure that the bankruptcy estate is adequately compensated. Specifically, the appellants claim that the bankruptcy court erred by refusing to enter judgment against Lori or against the Blatsteins jointly and severally, to award prejudgment interest, and to provide for equitable relief.
I. Fraudulent Transfers
The appellants claim that Blatstein fraudulently transferred $3,080,919.30 to Lori between 1994 and 1997. See Appeal Br., at 16. This sum includes $395,365.91 in 1994, $1,222,588.79 in 1995, $806,412.60 in 1996, and $656,552.00 in 1997. See id. The appellants argue that the bankruptcy *706 court erred as a matter of law when it held that Blatstein did not fraudulently transfer income to Lori prior to October 3, 1995. See id. at 42-44. The appellants also claim that the bankruptcy court erred as a matter of law by failing to include fraudulent transfers made after December 19, 1996 in the judgment. See id. at 44-47. The appellants also ask that the bankruptcy court's factual findings regarding the allegedly fraudulent transfers be overturned to the extent that they are clearly erroneous. See id. at 1-2.
The bankruptcy court concluded that Blatstein fraudulently transferred $1,533,428.65 to Lori. See Blatstein V, 244 B.R. at 297-300. In reaching this conclusion, the bankruptcy court found that: 1) the Trustee's claims involving fraudulent transfers that allegedly occurred after February 1, 1994 are not barred by the statute of limitations; 2) there is no evidence that Blatstein made any fraudulent transfers prior to October 3, 1995; 3) Blatstein fraudulently transferred $1,533,428.65 into Lori's personal bank accounts between October 3, 1995 and December 19, 1996; and 4) the Trustee is not entitled to recover transfers Blatstein made after Blatstein filed for bankruptcy. See id.
A. Statute of Limitations
The bankruptcy court held that the statute of limitations barred claims arising from transfers Blatstein made prior to February 1, 1994. See id. at 297. First, the bankruptcy court found that, because this action was filed within two years after the appointment of the Trustee, it satisfied the time-frame imposed by 11 U.S.C. § 546. See id. The bankruptcy court also found that, as of the date Blatstein's bankruptcy petition was filed, most of the transfers challenged by the Trustee fell within the four-year statute of limitations imposed by the Pennsylvania Uniform Fraudulent Transfer Act (PUFTA). See id. (citing 12 Pa.C.S.A. § 5109(2)). However, despite these findings, the bankruptcy court concluded that the statute of limitations would bar any claims involving transfers that occurred prior to February 1, 1994, the date Pennsylvania effectively adopted PUFTA, because the statute of limitations under the prior state law was only two years. See id.
Neither the appellants nor the Blatsteins have challenged this conclusion.[4] As a result, this court notes that the bankruptcy court appropriately concluded that consideration of fraudulent transfers allegedly made before February 1, 1994 was barred by the statute of limitations.
B. Transfers Made Prior to October 3, 1995
Based on its interpretation of Blatstein IV, the bankruptcy court found that Blatstein did not fraudulently transfer income to Lori prior to October 3, 1995. See id. at 297-98. The bankruptcy court first noted that the Third Circuit "plainly stated that it was ruling only that Blatstein acted with intent to defraud his creditors when he transferred his earned income into Lori's bank accounts." Id. at 298 (citing Blatstein IV, 192 F.3d at 97). Because the bankruptcy court had already found that "[t]he only such accounts were Lori's Mellon PSFS and Gruntal Money Market accounts," and that Lori did not open either *707 of these accounts prior to October 3, 1995, the bankruptcy court concluded that Blatstein did not fraudulently transfer any earned income to Lori prior to October 3, 1995. See id. at 297-99.
The appellants claim that the bankruptcy court erred as a matter of law when it limited the Trustee's claim to earned income that Blatstein transferred to Lori and which were deposited into her Mellon PSFS and Gruntal Money Market accounts. See Appeal Br., at 43. The appellants argue that what Lori did with the money after it was transferred to her is immaterial to the question of whether it constitutes a fraudulent transfer or not. See id. In particular, the appellants claim that the bankruptcy court should have found that Blatstein fraudulently transferred an additional $890,938.65 in earned income to Lori during 1994 and 1995. See id. at 16.
Whether Blatstein fraudulently transferred income to Lori prior to October 3, 1995 is a mixed question of fact and law. As a result, after interpreting the Third Circuit's decision, I will review the bankruptcy court's findings of fact for clear error and subject its application of the law to those facts to de novo review.
Under PUFTA, a
"transfer made or obligation incurred by a debtor is fraudulent as to a creditor, . . . if the debtor made the transfer or incurred the obligation:"
"(1) with actual intent to hinder, delay or defraud any creditor of the debtor; or (2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor" was insolvent at the time of the transfer or became insolvent as a result of it.
Blatstein IV, 192 F.3d at 96 (quoting 12 Pa.C.S.A. § 5104). In other words, "[t]he first provision provides for liability under an `actual intent' theory of fraud, while the second is a `constructive fraud' provision." Id.
In Blatstein IV, the Third Circuit found that "Eric Blatstein fraudulently transferred his income to his wife in an effort to keep the money from his creditors." Id. at 92. In reaching this conclusion, the Third Circuit first determined that the income in question was Blatstein's earned income and not distributions of dividends or equity. See id. at 97. Thus, the Third Circuit held that the bankruptcy court erred when it found that Blatstein did not transfer his income to Lori. See id. Next, the Third Circuit considered whether Blatstein intended to defraud his creditors when he transferred his income to Lori. The Third Circuit determined that the bankruptcy court's finding that Blatstein "deposited his income into Lori's accounts because his credit and reputation with banks was poor, and because he `was trying to keep the funds from being seized or frozen by the IRS,'" clearly demonstrated that Blatstein intended to defraud one of his creditors by transferring his income to Lori. Id. (quoting Main II, 213 B.R. at 94). As a result, the Third Circuit concluded that "the bankruptcy court's determination that Blatstein did not have the actual intent to defraud his creditors was erroneous." Id. at 98.[5]
In reaching this conclusion, the Third Circuit quoted language from a section of *708 the original bankruptcy court opinion that addresses Blatstein's motivation for placing "the bank accounts and the Gruntal Account in Lori's name only." Main II, 213 B.R. at 94 (emphasis added). The bankruptcy court's findings regarding these accounts were discussed in greater detail earlier in the same section of the bankruptcy court's original decision:
Lori testified at trial that all of the brokerage and bank accounts of the Blatsteins are in her name alone, and have been for the past four years. As a result, Blatstein deposits his income from his various corporations into these accounts. She testified at trial that the Blatsteins agreed that all of their accounts would only be opened in her name because of Blatstein's financial problems resulting from the money he owes to the IRS and not due to Arch's judgment against him, although in a pretrial deposition she allowed that the Arch judgment was a factor as well.
Id. at 93-94 (emphasis added). This finding provided the basis for the Third Circuit's decision. Because Lori's testimony refers to at least one account besides the Mellon PSFS and Gruntal Money Market accounts, and this account was (or these accounts were) apparently open prior to October 3, 1995,[6] her testimony directly contradicts the bankruptcy court's conclusion that the Third Circuit's remand was limited to money deposited in the Mellon PSFS and Gruntal Money Market accounts. As a result, the bankruptcy court erred when it concluded that Blatstein did not fraudulently transfer income to Lori prior to the date on which money was first deposited into Lori's Gruntal Money Market account.
Because the Third Circuit considered all of the money Blatstein transferred to Lori and never specifically limited its remand to funds deposited in the two accounts, the bankruptcy court erred when it concluded that Blatstein did not fraudulently transfer any earned income to Lori prior to October 3, 1995. As a result, I will vacate the bankruptcy court's conclusion that the Third Circuit's reversal only applied to earned income that was deposited into Lori's Mellon PSFS and Gruntal Money Market accounts and remand for findings of fact with reference to any income transferred by Blatstein to Lori between February 1, 1994 to October 3, 1995.
C. Transfers Made Between October 3, 1995 and December 19, 1996
The bankruptcy court found that Blatstein fraudulently transferred $1,533,428.65 into Lori's Mellon PSFS and Gruntal Money Market accounts between October 3, 1995 and December 19, 1996. See Blatstein V, 244 B.R. at 298-300. In particular, the bankruptcy court found that Blatstein made eight deposits totaling $15,478.26 into the Mellon PSFS account and twelve deposits totaling $711,537.79 into the Gruntal Money Market account during 1995. See id. at 299. The bankruptcy court also found that, during 1996, Blatstein made thirty-three deposits into each account totaling $174,192.73 and $632,219.87 respectively. See id. As a result, the bankruptcy court found that Blatstein fraudulently conveyed $1,533,428.65 to Lori between October 3, 1995 and December 19, 1996. See id. at 300.
On appeal, the Trustee has not challenged the bankruptcy court's finding that Blatstein transferred $1,533,428.56 to *709 Lori's Mellon PSFS and Gruntal Money Market accounts. However, the Blatsteins claim that the bankruptcy court erred when it entered judgment against Blatstein in the amount of $1,533,428.65 because "only $315,437.37 in [W-2 wages] was transferred into the Mellon PSFS and Gruntal Money Market accounts." Blatsteins' Br., at 1. The Blatsteins base their argument on the assertion that the Third Circuit "held that only Eric Blatstien's [sic] paychecks or `earned income' deposited into accounts titled in Lori's name were to be avoided as fraudulent transfers," and that the bankruptcy court "failed to limit its consideration to what is considered `earned income' as required by the Court of Appeals' mandate." Id. at 18.
The Trustee, however, has questioned whether there is a cross appeal currently pending before this court. See Supplemental Appeal Br. of Pl./Appellants Michael H. Kaliner, Esq., Trustee of the Eric J. Blatstein Bankruptcy Estate and 718 Arch Street Associates, Ltd. (Doc. No. 8)("Supplemental Appeal Br."), at 9. Referring to an order filed under docket number 00-CV-1089, see Order of October 13, 2000 (00-CV-1089, Doc. No. 3), the Trustee claims that "[t]his Court dismissed Eric Blatstein's cross appeal on October 13, 2000. . . ." Id. In response, the Blatsteins claim that order of October 13, 2000 dismissed an appeal that was jointly filed by Eric and Lori Blatstein but that a separate appeal that was filed by Eric Blatstein on March 14, 2000 is still pending before this court. See Letter from Attorney Berger to Chambers of 2/9/01 ("Blatsteins' Supplemental Br."), at 6-7.
On February 9, 2000, the Blatsteins filed a notice of appeal that the Clerk docketed as Civil Action 00-CV-1089. See Certificate of Appeal of Lori J. Blatstein and Eric J. Blatstein (00-CV-1089, Doc. No. 1). On February 29, the Clerk issued a briefing schedule for Civil Action 00-CV-1089. See Briefing Schedule (00-CV-1089, Doc. No. 2). Because the scheduling order for Civil Action 00-CV-1089 was not complied with, this court dismissed the Blatsteins' appeal on October 13, 2000. See Order of October 13, 2000 (00-CV-1089, Doc. No. 3). This order was never appealed and is final.
On February 7, 2000, the Trustee filed a notice of appeal that the Clerk docketed as Civil Action No. 00-CV-954. See Certificate of Appeal of Trustee Michael H. Kaliner and 718 Arch Street Associates (Doc. No. 1)("Certificate of Appeal"). On March 14, 2000, Eric J. Blatstein filed a statement of issue on cross appeal. See Statement of Issue on Cross-Appeal (Doc. No. 4). However, this statement of issue on cross appeal is inadequate to present a cross appeal because it was untimely. Bankruptcy Rule 8002(a) states that a party must file a notice of appeal within ten days of the date on which the other party has filed a notice of appeal. See Bankr.R. 8002(a)("If a timely notice of appeal is filed by a party, any other party may file a notice of appeal within 10 days of the date on which the first notice of appeal was filed. . . ."). As noted above, the Trustee filed a timely notice of appeal on February 7, 2000 and Blatstein's attempt to file a cross appeal was not made until March 14, 2000. Because the ten day mandate of Rule 8002(a) is jurisdictional in effect, see Frymire v. PaineWebber, Inc., 107 B.R. 506, 514 (E.D.Pa.1989)(citing In re Universal Minerals, Inc., 755 F.2d 309, 311-12 (3d Cir.1985)), Blatstein's failure to file a timely notice of cross appeal deprives this court of jurisdiction to review the bankruptcy court's judgment against him.
Even if Blatstein's statement of issue on cross appeal had been timely filed, there would still not be a cross appeal before this court because Blatstein failed *710 to file a notice of cross appeal. Under Bankruptcy Rule 8006, the filing of a notice a cross appeal is a prerequisite for the filing of a counter statement of issues on cross appeal and, as a result, a counter statement of issues cannot be substituted for a filing of a notice of cross appeal. See Bankr.R. 8006 ("[I]f the appellee has filed a cross appeal, the appellee as cross appellant shall file and serve a statement of issues to be presented on cross appeal. . . ."); Frymire, 107 B.R. at 514. Because Blatstein never filed a notice of cross appeal, there is currently no cross appeal pending before this court.
Moreover, even if there were a cross appeal before this court, I would affirm the bankruptcy court's finding that Blatstein fraudulently transferred $1,533,428.65 to Lori between October 3, 1995 and December 19, 1996. Determining the amount of money Blatstein fraudulently transferred between October 3, 1995 and December 19, 1996 requires the resolution of a mixed question of fact and law. As a result, I will review the bankruptcy court's findings of fact for clear error and subject its application of the law to those facts to de novo review.
As noted above, before reaching the conclusion that "Blatstein fraudulently transferred his income to his wife in an effort to keep the money from his creditors," Blatstein IV, 192 F.3d at 92, the Third Circuit first determined that the income in question was Blatstein's earned income and not distributions of dividends or equity. See id. at 97. The Third Circuit used the term "earned income" to refer to a wide variety of money Blatstein received from various corporations. Although the Third Circuit did not explicitly define the term, within the context of its opinion, it is clear that "earned income" broadly refers to payments that were made to Blatstein by any of the corporations with which he was involved. See id. Therefore, when the bankruptcy court refused to limit its inquiry to Blatstein's W-2 wages and concluded that $1,533,428.65 of Blatstein's income was deposited into Lori's Mellon PSFS and Gruntal Money Market accounts, it correctly interpreted the scope of the Third Circuit's use of the term "earned income." As a result, the bankruptcy court did not err as a matter of law when it found that Blatstein fraudulently transferred $1,533,428.65 to Lori between October 3, 1995 and December 19, 1996.
Before concluding that Blatstein fraudulently transferred $1,533,428.65 to Lori between October 3, 1995 and December 19, 1996, the bankruptcy court carefully analyzed the pertinent records. See Blatstein V, 244 B.R. at 299. The bankruptcy court found that "the Trustee's brief offered grossly inflated numbers," including transfers that had already been discarded by the Main X opinion and others of which "were not reflective of any type of transfer." Id. at 298-99. Similarly, the bankruptcy court found that the Blatsteins' "present[ed] highly deflated numbers" and "fail[ed] to show all of the actual transactions at issue." Id. at 299. After analyzing the evidence submitted by both parties, the bankruptcy court found that Blatstein transferred $1,533,428.65 into Lori's Mellon PSFS and Gruntal Money Market accounts between October 3, 1995 and December 19, 1996. See id. at 299-300.
Keeping in mind the broad scope of the of the term "earned income" as the Third Circuit employed it, I have reviewed the relevant exhibits and the bankruptcy court's findings regarding the fraudulent transfers. See Certificate of Appeal, Ex. E (Pl.'s Ex. 100: Gruntal Money Market Register from 10/3/95 to 12/3/96), Ex. G (Pl.'s Ex. 102: Mellon PSFS Register from 11/22/95 to 3/29/96), Ex. I (Pl.'s Ex. 103: *711 Mellon PSFS Register from 3/29/96 to 6/28/96), Ex. K (Pl.'s Ex. 104: Mellon PSFS Register from 7/1/96 to 9/18/96), and Ex. L (Pl.'s Ex. 105: Mellon PSFS Register from 9/20/96 to 1/31/97). Because I do not have a "definite and firm conviction" that the bankruptcy court has committed a mistake, if there were a cross appeal before this court I would not conclude that the bankruptcy court's finding that Blatstein fraudulently transferred $1,533,428.65 to Lori was clearly erroneous.[7] Thus, even if there were a cross appeal before this court, I would affirm the bankruptcy court's conclusion that Blatstein fraudulently transferred $1,533,428.65 to Lori between October 3, 1995 and December 19, 1996.
D. Transfers Made After December 19, 1996
The bankruptcy court also concluded that the Trustee is not entitled to recover the postpetition income Blatstein transferred to Lori. See Blatstein V, 244 B.R. at 298. In reaching this conclusion, the bankruptcy court first found that Blatstein's postpetition earnings are not property of the bankruptcy estate. See id. (citing 11 U.S.C. §§ 541(a)(1), (a)(6)); 5 Collier on Bankruptcy, ¶ 541.17, at 541-67 (15th ed. rev.1999). The bankruptcy court also found that the Trustee is not a creditor under PUFTA, and that "the Trustee's power to invoke PUFTA under 11 U.S.C. § 544 is limited, by § 544(a), to the rights of hypothetical creditors `as of the commencement of the case.'" Id. As a result, the court concluded that postpetition transfers in violation of PUFTA could not be reached by the Trustee. See id.
As the bankruptcy court correctly noted, Blatstein's postpetition earnings are not the property of his bankruptcy estate, see 11 U.S.C. § 541; 5 Collier on Bankruptcy § 541.03 & 541.17 (15th rev. ed.2000), and the Trustee's strong-arm power under § 544(a) only applies to prepetition transfers. See, e.g., Farmer v. Autorics, Inc. (In re Branam), 247 B.R. 440, 444 (Bankr.E.D.Tenn.2000); Hirsch v. Pennsylvania Textile Corp., Inc. (In re Centennial Textiles, Inc.), 227 B.R. 606, 610 (Bankr.S.D.N.Y.1998); Burtch v. Hydraquip, Inc. (In re Mushroom Transp. Co., Inc.), 227 B.R. 244, 259-60 (Bankr. E.D.Pa.1998); Meininger v. Harp et al. (In re Stoops), 209 B.R. 1, 3 (Bankr. M.D.Fla.1997); Eisenberg v. Bank of New York (In re Sattler's, Inc.), 73 B.R. 780, 790-91 (Bankr.S.D.N.Y.1987); but see Murray v. Guillot et al. (In re Guillot), 250 B.R. 570, 601-02 (Bankr.M.D.La.2000) ("We differ from the courts who relegate § 544(a) to pre-petition transfers. . . .") (citing David Gray Carlson, Bankruptcy's Organizing Principle, 26 Fla. St. U.L.Rev. 549, 568 n. 75 (1999)). Although they apparently concede these points, the appellants still claim that the bankruptcy court erred as a matter of law when it held that they were not entitled to a judgment for Blatstein's fraudulent postpetition transfers. See Appeal Br., at 44-47. The appellants argue that they were entitled to a judgment for this additional amount because: 1) the Trustee is a creditor of Blatstein who has been defrauded by the postpetition transfers; 2) return of these funds is necessary to avoid a race between the Trustee and Blatstein's individual creditors *712 who are no longer barred by the section 362(a) stay; and 3) Blatstein's postpetition transfers defrauded, hindered and delayed Arch Street, a creditor, from obtaining a judgment. See Appeal Br., at 44. In particular, the appellants claim that the bankruptcy court should have found that Blatstein fraudulently transferred an additional $656,552.00 during 1997. See id. at 16. I will examine the appellants' arguments, applying a de novo standard to review the bankruptcy court's conclusions of law.
Under PUFTA, a creditor is empowered to bring an action to have a fraudulent transfer set aside. See 12 Pa. C.S.A. § 5104. The appellants claim that the Trustee is a creditor, and, therefore, PUFTA entitles him to pursue and recover Blatstein's postpetition fraudulent transfers. See Appeal Br., at 44-45.
Under PUFTA, a "creditor" is "[a] person who has a claim," 12 Pa.C.S.A. § 5101(b)(3), and a "claim" is defined "[a] right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured." Id. As the bankruptcy court noted, the Trustee does not presently have any "right to payment" under PUFTA. See Blatstein V, 244 B.R. at 298. Instead, "[m]uch like a public official has certain powers upon taking office as a means to carry out the functions bestowed by virtue of the office or public trust, the [trustee] is similarly endowed to bring certain claims on behalf of, and for the benefit of, all creditors." Official Committee of Unsecured Creditors v. Chinery et al. (In re Cybergenics Corp.), 226 F.3d 237, 244 (3d Cir.2000). In other words, the power to avoid fraudulent transfers is not a personal asset of the Trustee. See id. Because the Trustee does not have a "claim" under PUFTA, he does not have standing as a "creditor" under 12 Pa.C.S.A. § 5104. Therefore, the Trustee is not entitled to pursue Blatstein's postpetition transfers in this forum.
The appellants also argue that "the interests of justice require an orderly way for the Trustee to recover Blatstein's [postpetition] fraudulently transferred assets for the benefit of Blatstein's creditors and to avoid a race between the Trustee and the creditors he represents." Appeal Br., at 46. The appellants do not cite a single case in support of this novel argument. As noted above, the Trustee is not currently entitled to pursue Blatstein's postpetition transfers under either the bankruptcy code or PUFTA. As a result, in this proceeding the Trustee cannot recover the assets Blatstein earned and fraudulently transferred after filing for bankruptcy.
Finally, the appellants claim that Blatstein's postpetition transfers defrauded, hindered and delayed Arch Street, a creditor, from obtaining a judgment. See id. at 45-46. The appellants point out that the bankruptcy court's opinion does not address whether Arch Street, "as a plaintiff and creditor of Blatstein," should have been granted relief. See id. at 22. As a result, there are no findings to review. However, given that Arch Street did not submit a brief to the bankruptcy court, it appears that the bankruptcy court did not address this claim because the appellants failed to raise it. For this reason, the Blatsteins argue that Arch Street "no longer has standing as a party and has no right to prosecute a fraudulent transfer action." Blatsteins' Br., at 1.
"As a general rule, a court should refuse to consider an issue that is raised for the first time on appeal." Hutchins v. Commonwealth Mortgage Corp., 165 B.R. 401, 405 (E.D.Pa.1994) (citing Singleton v. Wulff, 428 U.S. 106, 121, *713 96 S. Ct. 2868, 49 L. Ed. 2d 826 (1976); Salvation Army v. New Jersey Dept. of Cmty. Affairs, 919 F.2d 183, 196 (3d Cir.1990)). Although "there are circumstances in which a federal appellate court is justified in resolving an issue not passed on below, as where the proper resolution is beyond any doubt, or where `injustice might otherwise result,'" Salvation Army, 919 F.2d at 196 (citations omitted), the appellants have not shown that this issue falls within this narrow group of exceptions to the general rule. See In re Middle Atl. Stud Welding Co., 503 F.2d 1133, 1134 n. 1 (3d Cir.1974) (approving district court's refusal to entertain arguments not raised before bankruptcy referee); see also United States v. Williams, 156 B.R. 77, 81 (S.D.Ala.1993) ("This court's function on appeal from a Bankruptcy Court's determination is to reverse, affirm, or modify only those issues that were presented to the trial judge."). As a result, I will not address the merits of the appellants' new claim.
For the above reasons, I will affirm the bankruptcy court's conclusion that the Trustee cannot recover Blatstein's postpetition fraudulent transfers.
II. Scope of the Remedy
The appellants contend that the scope of the remedy should be enlarged to ensure that the bankruptcy estate is adequately compensated. Specifically, the appellants claim that the bankruptcy court erred as a matter of law by refusing to enter judgment against Lori or against the Blatsteins jointly and severally, to award prejudgment interest, and to provide for equitable relief. See Appeal Br., at 30-42, 47-50. The appellants also ask that, to the extent the bankruptcy court made incorrect factual findings in deciding what the appropriate remedies should be, the bankruptcy court's factual findings should be overturned. See id. at 1-2.
The bankruptcy court stated that the "one legal issue" which its opinion would address was: "the proper remedy when a husband is found to have engaged in actual fraud by conveying his income, all of which has now apparently been spent at his direction, to his wife." Blatstein V, 244 B.R. at 292. The bankruptcy court concluded that Blatstein is liable for the $1,533,428.65 he fraudulently transferred to Lori between October 3, 1995 and December 19, 1996. See id. at 293. In reaching this decision, the bankruptcy court concluded that: 1) Lori is not liable because she did not have "dominion" over the money that was deposited into her PSFS Mellon and Gruntal Money Market accounts; 2) "equity and justice" did not require that the judgment be entered against the Blatsteins jointly and severally; 3) the Trustee was not entitled to collect prejudgment interest; and 4) the Trustee was not entitled to equitable relief to ensure that he would be able to collect the judgment from Blatstein. See id. at 300-04.
A. Liability for the Fraudulent Transfers
The bankruptcy court concluded, that, "in the instant circumstances, where the wife has not been found to engage in any fraud, the only appropriate remedy is a judgment against the husband for the amount conveyed, as opposed to a judgment against the wife or against the husband/wife entireties entity, jointly and severally, for this amount." Id. at 292-93.
1) Blatstein's Liability
The bankruptcy court concluded that the Trustee was entitled to a judgment against Blatstein for the amount of money he fraudulently transferred to Lori. See id. at 293. The Blatsteins conceded this point before the bankruptcy court, and the Trustee has not challenged this conclusion *714 on appeal. As a result, this court notes that the bankruptcy court appropriately concluded that the Trustee is entitled to a judgment against Blatstein for the amount of money the bankruptcy court found Blatstein fraudulently transferred to Lori.
2) Lori's Liability
Because the bankruptcy court found that Lori lacked "dominion" over the money Blatstein fraudulently transferred to her, it concluded that Lori was not an "initial transferee." See id. at 301-03. As a result, the bankruptcy court held the Trustee was not entitled to a judgment against Lori for the amount of money the bankruptcy court found Blatstein fraudulently transferred to her. See id. at 303.
The appellants claim that, because the Third Circuit found that "`Eric Blatstein fraudulently transferred his income to his wife in an effort to keep the money from his creditors,'" Lori Blatstein is an initial transferee as a matter of law, and, under the law of the case doctrine, the bankruptcy court was not free to find otherwise. Appeal Br., at 30-31 (quoting Blatstein IV, 192 F.3d at 90 (emphasis added)). In the alternative, the appellants assert that the bankruptcy court erred when it found that Lori did not have dominion and control over the fraudulently transferred funds, and, as a result, the bankruptcy court should have concluded that Lori was an initial transferee. See id. at 36. In the particular, the appellants argue that Lori should be found to be an initial transferee because she had physical control and legal authority over the fraudulently transferred funds, and she used the funds to buy, inter alia, stocks and household items. See id. at 31.
The bankruptcy court correctly noted that "Section 550(a) of the [Bankruptcy] Code governs a trustee's recovery of a fraudulent conveyance." Blatstein V, 244 B.R. at 301. Section 550(a) provides that:
(a) Except as otherwise provided in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549, 553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from
(1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or
(2) any immediate or mediate transferee of such initial transferee.
"The term `initial transferee' is not defined in the Bankruptcy Code. However, in Bonded Fin. Serv., Inc. v. European Am. Bank, 838 F.2d 890 (7th Cir.1988) [(`Bonded')], the Seventh Circuit set forth the definition of `initial transferee' employed by every circuit that has subsequently considered the question." Bowers v. Atlanta Motor Speedway, Inc. (In re Southeast Hotel Properties, Ltd. P'ship), 99 F.3d 151, 154 (4th Cir.1996) (citations omitted)("Bowers"). As the bankruptcy court noted, the Seventh Circuit held that "the minimum requirement of status as a `transferee' is dominion over the money or other asset, the right to put the money to one's own purposes." Bonded, 838 F.2d at 893 (emphasis added). And, "courts have consistently held that the Bonded dominion and control test is the appropriate test to apply when determining whether a person or entity constitutes an initial transferee under § 550. . . ." Bowers, 99 F.3d at 155.
i) Law of the Case
The appellants claim that Lori Blatstein is an initial transferee as a matter of law because the Third Circuit found that "`Eric Blatstein fraudulently transferred his income to his wife in an effort to keep *715 the money from his creditors.'" Appeal Br., at 30 (quoting Blatstein IV, 192 F.3d at 90 (emphasis added)). As a result, the appellants assert that, under the law of the case doctrine, the bankruptcy court was bound to find that Lori was an initial transferee. See id. at 30-31.
The doctrine of law of the case dictates that "when a court decides upon a rule of law, that rule should continue to govern the same issues in subsequent stages in the litigation." Devex Corp. et al. v. General Motors Corp., 857 F.2d 197, 199 (3d Cir.1988) (citation omitted). The doctrine only applies "to issues expressly decided by a court in prior rulings and to issues decided by necessary implication." Bolden v. Southeastern Pennsylvania Transp. Auth., 21 F.3d 29, 31 (3d Cir. 1994). As a result, the threshold question is whether the Third Circuit decided that Lori was an initial transferee. See, e.g., Koppers Co., Inc. v. Certain Underwriters at Lloyd's, London, 993 F. Supp. 358, 364 (W.D.Pa.1998) ("The law of the case doctrine applies only to issues actually addressed and decided at a previous stage of the litigation."). I will examine the appellant's argument, applying a de novo standard to review the bankruptcy court's conclusion of law.
As the bankruptcy court noted, neither the Bankruptcy Code nor its legislative history define the term "initial transferee." See Blatstein V, 244 B.R. at 302 (citing Bonded, 838 F.2d at 893). As a result, courts have been forced to fashion an approach that "is consistent with the equitable concepts underlying bankruptcy law." Nordberg v. Societe Generale (In re Chase & Sanborn Corp.), 848 F.2d 1196, 1199 (11th Cir.1988). While the appellants apparently urge the court to adopt a common sense definition of "transferee," the Seventh Circuit has stated, and other circuits have agreed, that, as it is used in § 550, "`[t]ransferee' is not a self-defining term; it must mean something different from `possessor' or `holder' or `agent.'" Bonded, 838 F.2d at 894; see Christy v. Alexander & Alexander of New York, Inc. (In re Finley et al.), 130 F.3d 52, 56 (2d Cir.1997) ("We think the wording of Section 550(a) is not so plain as to compel, or persuasively argue for, the principle that every conduit is an initial transferee. The statutory term is `transferee' not `recipient' and is not self-defining. Numerous courts have recognized the distinction between the initial recipient that is, the first entity to touch the disputed funds and the initial transferee under section 550.") (citations omitted). Given this void, courts have generally concurred that "the minimum requirement of status as a `transferee' is dominion over the money or other asset, the right to put the money to one's own purposes." Bonded, 838 F.2d at 893.
In Blatstein IV, the Third Circuit concluded that "Blatstein fraudulently transferred his income to his wife in an effort to keep the money from his creditors." Blatstein IV, 192 F.3d at 92. However, in reaching this conclusion, the Third Circuit did not decide, either expressly or by necessary implication, whether Lori was an initial transferee. The closest the Third Circuit came to discussing whether Lori had dominion over the fraudulently transferred sums was in a section of the opinion that the Third Circuit announced was "not necessary for our result," id. at 98, and, therefore, it is dicta. While noting that the bankruptcy court erred in its "constructive fraud" analysis, the Third Circuit commented on the fact that
by failing to place the burden on Lori to prove that she gave reasonable consideration, the [bankruptcy] court did not adopt the more plausible interpretation of the facts: that Blatstein retained control over the funds despite transferring *716 them to his wife. Lori Blatstein used the funds both for her benefit and that of her husband for such purposes as paying their joint debts and putting aside money for their children's college educations. These payments suggest that Blatstein's conveyances were in title only, and that instead of giving her husband consideration in the form of payment of his debts, Lori merely was using the money where Blatstein directed her to use it.
Blatstein IV, 192 F.3d at 98. Although the Third Circuit's dicta addresses factual issues that may appear to be relevant to the question of whether Lori was an initial transferee, the Third Circuit did not decide, either expressly or by necessary implication, that Lori was an initial transferee. Therefore, the law of the case doctrine is not applicable to the current proceeding. As a result, the bankruptcy did not err when it refused to find that Lori was an initial transferee as a matter of law.
ii) Dominion and Control
The appellants also claim that the bankruptcy court erred when it found that Lori did not have "dominion and control" over the fraudulently transferred funds because the record contains ample evidence that she had physical control and legal authority over the fraudulently transferred funds. See Appeal Br., at 31. As a result, the appellants claim that the bankruptcy court erred when it concluded that the Trustee was not entitled to a judgment against Lori because she was not an initial transferee.
The bankruptcy court concluded that Lori was not an initial transferee because it found that she "lacked `dominion' over the monies in question." Blatstein V, 244 B.R. at 303. In reaching this conclusion, the bankruptcy court relied on its findings that "Lori was merely a pawn who used the monies deposited into her accounts where Blatstein directed her to do so," and that "Blatstein retained control over the monies despite nominally transferring them to Lori." Id. The bankruptcy court noted that, at least within the context of a "constructive fraud" inquiry, the Third Circuit stated that it would be a "plausible interpretation of the facts" for the bankruptcy court to find:
"that Blatstein retained control over the funds despite transferring them to his wife. Lori . . . used the funds both for her benefit and that of her husband for such purposes as paying their joint debts and putting aside money for their children's college educations. These payments suggest that Blatstein's conveyances were in title only, and that instead of giving her husband consideration in the form of payment of his debts, Lori merely was using the money where Blatstein directed her to use it."
Id. at 302 (quoting Blatstein IV, 192 F.3d at 98 (emphasis added)).
Whether the Trustee is entitled to a judgment against Lori for the amount of money the bankruptcy court found Blatstein fraudulently transferred to Lori is a mixed question of fact and law. As a result, after discussing the dominion and control test, I will review the bankruptcy court's findings of fact for clear error and subject its application of the law to those facts to de novo review.
"While courts have consistently held that the Bonded dominion and control test is the appropriate test to apply when determining whether a person or entity constitutes an initial transferee under § 550, those same courts have disagreed about the type of dominion and control that must be asserted." Bowers, 99 F.3d at 155. While "some courts have held that a principal or agent acting in his or her representative capacity is an initial transferee *717 where that person exercised physical control over the funds," most courts require more than mere physical dominion or de facto control over the fraudulently transferred funds. Id. (citations omitted). For example, some "courts have required the principal or agent to have legal dominion and control over the funds transferred in order to constitute the initial transferee of the funds." Id. (citations omitted). These courts have held that the dominion and control test requires that the initial transferee have "the right to put those funds to one's own purpose." Id. at 156 (quotation omitted).
In choosing a standard to assess whether Lori had "dominion and control," the bankruptcy court sided with the courts that require an entity or an individual to have legal dominion over funds in order to be considered an initial transferee. In particular, the bankruptcy court concluded that, "[a]n entity does not have `dominion over the money' until it is, in essence, `free to invest the whole [amount] in lottery tickets or uranium stocks.'" Blatstein V, 244 B.R. at 303 (quoting Bonded, 838 F.2d at 894). As the bankruptcy court noted, the Bonded court also states the standard as follows: "`the minimum requirement of status as a "transferee" is dominion over the money or other asset, the right to put the money to one's own purposes.'" Id. at 302 (quoting Bonded, 838 F.2d at 893) (emphasis added).
Although the bankruptcy court did not err by choosing this high standard for assessing whether Lori had dominion over the fraudulently transferred funds, the bankruptcy did err by ignoring the considerable evidence in the record that Lori clearly had the right to put the transferred funds to her own purpose. As a result, even under the high standard employed by the bankruptcy court, Lori had dominion and control over the fraudulently transferred funds. First, it is undisputed that the accounts in question were in Lori's name. See L. Blatstein Test., Tr. of May 9, 1997, at 21 & 23. By definition, a person has the right to put money that is in an account titled solely in his or her own name to his or her own purpose. Second, the bankruptcy court has seemingly confused the question of whether one may or may not have exercised control over fraudulently transferred funds with the clearly distinct question of whether one had the right to exercise control over fraudulently transferred funds. Even if the bankruptcy court's finding that "Lori was merely a pawn who used the monies deposited into her accounts where Blatstein directed her to do so" is empirically correct, ultimately, at every moment after the fraudulent transfers took place, Lori always possessed the right whether she exercised it or not to decline to follow Blatstein's instructions. Both Lori's and Blatstein's testimony is clear on this point. For example, Lori testified as follows:
Q. Well, did you treat whatever was in that Gruntal money market account as your own money?
A. It was my money. It was our money.
L. Blatstein Test., Tr. of May 9, 1997, at 46 (emphasis added).
Q. Well, who decides if and when you're gonna take some money and give it back to one of these companies that lent it to you?
A. My husband.
Q. Your husband makes that decision?
A. (No verbal response).
Q. Is that a yes?
A. Excuse me?
Q. Your husband makes the decision as to if and when you're gonna take money and pay it back to one of these companies?
*718 A. Well, we do. Because it's coming out of my account.
L. Blatstein Test., Tr. of May 9, 1997, at 56 (emphasis added).
And Blatstein concurred with Lori on this point:
Q. If I were to ask you if I were to pick out the dates as we go down this exhibit and ask you, whose money is in the account at various points in time, could you answer that question any more thoroughly than you've answered it so far, sir?
A. It's Lori's account, it's Lori's money.
Q. So it's always Lori's money. It doesn't belong to the companies?
A. It's her account, it's her money.
Q. I thought you said a few minutes ago that sometimes it belongs to some of the companies.
A. I never said that.
Mr. Carey: That was not the testimony.
The Court: It was something like that. All right, I don't know.
Mr. Carey: The testimony, your Honor, was that the money went to various
The Court: It wasn't that it was Lori's. I know that.
The Witness: The money is in Lori's account, it's Lori's, however, she used it, at times, to pay some expenses.
Q. Whose expenses?
A. Different company expenses where she put the money back into the companies.
Q. So it's Lori's money unless and until Lori decides she's going to use it to pay the expenses of these companies. Is that your testimony, sir?
A. Lori's account I'm sorry. Did someone say something?
Q. No, sir.
A. Lori's account is Lori's money.
Blatstein Test., Tr. of May 12, 1997, at 140-41 (emphasis added). Third, it is irrelevant whether, by following Blatstein's instructions, Lori was or was not exercising her right to assert dominion over the fraudulently transferred funds. As the appellants pointed out, Lori used the fraudulently transferred funds to purchase, inter alia, "three horses valued at thousands of dollars each, a horse trailer, a double Viking brand stove, art and many pieces of household furniture as well as more than thirty different stocks." Appeal Br., at 9 (citing L. Blatstein Test., Tr. of May 9, 1997, at 50-51 & 66-69). In order to determine whether, in making these purchases, Lori was exercising "dominion and control" over the fraudulently transferred funds, a court would have to analyze Lori's motivations and desires. Questions of this sort are beyond the scope of the "dominion and control" test. Instead, the "dominion and control" test is purely concerned with rights. See Bonded, 838 F.2d at 893 ("the minimum requirement of status as a `transferee' is dominion over the money or other asset, the right to put the money to one's own purposes.") (emphasis added). And Lori clearly had the right to invest the fraudulently transferred funds in "lottery tickets or uranium stocks." Whether she chose to exercise that right is irrelevant.
To the extent that the bankruptcy court's determination that Lori did not have dominion and control over the fraudulently transferred funds was based on factual findings, that determination is clearly erroneous, and, to the extent that that determination was based on a legal conclusion, it is an error of law. As a result, the bankruptcy court erred when it concluded that Lori was not an initial transferee and, therefore, that the Trustee *719 was not entitled to a judgment against her. Thus, I will vacate the bankruptcy court's conclusion that Lori was not an initial transferee and remand for findings of fact and conclusions of law consistent with this opinion.
B. Joint and Several Liability
After finding that Lori was not an active participant in the fraudulent transfers, Blatstein V, 244 B.R. at 303, the bankruptcy court concluded that the Trustee was not entitled to a joint and several judgment against the Blatsteins. In reaching this conclusion, the bankruptcy court emphasized that "the trustee failed to cite any authority which, as a special penalty for the fraud and to render a judgment more easily collectible, would impose joint and several liability on an innocent nominal transferee simply because she was an instrument of the fraud." Blatstein V, 244 B.R. at 303 (emphasis added). The bankruptcy court also rested this conclusion on its finding that the transaction at issue was not a classic fraudulent conveyance because it entailed transferring funds "from one possibly judgment-proof person (Blatstein) to another (Lori)." Id. at 304. Furthermore, the bankruptcy court explained that "[w]e perceive no equity in allowing the Trustee to, without supporting authority, artificially utilize these transactions to obtain a windfall which they would not otherwise support." Id.
In support of the bankruptcy court's decision, the Blatsteins claim that "[t]he only other courts found to have specifically considered this issue have come to [the same conclusion that the bankruptcy court did]." Blatsteins' Supplemental Br., at 2. In In re Cardon Realty Corp., the bankruptcy court refused to impose joint and several liability despite finding that transfers between the husband and wife were fraudulent because the "Plaintiff has not provided and the Court has not found any authority for such relief on these causes of action." Bucki v. Singleton (In re Cardon Realty Corp.), 146 B.R. 72, 81 (Bankr. W.D.N.Y.1992). Similarly, in Shamis v. Ambassador Factors Corp., the court refused to impose joint and several liability on the parties to a fraudulent transfer because "there is a dearth of legal support for the imposition of joint and several liability between transferors and transferees in a fraudulent conveyance." Shamis v. Ambassador Factors Corp., 95 CIV. 9818 RWS, 2001 WL 25720, at *8 (W.D.N.Y. Jan.10, 2001). However, it should be noted that the Shamis court cites Blatstein V as support for this claim. See id.
The Trustee claims that "[e]quity and justice require a joint and several judgment here, since the Blatsteins, when not placing money into Lori's name alone, titled their significant holdings as tenants by the entireties." Appeal Br., at 38. In particular, the appellants argue that "[a]s a remedial statute which explicitly authorizes numerous equitable remedies for wronged parties, see 12 Pa.C.S.A. § 5107(a), the PUFTA should not be interpreted to allow two wrongdoers to escape liability for the same underlying conduct merely because their assets are titled as joint property by the entireties." Id.
In support of this argument, the Trustee cites two recent bankruptcy court decisions in which the transferor and transferee were husband and wife. See Supplemental Appeal Br., at 2. In In re Nam, the debtor husband deposited seven paychecks totaling $7,496.91 into his wife's bank account and the bankruptcy court found that these transfers were both actually and constructively fraudulent under the PUFTA. See Krasny v. Nam (In re Nam), 257 B.R. 749, 765-68 (Bankr.E.D.2000). As a result, the bankruptcy court entered judgment against the husband and the wife. *720 See id. However, the Trustee's emphasis on this case seems to be somewhat misplaced because the bankruptcy court did not explicitly find the husband and wife jointly and severally liable. Although the court in In re McLaren did find the husband and wife jointly and severally liable, the court only explained its grounds for finding both the husband and the wife liable, not for finding them jointly and severally liable. Kaler v. McLaren (In re McLaren), 236 B.R. 882 (Bankr.D.N.D. 1999). As a result, neither of these cases is of much assistance to this court.
More persuasive is the Trustee's argument that this case is analogous to a tort case and that the Blatsteins should be considered to be joint tortfeasors. See Supplemental Appeal Br., at 5. This analogy is compelling for two reasons. First, "[a] number of courts have classified fraudulent conveyance claims as torts for purposes of choice-of-law issues." SEC v. The Infinity Group Co., 27 F. Supp. 2d 559, 564 (E.D.Pa.1998) (citations omitted). Second, common law fraud is a tort. See Zimmer v. Gruntal & Co., Inc., 732 F. Supp. 1330, 1335-36 (W.D.Pa.1989); see also Restatement (2d) of Torts § 525 (1976) ("One who fraudulently makes a misrepresentation of fact, opinion, intention or law for the purpose of inducing another to act or to refrain from action in reliance upon it, is subject to liability to the other in deceit for pecuniary loss caused to him by his justifiable reliance upon the misrepresentation.").
Under Pennsylvania law, parties whose actions cause a single injury are joint tortfeasors. See Baker v. AC&S, Inc., 729 A.2d 1140, 1146 (Pa.Super.Ct.1999)("Under Pennsylvania law, it is well-established that if the tortious conduct of two or more persons combines to cause a single harm which cannot be apportioned, the actors are joint tortfeasors even though they may have acted independently."), aff'd, 562 Pa. 290, 755 A.2d 664 (2000); Capone v. Donovan, 332 Pa.Super. 185, 480 A.2d 1249, 1251 (1984)("If the tortious conduct of two or more persons causes a single harm which cannot be apportioned, the actors are joint tortfeasors even though they may have acted independently."). And if parties are joint tortfeasors, they are "jointly and severally liable" to the plaintiff for his or her injuries. Baker v. AC&S, Inc., 562 Pa. 290, 755 A.2d 664, 669 (2000) (citing Incollingo v. Ewing, 474 Pa. 527, 379 A.2d 79, 85 (1977)).
Furthermore, considering the apparent dearth of direct precedent on this issue, the analogies the Trustee draws between the current case and misconduct in the corporate context are also persuasive. See Supplemental Appeal Br., at 5-7. For example, the Trustee points out that the Pennsylvania Supreme Court has found that "[i]t is axiomatic that directors and officers of a corporation are jointly as well as severally liable for mismanagement, willful neglect or misconduct of corporate affairs if they jointly participate in the breach of fiduciary duty or approve of, acquiesce in, or conceal a breach by a fellow officer or director." Seaboard Indus., Inc. v. Monaco, 442 Pa. 256, 276 A.2d 305, 309 (1971). And, even more relevant to the determination of liability in a fraudulent transfer case, the Trustee also reminds this court that the Third Circuit has held that joint and several liability is appropriate in securities fraud cases "when two or more individuals or entities collaborate or have close relationships in engaging in the illegal conduct." SEC v. Hughes Capital Corp., 124 F.3d 449, 455 (3d Cir. 1997) (citations omitted).
Therefore, joint and several liability is an available remedy in fraudulent transfer cases. Still, the decision to impose joint and several liability does fall *721 within the bankruptcy court's discretionary authority. As a result, I will review the bankruptcy court's decision for abuse of that discretion.
The bankruptcy court's conclusion that the Trustee was not entitled to a joint and several judgment against the Blatsteins rested at least in part on its erroneous conclusion that Lori was "an innocent nominal transferee." Blatstein V, 244 B.R. at 303. However, as noted above, I have concluded that this was an erroneous conclusion and that Lori is in fact liable to the Trustee for the fraudulent transfers. Therefore, the bankruptcy court's refusal to exercise its discretion to hold the Blatsteins jointly and severally liable rests upon an errant conclusion of law. As a result, the bankruptcy court's conclusion that the Trustee was not entitled to a joint and several judgment constitutes an abuse of discretion and it will be vacated. On remand, the bankruptcy court should exercise its discretion based upon the principles discussed above as well as the equities of the case.
C. Prejudgment Interest
The bankruptcy court also refused to grant the Trustee prejudgment interest. Blatstein V, 244 B.R. at 304-05. In deciding not to exercise its discretion to grant the Trustee prejudgment interest, the bankruptcy court primarily relied on two factors that distinguished this case from those cases in which prejudgment interest is generally granted. First, the bankruptcy court concluded that the sum which Blatstein was liable for was not "ascertainable by computation" at the outset of the litigation. See id. at 304. Second, the bankruptcy court found that the funds at issue in this case were "wrongfully transferred" as opposed to being "wrongfully procured or withheld" from the Trustee. See id. at 304-05.
The appellants ask this court to find that the bankruptcy court erred as a matter of law when it refused to award them prejudgment interest. See Appeal Br., at 47-48; Supplemental Appeal Br., at 10. In the alternative, the Trustee submits that the bankruptcy court's refusal to award it in this case was an abuse of discretion. See Supplemental Appeal Br. at 9-10.
Under Pennsylvania law, prejudgment interest is awardable as of right in contract cases. See Fina v. Fina, 737 A.2d 760, 770 (Pa.Super.Ct.1999). In other cases, prejudgment interest is an equitable remedy awarded at the discretion of the trial court. See Somerset Cmty. Hosp. v. Allan B. Mitchell & Assoc., 454 Pa.Super. 188, 685 A.2d 141, 148 (1996). In cases where there is no conclusive precedent, the Pennsylvania Supreme Court has encouraged courts to take a flexible approach in deciding whether to award prejudgment interest. See Murray Hill Estates, Inc. v. Bastin, 442 Pa. 405, 276 A.2d 542, 545 (1971). In such cases, courts may, for example, consider the following factors in evaluating a claim for prejudgment interest: 1) whether the claimant has been diligent in prosecuting the action; 2) whether the defendant has been unjustly enriched; 3) whether an award would be compensatory; and 4) whether the award of prejudgment interest is otherwise equitable. See American Mut. Liability Ins. Co. v. Kosan, 635 F. Supp. 341, 346 (W.D.Pa.1986). However, it should be noted that in cases where "`a defendant holds money or property which belongs in good conscience to the plaintiff, and the objective of the court is to force disgorgement of [the defendant's] unjust enrichment,'" the Superior Court of Pennsylvania has held that prejudgment interest "is a part of the restitution necessary to avoid injustice." Kaiser v. Old Republic Ins. Co., 741 A.2d 748, 755 (Pa.Super.Ct.1999).
*722 In this case, the bankruptcy court denied prejudgment interest primarily because it found that the sum claimed by the Trustee was not "ascertainable by computation" at the outset of the litigation. The bankruptcy court's reliance on this line of reasoning is of limited usefulness for two reasons. First, the precedents the bankruptcy court cites are inapplicable because this is not a contract dispute. Second, even if this inquiry were relevant, the sums involved in this case were clearly ascertainable by computation. According to the Pennsylvania Supreme Court, in contract cases, prejudgment interest "is a right which arises upon breach or discontinuance of the contract provided the damages are then ascertainable by computation and even though a bona fide dispute exists as to the amount of the indebtedness." Palmgreen et al. v. Palmer's Garage, Inc., 383 Pa. 105, 117 A.2d 721, 722 (1955) (emphasis added). However, if the sum involved in a contract case is not ascertainable at the time of the alleged breach, a court may still award prejudgment interest as an equitable remedy. Because these proceedings do not stem from a contract dispute, it was already clear that the Trustee was not entitled to prejudgment interest.
Even if this inquiry were relevant, the sums involved in this case were clearly ascertainable by computation. Instead of disputing the amount of money that was transferred to Lori on a particular day, the Blatsteins only dispute the Trustee's claim that the transfers were fraudulent. Furthermore, the Pennsylvania Supreme Court has held that a "bona fide dispute [] as to the amount of indebtedness" does not negate a plaintiff's right to prejudgment interest. Palmgreen, 117 A.2d at 722. The disagreement between the Trustee and the Blatsteins as to the legal significance of the Blatsteins' actions is clearly a bona fide dispute. As a result, the court's discussion about whether the sum in dispute was ascertainable at the outset of litigation is only relevant to the extent that it suggests whether or not an award of prejudgment interest would be equitable.
The bankruptcy court also denied the Trustee prejudgment interest because the funds at issue in this case were "wrongfully transferred" as opposed to being "wrongfully procured or withheld." Blatstein V, at 304-05 (citing Rizzo v. Haines, 520 Pa. 484, 555 A.2d 58, 70 (1989)). The bankruptcy court states that Rizzo stands for the principle that "pre-judgment interest may [] be awarded if, in the discretion of the court, such an award is necessary to compensate a party from whom funds have been wrongfully procured or withheld." Blatstein V, at 304 (citing Rizzo, 555 A.2d at 70). However, this is clearly a misreading of Rizzo. In Rizzo, the appellant Haines was arguing that "the Superior Court erred in calculating interest on the $50,000 transfer at the market rate rather than the statutory rate." Rizzo, 555 A.2d at 69. The passage cited by the bankruptcy court stands for the principle that, when "funds are wrongfully and intentionally procured or withheld from one who seeks their restoration," prejudgment interest should be calculated at the market rate, as opposed to the lower statutory rate. See Rizzo, 555 A.2d at 70. It does not stand for the principle that prejudgment interest should not be awarded at all if the funds in dispute were "wrongfully transferred" as opposed to being "wrongfully procured or withheld." As a result, as with its discussion of whether the sum in dispute in this case was "ascertainable by computation," the bankruptcy court's reliance on this line of reasoning is misguided.
These two faulty lines of reasoning were the main grounds the bankruptcy court gave for denying the Trustee's request for prejudgment interest. Therefore, I conclude *723 that the bankruptcy court's denial of the Trustee's request for prejudgment interest rests upon errant conclusions of law and improper applications of law to fact. As a result, the bankruptcy court's conclusion that prejudgment interest was "unwarranted" constitutes an abuse of discretion. On remand, the bankruptcy court should exercise its discretion based upon the principles discussed above as well as the equities of the case.
D. Other Equitable Relief
The bankruptcy court also denied the Trustee's request for equitable remedies to aid him in his effort to collect the judgment against Blatstein. See Blatstein V, 244 B.R. at 305. However, because the bankruptcy court's findings are sparse, it is difficult to discern the bankruptcy court's basis for refusing to exercise its discretion to grant the Trustee's request for equitable remedies. See id. at 304-05.
Citing the Blatsteins' history of fraudulent transfers and other improper or illegal conduct, the Trustee claims that he is entitled to unspecified equitable remedies to ensure that the judgment is satisfied. See Appeal Br., at 48-50. The Trustee argues that the bankruptcy court erred as a matter of law because "the record in this case compels the Court to invoke the equitable powers provided by the PUFTA and the Bankruptcy Code." Id. at 49. At oral arguments, the Trustee admitted that his brief failed to identify the equitable remedies he is seeking, and, for the first time, the Trustee asked this court to impose a constructive trust on the Blatsteins' assets.
Whether to grant a request for equitable remedies to aid the Trustee in his effort to collect a judgment falls within the bankruptcy court's discretionary authority. Therefore, I will review the bankruptcy court's decision for abuse of discretion.
Because the bankruptcy court's findings on the balance of the equities are sparse, I am unable to determine whether the decision to deny the Trustee further equitable relief "rests upon a clearly erroneous finding of fact, an errant conclusion of law, or an improper application of law to fact." In particular, I am unable to discern whether the bankruptcy court's conclusion rests upon its erroneous conclusion that Lori was not liable for the fraudulent transfer. As a result, I will vacate the bankruptcy court's refusal to grant the Trustee's request for equitable relief, and, on remand, the bankruptcy court may reassess the request in light of this opinion.
CONCLUSION
The bankruptcy court's January 21, 2000 order will be affirmed in part and vacated in part.
The bankruptcy court's conclusion that the statute of limitations barred claims arising from transfers Blatstein made prior to February 1, 1994 will be affirmed. This court will also affirm the bankruptcy court's finding that Blatstein fraudulently transferred $1,533,428.65 to Lori between October 3, 1995 and December 19, 1996. Similarly, I will affirm the bankruptcy court's conclusion that the Trustee cannot recover Blatstein's postpetition fraudulent transfers. However, the bankruptcy court's conclusion that Blatstein did not make any fraudulent transfers to Lori prior to October 3, 1995 will be vacated.
I will also affirm the bankruptcy court's decision that the Trustee is entitled to a judgment against Blatstein for the amount of money the bankruptcy court found that Blatstein fraudulently transferred to Lori. However, I will vacate the bankruptcy court's conclusion that the Trustee was not entitled to a judgment against Lori because she was not an initial transferee. *724 Similarly, the bankruptcy court's conclusion that the Trustee is not entitled to a joint and several judgment against the Blatsteins will be vacated, as will its determinations that the Trustee is not entitled to prejudgment interest or other equitable remedies.
The matter will be remanded to permit the bankruptcy court to make further factual findings and legal conclusions consistent with this memorandum.
NOTES
[1] The Trustee and Arch Street will be referred to collectively as the "appellants."
[2] Blatstein and Lori will be referred to collectively as the "Blatsteins."
[3] The bankruptcy court occasionally states that Blatstein filed for bankruptcy on December 16, 1996. See, e.g., Blatstein V, 244 B.R. at 294 & 298. This appears to be a typographical error.
[4] In the Blatsteins' Brief, footnote one appears to be inconsistent with footnote three. See Blatsteins' Br., at 7 & 17. Because their only mention of the statute of limitations issue is in footnotes that seemingly offer contradictory conclusory statements, I will presume that the Blatsteins did not intend to challenge the bankruptcy court's conclusion on this issue.
[5] The Third Circuit also noted that "the bankruptcy court erred in its `constructive fraud' analysis by incorrectly placing on Arch Street the burden of proving that reasonably equivalent value was not given for the transfer. . . . In fact, if the grantor is in debt at the time of a transfer PUFTA places on the grantee the burden of proving by clear and convincing evidence either that the grantor was solvent at the time of the transfer or that the grantee had given reasonably equivalent value for the conveyance." Id.
[6] In their brief, the appellants note that the Blatsteins "produced no personal financial records other than tax returns prior to October, 1995, so the Trustee does not know exactly how the Blatsteins did their banking. . . ." Appeal Br., at 43 n. 27.
[7] I will note that the electronic version of the bankruptcy court's opinion contains a typographical entry in Table 9: $10,441.66, not $510,441.66, was deposited into the Gruntal Money Market account on October 28, 1996. See id. at 299; Plaintiff's Exhibit 100. However, this typographical error does not appear in the bankruptcy court's original opinion. See Certificate of Appeal, Copy of Opinion and Order of the Honorable David A. Scholl dated January 21, 2000 and entered on February 3, 2000, Table 9, at 23. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2718787/ | Affirmed in Part and Reversed and Remanded in Part and Opinion filed
August 19, 2014.
In The
Fourteenth Court of Appeals
NO. 14-13-00536-CV
IN THE MATTER OF THE MARRIAGE OF ISIS SPENCER BUTTS AND
RICKEY SHARNARD BUTTS
On Appeal from the 344th District Court
Chambers County, Texas
Trial Court Cause No. CV-27505
OPINION
Appellant Rickey Butts brings this restricted appeal from the trial court’s
final decree of divorce. Rickey contends the evidence is insufficient to support the
trial court’s orders appointing appellee Isis Butts as sole managing conservator of
the couple’s child and awarding $800 per month in child support. Rickey also
contends the judgment is void for vagueness. Because error is shown on the face of
the appellate record, we affirm in part and reverse and remand in part for further
proceedings.
BACKGROUND
In 2002, Rickey and Isis were married and resided in Florida. Later that
year, the couple had their only child, R.B. In 2011, Rickey and Isis stopped living
together, and in 2012, Isis filed a petition for divorce in Texas. Rickey signed a
waiver of service regarding the pending divorce case. In the waiver, Rickey listed
his home address as Belle Glade, Florida. The waiver contains language indicating
that by signing, Rickey enters an appearance as a substitute for going to court,
“agrees that the court can make decisions in this case without further notice to
[him],” and agrees that “the Judge . . . of the court may make decisions about [his]
divorce.” This waiver was filed with the court on October 24, 2012.
On December 19, 2012, a hearing was held in which Isis appeared pro se.
Rickey did not appear. At the conclusion of the hearing, the trial court signed a
final decree of divorce. The trial court also ordered that, and among other things,
Isis was appointed the sole managing conservator of R.B. and Rickey was required
to pay $800 a month in child support. On June 18, 2013, Rickey filed a notice of
restricted appeal.
ISSUES AND ANALYSIS
Rickey presents three issues on appeal: (1) the trial court abused its
discretion in its child support determination because the evidence is legally and
factually insufficient to support the determination; (2) the trial court abused its
discretion in appointing Isis as the sole managing conservator because the evidence
is legally and factually insufficient to support the appointment; and (3) the
judgment of the trial court is void for vagueness. In response, Isis contends that
Rickey has not met the requirements of a restricted appeal and, alternatively, that
the trial court did not abuse its discretion and the judgment is not void.
2
I. Isis’s Challenge to Rickey’s Restricted Appeal
As a threshold matter, Isis urges that Rickey is not entitled to bring a
restricted appeal because he cannot satisfy the requirements of a restricted appeal.
To bring a restricted appeal, Rickey must establish that: (1) he filed notice of the
restricted appeal within six months after the judgment was signed; (2) he was a
party to the underlying lawsuit; (3) he did not participate in the hearing that
resulted in the judgment complained of and did not timely file any post-judgment
motions or requests for findings of fact and conclusions of law; and (4) error is
apparent on the face of the record. See Alexander v. Lynda’s Boutique, 134 S.W.3d
845, 848 (Tex. 2004). Isis challenges only elements three and four.
A. Failure to Participate in the Decision-Making Event
Isis contends that Rickey participated in the hearing resulting in the
judgment because the “Waiver of Service” form Rickey signed is sufficient to
constitute participation in the decision-making event. In the form, Rickey swore
under oath that by signing, he was entering an appearance as a substitute for going
to court. The form also included the following statements on which Isis relies: (1)
“I have read the Petition for Divorce and understand what it says . . . .”; and (2) “I
agree that a Judge, Associate Judge, or appointed Referee of the Court may make
decisions about my divorce . . . .” Isis also argues that by signing the form, Rickey
is estopped from denying his participation in the decision-making event. We
address both of these arguments.
1. Rickey did not participate by signing the waiver of service.
When analyzing the third element of nonparticipation, the investigation turns
on whether the appellant took part in the “decision-making event” that resulted in
an adjudication of the appellant’s rights. Texaco, Inc. v. Cent. Power & Light Co.,
3
925 S.W.2d 586, 589 (Tex. 1996). It is not necessary that an appellant attend the
trial on the merits in order to be deemed as having taken part in a decision-making
event. Id. Whether someone participated in the decision-making event is a matter
of degree “because trial courts decide cases in a myriad of procedural settings.”
McKnight v. Trogdon-McKnight, 132 S.W.3d 126, 129 (Tex. App.—Houston [14th
Dist.] 2004, no pet.) (citing Texaco, Inc., 925 S.W.2d at 589); see also Tramco
Enters., Inc. v. Indep. Am. Sav. Ass’n, 739 S.W.2d 944, 946 (Tex. App.—Fort
Worth 1987, no writ) (stating that “the courts . . . have recognized that a large
degree of participation is required before a party is denied appeal by writ of
error”).
The law is clear that signing a waiver of service alone is not sufficient to
constitute participation for purposes of a restricted appeal. See, e.g., Stubbs v.
Stubbs, 685 S.W.2d 643, 645 (Tex. 1985); Seymour v. Seymour, No. 14-07-00280-
CV, 2009 WL 442259, at *2 (Tex. App.—Houston [14th Dist.] Feb. 10, 2009)
(mem. op.); Campsey v. Campsey, 111 S.W.3d 767, 771 (Tex. App.—Fort Worth
2003, no pet.). This is true even when the language of the waiver indicates that by
signing, one is entering an appearance as a substitute for going to trial, giving a
judge permission to make decisions in the case without further notice to the signor,
and waiving the making of a record of testimony. See Seymour, 2009 WL 442259
at *1–2; Campsey, 111 S.W.3d at 769–71. Though the language in the form signed
by Rickey may be broad, this court will treat the form as what it purports to be—a
waiver of service. As such, we conclude that Rickey did not participate in the
decision-making event by merely signing the form.
2. Rickey is not estopped from denying participation.
Isis also asserts that Rickey is judicially estopped from challenging the
decisions made by the judge in his divorce action. Judicial estoppel “precludes a
4
party from adopting a position inconsistent with one that it maintained successfully
in an earlier proceeding.” Pleasant Glade Assembly of God v. Schubert, 264
S.W.3d 1, 6 (Tex. 2008). The doctrine of judicial estoppel applies if all of the
following elements are present: (1) a sworn, prior inconsistent statement made in a
judicial proceeding; (2) the party now sought to be estopped successfully
maintained the prior position; (3) the prior inconsistent statement was not made
inadvertently or because of mistake, fraud, or duress; and (4) the statement was
deliberate, clear and unequivocal. Spera v. Fleming, Hovenkamp & Grayson, P.C.,
25 S.W.3d 863, 871 (Tex. App.—Houston [14th Dist.] 2000, no pet.); Vinson &
Elkins v. Moran, 946 S.W.2d 381, 396 (Tex. App.—Houston [14th Dist.] 1997,
writ dism’d by agr.).
Isis claims that the waiver of service signed by Rickey—in which he agreed
under oath that a judge may make decisions in the divorce action without further
notice to him—is inconsistent with Rickey’s appeal of the judge’s decision. But,
“[a]n appeal in the same case is not a ‘subsequent action’ to which judicial
estoppel applies.” Graves v. Tomlinson, 329 S.W.3d 128, 138 (Tex. App.—
Houston [14th Dist.] 2010, pet. denied). Because Rickey is making an appeal in the
same case in which the alleged prior inconsistent statement was made, the doctrine
of judicial estoppel does not apply.
Nevertheless, Isis’s brief may be fairly construed to include an argument that
Rickey is equitably estopped from appealing because the language in the waiver of
service is inconsistent with the requirement of nonparticipation in the decision-
making event. See Tex. R. App. P. 38.1(f) (“The statement of an issue or point will
be treated as covering every subsidiary question that is fairly included.”). 1 We
1
Although most of Isis’s argument refers to the doctrine of judicial estoppel, Isis’s brief
also includes the following: “The doctrine of equitable estoppel exists to prevent the very
conduct [Rickey] has displayed here . . . . The Court should hold that [Rickey] is estopped from
5
understand Isis’s position to be that, having authorized the trial court to make
decisions for him, Rickey cannot now deny the trial court’s authority.
Isis argues that Seymour, on which Rickey relies, actually supports her
position because in that case, this Court held that the appellant “acquiesced” to the
divorce decree by signing a post-judgment motion to reinstate, effectively
indicating her approval of the divorce decree’s terms and precluding her restricted
appeal. See 2009 WL 442259 at *2–3. But unlike the appellant in Seymour, Rickey
took no additional actions after signing the waiver of service. As previously
discussed, the signing of a waiver of service alone is insufficient to constitute
participation in the decision-making event, even when that waiver contains
language authorizing the judge to make decisions in the case. See Seymour, 2009
WL 442259 at *1–2; Campsey, 111 S.W.3d at 769–71. Because the record reflects
no additional actions by Rickey that would rise to the level of participation at trial,
Rickey is not equitably estopped from denying his participation.
Isis also argues that “[t]he restricted appeal is not a means to give a party
who suffers a default judgment at his own hands another opportunity to have the
merits of its case reviewed.” As support for this proposition, Isis relies on Classic
Promotions, Inc. v. Shafer, 846 S.W.2d 948, 951 (Tex. App.—Houston [14th Dist.]
1993, no writ), abrogated by Texaco, Inc. v. Cent. Power & Light Co., 925 S.W.2d
586 (Tex. 1996), and Flores v. H.E. Butt Grocery Co., 802 S.W.2d 53, 55 (Tex.
App.—Corpus Christi 1990, no writ). However, in Texaco, the Supreme Court of
Texas disapproved of Classic Promotions and other cases similarly holding that a
restricted appeal is not available to a party that fails to exercise diligence and
suffers a judgment because of its own actions. See Texaco, Inc., 925 S.W.2d at
asserting that he did not participate in the decision-making event after having decided to ask the
court to decide.”
6
590. The Court held that a party seeking a restricted appeal was “not required to
show diligence or lack of negligence before its complaints will be heard.” Id.
Guided by Texaco, we conclude that Rickey is not estopped from denying his
participation at the decision-making event.
B. Error Apparent on the Face of the Record
Isis next contends that Rickey is not entitled to a restricted appeal because
Rickey’s challenges to the sufficiency of the evidence supporting the trial court’s
rulings rely on an absence of evidence, and that the absence of evidence is not
error apparent on the face of the record. The authorities upon which Isis relies are
distinguishable, however, because they involve complaints that a party did not
receive notice of trial court proceedings, not complaints that the evidence is
insufficient to support the judgment. See Gold v. Gold, 145 S.W.3d 212, 213 (Tex.
2004) (per curiam) (holding that failure of record to affirmatively show that notice
of intent to dismiss was sent to a party was not error on the face of the record);
Alexander, 134 S.W.3d at 849 (same).
For purposes of a restricted appeal, the face of the record concsists of “all
the papers on file in the appeal,” including the reporter’s record. Norman
Commc’ns v. Tex. Eastman Co., 955 S.W.2d 269, 270 (Tex. 1997) (per curiam).
Because the scope of review in a restricted appeal is the same as in an ordinary
appeal, an appellant may challenge the legal and factual sufficiency of the
evidence. Id.; see also Osteen v. Osteen, 38 S.W.3d 809, 813 (Tex. App.—Houston
[14th Dist.] 2001, no pet.) (holding that error was apparent on the face of the
record after applying a legal sufficiency review to a divorce decree); Gonzalez v.
Gonzalez, 331 S.W.3d 864, 868 (Tex. App.—Dallas 2011, no pet.) (holding that
error was apparent on the face of the record when record lacked evidence regarding
obligor’s net resources in child support determination). We therefore will address
7
Rickey’s sufficiency challenges to determine whether there is error on the face of
the record.
II. Rickey’s Issues on Appeal
A. The Trial Court’s Child Support and Conservatorship Orders
In his first two issues, Rickey contends that the trial court abused its
discretion by requiring him to pay $800 per month in child support and appointing
Isis as sole managing conservator because there is no evidence to support these
rulings. The standard of review in both child support and managing
conservatorship orders is abuse of discretion. In re A.M.P., 368 S.W.3d 842, 846
(Tex. App.—Houston [14th Dist.] 2012, no pet.) (child support); In re R.T.K., 324
S.W.3d 896, 899 (Tex. App.—Houston [14th Dist.] 2010, pet. denied)
(conservatorship). Generally, a court abuses its discretion when it acts
unreasonably, arbitrarily, or without reference to any guiding principles. In re
R.T.K., 324 S.W.3d at 899. Legal and factual sufficiency challenges are not
independent grounds of error; instead, they are factors to be considered in
determining whether the trial court abused its discretion. Id. A trial court does not
abuse its discretion if there is some evidence of a substantive and probative
character to support its decision. Id. at 900.
1. No evidence supports the trial court’s child support order.
Rickey argues that the trial court abused its discretion in ordering him to pay
$800 per month in child support because the record is devoid of any evidence of
his net resources and the trial court made no findings to support a deviation from
the Family Code’s child support guidelines. Rickey requests that this court reverse
the trial court’s child support order and either render judgment awarding child
support consistent with the guidelines or remand the issue for further proceedings.
8
Generally, child support is calculated by applying statutory guidelines to the
obligor’s monthly net resources. See Tex. Fam. Code §§ 154.062(a), 154.124. For
one child, the guidelines provide that child support is to equal twenty percent of the
obligor’s net resources. Id. § 154.125(b). The trial court may deviate from the
guidelines if evidence rebuts the presumption that application of the guidelines is
in the best interest of the child. Id. § 154.123. If the guidelines are not followed, a
trial court must make specific findings as to (1) the net resources of the obligor and
the obligee, (2) the percentage applied to the obligor’s net resources, and (3) if
applicable, the specific reasons for the deviation from the guidelines.
Id. § 154.130(a)(3), (b).
Absent evidence of the obligor’s net resources, the trial court is required to
presume that the obligor has wages or salary equal to the federal minimum wage
for a forty-hour week. Act of April 6, 1995, 74th Leg., ch. 20, § 1, 1995 Tex. Gen.
Laws 118, 161 (amended 2013) (current version at Tex. Fam. Code § 154.068);
Moreno v. Perez, 363 S.W.3d 725, 736 (Tex. App.—Houston [1st Dist.] 2011, no
pet.). Based on the 2012 minimum-wage guidelines, Rickey calculates the
applicable amount of child support to be less than $230 per month.
Isis argues that child support of $800 per month is justified because the
record establishes that she had net resources of only $600 per month, Rickey was
employed at the Butts Memorial Chapel, Rickey caused Isis to lose her car by
ceasing to make payments on it, and Isis testified that $800 per month in child
support would be in the best interest of the child. But Isis presented no evidence
regarding Rickey’s financial resources.
Absent evidence of Rickey’s financial resources, the statutory presumption
that Rickey earns the federal minimum wage for a forty-hour week applies. See
Moreno, 363 S.W.3d at 736. Applying this presumption, the trial court’s award of
9
$800 per month is much more than twenty percent of Rickey’s presumed net
resources. Assuming the trial court determined that the evidence supported
deviating from the child support guidelines, the trial court was required to make
the specific findings required by the Family Code. See Tex. Fam. Code § 154.130.
However, the trial court did not make the required findings, either in writing or
orally at the hearing.
We therefore hold that the trial court abused its discretion in ordering Rickey
to pay $800 per month in child support in the absence of any evidence of Rickey’s
net resources and without making the statutorily mandated findings. See Omodele
v. Adams, No. 14-01-00999-CV, 2003 WL 133602 at *4–5 (Tex. App.—Houston
[14th Dist.] Jan. 16, 2003, no pet.) (mem. op.) (holding that in the absence of
evidence of the obligor’s net resources, the trial court abused its discretion by
awarding child support in excess of the federal minimum wage presumption
without making the findings required by § 154.130). We therefore sustain Rickey’s
first issue.
2. Some evidence supports appointment of Isis as sole managing
conservator.
In his second point of error, Rickey argues that the trial court abused its
discretion in awarding Isis sole managing conservatorship of their child because no
evidence was presented to overcome the presumption that it is in the child’s best
interest to appoint both parents as joint managing conservators, and the trial court
made no findings in connection with the conservatorship issue. Rickey requests
that this Court reverse the trial court’s conservatorship order and either render
judgment that Rickey and Isis are joint managing conservators or remand for
further proceedings.
In Texas, the primary consideration in determining conservatorship is the
10
best interest of the child. Tex. Fam. Code § 153.002; In re V.L.K., 24 S.W.3d 338,
342 (Tex. 2000).The trial court is required to presume that the appointment of the
parents as joint managing conservators is in the best interest of the child until
evidence is presented to rebut this presumption. See Tex. Fam. Code § 153.131(b).
The party seeking appointment as sole managing conservator has the burden to
rebut the presumption. Lide v. Lide, 116 S.W.3d 147, 152 (Tex. App.—El Paso
2003, no pet.).
When, as here, the parents do not file an agreed parenting plan, the trial
court may render an order appointing the parents joint managing conservators only
if the appointment is in the best interest of the child. Id. § 153.134(a). In making its
determination, the trial court is to consider the following factors:
(1) whether the physical, psychological, or emotional needs and
development of the child will benefit from the appointment of joint
managing conservators;
(2) the ability of the parents to give first priority to the welfare of the
child and reach shared decisions in the child’s best interest;
(3) whether each parent can encourage and accept a positive
relationship between the child and the other parent;
(4) whether both parents participated in child rearing before the filing
of the suit;
(5) the geographical proximity of the parents’ residences;
(6) if the child is 12 years of age or older, the child’s preference, if
any, regarding the person to have the exclusive right to designate the
primary residence of the child; and
(7) any other relevant factor.
Id. A finding of a history of family violence involving at least one of the parents of
a child removes the presumption that a joint managing conservatorship is in the
best interest of the child. Id. § 153.131(b).
The record establishes that Ricky and Isis were married in June 2002, and
11
R.B. was born in October 2002. Isis testified that she and Rickey stopped living
together in April 2011, apparently when R.B. was eight years old. Isis and R.B.
lived in Florida until April 9, 2012, when they moved to Texas. Rickey continued
to live and work in Florida. Isis requested a divorce on the basis of irreconcilable
differences and an award of $3,000 as “a fair and equitable division of the
community property and debts.” There is no evidence that Rickey has any
continuing relationship with either Isis or R.B., and no evidence of R.B.’s
relationship with either parent. There is also no evidence of R.B.’s physical health
or emotional well-being. Nor is there any evidence of family violence, and at the
time Isis sought the divorce from Rickey, she represented that there were no
protective orders against either of them, and that neither had asked for one.
Isis also testified that one morning in December 2012, as she prepared to go
to work, she discovered that the car Rickey had provided her was missing and,
when she reported it stolen, she was informed by the police that the car had been
repossessed because Rickey stopped making payments on it. Isis argues that the
trial court could have presumed that Isis, as a single mother without financial
support from Rickey, relied on the car to get to work, to take R.B. to school, and
for transportation necessary for doctor’s appointments, grocery shopping, and other
errands. Isis also argues that Rickey declined to attend the hearing to determine
conservatorship and instead left it to the trial court to decide. Isis contends the
evidence demonstrates that R.B.’s physical health or emotional development would
be harmed by Rickey’s appointment as conservator and that this evidence is
sufficient to overcome the presumption on which Rickey relies.
Neither party specifically discusses the statutory factors the trial court is to
consider in determining whether joint conservatorship is in the child’s best interest.
From our review of the record, we find no evidence concerning whether R.B.
12
would benefit from joint managing conservatorship, whether Isis and Rickey could
cooperate in making decisions for R.B., or whether either parent could promote a
positive relationship with the other parent. Because Isis testified that she and
Rickey lived together until 2011, there is some evidence that both parents
participated in raising the child for at least eight years before Isis filed for divorce.
But there is no evidence that Rickey has attempted to maintain any kind of
relationship with R.B. after R.B. and Isis moved to Texas, and the trial court could
have determined that Isis and Rickey no longer communicate with each other,
based on Isis’s testimony that she learned from the police, rather than Rickey, that
Rickey was no longer making payments on the car.
Moreover, the fact that Rickey resides in Florida, several states away from
Texas, is an important factor to consider in evaluating whether joint
conservatorship is in the best interest of the child. See In re Marriage of Bertram,
981 S.W.2d 820, 825 (Tex. App.—Texarkana 1998, no pet.). Additionally, the fact
that Rickey waived service and chose not to participate in the divorce proceedings
in which conservatorship, as well as child support and other matters significant to
the child’s well-being, is some evidence that Rickey has little interest in
maintaining any relationship with R.B. Likewise, Rickey’s willingness to leave
Isis, a single mother caring for her child on an income of $600 per month, without
a means of transportation to get to work or to provide for the child’s needs, is also
some evidence that Rickey has little concern for R.B.’s welfare.
Accordingly, we conclude that there is some evidence to overcome the
presumption that joint conservatorship is in the child’s best interest, and therefore
the trial court did not abuse its discretion in awarding Isis sole conservatorship of
R.B. See In re Marriage of Robinson, 16 S.W.3d 451, 456 (Tex. App.—Waco
2000, no pet.) (holding that more than a scintilla of evidence existed to support the
13
finding that appointing father sole managing conservator was in the child’s best
interest, thus also rebutting the presumption in favor of appointing the parents as
joint managing conservators). We therefore overrule Rickey’s second issue.
B. The Validity of the Final Decree of Divorce
In his third and final issue, Rickey asserts that the divorce decree is
unintelligible and void. According to Rickey, the decree in this case was generated
as a form document used in pro se divorces, and the form includes “Parenting Plan
Exhibits” that are neither signed nor initialed by the trial court. Additionally,
Rickey complains the trial court left blank the boxes to be checked to indicate
which “exhibits” were included in the parenting plan—an omission Rickey
contends is critical. Rickey relies on the following portion of the judgment:
VI. Parenting Plan:
The Court FINDS that the attached orders found in the Parenting Plan
Exhibits are in the best interest of the children, and makes the
following orders regarding custody, visitation, child support, and
health insurance, as included in this section and the attached Parenting
Plan Exhibits.
...
Parenting Plan Exhibits – The following Exhibits are attached to this
Decree of Divorce and are made a part of this Decree for all purposes.
□ Exhibit: Conservatorship (Custody) Order
□ Exhibit: Rights and Duties Order
□ Exhibit: Possession and Access (Visitation) Order
□ Exhibit: Child Support Order
□ Exhibit: Medical Support Order
□ Exhibit: Family Information
As noted, none of the boxes are checked. Several pages later, just above where the
trial court is to sign, the judgment states that “[a]ny orders requested that do not
14
appear above are denied.”
Rickey asserts that because none of the above boxes were checked, the
parenting plan orders attached to the divorce decree were never incorporated, and
the only reasonable interpretation of the decree is that the trial court denied all of
the relief requested in the parenting plan. Consequently, Rickey urges, the
judgment is internally inconsistent, unintelligible, and fails to incorporate by
reference the parenting plan. See Stewart v. USA Custom Paint & Body Shop, Inc.,
870 S.W.2d 18, 20 (Tex. 1994) (“A judgment must be sufficiently definite and
certain to define and protect the rights of all litigants, or it should provide a definite
means of ascertaining such rights, to the end that ministerial officers can carry the
judgment into execution without ascertainment of facts not therein stated.”); see
also Am. Cas. & Life Ins. Co. v. Boyd, 394 S.W.2d 685, 688 (Tex. Civ. App.—
Tyler 1965, no writ) (holding that an order purporting to both grant and deny a
motion to dismiss was “utterly unintelligible on its face” and therefore of no legal
force and effect). Further, Rickey argues that omission of the parenting plan leaves
major and essential issues of the divorce wholly unresolved, citing Texas Family
Code section 6.406 (providing that a suit for dissolution of a marriage must include
a suit affecting the parent-child relationship). We disagree with Rickey’s
characterization of the trial court’s order.
Each of the exhibits to the parenting plan are actually attached to the decree
and have been completed to reflect the trial court’s orders on each, including the
orders on conservatorship and child support challenged in Rickey’s first and
second issues. Further, the parenting-plan portion of the decree does not instruct
that some or all of the boxes must be checked for the orders to be effective. The
decree does, however, reflect that “[t]he Court finds that the attached orders found
in the Parenting Plan Exhibits are in the best interest of the children” and “are
15
attached to this Decree of Divorce and are made a part of this Decree for all
purposes.” (emphasis added). Consequently, the parenting plan exhibits attached to
the divorce decree are incorporated for all purposes, are sufficiently definite and
certain, and are neither internally inconsistent nor unintelligible such that major
and essential issues relating to the divorce are left unresolved. See Shanks v.
Treadway, 110 S.W.3d 444, 447 (Tex. 2003) (divorce decrees should be construed
as a whole to harmonize and give effect to the entire decree). We therefore
overrule Rickey’s third issue.
CONCLUSION
Rickey has demonstrated error on the face of the record concerning the trial
court’s order requiring Rickey to pay child support of $800 per month, and we
therefore reverse that portion of the trial court’s final decree of divorce and remand
for further proceedings consistent with this opinion. We affirm the remainder of
the judgment.
/s/ Ken Wise
Justice
Panel consists of Chief Justice Frost and Justices Jamison and Wise.
16 | 01-03-2023 | 08-19-2014 |
https://www.courtlistener.com/api/rest/v3/opinions/2343871/ | 159 F. Supp. 65 (1957)
Daisy B. STANLEY, Administratrix of the Estate of Harry A. Stanley,
v.
George N. CLARK.
Civ. A. No. 1721.
United States District Court D. New Hampshire.
October 16, 1957, as of August 2, 1957.
Burnham B. Davis, Conway, N. H., Upton, Sanders & Upton, Richard F. Upton, Concord, N. H., for plaintiff.
Burns, Calderwood, Bryant & Hinchey, Stanley M. Burns, Dover, N. H., for defendant.
CONNOR, District Judge.
This is a motion to dismiss defendant's counterclaim.
Harry A. Stanley, on October 9, 1956, brought an action of contract for *66 $5,500 for labor and materials allegedly furnished to defendant George N. Clark in the construction of a motel. Stanley died on December 5, 1956, and Daisy B. Stanley was appointed administratrix of his estate on January 2, 1957. On January 19, 1957, defendant answered and counterclaimed for unliquidated damages in the amount of $5,000 for losses due to alleged improper performance by plaintiff of the same contract. On March 14, 1957, Daisy B. Stanley, administratrix, was duly substituted as plaintiff.
Plaintiff then moved to dismiss defendant's counterclaimed on the ground that it was begun within one year after the original grant of administration, allegedly contrary to the provision of New Hampshire Revised Statutes Annotated, chapter 556, section 1, which reads as follows:
"No action shall be sustained against an administrator if begun within one year after the original grant of administration, nor unless the demand has been exhibited to the administrator and payment has been demanded."
Plaintiff's second ground for dismissal of the counterclaim is that no demand was made on the administratrix as allegedly required by the above statute.
It is the position of the defendant that set-off is allowed against an administrator by statute:
"Mutual debts or demands * * * when due, may be set off in actions by or against the administrator." RSA 515:9,
and further that the statute barring actions against an administrator within one year of the grant of administration does not apply to a counterclaim in an action begun by the decedent while living.
Plaintiff urges that the set-off statute, supra, applies only to liquidated claims, and defendant's claim is for unliquidated damages. Derry Loan & Discount Co. v. Falconer, 1930, 84 N.H. 450, 454, 152 A. 427; Drew v. Towle, 1853, 27 N.H. 412, 428; Barker v. Barker, 1882, 62 N.H. 366, 368, 369; Lehigh Navigation Coal Co. v. Keene Coal Co., 1938, 89 N.H. 274, 197 A. 410.
Plaintiff further contends that the set-off statute applies only if the set-off is "due," and alleges that defendant's claim will not be due until a year has elapsed from the grant of administration.
I conclude that the counterclaim should be allowed because it is really in the nature of recoupment; the set-off statute above cited does not apply at all.
In this state, the difference between set-off and recoupment is this: A set-off is a claim of the defendant, usually liquidated, though it may be unliquidated under certain equitable circumstances. Most of the cases involve claims arising out of transactions independent of the plaintiff's claim. Lehigh Navigation Coal Co. v. Keene Coal Co., 1938, 89 N.H. 274, 197 A. 410; Arcadia Knitting Mills, Inc. v. Elliott Manufacturing Co., 1937, 89 N.H. 188, 195 A. 681. Set-off was unknown at common law and is regulated entirely by statute. 80 C.J.S. Set-Off and Counterclaim § 4; Chandler v. Drew, 1834, 6 N.H. 469, 470; Dole v. Chattabriga, 1926, 82 N.H. 396, 397, 134 A. 347.
Recoupment, on the other hand, can be for an unliquidated sum. Moylan v. Lamothe, 1943, 92 N.H. 299, 30 A.2d 11; Johnson v. White Mountain Creamery Association, 1895, 68 N.H. 437, 438, 36 A. 13. But it must arise out of the same transaction. Lehigh Navigation, supra, 89 N.H. at page 276, 197 A. at page 411. Moreover, a claim for recoupment can be in excess of the plaintiff's claim. Vernon Parts Corp. v. Granite State Machine Co., Inc., 1945, 93 N.H. 315, 317, 41 A.2d 605; Johnson v. White Mountain Creamery Association, 1895, 68 N.H. 437, 36 A. 13.
The facts of this case present a classic example of recoupment, both because they fit the requirements for recoupment outlined above, and because many of the recoupment cases involve an action by a laborer for wages, followed by a claim by the employer for damages for faulty work. That is the situation in this case. The counterclaim arises out of the same *67 transaction. Being in effect a claim for recoupment, it follows that none of the set-off statutes are in point.
The availability to the defendant of recoupment does not depend on set-off statutes. This is because recoupment is in a sense not a separate cause of action, like set-off, but it is a defense to the plaintiff's cause of action, diminishing it because of some damage done to the defendant. This is especially true in contract cases, where the respective damages to both parties arise out of the same transaction and affect each party's legal rights and liabilities on the contract. Recoupment "is of common-law origin." 80 C.J.S. Set-Off and Counterclaim § 2. See also, Vernon Corp., supra:
"* * * although we have no statute of counterclaim, recoupment for unliquidated damages in excess of a plaintiff's demand is permitted, and parties are not ordinarily required to bring two actions when their rights can be settled conveniently in one. * * *" 93 N.H. at page 317, 41 A.2d at page 606. [Emphasis added.]
Support for the contention that recoupment is allowed, regardless of set-off statutes, is found in the historic case of Britton v. Turner, 1834, 6 N.H. 481. In that case, plaintiff was a laborer who worked for part of the term agreed. He was allowed to recover for labor which benefited defendant, but his award was diminished by the damages suffered by defendant because of plaintiff's wrongful leaving. Defendant was not required to rely on the set-off statute, although that statute was enacted in 1791.[1] See also Danforth v. Freeman, 1898, 69 N.H. 466, 469, 43 A. 621.
It having been decided that the set-off statute does not apply, it remains to determine whether or not the counterclaim is an "action" prohibited by RSA 556:1, supra, if filed against an administrator within one year of the grant of administration.
I conclude that it is not.
The counterclaim is not really an "action" but a defense to the plaintiff's action. Moreover, it was filed before the administrator ever became a party. As a matter of trial convenience alone, the counterclaim should be allowed, since common issues of fact and law, and identical witnesses, will be required. Equitable principles demand that recoupment should be allowed.
The fact that defendant might be entitled to affirmative relief does not make his counterclaim an "action" prohibited by RSA 556:1. The counterclaim is part of the same contract as plaintiff's claim. The extent of the allowance of the counterclaim should not depend on the fortuitous amount of plaintiff's claim.
Since the counterclaim is not an "action" within the meaning of RSA 556:1, relating to actions within one year after the grant of administration, it is not an "action" for which a demand on the administratrix is necessary.
Plaintiff's motion to dismiss defendant's counterclaim is denied.
NOTES
[1] Dictum in the Britton case to the effect that defendant could get no affirmative relief, is overruled by the Johnson case. supra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2407116/ | 325 F. Supp. 2d 218 (2004)
UNITED STATES of America,
v.
Ali Sher KHAN, Defendant.
No. 02-CR-1242 JBW.
United States District Court, E.D. New York.
July 20, 2004.
Barry G. Rhodes, Peter Kirschheimer, The Legal Aid Society Federal Defender Division, Brooklyn, NY, for Defendant.
Lee Joshua Freedman, Brooklyn, NY, for Plaintiff.
AMENDED MEMORANDUM ORDER & JUDGMENT
JACK B. WEINSTEIN, Senior District Judge.
*219 TABLE OF CONTENTS
I. Introduction ............................................................... 219
II. Facts ...................................................................... 220
A. Crime and Original Sentence ............................................. 220
B. Appeal .................................................................. 220
III. Defendant's Background ..................................................... 221
A. Personal ................................................................ 221
B. Financial ............................................................... 222
IV. The Guidelines are not Dead ................................................ 223
V. Jury and Court Cooperation in Sentencing ................................... 225
A. Rationale of Blakely .................................................... 225
B. Inherent Difficulty in Determining "Original" Meaning of Jury Trial...... 226
C. Discretion of Trial Court to Utilize Varying Procedures ................. 226
D. Historical Discretion of Court .......................................... 227
E. Historical Discretion of Jury ........................................... 228
F. Legislatively Recognized Jury Sentencing Power .......................... 231
G. Modern Decreased Use of Juries .......................................... 231
H. Summary ................................................................. 232
I. Waiver by Parties ....................................................... 232
VI. Sentencing Under Guidelines Section 2S1.3(b)(2)............................. 232
A. Applicable Guideline and Supporting Facts................................ 232
B. Conspiracy .............................................................. 233
C. Non-application of Feeney Amendment ..................................... 233
VII. Conclusion ................................................................. 234
I. Introduction
This case reflects some of the many sentencing issues raised by the numerous appeals in criminal cases; they arise because of the need to follow mechanical and often harsh sentencing guidelines while taking account of the manifold differences in the human condition. Often, as in the case of this defendant, a recent Pakistani immigrant who prospered as a businessman and was returning to his homeland to share some of the proceeds of his success, the court may not fully understand his milieu.
In Blakely v. Washington, the Supreme Court invalidated the State of Washington's sentencing guidelines under the Sixth Amendment to the extent that they authorized judicial fact-finding of enhancement factors warranting a sentence above the applicable guidelines range. ___ U.S. ___, 124 S. Ct. 2531, ___ L.Ed.2d ___ (2004). Blakely does not as some have speculated constitute the death knell of the Federal Sentencing Guidelines. Compare United States v. Croxford, 324 F. Supp. 2d 1230, ___, 2004 WL 1521560, *6 (D.Utah July 7, 2004) ("[T]he inescapable conclusion of Blakely is that the federal sentencing guidelines have been rendered unconstitutional in cases such as this one."), with United States v. Pineiro, 377 F.3d 464, 2004 WL 1543170 (5th Cir. July 12, 2004) (declining to extend Blakely to the federal guidelines). See also Mistretta v. United States, 488 U.S. 361, 109 S. Ct. 647, 102 L. Ed. 2d 714 (1989) (strongly supporting Guidelines' constitutionality as appropriate delegation of legislative powers and lack of violation of separation of powers, over dissent of one Justice). Blakely does provide Congress, the courts and the *220 Sentencing Commission with an opportunity and obligation to reevaluate and revise the Guidelines. They are presently, in general (but not as applied in the present case), overly rigid, overly complex, overly harsh, and overly expensive to taxpayers and society. Blakely's reintroduction of the jury into the present sentencing process suggests the desirability of making the Guidelines discretionary guideposts as their name implies rather than mandatory precepts, inflexible commands.
An appropriate sentence requires an appreciation of the subtle socioeconomic factors defining and explaining the defendant. Yet the judge is often unlikely to possess detailed knowledge or appreciation of the defendant's background with its subtle cultural and linguistic characterizations usually so different from the court's: high status, relatively large income, assured medical care, well-to-do friends in high places, and the skills to take advantage of the system and to avoid its pitfalls. Cf. Anna Wierzbicka, On Happiness: A cross-linguistic and cross cultural perspective, Daedalus, 34 (Spring 2004).
There are occasions and this arguably is one of them where an advisory jury selected from a representative cross section of the community may serve to bridge the lifestyle and empathy gap between judge and criminal, providing the insights and the opportunity for a more humane and effective administration of justice. As indicated in Parts IV and V, infra, reliance on a jury in sentencing is possible for this purpose.
II. Facts
A. Crime and Original Sentence
Defendant and two of his Pakistani countrymen had labored in the chicken restaurant business. They had assembled substantial cash savings. As is apparently the wont of recent immigrants, they were returning to their homeland families with cash gifts wrapped for specific relatives; they also carried cash entrusted to them by co-workers. See, e.g., Elizabeth Becker, Latin Migrants to U.S. Send Billions Home, N.Y. Times, May 18, 2004 at C4 (quoting official at the Inter-American Development Bank: "We want to bring [the $30 billion sent by immigrants to relatives back home] out of the shadows so people understand the critical contribution these hard-working people are making."). The money was in the interstices of the bags of clothing they were taking with them.
As they were about to board their plane, representatives of the United States government asked them to declare any cash they carried in excess of $10,000. Ali Sher Kahn, the defendant, said he had only $12,800. A search of his bags revealed $293,266 all of it legally earned by himself or the friends for whom he was transporting it. There was no hint that the cash was to be used to fund terrorist activity or for any other illegal purpose. He was arrested, detained, tried criminally, and became a defendant in a civil forfeiture suit for the cash that the government had seized.
After a jury trial, defendant was convicted of cash smuggling (31 U.S.C. § 5332(a) and (b)), making false statements (18 U.S.C. § 1001(a)(2)) and conspiracy (18 U.S.C. § 371). His sentence was three years of supervised release, five months of home confinement, a special assessment of $300 and a fine of $7,500. (The civil forfeiture suit is still pending.) The court departed downward twelve levels because of (1) defendant's family circumstances and (2) the potential negative impact of a prison sentence on the workers in the businesses he operated.
B. Appeal
Upon appeal by the United States from the downward departure the government's view being that imprisonment of no less than forty-one months was required *221 the Court of Appeals for the Second Circuit reversed and remanded for resentence. It wrote in an unpublished opinion:
[T]he district court erroneously granted a downward departure based on Ali Khan's family circumstances and on account of his business and employees.
. . . . .
1. Family Circumstances
While it is possible that exceptional family circumstances may exist here, the district court's departure was erroneous based on the current record. The record does not suggest that Ali Khan was the primary let alone sole support. The record similarly shows nothing as to how Ali Khan's incarceration would affect those individuals. Curiously, the expense portion of Ali Khan's monthly net cash flow statement, which he submitted prior to sentencing as part of his personal financial statement, omits any mention of funds that he sends to support his extended family.
2. Business and Employees
"[B]usiness ownership alone, or even ownership of a vulnerable small business, does not make downward departure appropriate"; but a "departure may be warranted where ... imprisonment would impose extraordinary hardship on employees." United States v. Milikowsky, 65 F.3d 4, 9 (2d Cir.1995). The Milikowsky Court upheld a downward departure based on extensive documentary and testimonial evidence demonstrating that the defendant was indispensable to his two companies and to the continuing employment of more than 150 individuals. Id. at 8-9.
It is possible, as the district court found, that Ali is "the main spring in the enterprise and that it will not succeed without him;" but the record does not support the district court's decision to depart on this basis. Even though Ali maintains that "[h]e attends to the purchasing and every other detail" of the twelve-employee business, he testified also that one of his partners handles most of the paperwork. Ali concedes that the facts of his case are not as compelling as in Milikowsky. There is nothing in the record, other than Ali's self-serving and somewhat contradictory claims, indicating that Ali has unique skills essential to this enterprise, or that his two partners could not hire a new manager or do the work themselves.
* * * * * *
The current record does not support either basis, family or business circumstances, on which the district court granted Ali Khan a downward departure. On remand, therefore, the court should conduct further fact-finding necessary to reassess whether a downward departure is appropriate and then should re-sentence Ali Khan consistent with this order and any additional findings that the court makes.
United States v. Khan, No. 03-1227, 94 Fed.Appx. 33, 38-40 (2d Cir. Apr. 16, 2004).
The Court of Appeals generously added that the order of remand "does not foreclose application of [USSG § 2S1.3(b)(2) (eff.Nov.1, 2001)], assuming appropriate showings and findings." Id. at 40. As indicated in Part V, infra, that provision of the Guidelines permits probation without a prison term.
III. Defendant's Background
A. Personal
The original presentence report and the original sentencing hearing revealed the following background:
Defendant, now thirty-five, was born in Swat, Pakistan. He is one of six children of the marital union of Bacht Zamal and *222 Mehina Bibi. Raised under lower-income economic conditions, he reported an uneventful childhood, free from drug, alcohol, and physical abuse. Because he could not read well enough to be promoted, defendant attended school only until the sixth grade.
His father died in 1998 of a heart attack at the age of fifty-six. His mother lives in Pakistan, is unemployed, and suffers from diabetes. She is supported by defendant and his brother.
Defendant has four living siblings. His one brother resides in the United States. He is John Sher, age thirty-four, living in Camden, New Jersey, with his wife and six children. He is in good health and is employed as a cook in a fast food restaurant. There are three sisters. All are housewives living in Pakistan: Begun Bibi is married with seven children; Maleeka Bibi is married with five children; and Shagoupta Bibi is married with four children. Defendant had another brother, Akbar Zada, who was beaten to death in Pakistan following a dispute over the use of water from a river; he is survived by his wife and six children, whom the defendant helps support.
Defendant's wife, Flora Drake, is healthy and is employed part-time in daycare, earning between $300 and $500 per week. The marriage his only one has not resulted in any children, although Mrs. Khan's son from a prior marriage, Lidel Drake, age twenty-one, resides with defendant. They live in a modest two bedroom, walk-up apartment. Lidel has two daughters, Monat, age six, and Aliza, age eighteen months, who live with their mother. Since Lidel is unemployed, defendant and his wife assist in supporting his children.
Until he was twenty-one, defendant resided in Pakistan. In 1990, he traveled to the United States by ship. He lived in Brooklyn for six months before moving to Middletown, New York, where he has since resided.
In 1992, defendant applied for political asylum because of the religious strife between the Shiites and Muslims in Pakistan; the status of that application is not known. Immigration and Naturalization Service records indicate that defendant is a lawful permanent resident of the United States.
Defendant reported no history of mental or emotional health problems or of gambling. In 1993 he injured his right knee playing soccer; surgery partially repaired the damage. He is otherwise healthy. Until his arrest, defendant smoked one or two marijuana cigarettes and drank two "shots" of brandy or cognac two or three times a week. He has never used any other narcotic.
B. Financial
Prior to 1990 defendant was a laborer on a farm or a railroad in Pakistan earning ten to fifteen rupees a day (equivalent to a few dollars). For a few months he was a deck hand on a ship based in Karachi, Pakistan, earning a total of $450 for this work. He quit to travel by boat to the United States.
For six months in 1990 defendant was a construction laborer in the Bronx. In 1991 he worked as a helper at a carpet store where he earned $225 (net) per week, "off-the-books." He lost this job when his employer left the area. From October 1991 to June 1992 he was a cook-trainee in a chicken fast food store in Newburgh, New York, where he earned $150 a week; from June 1992 to January 1996, defendant was a cook at $200 a week. He left to open his own restaurant in Camden, New Jersey.
Defendant is now partial owner and operator of three fried chicken fast food stores in Camden. He opened the first in *223 1996, investing with his friends, Maser Zafer and Liquat Ali; the defendant and Liquat Ali own seventy-five percent of the establishment, while Maser Zafer owns twenty-five percent. In 1998, the defendant, two cousins, and Liquat Ali opened a second fried chicken store in Camden. In 2001, the defendant, a cousin, and Liquat Ali opened a third fried chicken store in Camden. Each store is located in a lower-income commercial area. Each contains glass protecting employees from customers. All told they employ twelve workers in addition to the owners.
Defendant's filed income tax returns reflect the following:
----------------------------------------------------
Adjusted Joint
Tax Year Gross Income Taxable Income
----------------------------------------------------
1997 $ 17,047 $ 2,197
----------------------------------------------------
1998 $ 20,878 $ 5,678
----------------------------------------------------
1999 $ 25,912 $ 10,462
----------------------------------------------------
2000 $ 35,362 $ 12,350
----------------------------------------------------
2001 $ 47,619 $ 22,146
----------------------------------------------------
His 2003 Personal Financial Statement reads:
Net Worth
(Omitting Good Will and Entrepreneurial Value)
Assets
Checking account No. 1 $ 4,200
Checking account No. 2 6,313
Automobile No. 1 5,800
Automobile No. 2 9,900
Newswat Corporation
Camden, NJ property No. 1 150,000
Camden, NJ property No. 2 91,000
Total Assets $267,213
Liabilities $ 0
Net Worth $267,213
Obviously, coming to the United States has improved this defendant's economic and social condition appreciably. As indicated on his Personal Financial Statement, defendant now earns monthly $3,933 (net) for his own labor and $3,020 (net) in business income.
IV. The Guidelines are not Dead
In Blakely v. Washington, ___ U.S. ___, 124 S. Ct. 2531, ___ L.Ed.2d ___ (2004), the Court found that enhancement of the length of a sentence under the Washington State guidelines based on judicial fact-finding required, under the Federal Constitution, that the "facts" must be found by a jury to be true beyond a reasonable doubt. The dissents suggested that the rulings might lead to the end of the Federal Sentencing Guidelines. See id. (dissenting opinions). Partly as a result of Blakely, a number of judges have declared the Guidelines dead. See, e.g., United States v. Medas, 323 F. Supp. 2d 436, 2004 WL 1498183 (E.D.N.Y. July 1, 2004) (declining to submit a supplemental verdict sheet to jury for sentencing enhancement factors); United States v. Croxford, 324 F. Supp. 2d 1230 (D.Utah 2004) (declining to apply Guidelines and reverting to pre-Guidelines procedure the sentence was much the same as it would have been under the Guidelines); United States v. Maflahi, No. 03-CR-412 (E.D.N.Y. June 9, 2004) (same); United States v. Shamblin, 323 F. Supp. 2d 757, ___, 2004 WL 1468561, *8 (S.D.W.Va. June 30, 2004) (same); United States v. Green, 2004 WL 1381101 (D. Mass., June 18, 2004) (finding that Guidelines were unconstitutional before Blakely, based on the pre-Blakely decision in Apprendi v. New Jersey, 530 U.S. 466, 120 S. Ct. 2348, 147 L. Ed. 2d 435 (2000) and Ring v. Arizona, 536 U.S. 584, 122 S. Ct. 2428, 153 L. Ed. 2d 556 (2002)); Alan Vinegrad & Jonathan Sack, Blakely: The End of the Sentencing Guidelines, N.Y.L.J., July 5, 2004, at 48 ("The entire federal guidelines scheme is on precarious constitutional grounds"). See generally Sentencing Law and Policy, at http://sentencing.typepad.com (July 12, 2004). But cf. United States v. Booker, 375 F.3d 508, 513, 514, 520 (7th Cir.2004) (majority of court held the Guidelines constitutional except in cases "in which they limit defendant's right to a jury and to the reasonable doubt standard;" defendant had right to a jury to determine the quantity of *224 drugs he possessed; separate sentencing jury trial approved; dissent would severely limit effect of Blakely).
The opinions of the learned judges finding the Guidelines unconstitutional are well reasoned and entitled to great respect. Many federal judges who believe the Guidelines unnecessarily cruel to defendants and their families, unduly expensive to the taxpayers who pay unnecessary billions for our bloated penitentiary system, and a violation of separation of powers under the Constitution would applaud the conversion of the mandatory restrictive Guidelines into discretionary guidelines in fact. But traditional deference of the courts to extensive legislative and executive powers, as in Mistretta v. United States, brings to mind Mark Twain's response to his own premature obituary: "The reports of my death are greatly exaggerated." John Bartlett, Familiar Quotations, 763a (14th ed.1968).
As indicated in Part V, infra, the jury's participation in sentencing has deep roots in this country's history and may be incorporated in the constitutional right to a jury trial. Experience with juries suggests that use of a jury in sentencing, even after a plea of guilty or in a second phase of a trial on the merits, is feasible. It is the mode in capital cases and, as even the dissent acknowledges, apparently works in Kansas. See Blakely, 124 S. Ct. 2531.
Most cases result in pleas, not trials. Blakely will, undoubtedly, result in many plea agreements in which the defendant concedes the facts that Blakely requires to be proven by a jury. Defendants simply cannot resist the prosecutors' offers of guaranteed low punishments. In the few cases of a trial, after the guilty verdict, the special questions required for enhancement of sentence can be put to the jury as in capital cases. These issues will normally not be adjudicated at the main trial of guilt or innocence since they will likely prove unduly prejudicial.
The jury instruction need not be as complicated as those the government requested in United States v. Medas. 2004 WL 1498183. They should, unlike those in Medas, be requested before the trial with adequate notice given by indictment or letter. If the evidence to support them might be prejudicial on the main issue of guilt or innocence, they can be conveniently given to the same jury which determined guilt, in a second phase, with the opportunity to supply additional evidence and argument. This process works reasonably well in capital cases. See 28 U.S.C. § 848(g)-(o).
The Department of Justice on July 2, 2004 directed a communication to all prosecutors with respect to the government's position on Blakely v. Washington. See Memorandum to All Federal Prosecutors, from James Comey, Deputy Attorney General, regarding Departmental Positions and Policies in Light of Blakely v. Washington (July 2, 2004). Its basic position is that Blakely does not apply to the Federal Sentencing Guidelines:
The position of the United States is that the rule announced in Blakely does not apply to the Federal Sentencing Guidelines, and that the Guidelines may continue to be constitutionally applied in their intended fashion, i.e., through factfinding by a judge under the preponderance of the evidence standard, at sentencing.
Id. at 1. This position seem plainly wrong and need not be discussed.
The fallback position stated in the communication is:
[I]f Blakely applies, the constitutional aspects of the Guidelines cannot be severed from the unconstitutional ones. In that event, the court cannot constitutionally apply the Guidelines, but instead should impose a sentence, in its discretion, within the maximum and minimum *225 terms established by statute for the offense of conviction. In all such cases, the government should argue that, in the exercise of its discretion, the sentencing court should impose a sentence consistent with what should have been the Guidelines sentence.
There are three critical components of this position. First, the Guidelines remain constitutional and applicable if the Guidelines sentences can be calculated without the resolution of factual issues beyond the admitted facts or the jury verdict on the elements of the offense of conviction. Thus, in cases where a court, applying the Guidelines as they were intended, finds that there are no applicable upward adjustments under the Guidelines beyond the admitted facts or the jury verdict on the elements of the offense, the Guidelines are constitutional and should be applied. Second, in a case in which the defendant agrees to waive his rights to resolution of contested factual issues under the Blakely procedural requirements, the Guidelines should be applied. Thus, waivers of "Blakely rights" in connection with plea agreements and guilty pleas may be sought. Third, in a case in which there are applicable upward adjustments under the Guidelines, and the defendant desires to contest the underlying facts under the Blakely procedures, the Guidelines system as a whole cannot be constitutionally applied. In that event, the government should urge the court to impose sentence, exercising traditional judicial discretion, within the applicable statutory sentencing range. The government's sentencing recommendation in all such cases should be that the court exercise its discretion to impose a sentence that conforms to a sentence under the Guidelines (including justifiable upward departures), as determined with regard to Blakely.
Id. at 2 (emphasis in original).
The first point of the Department of Justice the Guidelines should be applied if a factual issue left unresolved by jury verdict or admitted fact does not exist is correct. The second point that a defendant may waive or stipulate to avoid Blakely also is correct. The third point that when Blakely applies, traditional sentencing without Guidelines should be used is a possible alternative. A second alternative is to apply the Guidelines without enhancement. A third alternative is to use a jury to decide the special enhancement facts. The trial judge should have discretion to use any of these alternatives, with the advice of counsel, since procedural difficulties in the individual case need to be weighed by the court in deciding whether use of a jury is practicable.
Unless Blakely is made retroactive which seems highly unlikely in view of the chaos which would result it is probable that this decision will have little impact on practice in federal district courts. Cf. Coleman v. United States, 329 F.3d 77, 90 (2d Cir.2003) (Apprendi is not retroactive). In most cases, the enhancing facts will be stipulated.
With that background of current issues, it is useful to turn to the history of juries and judges cooperating in sentencing in the United States.
V. Jury and Court Cooperation in Sentencing
A. Rationale of Blakely
The rationale of the majority in Blakely is summed up in its paean to the jury:
Our commitment to Apprendi in this context reflects not just respect for longstanding precedent, but the need to give intelligible content to the right of jury *226 trial. That right is no mere procedural formality, but a fundamental reservation of power in our constitutional structure. Just as suffrage ensures the people's ultimate control in the legislative and executive branches, jury trial is meant to ensure their control in the judiciary. See Letter XV by the Federal Farmer (Jan. 18, 1788), reprinted in 2 The Complete Anti-Federalist 315, 320 (H. Storing ed.1981) (describing the jury as "secur [ing] to the people at large, their just and rightful controul in the judicial department"); John Adams, Diary Entry (Feb. 12, 1771), reprinted in 2 Works of John Adams 252, 253 (C. Adams ed. 1850) ("[T]he common people should have as complete a control ... in every judgment of a court of judicature" as in the legislature); Letter from Thomas Jefferson to the Abbe Arnoux (July 19, 1789), reprinted in 15 Papers of Thomas Jefferson 282, 283 (J. Boyd ed. 1958) ("Were I called upon to decide whether the people had best be omitted in the Legislative or Judiciary department, I would say it is better to leave them out of the Legislative"); Jones v. United States, 526 U.S. 227, 244-248, 119 S. Ct. 1215, 143 L. Ed. 2d 311 (1999). Apprendi carries out this design by ensuring the judge's authority to sentence derives wholly from the Jury's verdict. Without that restriction, the jury would not exercise the control that the Framers intended.
Blakely v. Washington, 124 S. Ct. 2531, 2538-39 (2004).
B. Inherent Difficulty in Determining Original Meaning of Jury Trial
The Constitution requires that we apply 1780 jury practice in our courts. Yet any attempt to fully understand and apply eighteenth-century rules for juries in twenty-first century federal sentencing is bound to be somewhat chimerical. As in most endeavors to construe late eighteenth-century legal practice as a guide to appropriate current procedures, the former background, applicable language, precedents and atmosphere is substantially incongruent with our own. We tend to adopt because we generally have no real choice unsophisticated political assumptions of nineteenth as well as twenty-first century historians, rather than focusing upon the actual functioning of the law and the courts in widely disparate times and circumstances.
In his magisterial volume, Felony and Misdemeanor, Julius Goebel, Jr., has noted the fundamental mendacity of the historical process applied to many forensic issues determining present rights. He wrote:
Our profession ... for some seven centuries has made a cult of its historical method.... In America, at least, this ritual has become a matter of mechanical gesture, bereft of all piety, pervaded with pettifoggery. For here this method to which jurists point with pride has been used for but mean tasks. It is the small and immediate issues of instant litigation which drive the practitioner to the past in a myopic search for ruling cases and precedents.
Julius Goebel, Jr., Felony and Misdemeanor: A Study in the History of Criminal Law at xxxiii (1976 ed.).
C. Discretion of Trial Court to Utilize Varying Procedures
A wide variety of techniques is available to judges seeking to advise themselves in civil cases of relevant facts they must determine, ranging from testimony by eyewitnesses and experts to advisory juries. Cf. City of New York v. Beretta U.S.A. Corp., 2004 WL 1050875 (E.D.N.Y.2004) (granting constitutional jury when advisory jury is appropriate); N.A.A.C.P. v. Acusport, Inc., 271 F. Supp. 2d 435 (E.D.N.Y.2003) (advisory jury); *227 N.A.A.C.P. v. Accusport Corp., 226 F. Supp. 2d 391 (E.D.N.Y.2002) (advisory jury); Birnbaum v. United States, 436 F. Supp. 967 (E.D.N.Y.1977) (same), aff'd on this ground, 588 F.2d 319 (2d Cir.1978).
Where there is no specific rule on a subject covered in the Federal Rules of Criminal Procedure, the civil rule or practice may be borrowed. Rule 57(b) of the Federal Rules of Criminal Procedure explicitly provides that when there is no controlling law, "a judge may regulate practice in any manner consistent with federal law...." See also Charles Alan Wright, Nancy J. King, Susan R. Klein, Federal Practice and Procedure, Federal Rules of Criminal Procedure, § 902; Holmes v. United States, 363 F.2d 281, 283 (D.C.Cir.1966) (power stemming from common law; relying on Rule 42(b) of the Federal Rules of Civil Procedure to avoid prejudice in criminal trial); United States v. Colombo, 616 F. Supp. 780, 783 (E.D.N.Y.1985) (applying by analogy Rule 60(b) of the Federal Rules of Civil Procedure to criminal proceeding in reliance on Rule 57(b) of the Federal Rules of Criminal Procedure).
Determining whether use today of a jury in criminal sentencing is consistent with our history particularly that of the third quarter of the eighteenth century is desirable for reasons of constitutional interpretation based on original meaning. Approach to the topic must begin with the humble acknowledgment that the founders, if they could at all understand our current bloated federal criminal law and the labyrinthian structure of the Guidelines, would be appalled or bemused.
D. Historical Discretion of Court
In understanding the constitutionally-designed broad scope of judicial discretion to control practice, it is hard to do better than listen to Alexander Hamilton. Hamilton, a distinguished practicing lawyer, noted that "liberty can have nothing to fear from the judiciary alone.... The complete independence of the court of justice is peculiarly essential in a limited Constitution." The Federalist No. 78 (Alexander Hamilton). See generally Vols. I & II, The Law Practice of Alexander Hamilton (Julius Goebel, Jr., ed.1964). He went on to add, in words that could be applicable to the recent innovation of rigid federal guideline sentencing, that,
[t]his independence of the judges is equally requisite to guard the Constitution and the rights of individuals from the effects of those ill humours, which the arts of designing men, or the influence of particular conjunctures, sometimes disseminate among the people themselves, and which though they speedily give place to better information, and more deliberate reflection, have a tendency, in the meantime, to occasion dangerous innovations in the government, and serious oppressions. ..."
Id. (emphasis added). Hamilton recognized that "the firmness of the judicial magistracy is of vast importance in mitigating ... severity...." Id.
The founders appreciated the desirability of having judges involve juries in criminal trials as they were in 1789. See U.S. Const. art. III, § 2 ("The Trial of all Crimes ... shall be by jury."); see also U.S. Const. amend. VII (establishing trial by an impartial jury in civil cases). The jury as an "institution" was to "remain precisely in the same situation in which it is placed in State constitutions...." The Federalist No. 83 (Alexander Hamilton). Hamilton was referring in The Federalist to the criminal jury since the civil jury was not guaranteed until after the Constitution was adopted. Because of Zenger and other cases, the public was well aware of the importance of the jury in protecting human rights. See, e.g., Morris D. Forkosch, *228 Freedom of the Press; Croswell's Case, 35 Fordham L.Rev. 415 (1965) (describing the Trial of Mr. John Peter Zenger, 17 Howell St, (Tr. 675) (1735) and other cases).
Summarizing this earlier practice, with an analysis of the serious departures from traditional practice under current Guidelines, is the 2003 Address of Justice Anthony M. Kennedy to the American Bar Association. He is reported to have said: "Since the dawn of our republic and the creation of the federal court system, the role of sentencing has traditionally been at the discretion of the judiciary." Justice Anthony Kennedy, Our resources are misspent, our punishments too severe, our sentences too long, 51 The Fed. Lawyer 31, 31 (May 2004) (Marcia G. Shein, ed.). Contrasting the present situation, he is said to have declared, "No longer are judges able to address a defendant with knowledge that the sentence imposed will be a just one." Id. Supporting the Justice's reported critical views, footnotes have been added by the editor. Id. at 35-36. See also Koon v. United States, 518 U.S. 81, 116 S. Ct. 2035, 135 L. Ed. 2d 392 (1996) (describing the traditional sentencing discretion of trial courts); Note, The Unconstitutionality of Determinate Sentencing in Light of the Supreme Court's "Elements" Jurisprudence, 117 Harv. L.Rev. 1236, 1259 (2004) ("Although discretionary sentencing may have produced inconsistency and indeterminacy, the procedural protections of the Constitution were not designed to create the most efficient criminal justice system possible. They were designed to ensure that each defendant receives adequate protection against arbitrary state encroachment on his liberty.... [D]espite all its perceived faults, discretionary sentencing achieved this protection. And, with all their perceived benefits, the Sentencing Guidelines do not.").
Professor Thomas Sargentick, writing about the historical foundation of separation of powers, noted the importance of the special function of the judiciary in protecting the respect and dignity due to those before it. He declared:
The great value of courts is that of fairness, the notion that litigants before them have a tribunal in which they can count on the fundamental norms of respect and dignity. The decision-making technique is one of judgment, based on normative and practical moral reasoning, and legal materials in order to achieve a result that is in accord with the law and applicable to the facts of a particular case.... But the argument for judicial independence necessarily rests, I think on the notion of difference the notion that there are certain special values that are reflected in the court system and the judicial process.
Thomas Sargentick, Foundations of separation of powers, 87 Judicature 209, 212 (Mar.-Apr.2004).
E. Historical Discretion of Jury
The fact that each of the states had distinctly different court systems and procedures complicates determining how the jury in criminal cases operated in colonial times. See The Federalist No. 83 (Alexander Hamilton). As the colonies were turning into states, moreover, nineteenth-century trial by jury was in process of substantial change.
What tended to replace the eighteenth-century jury trial more and more was the guilty plea. This trend began fairly early in the nineteenth century and snowballed. By 1900, in New York County, there were more than three times as many convictions in felony cases because of guilty pleas than there were convictions by judge or by jury. See Lawrence M. Friedman, Crime and Punishment in American History 251 *229 (1993); see also United States v. Speedy Joyeros, S.A., 204 F. Supp. 2d 412, 417 (E.D.N.Y.2002) (less than five percent of criminal cases are tried, giving the prosecutor enormous leverage in fixing sentence under federal guidelines).
Earlier, the discretionary function in sentencing was shared by judge and jury. John H. Langbein concluded:
The sentencing practices of the later seventeenth and eighteenth centuries were a powerful source of pressure on the defendant to speak at his trial. Our modern expectation is that sentencing will occur in a separate post-verdict phase, after the trial has determined guilt. Furthermore, in jury-tried cases, we expect the judge, not the jury, to exercise whatever sentencing discretion the law might bestow. In early modern times, however, these divisions of function in sentencing matters between trial and post-trial, and between jury and judge, were less distinct.
John H. Langbein, The Origins of Adversary Criminal Trial 57 (2003); see also Id. at 59 (describing "jury's power to mitigate sanctions"); Barbara Wootton, Crime and Penal Policy 35 (1978) (changing views of the balance between justice and fairness); J.M. Beattie, Crime and the Courts in England, 1660-1800 at 406 (1986) (describing changing relationship of judge and jury and power of jury to affect punishment); Peter Graham Fish, Federal Justice in the Mid-Atlantic South 30-32, 165066, 212 (undated) (conflict between jury and judge control and differences between state and developing federal practice). Juries decided questions of law and fact in criminal and civil cases. See, e.g., William E. Nelson, Americanization of the Common Law, The Impact of Legal Change on Massachusetts Society, 1760-1830, 257 n. 37 (1994). As Professor Larry D. Kramer put the matter in The People Themselves, Popular Constitutionalism and Judicial Review, 28-29 (2004):
[L]awyers argued fundamental law to juries, which rendered verdicts based on their own interpretation and understanding of the constitution. This was consistent with the broad power of the eighteenth-century jury to find law as well as fact and to decide every aspect of a case. Judges might instruct juries, but it was, in the words of John Adams, "not only [every juror's] right but his Duty in that Case to find the Verdict according to his own best Understanding, Judgment and Conscience, tho in Direct opposition to the Direction of the Court." Placing juries in this dominant position, Adams explained, introduced a "mixture of popular power" into the execution of the law and was thus an important protection of liberty. This was particularly true when it came to fundamental law, for the jury was "the Voice of the People."
(Footnotes and quotations omitted); see also, e.g., James R. Stoner, Jr., Common-Law Liberty, Rethinking American Constitutionalism 94-96 (2003).
The authors known to the founders had a high respect for the wide powers of the jury over law, fact and punishment. See, e.g., James R. Stoner, Jr., Common Law and Liberal Theory: Coke, Hobbes and the Origins of American Constitutionalism at 110 (Hobbes), 156 (Montesquieu), 210 (Hamilton) (1992); Paul O. Carrese, The Cloaking of Power: Montesquieu, Blackstone and the Rise of Judicial Activism at 5 ("More leading politicians studied and cited Montesquieu in America's founding era than read Rawls today...."), 16 ("jury centered power"), 49 ("Juries are, for Montesquieu a kind of cloaking device ... judges will imperceptibly mitigate the severity of the law. A cloaking power quietly reforms the ... severe moral standards...."), *230 128 (Blackstone recognized that "the jury indeed was a point of pride for English common law...."), 170 (Blackstone's reliance on "that central institution of the common law, trial by jury") (2003); 4 William Blackstone, Commentaries 378 (St. George Tucker Am. ed. 1803) (describing the jury as the "glory of the English law," in civil and even more so in criminal cases).
In a sense, the jury was, and remains, the direct voice of the sovereign, in a collaborative effort with the judge. It expresses the view of a sometimes compassionate free people faced with an individual miscreant in all of his or her tainted humanity, as opposed to the abstract cruelties of a more theoretical and doctrinaire distant representative government. Cf. Gary Wills, Lessons of a Master, N.Y. Rev., June 24, 2004, at 12, 14 (reviewing Edmund S. Morgan, The Genuine Article: A Historian Looks at Early America (2004)) (discussing representative versus democratic government in the United States).
In the last quarter of the eighteenth century, juries were also changing. Instead of partial fact providers, they were becoming controlled fact finders, limited to knowledge acquired in the courtroom. See, e.g., Langbein, supra, at 320-21.
The complexity of the late colonial practice and the relationship of judge and jury can perhaps best be gleaned from Julius Goebel, Jr. and T. Raymond Naughton, Law Enforcement in Colonial New York, A Study in Criminal Procedure (1664-1776) (1970). For our present purposes, it is enough to say that the practice in the various colonies was a combination of actual practice as revealed in court files, local legislation and procedures adopted from that of the British in local and central courts. See Id. at xvii-xix, xxiii, xxvii, xxix, 144-145. The importance of "trial by the vicinage" to obtain local knowledge and sentiments was recognized. Id. at 603-05. "[O]n some occasions [in the late colonial period] matters were left to the jury which in England would have been the province of the court...." Id. at 629. Mitigation by jury was recognized. Id. at 675. There was "the feeling in Revolutionary times that of all incidents of criminal justice trial by jury should remain inviolate." Id. at 679. Discretion of the magistrate in sentencing was broad. Id. at 682-83, 686, 703 n. 189, 707, 710, & 748. Clemency was widespread. Id. at 749, 756. The jury could exercise its charity. Id. at 751.
James Madison's fear of majoritarian abuse, particularly by the legislature, and of the lack of power and will of judges to protect minorities against maltreatment was partly ameliorated by the jury. "When the people are the sovereign and, one way or another, are the source of all the branches' power, an agency of government that attempts to mete out justice against the will of the people does so at its peril." James S. Liebman & Brandon L. Garrett, Madisonian Equal Protection, 104 Colum. L.Rev. 837, 935 (2004) (paraphrasing Madison). "Because judges with a `will' sufficiently `independent of the people' to dispose them to resist majority oppression had to be appointed and life-tenured, they inevitably `are too far removed from the people to share much of their prepossessions' and to partake of their trust." Id. at 936 (quoting Madison). "However strongly disposed judges may otherwise be to counter majority injustices, their lack of popular support deprives them of their power and thus the courage to do so." Id. at 936 (emphasis in original); see also United States v. Chevere, 368 F.3d 120, 121-22 (2d Cir.2004) ("The jury speaks for the community....") (quoting United States v. Gilliam, 994 F.2d 97, 100-01 (2d Cir.1993)).
*231 Our modern cases recognize that the jury's influence in sentencing dates back to eighteenth-century English courts, where juries were able to reduce sentences by convicting on lesser charges carrying lesser penalties. See Jones v. United States, 526 U.S. 227, 245, 119 S. Ct. 1215, 143 L. Ed. 2d 311 (1999) ("The potential or inevitable severity of sentences was indirectly checked by juries' assertions of a mitigating power when the circumstances of a prosecution pointed to political abuse of the criminal process or endowed a criminal conviction with particularly sanguinary consequences."); see also Langbein, supra, at 57-58. This "pious perjury," as it was called, was used most commonly to defeat attempts to impose the death penalty. Id. (citing 4 Blackstone, Commentaries 239). Juries exercised this discretion in nearly twenty-five percent of "a sample of London cases from the Old Bailey in the 1750's." Id. The subtle machinations of the ancient English juries call to mind the contemporary prosecutor's power to influence sentencing through the charges sought. See, e.g., Harris v. United States, 536 U.S. 545, 571, 122 S. Ct. 2406, 153 L. Ed. 2d 524 (2002) (Breyer, J., concurring) ("[Mandatory minimums] transfer sentencing power to prosecutors, who can determine sentences through the charges they decide to bring...."); Lewis v. United States, 518 U.S. 322, 336, 116 S. Ct. 2163, 135 L. Ed. 2d 590 (1996) ("Prosecutors have broad discretion in framing charges."). These maneuvers do not constitute formal sentencing authority, but they are inseparable from sentencing practice.
F. Legislatively Recognized Jury Sentencing Power
The legislators of colonial America granted juries sentencing power, recognizing the widespread common law practice. See, e.g., Jenia Iontcheva, Jury Sentencing as Democratic Practice, 89 Va. L.Rev. 311, 316 (2003). Virginia was apparently the first state to legislatively recognize that jury sentencing existed. See Act of Dec. 22, 1796, § 15, 1796 Va. Acts ch. 2. In 1919, fourteen states still utilized jury sentencing in noncapital cases. See Iontcheva, supra, at 318.
G. Modern Decreased Use of Juries
The English and post-colonial states' trust in jury sentencing stands in marked contrast to the practice in today's federal courts; now appellate courts are disturbed by the thought of jurors catching a whiff of the sentencing implications in their deliberations. See, e.g., Aliwoli v. Carter, 225 F.3d 826, 829 (7th Cir.2000) ("Since the jury only determines whether the defendant is guilty or not guilty, `providing jurors sentencing information invites them to ponder matters that are not within their province, distracts them from their factfinding responsibilities, and creates a strong possibility of confusion.'") (citations omitted).
By the mid-twentieth century, jury sentencing was becoming the exception. Cf. McMillan v. Pennsylvania, 477 U.S. 79, 93, 106 S. Ct. 2411, 91 L. Ed. 2d 67 (1986) ("[T]here is no Sixth Amendment right to a jury sentencing, even where the sentence turns on specific findings of fact."). It is said that only six states specifically, currently allow jury sentencing in noncapital cases. See Iontcheva, supra, at 318.
Jury participation in sentencing still has substantial support. See, e.g., Morris B. Hoffman, The Case for Jury Sentencing, 52 Duke L.J. 951 (2003); Jenia Iontcheva, Jury Sentencing as Democratic Practice, 89 Va. L.Rev. 311 (2003); Fernand N. Dutile, Jury Consideration of Parole, 18 Cath. U. Am. L.Rev. 308 (1968); Adriaan Lanni, Note, Jury Sentencing in Noncapital Cases: An Idea Whose Time Has Come (Again)?, 108 Yale L.J. 1775 (1999). Cf. Nancy J. King, Lessons from the Past: *232 The Origins of Felony Jury Sentencing in the United States, 78 Chi.-Kent. L.Rev. 937 (2003); Note, Jury Sentencing in Virginia, 53 Va. L.Rev. 968 (1967) (listing thirteen states which provide for sentencing in non-jury cases); Note, Practice and Potential of the Advisory Jury, 100 Harv. L.Rev. 1363 (1987); United States v. Greenpeace, 314 F. Supp. 2d 1252 (S.D.Fla.2004) (noting that jury trial is in court's discretion and discussing historical precedent). Moreover, juror departures when they seek to nullify the law in order to humanize it are far from universally frowned upon. See, e.g., Kaimipono David Wenger & David A. Hoffman, Nullificatory Juries, 2003 Wis. L.Rev. 1115 (extensive authorities cited).
H. Summary
No suggestion is made that a late colonial court would have used an advisory jury or a post-guilt finding jury trial in determining a guidelines sentence. Such sentences were unknown. Nonetheless, the practice cannot be said to be out of character for a colonial judge faced with the kind of sentencing dilemmas a federal judge now confronts under the Guidelines. It is not aberrational to suggest that use of a jury on sentencing issues of fact and perhaps on severity is consistent with history, practice and the inherent role of federal courts and juries.
Reliance on the jury represents a reflection of our government's dependence on the ultimate and residual sovereignty of the people. That foundation for all power executive, legislative and judicial is reflected in the preamble to the Constitution beginning, "We the People ... do ordain and establish this Constitution." See also, e.g., U.S. Const. amend. IX (reserved rights); Declaration of Independence ("Governments ... depriving their just Powers from the Consent of the Governed."); James Madison, Essay on Sovereignty (1835) (equating "the supreme power" to "the sovereignty of the people").
I. Waiver by Parties
In this case the parties have not requested that the court use an advisory jury because one is not necessary to protect the defendant and the public. See Part V, infra. Under the approach described below, the non-custodial sentence does not require jurors' factual findings supporting grounds for departure. Counsel for both the Government and defendant now concede this is the case. Accordingly, an advisory jury will not be empaneled in this case.
VI. Sentencing Under Guidelines Section 2S1.3(b)(2)
A. Applicable Guideline and Supporting Facts
Subsection 2S.1.3(b)(2) of the United States Sentencing Guidelines, effective November 1, 2001, states in part with respect to defendant's crimes:
If (A) [not applicable] ... (B) the defendant did not act with reckless disregard of the source of the funds; (C) the funds were the proceeds of lawful activity; and (D) the funds were to be used for a lawful purpose, decrease the offense level to level 6.
The court finds the requisite elements (B), (C) and (D) as a matter of fact. First, there has been no showing that defendant "knew or believed that the funds were proceeds of unlawful activity, or were intended to promote unlawful activity." The defendant did not act with "reckless disregard of the source of the funds." The funds were shown to be proceeds of defendant's business operations or the labor of his friends. Defendant has no prior criminal history suggesting that the funds were gained through illicit activity. See, e.g., United States v. $49,766.29 U.S. Currency, *233 2003 WL 21383277, * 5 (W.D.N.Y. Jan.22, 2003) (USSG 251.3(b)(2)). Finally, the money was intended for use as lawful financial assistance for defendant's family in Pakistan and for those of his friends.
Level 6 of the Guidelines permits a term of probation. Given the defendant's background and responsibilities to his own and other families and business associates, a prison sentence is not appropriate.
B. Conspiracy
There are occasions when a conspiracy may provide a greater threat to society than the crime itself since many dangerous individuals combining may be of more concern than one defendant. See American Law Institute, Model Penal Code & Commentaries, Part 1, § 5.03 (1985) ("special danger incident to group activity"); Herbert Wechsler, Kenneth Jones and Harold Korn, The Treatment of Inchoate Crimes in the Model Penal Code of the American Law Institute: Attempt, Solicitation and Conspiracy, 61 Colum. L.Rev. 571, 957-1017 (1961). Nevertheless, the Guidelines provide in general for reduced penalties for a conspiracy that does not succeed. See U.S.S.G. § 2X1.1. Here, although defendant was convicted of conspiracy, the court finds there was, for purposes of sentencing, no conspiracy. Defendant and his friends engaged in parallel conduct, not a conspiracy even though a jury was authorized to find a conspiracy. These were not dangerous collaborators in crime, but individuals trying to do a good turn to their former countrymen and relatives. There is no reason to treat this defendant as a dangerous conspiring gang member.
C. Non-application of the Feeney Amendment
The Prosecutorial Remedies and Other Tools to end the Exploitation of Children Today Act of 2003 ("PROTECT Act"), passed by Congress in April of 2003, included a much-criticized provision commonly referred to as the Feeney Amendment. Pub.L. No. 108-21, 117 Stat. 650 (2003). See, e.g., Chief Justice Attacks a Law on Infringing on Judges, N.Y. Times, Jan. 1, 2004 at p. A14; Carl Hulse, Bill to Create Alert System on Abduction is Approved, N.Y. Times, Apr. 10, 2003 at A1 (quoting letter from Chief Judge Rehnquist to Senate Judiciary Committee stating that the Feeney Amendment "would do serious harm to the basic structure of the sentencing guideline system and would seriously impair the ability of courts to impose just and reasonable sentences"); Michael Brennan, A Case for Discretion: Are Mandatory Minimums Destroying Our Sense of Justice and Compassion, Newsweek, Nov. 13, 1995, at 18; David M. Zlotnick, The War Within the War on Crime: The Congressional Assault on Judicial Sentencing Discretion, 57 S.M.U. L.Rev. 211, 229-37 (2004) (criticizing Feeney Amendment in text accompanying notes 121-62).
The Feeney Amendment, among other unsound innovations, prohibits a downward departure unless the ground for departure was relied upon in the previous sentencing and approved by the court of appeals. See 18 U.S.C. § 3742(g)(2). Section 3742 of title 18 of the United States Code now provides:
(g) Sentencing upon remand. A district court to which a case is remanded ... shall resentence a defendant in accordance with section 3553 and with such instructions as may have been given by the court of appeals, except that
(1) In determining the range ... the court shall apply the guidelines ... that were in effect on the date of the previous sentencing of the defendant prior to the appeal ...; and
*234 (2) The court shall not impose a sentence outside the applicable guidelines range except upon a ground that
(A) was specifically and affirmatively included in the written statement of reasons ... in connection with the previous sentencing of the defendant prior to the appeal; and
(B) was held by the court of appeals, in remanding the case, to be a permissible ground of departure.
(emphasis added).
The new sentence in the instant case is in accordance with a suggestion by the Court of Appeals for the Second Circuit to consider sentencing under subsection 251.3(b)(2) of the Guidelines. See Part II.B, supra. That court did not "foreclose application of this provision, assuming appropriate showings and findings." United States v. Khan, No. 03-1227, 94 Fed.Appx. 33, 39 (2d Cir.2004) (unpublished opinion).
The new sentence after remand is not outside the "applicable guidelines range" imposed by subsection 251.3(b)(2) of the guidelines. 18 U.S.C. § 3742(g)(2). The range dictated by subsection 251.3(b)(2) includes a term of probation to up to six months imprisonment. See U.S.S.G., Sentencing Table (eff.Nov.1, 2001). Where an independent section of the guidelines not relied upon at the time of the original sentence operates to reduce the new sentence without a downward departure, the Feeney Amendment is not applicable.
In light of this decision, it is not necessary to consider whether this and other guidelines changes have by now so interfered with appropriate judicial discretion under Article III of the Constitution as to be unconstitutional. See, e.g., Zlotnick, supra, at 235; Part IV, supra.
The range associated with subsection 251.3(b)(2) is the "applicable guidelines range" for purposes of subsection 3742(g)(2). A sentence within that range is not precluded by the Feeney Amendment.
VII. Conclusion
Defendant is sentenced to five years probation, a $300 special assessment and a fine of $7,500.
This is the sentence the court would have imposed under its general powers were the Guidelines unconstitutional.
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1454986/ | 235 F. Supp. 729 (1964)
In the Matter of PANAMA-WILLIAMS CORPORATION, Debtor.
No. 63-H-6.
United States District Court S. D. Texas, Houston Division.
December 3, 1964.
*730 Minter & Graham, Sam S. Minter, Houston, Tex., for debtor.
Sanders, McElroy & Whitten, David H. Sanders, Tulsa, Okl., for petitioner.
Arthur L. Moller, Houston, Tex., referee in bankruptcy.
INGRAHAM, District Judge.
This cause is now before the court on a petition to review the findings of fact, conclusions of law, turnover order and judgment entered by the Referee in Bankruptcy on May 21, 1964.
The matter began with the filing of a petition for arrangement under Chapter XI of the Bankruptcy Act. On the date of filing, January 31, 1963, an order was entered by the Referee in Bankruptcy authorizing the debtor to remain in possession and to continue its business under orders of the court. Thereafter, the Debtor in Possession (hereinafter referred to as "Respondent") filed an application for Turnover Order against one Pride Morey Lewis (hereinafter referred to as "Petitioner"), a former employee of Respondent and a resident of Oklahoma. This Turnover Order was for certain equipment and funds in Petitioner's possession but allegedly owned by the Respondent. A show cause order was entered, and a copy of the order along with a copy of the turnover application was served on Petitioner by the United States Marshal for the Northern District of Oklahoma.
Prior to the hearing on the show cause order, Petitioner surrendered to Respondent all of the equipment listed in the application for the turnover order, and filed a written accounting, with supporting exhibits, purporting to show that he did not have in his possession any funds belonging to Respondent. Also prior to the hearing Petitioner filed a response in which he set out a claim to $5,769.01, monies allegedly due and owing by Respondent and to Petitioner.
The hearing was held on September 6, 1963. The Petitioner personally appeared and was represented by counsel. Immediately after the convening of the hearing, and prior to the offer of any evidence, it was stated that the basis and purpose of the hearing was to determine the issue of whether Petitioner had accounted and paid to Respondent all of its funds in his possession. Neither party objected, and the hearing proceeded on that basis. Neither Petitioner nor his attorney, at any time prior to or during the hearing, interposed any objection to the jurisdiction of the Referee to determine and adjudicate the question of whether the Petitioner had either accounted for or paid to the Respondent all of the Respondent's funds which had been in Petitioner's possession.
It was determined by the Referee that Petitioner was indebted to the Respondent in the sum of $17,527.91 and that Petitioner had in his possession at that time funds belonging to the Respondent in the amount of $1,100. It was accordingly ordered, on May 21, 1964, that Petitioner turn over to Respondent the amount of $1,100 and that an affirmative judgment be entered in the amount of $16,427.91 against Petitioner and in favor of Respondent, with interest to accrue at 6% from the date of entry. The petition for review of the order was mailed on May 28, 1964, and was received by the Referee on May 29, 1964. It was not accompanied by the requisite filing fee, however, and was therefore not officially filed until June 4, 1964, when the fee was *731 paid. Respondent urges that the petition for review was not timely filed and does not, therefore, satisfy the requirements of Section 39, sub. c of the Bankruptcy Act. These contentions, both certified by the Referee, should be disposed of first.
These questions actually present but a single issue: Is the failure to comply literally with the provisions of Section 39, sub. c of the Bankruptcy Act, in this instance, fatal to the petition for review?[1] A person is given ten days from the date of entry of a final order in which to petition for review. An extension may be granted if it is requested within that ten day period. This ten day period is significant, for although Petitioner mailed a copy of his petition and it was received by the Referee within the ten day period, there was a failure to pay the requisite filing fee until after the ten day period had run. Prior to 1960 the law was that the ten day period limited review as a matter of right, but did not limit the discretion of the court to entertain a petition after the expiration of that period. See, Pfister v. Northern Illinois Finance Corp., 317 U.S. 144, 153, 63 S. Ct. 133, 87 L. Ed. 146 (1942). In 1960, however, Congress specifically addressed itself to this ruling and amended the statute so as to make it clear that a petition for review must be filed within the prescribed ten day period or within such extended time as the court may allow upon petition for extension itself filed within such ten day period. S.Rep.No.1689, 86th Cong., 2d Sess. 602 (1960), U. S. Code Congressional and Administrative News 1960, p. 3194. This would seem to indicate that the late filing in the instant case was fatal. However, the petition was received by the Referee well within the ten day period, and the petitioner was not notified until after the expiration of the ten days that the petition had not been filed due to the failure to include the requisite filing fee. A more prompt notification could have resulted in the timely submission of the fee. Under such circumstances it does not thwart the expressed Congressional policy of establishing certainty in these review cases to hold that the petition was timely filed. It was clear that Petitioner intended to petition for review within the proper time and Respondent is in no way surprised or prejudiced by a ruling that the effective date of filing was the date when the petition was received rather than the date of payment of the filing fee. It should be emphasized, however, that this ruling is due to the particular circumstances of this case and is not an invitation to ignore filing fee requirements in the future.
That brings the court to the allegations of the petition for review. The petition is a lengthy, vague, and repetitive document, at best, with no supporting brief of authorities, and no amplification of legal theory. Upon failure of the Petitioner to file supporting and clarifying briefs, the court directed a letter to counselor for Petitioner, advising that he would be given an additional thirty days in which to file briefs and asking that he direct himself to specific cases with which the court was concerned. No briefs on behalf of Petitioner have been filed. The allegations range from specific challenges of the jurisdiction of the Bankruptcy Court to broad, *732 unexplained statements of conclusions.[2] But the essence of the petition may be distilled to two general allegations: (1) There is not sufficient evidence to support the order and judgment, and (2) The Bankruptcy Court did not have jurisdiction to enter the order and judgment. These are the remaining two questions certified by the Referee.
On petition for review by a district court the Referee's findings and orders should be upheld unless deemed clearly erroneous. Such a determination can be made when the findings are unsupported by substantial evidence, contrary to the clear weight of evidence, or induced by an erroneous view of the law. This is well established by prior decisions of this court. E. g., Re Basic G. Industries, Inc., 173 F. Supp. 903 (S.D.Tex.1959). In the opinion of the court there has been no such showing by the Petitioner in this case. The findings are substantially supported by the evidence and are not "clearly erroneous". But even though the findings are substantiated, if the Referee lacked the jurisdiction to enter them, they must be void. And this is the issue which has been most extensively urged by Petitioner whether the Referee had jurisdiction to enter the order and judgment.
Jurisdiction over the person of the Petitioner is attacked. The service of process on Petitioner beyond the territorial jurisdiction of the court is felt to be without legal basis. Respondent, on the other hand, urges that Section 311 of the Bankruptcy Act, 11 U.S.C.A. § 711, by providing that the Bankruptcy Court has "exclusive jurisdiction of the debtor and his property, wherever located", has, by necessity, given to the court in a Chapter XI case the power to send its process throughout the United States. That position is correct, as far as it goes. Section 311, however, should not be regarded as giving the Bankruptcy Court general, plenary, nationwide jurisdiction at law and in equity over all questions incident to the collection of the claims of the debtor against third persons. The extraterritorial service of process should only extend to those cases which involve the debtor or the property of the debtor. Where the litigation does not involve the property of the debtor, but is merely in personam, and not directed against the debtor, there is no jurisdiction in the Bankruptcy Court in a Chapter XI case to issue its process outside the district, except where authorized by Chapters I to VII. See, generally, 8 Collier, Bankruptcy, Para. 3.03(4) (14th Ed. 1963). It is clear that the process served initially in the instant litigation involved the property of the "debtor". That was to be the purpose of the turnover order. A much closer question would be presented if the only "property" under consideration initially had been the cash which was the subject of the ultimate turnover order. But such was not the case, and the failure of the Petitioner to enter any objection to the Referee's actions once they became questionable is equivalent to consent on the part of Petitioner. The net result is that Petitioner was properly brought before the court in the first instance, and failed to preserve any further objection to jurisdiction once the nature of the hearing changed to what might be considered "in personam".
Petitioner further attacks the jurisdiction of the Referee to enter an affirmative judgment upon a summary proceeding. This argument, too, is defeated by Petitioner's consent. The argument is that the Referee has no jurisdiction to hear and adjudicate in a summary proceeding a controversy between adverse claimants. This position is correct, but the parties have only a *733 procedural right to have the issues determined in a plenary action and may waive this right or acquiesce in a summary method of procedure. Consent to the summary proceeding may be (1) express, (2) by waiver through failure to raise the proper objection, or (3) implied from any act indicating a willingness on the part of the party that his claim or interest be determined summarily. 2 Collier, Bankruptcy, Para. 23.08(1) (14th Ed. 1963). The action of the Petitioner in the instant case brings him within two out of the three categories. There was no objection to the summary jurisdiction of the Referee until after the entry of the final order. An objection at that point is too late to preserve Petitioner's right to challenge jurisdiction. He has impliedly consented to the action of the court. The cases are legion in support of this proposition. But the clearest evidence is evinced by the Bankruptcy Act itself. In 1952 Congress amended Sec. 2, sub. a(7) of the Act, 11 U.S.C.A. § 11, sub. a(7), to add the following provision:
"* * * and where in a controversy arising in a proceeding under this Act an adverse party does not interpose objection to the summary jurisdiction of the court of bankruptcy, by answer or motion filed before the expiration of the time prescribed by law or rule of court or fixed or extended by order of court for the filing of an answer to the petition, motion or other pleading to which he is adverse, he shall be deemed to have consented to such jurisdiction;"
The purpose of the amendment was to overcome the rule established by the Supreme Court in Cline v. Kaplan, 323 U.S. 97, 65 S. Ct. 155, 89 L. Ed. 97 (1944), that the objection to jurisdiction could be entered at any time prior to the entry of a final order in the proceeding. But even under the more liberal rule of Cline v. Kaplan, Petitioner failed to timely assert his objection in the instant case. If this were not sufficient, the consent of the Petitioner could be implied from his filing a written accounting with the Referee and filing a response in which he set out an affirmative claim for monies allegedly due and owing by Respondent to Petitioner. In a summary proceeding a defendant who seeks affirmative relief by a cross-motion or other appropriate pleading consents to the court's summary jurisdiction. Cf. In re Engineers Oil Properties Corp., 72 F. Supp. 989 (S.D. N.Y.1947).
In view of the foregoing, the court holds that the petition for review filed by Pride Morey Lewis does not allege any matter or error which should cause the Referee's order in this matter to be modified or set aside. The clerk will notify counsel to draft and submit judgment accordingly.
NOTES
[1] 11 U.S.C.A. § 67, sub. c: "(c) [a] person aggrieved by an order of a referee may, within ten days after the entry thereof or within such extended time as the court upon petition filed within such ten-day period may for cause shown allow, file with the referee a petition for review of such order by a judge and serve a copy of such petition upon the adverse parties who were represented at the hearing. Such petition shall set forth the order complained of and the alleged errors in respect thereto. Unless the person aggrieved shall petition for review of such order within such ten-day period, or any extension thereof, the order of the referee shall become final. Upon application of any party in interest, the execution or enforcement of the order complained of may be suspended by the court upon such terms as will protect the rights of all parties in interest."
[2] Two allegations, in particular, which the court feels lack specificity are: "The findings of fact, order and judgment of the referee are void and unenforceable in that said proceedings were not commenced by the proper pleadings," and "The findings of fact, order and judgment of referee are an abuse of discretion and constitute a questionable experiment in coercion which does not lie within the authority or powers of the bankruptcy court." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2843714/ | Opinion issued April 22, 2010
In The
Court of
Appeals
For The
First District
of Texas
————————————
NOS. 01-06-00167-CR
01-06-00168-CR
01-06-00169-CR
01-06-00170-CR
01-06-00171-CR
———————————
Robert S. Shearer, Appellant
V.
The State of
Texas, Appellee
On Appeal from the County Court at Law No. 2
Galveston County, Texas
Trial Court Case No. 246188, 246194, 246197, 246200, and
246206
MEMORANDUM OPINION
Because
the complete record had not been timely filed, we abated the above-referenced appeals
and ordered a hearing in the trial court.
Among the issues the trial judge was to consider was whether appellant
desired to pursue his appeals. The trial
court conducted a hearing on February 25, 2010, and the supplemental record of
that hearing has been filed in this Court.
At the hearing, appellant stated that he no longer desires to prosecute
his appeals.
We order
the appeals reinstated. Appellant has
not filed a written motion to dismiss the appeals. See Tex.
R. App. P. 42.2(a). However, given
appellant’s expressed desire to forego pursuit of his appeals, we conclude that
good cause exists to suspend the operation of Rule 42.2(a) in accordance with
Rule 2. See Tex. R. App. P. 2. We have not yet issued a decision. Accordingly, the appeals are dismissed.
The clerk of this Court is
directed to issue the mandates within 10 days.
Tex. R. App. P. 18.1.
PER CURIAM
Panel
consists of Chief Justice Radack and Justices Alcala and Higley.
Do
not publish. Tex. R. App. P. 47.2(b). | 01-03-2023 | 09-03-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/2414808/ | 384 F. Supp. 2d 689 (2005)
Patricia E. CAGGIANO and John Caggiano, Plaintiffs,
v.
PFIZER INC. and Parke-Davis, a Division of Warner-Lambert Company, Defendants.
No. 05 Civ. 4159(JSR).
United States District Court, S.D. New York.
August 26, 2005.
James P. Rouhandeh, Davis Polk & Wardwell, New York City, for Defendants.
*690 OPINION AND ORDER
RAKOFF, District Judge.
The Court earlier consolidated under this caption and docket number 46 cases removed from New York state court that pleaded state-law claims based on allegations that defendants caused the drug Neurontin to be used for unsafe purposes and misled doctors and patients as to Neurontin's safety and efficacy. See Amended Order, 7/26/05. Before the Court now is plaintiffs' motion to remand these cases to state court.
The complaints in the 46 cases at issue are essentially identical. For convenience, reference will be made to the complaint in the lead case, Caggiano v. Pfizer, 05 Civ. 4159. That complaint alleges eight substantive claims, all rooted in state law.[1] The first three counts allege, in essence, that defendants marketed the drug Neurontin for "off-label" uses (i.e., uses for which it had not been approved by the Food and Drug Administration) for which it was not reasonably safe or effective. See Complaint ¶¶ 136-179. The other five counts, for breach of express and implied warranty, violation of the New York Consumer Protection Act, see N.Y. Gen. Bus. L. §§ 349-50, and common-law fraud, allege that defendants, rather than disclosing to the public this lack of safety and efficacy, misled doctors and patients as to the same. See id. ¶¶ 180-238.
Although these are all classic state-law claims, the complaint is also peppered with allegations that the defendants violated various federal statutes and regulations. For example, the complaint alleges that defendants deliberately failed to seek required FDA approval for many uses, see id. ¶¶ 16-47, 63, gave illegal kickbacks and other financial incentives to physicians who prescribed Neurontin for off-label uses, see id. ¶¶ 48, 52-53, 57, 126-133, and induced third parties to promote Neurontin for off-label uses to evade federal law that prevents the manufacturer itself from doing so, see id. ¶¶ 63-74. The complaint further alleges that such conduct resulted in the defendants being found in violation of federal law by the Department of Health and Human Services, see id. ¶¶ 120-122, and being sued in a federal qui tam action by a former employee turned whistleblower, see id. ¶ 60; see also United States ex rel. Franklin v. Parke-Davis, 2003 WL 22048255, 2003 U.S. Dist. LEXIS 15754 (D.Mass.2003).
These contextual allegations, however, are not enough to confer federal question jurisdiction. Where no federal claim has been pleaded, a case only "arises under" federal law if a plaintiff's "right to relief under state law requires resolution of a substantial question of federal law." Franchise Tax Bd. of State of Cal. v. Construction Laborers Vacation Trust, 463 U.S. 1, 8-9, 103 S. Ct. 2841, 77 L. Ed. 2d 420 (1983). Here, the factual allegations set forth in the complaint state claims under New York law regardless of whether any federal law has been violated. Put another way, a jury could find defendants liable on each and every one of the eight claims without being required to determine whether any federal law had been violated. That the facts alleged also may constitute violations of federal law (for which recovery is being sought in federal court) is neither here nor there. Compare D'Alessio v. N.Y. Stock Exch., 258 F.3d 93, 103-04 (2d Cir.2001) (finding federal question jurisdiction where claims "necessarily require[d]" a court to construe federal law and where the duties alleged to have been breached did not exist independent of federal law).
*691 In a related case, this Court needed to go no further before remanding, because the plaintiff expressly disclaimed any intent to seek a jury instruction that would allow recovery based solely on a finding that defendants violated federal law. See Young v. Pfizer Inc., 2004 WL 2998517, 2004 U.S. Dist. LEXIS 25964 (S.D.N.Y.2004). By contrast, plaintiffs here have expressed an intent to seek a determination that certain federal law violations constitute negligence per se under state law, see Complaint ¶ 147, meaning that a state court may be asked to consider whether federal law was violated. However, absent special circumstances,[2] there is no federal question jurisdiction over garden-variety state-law claims "resting on federal mislabeling and other statutory violations." Grable & Sons Metal Prods., Inc. v. Darue Eng'g & Mfg., ___ U.S. ___, ___, 125 S. Ct. 2363, 2370, 162 L. Ed. 2d 257 (2005). The duties alleged to have been breached here are not creatures of federal law, as in D'Alessio; rather, federal standards merely inform the content of classically state-law duties such as avoiding negligence and fraud. Cf. Donovan v. Rothman, 106 F. Supp. 2d 513, 517-18 (S.D.N.Y.2000). Moreover, none of the claims here depend on the borrowing of federal law; rather, violation of federal law is simply one of multiple theories on which plaintiff may possibly prevail. See Broder v. Cablevision Sys. Corp., 418 F.3d 187, 194 (2d Cir.2005) ("Where a federal issue is present as only one of multiple theories that could support a particular claim ... this is insufficient to create federal jurisdiction."). Accordingly, there is no federal question jurisdiction over these claims.
Having made this finding, the Court must reach the question of whether to retain the 15 of the 46 cases for which, the parties agree, there is diversity jurisdiction. It is undisputed that defendants could not have properly removed these cases on that basis, since at least one defendant is a citizen of New York. See 28 U.S.C. § 1441(b). However, while a federal court must remand a case to state court if it finds at any time that it lacks subject matter jurisdiction, a motion to remand on any other basis must be made "within 30 days after the filing of the notice of removal," or else it is waived. See 28 U.S.C. § 1447(c). All fifteen cases were removed more than 30 days before plaintiffs moved to remand on July 21, 2005. If defendants had removed these 15 cases on the basis of diversity jurisdiction, plaintiffs thus would have no recourse, notwithstanding the impropriety of such removal. Shapiro v. Logistec USA Inc., 412 F.3d 307, 312 (2d Cir.2005).
But this case is somewhat different, since defendants did not remove on the basis of diversity but rather solely on the basis of purported federal question jurisdiction. Plaintiffs had no reason or opportunity to challenge the propriety of asserting diversity jurisdiction until defendants were asked by the Court, on a July 20 telephonic conference, whether any cases had an alternative jurisdictional basis in diversity; at that point, plaintiffs immediately raised the impropriety of removal on such a basis.
*692 Neither party has pointed the Court to any relevant precedent. Nonetheless, it seems clear, as a matter of basic equitable principles, that plaintiffs cannot waive their right to challenge a basis for removal without having an opportunity to assert it. Moreover, while there is no reason to doubt the good faith of these defendants in removing on federal question grounds, to allow suits to go forward under diversity jurisdiction where they could not have been removed on that basis and where plaintiffs had no opportunity to challenge such removal is to sanction a "bait-and-switch" tactic that, in addition to being unfair, would undermine the home-state-defendant exception to diversity removal. The Court therefore holds that the 30-day clock for challenging removal on diversity grounds began running not when the case was removed on another basis but when plaintiffs were made aware of the alternative basis for removal; by this measure, plaintiffs interposed their objection well within the allotted time.
Finally, plaintiffs' motion to recover attorney's fees and costs "incurred as a result of the removal," see 28 U.S.C. § 1447(c), is denied. While bad faith removal by a defendant is not a precondition to a plaintiff's recovery under this section, see Morgan Guaranty Trust Co. of New York v. Republic of Palau, 971 F.2d 917, 923-24 (2d Cir.1992), the absence of bad faith, as well as the existence of a colorable question as to whether removal is proper, weighs against the award of costs and fees. See, e.g., United Mutual Houses, L.P. v. Andujar, 230 F. Supp. 2d 349, 354 (S.D.N.Y.2002). Although the defendants' contention that there is federal question jurisdiction here did not prevail, it was far from a frivolous argument.
Accordingly, plaintiffs' motion to remand is granted in full. The Clerk of the Court is directed to return the 46 cases consolidated under this caption and docket number to the Supreme Court of the State of New York, County of New York. Plaintiffs' motion for costs and fees associated with this motion is denied.
SO ORDERED.
NOTES
[1] A ninth cause of action in Caggiano, for loss of services, is not a separate theory of liability but simply seeks damages on behalf of Patricia Caggiano's husband.
[2] Defendants argue that this is a special circumstance because the federal Food, Drug, and Cosmetic Act ("FDCA") requires uniformity in interpretation, an argument that has some force with respect to other statutory schemes. See Grable, 125 S.Ct. at 2368 (meaning of federal tax law "sensibly belongs in a federal court"); Frayler v. N.Y. Stock Exch., 118 F. Supp. 2d 448, 450 (S.D.N.Y.2000) (interpretation of securities law is "a matter of intense federal concern"). However, with respect to the standards created by the FDCA, this argument was specifically rejected by the Supreme Court in Merrell Dow Pharms. Inc. v. Thompson, 478 U.S. 804, 815-16, 106 S. Ct. 3229, 92 L. Ed. 2d 650 (1986). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1516035/ | 955 F. Supp. 700 (1997)
In re NORPLANT CONTRACEPTIVE PRODUCTS LIABILITY LITIGATION.
Jennifer BURTON
v.
AMERICAN HOME PRODUCTS CORPORATION, a Delaware Corporation d/b/a Wyeth-Ayerst Laboratories, and Wyeth Laboratories, Inc.
Theresa GOINS (Harrison) and Andrea Elaine Haught
v.
AMERICAN HOME PRODUCTS CORPORATION, a Delaware Corporation d/b/a Wyeth-Ayerst Laboratories, and Wyeth Laboratories, Inc.
Beverly McDANIEL
v.
AMERICAN HOME PRODUCTS CORPORATION, a Delaware Corporation d/b/a Wyeth-Ayerst Laboratories, and Wyeth Laboratories, Inc.
Kristy YOUNGBLOOD
v.
AMERICAN HOME PRODUCTS CORPORATION, a Delaware Corporation d/b/a Wyeth-Ayerst Laboratories, and Wyeth Laboratories, Inc.
Nos. 1:95-CV-5360, 1:95-CV-5178, 1:95-CV-5243 and 1:95-CV-5229.
United States District Court, E.D. Texas, Beaumont Division.
March 4, 1997.
*701 *702 Chris Parks of Parker and Parks, Port Arthur, TX, Roger Brosnahan of Brosnahan, Joseph & Suggs, Minneapolis, MN, Turner Branch, Branch Law Firm, Alberquerque, NM, for Plaintiffs.
John W. Vardaman, F. Lane Heard III, Steve Farina of Williams & Connolly, Washington, DC, Paul W. Gertz, Larry Germer, Tonya Connell Adams of Germer & Gertz Beaumont, TX, for Defendants.
MEMORANDUM OPINION AND ORDER GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
SCHELL, Chief Judge.
This matter is before the court on Defendants' Motion for Summary Judgment filed on January 28, 1997. Plaintiffs filed a response on February 11, 1997. Defendants filed a reply on February 14, 1997. The court issued its Preliminary Order on Application of the Learned Intermediary Doctrine as it Pertains to Defendants' Motion for Summary Judgment ("Order") on February 20, 1997. In the Order, the court advised counsel of the court's decision to apply the learned intermediary doctrine in analyzing Plaintiffs' failure to warn claims so that counsel could prepare for oral argument on Defendants' Motion for Summary Judgment to be held on February 24, 1997.[1] Pursuant to the court's request, the parties submitted supplemental memoranda in support of their respective positions, focusing particularly on the issues of causation and whether the learned intermediary doctrine applies to each of Plaintiffs' theories of liability. On February 24, 1997, after consideration of the parties' submissions and applicable law and after hearing oral argument, the court announced its decision to grant Defendants' Motion for Summary Judgment. This written opinion and order sets forth more fully the court's reasons for granting the motion.
INTRODUCTION
On August 5, 1996, the court denied Plaintiffs' Motion for Class Certification, which sought to certify a nationwide class of "all persons ... who have suffered or may suffer injury as a result of using Norplant designed, manufactured, supplied, distributed, sold and/or placed in the stream of interstate commerce by Defendants."[2] In the court's Memorandum Opinion and Order Denying Plaintiffs' Motion for Class Certification and Dismissing Class Complaint, the court decided that class certification was premature and that bellwether trials were necessary to aid the court in determining the appropriateness of issue certification under Federal Rule of Civil Procedure 23(c)(4) for a nationwide class of Norplant plaintiffs.[3] This action is the first of three bellwether trials in MDL 1038 and involves five plaintiffs.[4] The five plaintiffs are Jennifer Burton, Theresa Goins, Andrea Haught, Beverly McDaniel, and Kristy Youngblood (hereinafter "Plaintiffs").
Plaintiffs contend that American Home Products Corporation ("AHP") and its subsidiary Wyeth Laboratories Inc. ("Wyeth") (collectively "Defendants") failed to adequately warn both the consumers and the prescribing physicians of the side effects associated with the use of Norplant.[5] Plaintiffs complain that Norplant caused multiple side effects, including prolonged menstrual bleeding, headaches, mood changes, depression, weight gain, hair loss, arm pain, dizziness, and nausea.[6] Plaintiffs contend that Defendants' failure to adequately warn of these *703 side effects gives rise to liability under theories of strict liability, negligence, misrepresentation, breach of implied warranty of merchantability, and under the Texas Deceptive Trade Practices Act ("DTPA").[7]
APPLICABLE LAW
Because jurisdiction over these cases is based on diversity of citizenship, Texas law governs the determination of the substantive issues.[8] The United States Supreme Court in Erie held that federal courts must follow the substantive law decisions of the state's highest court.[9] Texas appellate courts have adopted and applied the learned intermediary doctrine in cases involving a drug manufacturer's duty to warn about the potential hazards of prescription drugs. These decisions have been cited with approval by the Texas Supreme Court.[10] However, neither the Texas Supreme Court nor any other Texas appellate court has dealt with a failure-to-warn claim involving a prescription contraceptive.[11] Where the issues involved are ones upon which the state supreme court has not yet ruled, federal courts must attempt to predict how the state supreme court, if presented with the question, would decide the issue. Therefore, this court must make an Erie-guess. To aid in the court's decision, the court looks to existing Texas caselaw involving prescription drugs and the treatment of failure-to-warn claims involving prescription contraceptives in other jurisdictions.[12]
I. TEXAS FAILURE-TO-WARN CASES INVOLVING PRESCRIPTION DRUGS
"In a failure to warn case, the plaintiff must show that the warning was defective and that this failure to warn was the producing cause of the plaintiff's injury."[13] "For cases involving a drug manufacturer's duty to warn, Texas courts apply the `learned intermediary' doctrine."[14] Under the learned intermediary doctrine, "when a drug manufacturer properly warns a prescribing physician of the dangerous propensities of its product, the manufacturer is excused from warning each patient who receives the drug. The doctor stands as a learned intermediary between the manufacturer and the ultimate consumer."[15] "[O]nce the physician is warned, the choice of which drugs to use and the duty to explain the risks become that of the physician."[16] "However, ... when the warning to the intermediary is inadequate or misleading, the manufacturer remains liable for injuries sustained by the ultimate user" as a result of the defective warning.[17] While Texas cases applying the learned intermediary *704 doctrine do not involve prescription contraceptives, an exception to the doctrine for contraceptives such as Norplant is not warranted according to the overwhelming weight of authority from other jurisdictions.
II. FAILURE-TO-WARN CASES INVOLVING PRESCRIPTION CONTRACEPTIVES
Though the court was unable to locate any cases dealing with the issue of applying the learned intermediary doctrine in cases involving the Norplant contraceptive in particular, courts outside Texas have repeatedly rejected arguments by plaintiffs that oral contraceptives and IUDs should be excepted from the doctrine.[18] Only a single jurisdiction, Massachusetts, recognizes an exception to the doctrine for prescription contraceptives.[19] Plaintiffs argue that Michigan and Arkansas also created an exception to the learned intermediary doctrine for prescription contraceptives,[20] but this argument is somewhat misguided. Although two federal district court decisions from Michigan created an exception to the doctrine for oral contraceptives,[21] a third, more recent decision by another district court held that this is an incorrect statement of Michigan law and that the learned intermediary doctrine applies.[22] Similarly, the prediction of the United States Court of Appeals for the Eighth Circuit that Arkansas would adopt an exception for contraceptives[23] has been repudiated by the supreme *705 court of that state.[24] Despite the overwhelming majority of jurisdictions that have refused to create an exception to the learned intermediary doctrine for prescription contraceptives, Plaintiffs argue that the court should create an exception for Norplant under Texas law.
III. CREATING AN EXCEPTION TO THE LEARNED INTERMEDIARY DOCTRINE FOR NORPLANT?
Plaintiffs contend that the court should create an exception to the learned intermediary doctrine for Norplant because: (1) Defendants' actions effectively displaced the physician, thereby making application of the learned intermediary doctrine improper; and (2) prescription contraceptives, as opposed to other prescription drugs, are an exception to the learned intermediary doctrine.[25] For the following reasons, the court finds Plaintiffs' contentions to be without merit and determines that the Texas Supreme Court, if presented with the question, would apply the learned intermediary doctrine in these cases.
A. Defendants' Conduct Did Not Result in the Displacement of the Prescribing Physician
Plaintiffs cite Reyes v. Wyeth Laboratories[26] for the proposition that when the physician's role is abrogated, the learned intermediary doctrine no longer applies.[27] In Reyes, however, no physician played any role in the decision to prescribe and dispense to the plaintiffs' child an oral polio vaccine, or in counseling with the parents as to possible side effects, or in administering the drug.[28] Unlike the circumstances in Reyes, physicians are involved in prescribing and implanting Norplant. Furthermore, those prescribing physicians have a duty to discuss the risks and benefits of Norplant with each patient. Clearly, Norplant is administered in the context of a physician-patient relationship.[29]
In addition, Plaintiffs argue that this court should extend the Reyes holding to these cases because the physician assumes a passive role in that "the [Norplant prescribing] physicians essentially became conduits for passing on Wyeth materials"[30] and that Wyeth was guilty of "consciously removing the physician from the decision making process."[31] However, the Fifth Circuit has indicated that the Reyes exception is limited to cases in which the physician-patient relationship is nonexistent. In Hurley v. Lederle Laboratories,[32] the court rejected the plaintiffs' argument for an extension of Reyes beyond its facts:
Unlike Reyes, here the child's personal physician prescribed the shot, and the vaccine was administered under the supervision of the physician in his office by his nurse. In short, there is no question whatsoever but that a patient-physician relationship existed....
. . . .
... [B]ecause the physician-patient relationship existed, and because the doctor *706 had thus assumed the role of learned intermediary, the fact that he had made no individualized judgment did not bar the application of the learned intermediary doctrine to relieve the manufacturer of liability.[33]
This language from Hurley makes it clear that as long as a physician-patient relationship exists, failure by the physician to advise the patient of the hazards of a prescription drug will not bar application of the doctrine. Moreover, if any physician allowed himself to become a mere conduit for Wyeth's materials, then it is the physician who is responsible. By the same token, Wyeth cannot remove a physician from the decision making process, only the physician can do that by avoiding his responsibility to make an individualized balancing of the risks and benefits associated with a drug and to advise the patient of possible adverse reactions.
B. Prescription Contraceptives Are Not an Exception to the Learned Intermediary Doctrine
As discussed earlier, Plaintiffs cite the Massachusetts Supreme Court's decision in MacDonald v. Ortho Pharmaceutical Corp.,[34] as well as three other cases which have since been criticized and rejected, for the proposition that the learned intermediary doctrine does not apply to prescription contraceptives.[35] Plaintiffs argue that because the patient makes the ultimate decision to select Norplant as her contraceptive (the "active patient/passive physician" argument)[36] and Defendants engaged in a direct-to-consumer marketing campaign to exploit that fact,[37] the court should carve out an exception to the learned intermediary doctrine for Norplant.
1. The Active Patient/Passive Physician Argument
Plaintiffs rely on McDonald in setting out the active patient/passive physician rationale for creating an exception to the learned intermediary doctrine:
Oral contraceptives ... bear peculiar characteristics which warrant the imposition of a common law duty on the manufacturer to warn users directly of associated risks. Whereas a patient's involvement in decision-making concerning use of a prescription drug necessary to treat a malady is typically minimal or nonexistent, the healthy, young consumer of oral contraceptives is usually actively involved in the decision to use "the pill," as opposed to other available birth control products and the prescribing physician is relegated to a relatively passive role.
. . . .
The oral contraceptive thus stands apart from other prescription drugs in light of the heightened participation of patients in decisions relating to use of "the pill"; the substantial risks affiliated with the product's use; the feasibility of direct warnings by the manufacturer to the user; the limited participation of the physician (annual prescription); and the possibility that oral communications between physicians and consumers may be insufficient or too scanty standing alone fully to apprise consumers of the product's dangers at the time the initial selection of a contraceptive method is made as well as at subsequent points when alternative methods may be considered.[38]
However, no state court has adopted the active patient/passive physician rationale as a basis for an exception to the doctrine in the 12 years since the McDonald decision.
*707 Even if it were true that women play a greater role in selecting among prescription contraceptives, these products are nevertheless available only by prescription from a physician. The fact that the patient plays a role in deciding to use a particular prescription drug does not diminish the physician's role in determining her suitability for different drugs and in counseling with her as to the benefits and potential risks of each. As the Supreme Court of Washington explained in an IUD case, the physician always is involved in consultation and has both the unique opportunity and responsibility to warn a woman of potential side effects:
The physician does not confine his practice to the curing of maladies. He is concerned with the total health and physical well-being of his patients and appropriately gives advice upon preventive measures. Certainly the insertion of the Dalkon Shield requires a physician's services, his knowledge and his skill. While the physician does not make the final choice but leaves that to the patient, he advises the patient with respect to the advantages and disadvantages of various choices ... and it is he who supplies and inserts the device.
The fact that the patient makes the final choice among suggested contraceptives (or decides not to use any at all) does not constitute a distinction which makes the general rule inapplicable.[39]
This court finds that there is no principled distinction to be drawn between prescription contraceptives and other prescription drugs insofar as application of the learned intermediary doctrine is concerned, as long as a physician is involved. The physician has the duty as the learned intermediary to make an individualized balancing of the risks and benefits of any prescription drug contemplated for a particular patient and to advise the patient of possible adverse reactions. The mere fact that one drug is for the purpose of contraception and another drug is for another purpose should not affect the application of the doctrine. The fact that prescription contraceptives are elective and other prescription drugs are therapeutic should not affect the application of the doctrine.
2. Defendants' Marketing Campaign
According to Plaintiffs, Wyeth engineered an unparalleled marketing campaign, which distinguishes Norplant from the cases involving oral contraceptives and IUDs. Plaintiffs assert that Defendants assumed the duty to warn Plaintiffs by not only engaging in direct-to-consumer advertising, but also funneling Norplant promotional materials to the patient through the physician.[40]
a. Direct-to-Consumer Advertising
Plaintiffs allege that Wyeth engaged in an aggressive publicity campaign targeted to consumers that included the placement of several "puff pieces" in consumer magazines by Wyeth's public relations firm.[41] Plaintiffs argue that if a drug manufacturer should *708 choose to go around the physician and market a drug directly to the patient, the manufacturer should be held to a duty in its advertisements to fairly and accurately present not only the benefits, but also the risks and potential side effects of the drug. In their response, Plaintiffs go on to state that "if the law were otherwise, Wyeth would have no legal responsibility for any information it provides to a patient irrespective of content or form."[42] However, the Food and Drug Administration ("FDA") reviews direct-to-consumer advertising "to ensure that [the advertising is] not false or misleading and [is] in fair balance."[43] Further, regardless of FDA approval, the court need not scrutinize Wyeth's direct-to-consumer advertising. Because Plaintiffs admit they never saw any Norplant advertising prior to their implantation,[44] Wyeth's direct-to-consumer advertising could not have somehow vitiated the role of the learned intermediary.[45]
b. Norplant Materials Distributed Through the Physician
Plaintiffs contend that Wyeth's "dissemination of promotional materials disguised as patient informational brochures and videotapes require that Wyeth's duty to warn go directly to the consumer."[46] According to Plaintiffs, "[t]he woman's decision was made after reviewing deceptive materials created by Wyeth to highlight the promotional features of the product."[47] Defendants argue that patient labeling and other counseling materials are not intended to supplant the advice and guidance of the physician but rather are designed to facilitate counseling of the patient by her physician.[48] Other courts have held that the drug manufacturer's provision of patient labeling or other counseling materials "should not serve as a basis to displace or create exceptions to the learned intermediary doctrine."[49] The court agrees with those courts that view such patient materials as an informational supplement to the physician-patient relationship. Moreover, because these materials are distributed by the physician, the court is of the opinion that the physician, as the learned intermediary, has a duty to review the materials before passing them on to the patient in order to ensure that any such materials that the physician chooses to pass on will accurately inform the patient about the drug.[50] Once *709 again, if a physician became a mere conduit for Wyeth materials, then it is the physician who is responsible for allowing that to happen.
For the foregoing reasons, the court finds that an exception to the learned intermediary doctrine is not warranted.
IV. SCOPE OF THE LEARNED INTERMEDIARY DOCTRINE
Before analyzing the appropriateness of summary judgment, the court must determine the scope of the learned intermediary doctrine, that is whether the learned intermediary doctrine applies to all claims grounded upon failure to warn. Defendants contend that although Plaintiffs' allege a variety of different causes of action for strict liability, negligence, misrepresentation, implied warranty, and under the DTPA, each claim is based upon failure to warn. And therefore, each claim requires Plaintiffs to prove (1) that the warnings provided by Wyeth to their prescribing physicians failed adequately to disclose the potential side effects complained of by Plaintiffs and (2) that the alleged inadequacies in Wyeth's warnings were a producing or proximate cause of the particular injuries alleged by Plaintiffs.[51] Plaintiffs counter that the learned intermediary doctrine does not apply to their claims for misrepresentation and violations of the DTPA arising out of a drug manufacturer's voluntary communications to consumers through physician-distributed materials.[52] Plaintiffs argue that supplying physicians with patient brochures and videos is extraneous to the satisfaction of the drug manufacturer's duty to warn the physician, and therefore, these materials are not covered by the learned intermediary doctrine. It follows, according to Plaintiffs, that the drug manufacturer who voluntarily undertakes to supply patient materials to the physician may be sued by the patient if these materials, standing alone, are misleading or deceptive. Plaintiffs' argument is flawed, however, because the alleged misrepresentation or the allegedly false, misleading, and deceptive nature of these materials is, once again, that Wyeth failed to adequately warn of the drug's side effects.
The gravamen of all of Plaintiffs' causes of action, including misrepresentation and violation of the DTPA, is that Wyeth failed to adequately warn of or disclose the severity of Norplant's side effects. Therefore, the learned intermediary doctrine applies to all of Plaintiffs' causes of action. Additionally, whether the failure to warn is couched as an affirmative misrepresentation or a misrepresentation by concealment, the allegation collapses into a charge that the drug manufacturer failed to warn. If the doctrine could be avoided by casting what is essentially a failure to warn claim under a different cause of action such as violation of the DTPA or a claim for misrepresentation, then the doctrine would be rendered meaningless. Therefore, this summary judgment motion, based upon application of the learned intermediary doctrine, is dispositive of all of Plaintiffs' claims.
SUMMARY JUDGMENT
I. APPLICABLE STANDARD
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a *710 matter of law."[53] 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."[54] Because Plaintiffs bear the burden of proof at trial on the issues of adequacy of the warning and causation, Defendants are not required to "produce evidence negating the existence of a material fact"; rather Defendants' burden is "only [to] point out the absence of evidence supporting the nonmoving party's case."[55] If Defendants' motion demonstrates such an absence of evidence, "the nonmovant must come forward with evidence which would be sufficient to enable it to survive a motion for directed verdict at trial."[56] "The test is identical to that used for a directed verdict: `whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'"[57]
II. ANALYSIS
Plaintiffs have alleged causes of action for strict products liability, negligence, breach of implied warranty of merchantability, misrepresentation, and consumer fraud based upon the Texas Deceptive Trade Practices Act. Each of these five causes of action is based upon the allegation that Defendant Wyeth Laboratories failed to adequately warn the prescribing physicians of the type and severity of the side effects associated with the use of Norplant. And for each of these five causes of action, each plaintiff must prove under Texas law, among other elements: (1) that the warnings provided by Wyeth to her prescribing physician failed to adequately disclose the potential side effects complained of by the plaintiff and (2) that the alleged inadequacies in Wyeth's warnings were a producing or proximate cause of the particular injury(ies) or side effect(s) alleged by the plaintiff.[58]
Defendants contend in their motion that the issue of whether Wyeth's warnings to physicians are adequate need not even be reached because any alleged inadequacy was not a producing cause of the plaintiffs' injuries.[59] In order to establish producing cause in a prescription drug failure-to-warn case, "Plaintiffs must demonstrate that `a proper warning would have changed the decision of the treating physician, i.e., that but for the inadequate warning, the treating physician would not have used or prescribed the product.'"[60] Defendants contend that Plaintiffs did not create a fact issue on producing cause because the undisputed evidence shows that each plaintiff's prescribing physician was fully aware of the potential side effects alleged by the plaintiffs and the severity of those side effects before prescribing Norplant.[61]
Plaintiffs argue that even if these prescribing physicians were aware of the side effects complained of here by the plaintiffs, there was other medical information, contained in studies, Wyeth internal memoranda, and letters, about which the physicians were not aware at the time of insertion.[62] However, all five of the prescribing physicians testified unequivocally that none of the information shown to them from Wyeth's internal *711 files would have changed their minds about whether to prescribe Norplant for their patients, including the plaintiffs.[63] As the El Paso Court of Appeals held in Stewart, when the prescribing physician was aware of the possible side effects of a drug, yet, chose to use it regardless of the adequacy of the warning, then as a matter of law, the adequacy of the warning was not a producing cause of the plaintiff's injury.[64] Plaintiffs have the burden of proving that a different warning would have changed the decision of the treating physicians.[65] This, they have not done. Therefore, summary judgment is appropriate as to all claims for each of the first five bellwether plaintiffs.
CONCLUSION
Accordingly, the court hereby GRANTS Defendants' Motion for Summary Judgment as it pertains to all claims of Plaintiffs Jennifer Burton, Theresa Goins, Andrea Elaine Haught, Beverly McDaniel, and Kristy Youngblood.
NOTES
[1] Order at 1 (February 20, 1997).
[2] Pls.' First Am. Master Class Action Compl. and Demand for Jury Trial at ¶ 40.
[3] See In re Norplant Contraceptive Products Liability Litigation, 168 F.R.D. 577, 578 (E.D.Tex. 1996) (citing Castano v. American Tobacco Company, 84 F.3d 734, 750 (5th Cir.1996), for the proposition that individual trials are necessary in order to allow the court to make an informed decision regarding whether common issues predominate and whether certification of a class is superior to other methods for handling this litigation).
[4] Each of the three bellwether trials involves five plaintiffs.
[5] Pls.' Resp. to Defs.' Mot. for Summ. J. at 1-2.
[6] Id. at 2.
[7] In the court's February 11, 1997 Order Granting Defendants' Motion for Summary Judgment on Abandoned Claims, the court dismissed Plaintiffs' claims for breach of express warranty, breach of implied warranty of fitness for a particular purpose, manufacturing defect, design defect, negligent manufacture, and negligent design. This motion was not opposed by Plaintiffs.
[8] In diversity cases, federal courts must apply the substantive laws of the state in which they are located except on matters governed by the Constitution or federal statute. Erie v. Tompkins, 304 U.S. 64, 78, 58 S. Ct. 817, 822, 82 L. Ed. 1188 (1938).
[9] Id.
[10] See Alm v. Aluminum Co. of America, 717 S.W.2d 588, 591-92 (Tex.1986).
[11] The issue of whether the learned intermediary doctrine applies in actions involving contraceptive products was raised in Jordan v. Ortho Pharmaceuticals, Inc., 696 S.W.2d 228 (Tex.App. San Antonio 1985, writ ref'd n.r.e.), but the court did not reach a decision on the issue.
[12] In making an Erie-guess, federal courts may properly consider the opinions of lower state courts. Vernon v. City of Los Angeles, 27 F.3d 1385, 1391 (9th Cir.1994).
[13] Rolen v. Burroughs Wellcome Co., 856 S.W.2d 607, 609-10 (Tex.App. Waco 1993, writ denied).
[14] Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 912 (5th Cir.1992) (citation omitted).
[15] Alm v. Aluminum Co. of America, 717 S.W.2d 588, 591-92 (Tex.1986) (citations omitted).
[16] Skotak, 953 F.2d at 912 (alteration in original) (quotations omitted) (quoting Stewart v. Janssen Pharmaceutica, Inc., 780 S.W.2d 910, 911 (Tex. App. El Paso 1989, writ denied)).
[17] Alm, 717 S.W.2d at 592 (citing Bristol-Myers Co. v. Gonzales, 561 S.W.2d 801 (Tex.1978); Crocker v. Winthrop Labs., Div. of Sterling Drug, Inc., 514 S.W.2d 429 (Tex.1974)).
[18] See, e.g., Spychala v. G.D. Searle & Co., 705 F. Supp. 1024, 1032 (D.N.J.1988) (applying New Jersey law) ("The overwhelming majority of decisions have applied the learned intermediary rule to cases involving contraceptives.... There is no reason ... to differentiate between contraceptives and other prescription drugs to which the learned intermediary rule applies.") (citations and quotations omitted); West v. Searle & Co., 305 Ark. 33, 806 S.W.2d 608, 614 (1991) ("[W]e are convinced that the stated public policy reasons for the learned intermediary doctrine are present with respect to oral contraceptives."); Martin v. Ortho Pharmaceutical Corp., 169 Ill. 2d 234, 214 Ill. Dec. 498, 502, 661 N.E.2d 352, 356 (1996) ("We agree with those decisions which have declined to recognize an exception to the learned intermediary doctrine for manufacturers of contraceptive pharmaceuticals."); see also Odom v. G.D. Searle & Co., 979 F.2d 1001, 1003 (4th Cir.1992) (applying South Carolina law); Brochu v. Ortho Pharmaceutical Corp., 642 F.2d 652, 656 (1st Cir.1981) (applying New Hampshire law); Lindsay v. Ortho Pharmaceutical Corp., 637 F.2d 87, 91 (2d Cir.1980) (applying New York law); MacPherson v. Searle & Co., 775 F. Supp. 417, 424-25 (D.D.C.1991) (applying District of Columbia law); Klempka v. G.D. Searle & Co., 769 F. Supp. 1061, 1065 n. 4 (D.Minn.1991) (applying Minnesota law); Reaves v. Ortho Pharmaceutical Corp., 765 F. Supp. 1287, 1291 (E.D.Mich.1991) (applying Michigan law); Zanzuri v. G.D. Searle & Co., 748 F. Supp. 1511, 1514-15 (S.D.Fla.1990) (applying Florida law); Amore v. G.D. Searle & Co., 748 F. Supp. 845, 849-50 (S.D.Fla.1990) (applying Florida law); Allen v. G.D. Searle & Co., 708 F. Supp. 1142, 1148 (D.Or.1989) (applying Oregon law); Kociemba v. G.D. Searle & Co., 680 F. Supp. 1293, 1305-06 (D.Minn.1988) (applying Minnesota law); Dupre v. G.D. Searle & Co., No. C84-146-L, 1987 WL 158107, at *4 (D.N.H. April 28, 1987) (applying New Hampshire law); Goodson v. Searle Labs., 471 F. Supp. 546, 548 (D.Conn. 1978) (applying Connecticut law); Dunkin v. Syntex Labs, Inc., 443 F. Supp. 121, 123 (W.D.Tenn.1977) (applying Tennessee law); Chambers v. G.D. Searle & Co., 441 F. Supp. 377, 381 (D.Md.1975) (applying District of Columbia law), aff'd, 567 F.2d 269 (4th Cir.1977); Hamilton v. Hardy, 37 Colo. App. 375, 549 P.2d 1099, 1110 (1976); Lacy v. G.D. Searle & Co., 567 A.2d 398, 400 (Del.1989); Ortho Pharmaceutical Corp. v. Chapman, 180 Ind.App. 33, 388 N.E.2d 541, 548-49, 553, 557 (1979); Humes v. Clinton, 246 Kan. 590, 792 P.2d 1032, 1040 (Kan.1990); Rhoto v. Ribando, 504 So. 2d 1119, 1123 (La.Ct.App. 1987); Seley v. G.D. Searle & Co., 67 Ohio St. 2d 192, 423 N.E.2d 831, 839-40 (1981); McKee v. Moore, 648 P.2d 21, 25 (Okla.1982); Vaughn v. G.D. Searle & Co., 272 Or. 367, 536 P.2d 1247, 1248 (1975); Taurino v. Ellen, 397 Pa.Super. 50, 579 A.2d 925, 928 (1990); Brecher v. Cutler, 396 Pa.Super. 211, 578 A.2d 481, 485 (1990); Terhune v. A.H. Robins Co., 90 Wash.2d 9, 577 P.2d 975, 978 (1978).
[19] See MacDonald v. Ortho Pharmaceutical Corp., 394 Mass. 131, 475 N.E.2d 65 (1985). The Massachusetts Supreme Judicial Court, in creating an exception to the learned intermediary doctrine for oral contraceptives, emphasized the active role of the patient in deciding to use "the pill" and the relatively passive role of the prescribing physician. Id. 475 N.E.2d at 69.
[20] Pls.' Resp. to Defs.' Mot. for Summ. J. at 25-26 (citing Hill v. Searle Labs., 884 F.2d 1064 (8th Cir.1985); Odgers v. Ortho Pharmaceutical Corp., 609 F. Supp. 867 (E.D.Mich.1985); Stephens v. G.D. Searle & Co., 602 F. Supp. 379 (E.D.Mich. 1985)).
[21] See Odgers, 609 F.Supp. at 878; Stephens, 602 F.Supp. at 381.
[22] See Reaves v. Ortho Pharmaceutical Corp., 765 F. Supp. 1287, 1291 (E.D.Mich.1991).
[23] See Hill, 884 F.2d at 1070-71.
[24] See West v. Searle & Co., 305 Ark. 33, 806 S.W.2d 608, 614 (1991).
[25] Pls.' Resp. to Defs.' Mot. for Summ. J. at 22-28.
[26] 498 F.2d 1264 (5th Cir.1974).
[27] Pls.' Resp. to Defs.' Mot. for Summ J. at 23-24 (citing Reyes, 498 F.2d at 1276).
[28] See Reyes, 498 F.2d at 1270.
[29] See Mem. in Supp. of Defs. Mot. for Summ. J. at Exs. 1 & 3 (attaching the Norplant Physician Labeling and Norplant Counseling Manual for Healthcare Professionals). Additionally, the Norplant Patient Brochure reinforced the existence of a physician-patient relationship by stating:
[The Norplant Patient Brochure] is not a replacement for the patient labeling or a careful discussion with your healthcare provider. You should discuss the information contained on the following pages with him or her when deciding whether the NORPLANT SYSTEM is the best birth control option for you.
Pls.' Supp. Mem. in Opp'n to Defs.' Mot. for Summ. J. at Ex. G (attaching the Norplant Patient Brochure) (see specifically page 3 of the brochure).
[30] Pls.' Resp. to Defs.' Mot. for Summ. J. at 25.
[31] Id. at 27.
[32] 863 F.2d 1173 (5th Cir.1988).
[33] Id. at 1178-79 (emphasis added) (citing Swayze v. McNeil Labs., 807 F.2d 464, 472 (5th Cir.1987) (holding that "[d]rug manufacturers must adequately warn physicians of the potential side-effects of their prescription drugs; thereafter, the physician, with his special knowledge of the patient's needs, assumes the burden of presiding over the patient's best interests.")).
[34] 394 Mass. 131, 475 N.E.2d 65 (1985).
[35] Pls.' Resp. to Defs.' Mot. for Summ. J. at 25-26.
[36] Id. at 26.
[37] Id. at 26-28.
[38] MacDonald, 475 N.E.2d at 69-70.
[39] Terhune v. A.H. Robins Co., 90 Wash.2d 9, 577 P.2d 975, 978 (1978). More than a half-dozen courts have followed Terhune's reasoning in expressly rejecting the active patient/passive physician rationale offered by the Massachusetts Supreme Court in MacDonald. See, e.g., Spychala v. G.D. Searle & Co., 705 F. Supp. 1024, 1032 (D.N.J.1988) ("Although a woman may be actively involved in the decision to use contraceptives, those contraceptives are administered only by prescription and upon the advice of a physician.... There is no reason apparent to me to differentiate between contraceptives and other prescription drugs to which the learned intermediary rule applies."); Lacy v. G.D. Searle & Co., 567 A.2d 398, 400 (Del.1989) ("Although it may well be true that the insertion of a contraceptive device is a more `elective' type of medical treatment than the consumption of prescriptive medicines, and a patient may have considerable input in selecting the device, we do not find that these differences appreciably change the sound reasoning for adopting the learned intermediary doctrine.") (footnote omitted); see also MacPherson v. Searle & Co., 775 F. Supp. 417, 424-25 (D.D.C. 1991); Reaves v. Ortho Pharmaceutical Corp., 765 F. Supp. 1287, 1291 (E.D.Mich.1991); Allen v. G.D. Searle & Co., 708 F. Supp. 1142, 1148 (D.Or. 1989); Kociemba v. G.D. Searle & Co., 680 F. Supp. 1293, 1305-06 (D.Minn.1988); West v. Searle & Co., 305 Ark. 33, 806 S.W.2d 608, 613-14 (1991); Martin v. Ortho Pharmaceutical Corp., 169 Ill. 2d 234, 214 Ill. Dec. 498, 502-03, 661 N.E.2d 352, 356-57 (1996); Humes v. Clinton, 246 Kan. 590, 792 P.2d 1032, 1039-41 (1990).
[40] Pls.' Resp. to Defs.' Mot. for Summ. J. at 27.
[41] See Pls. Mem. in Opp'n to Defs.' Mot. in Limine to Bar Reference to Advertising and Other Materials Not Viewed by the Five Bellwether Plaintiffs at 4.
[42] Pls.' Resp. to Defs.' Mot. for Summ. J. at 28.
[43] 60 Fed.Reg. 44182, 44189 (1995).
[44] See Defs.' Reply Mem. in Supp. of Defs.' Mot. for Summ. J. at 5 n. 1 (referring to Plaintiffs' answers to interrogatories which indicate that Plaintiffs did not view any direct-to-consumer advertising prior to Norplant insertion).
[45] Whether a drug manufacturer's use of direct-to-consumer advertising is ever grounds for creating an exception to the learned intermediary doctrine remains to be seen. This is an issue which should be resolved by the Texas Supreme Court.
[46] Pls.' Resp. to Defs.' Mot. for Summ. J. at 27.
[47] Id. at 28.
[48] Mem. in Supp. of Defs.' Mot. for Summ. J. at 31-32 (citing FDA, New Drugs Requirement for Labeling Directed to the Patient, 43 Fed.Reg. 4214, 4215 (Jan. 31, 1978)).
[49] Martin v. Ortho Pharmaceutical Corp., 169 Ill. 2d 234, 214 Ill. Dec. 498, 502, 661 N.E.2d 352, 356 (1996) (referring to FDA regulations requiring the provision of patient labeling). See, e.g., Spychala v. G.D. Searle & Co., 705 F. Supp. 1024, 1033 (D.N.J.1988) ("Patient brochures provided by the manufacturer to physicians for distribution to the consumer may aid the physician in communicating with his patient but do not establish the undertaking by the drug manufacturer of a voluntary duty to warn the patient directly."); Seley v. G.D. Searle & Co., 67 Ohio St. 2d 192, 423 N.E.2d 831, 840 (1981) ("Informational pamphlets, such as provided Dr. Froehlich by Searle for distribution to his patients in the exercise of the doctor's discretion, can aid in expanding the range of communication between doctor and patient.... Although we recognize that the intent of such brochures is to ultimately benefit the user, we do not believe that by preparing such brochures and distributing them to physicians, a prescription drug manufacturer undertakes to render a voluntary service ... thereby extending the scope of its duty to warn."); see also MacPherson v. Searle & Co., 775 F. Supp. 417, 424-26 (D.D.C.1991); Taurino v. Ellen, 397 Pa.Super. 50, 579 A.2d 925, 930 (1990).
[50] "[O]nce the physician is warned, the choice of which drugs to use and the duty to explain the risks become that of the physician." Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 912 (5th Cir.1992) (alteration in original) (quoting Stewart v. Janssen Pharmaceutica, Inc., 780 S.W.2d 910, 911 (Tex.App. El Paso 1989, writ denied)).
[51] Mem. in Supp. of Defs.' Mot. for Summ. J. at 2. Texas and Fifth Circuit decisions have applied the learned intermediary doctrine to a variety of causes of action predicated on the alleged inadequacy of a prescription drug label. See Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 912 (5th Cir.1992) (applying the learned intermediary doctrine to claims of negligence and strict liability); Hurley v. Lederle Labs., 863 F.2d 1173, 1180 (noting that the learned intermediary doctrine applies to "inadequate warning claims" but not "design defect claims"); Rolen v. Burroughs Wellcome Co., 856 S.W.2d 607, 608 (Tex.App. Waco 1993, writ denied) (involving breach of implied warranty of merchantability claim); Stewart v. Janssen Pharmaceutica, Inc., 780 S.W.2d 910 (Tex.App. El Paso 1989, writ denied) (involving negligence and strict liability); Gravis v. Parke-Davis & Co., 502 S.W.2d 863, 868 (Tex.Civ.App. Corpus Christi 1973, writ ref'd n.r.e.) (involving strict liability).
[52] Pls.' Supp. Mem. in Opp'n to Defs.' Mot. for Summ. J. at 4.
[53] FED.R.CIV.P. 56(c).
[54] Skotak, 953 F.2d at 912 (citation and quotations omitted).
[55] Id. at 913 (citation and quotations omitted).
[56] Id. (citation and quotations omitted).
[57] Id. (citation and quotations omitted).
[58] See id. at 912 (citing Stewart v. Janssen Pharmaceutica, Inc., 780 S.W.2d 910, 911 (Tex.App. El Paso 1989, writ denied) (citation omitted)).
[59] Mem. in Supp. of Defs.' Mot. for Summ. J. at 20-21.
[60] Wheat v. Pfizer, Inc., 31 F.3d 340, 343 (5th Cir.1994) (quoting Willett v. Baxter Int'l, Inc., 929 F.2d 1094, 1099 (5th Cir.1991)).
[61] Mem. in Supp. of Defs.' Mot. for Summ. J. at 25 (referring to selected deposition excerpts of Plaintiffs' physicians, Drs. Haman, Brown, Bottorff, Balsley, and Hollins, attached as Exs. 9-13 to Defendants' Motion for Summary Judgment).
[62] See Pls.' Resp. to Defs.' Mot. for Summ. J. at 19-21 (referring to selected deposition excerpts of Plaintiffs' physicians).
[63] See Reply Mem. in Supp. of Defs.' Mot. for Summ. J. at 8-10 & Tab 2 (quoting selected deposition excerpts of Plaintiffs' physicians attached as Exs. 9-13 to Defendants' Motion for Summary Judgment). The relevant excerpts are as follows:
Dr. Haman (Kristy Youngblood's physician)
Q. Now, in light of everything that you have heard today from [plaintiffs' counsel] and in light of all of your training and experience with Norplant, do you still believe that Norplant is safe and effective?
A. Yes, ma'am, I do.
Q. Would you still prescribe it today to your patients?
A. Yes, ma'am, I would prescribe it to my patients just as ... I would do even for my family members.
Dr. Brown (Jennifer Burton's physician)
Q. When you prescribed Norplant for Jennifer Burton, did you consider it to be a good choice for her?
A. Yes, I did.
Q. Has your opinion about that changed in any way?
A. No.
Dr. Bottorff (Theresa Goins' physician)
Q. [D]o you still consider Norplant to be a safe and effective product generally?
A. Yes.
Q. And do you consider it specifically to have been a safe and effective product for Theresa Goins?
A. Yes.
Dr. Balsley (Andrea Elaine Haught's physician)
A. [I]f somebody tomorrow decided they wanted to have a Norplant after sitting and talking about their options, we would order a Norplant System and put it in for her.
Dr. Hollins (Beverly McDaniel's physician)
Q. Based on your experience with the Norplant System in inserting it in between three to four hundred women and following those women and the literature that you have read in medical journals and from other sources ... is there anything that Plaintiffs' Counsel has said to you today or has told you today or shown you today that has caused you to question your decision to insert Norplant in Beverly McDaniel?
A. No.
Q. Is there anything that you have learned today or have read today that has changed your belief regarding the fact that Norplant is a safe and effective method of contraception?
A. It is my belief that this is a safe and effective method....
Id.
[64] Stewart v. Janssen Pharmaceutica, Inc., 780 S.W.2d 910, 912 (Tex.App.El Paso 1989, writ denied).
[65] See Wheat v. Pfizer, Inc., 31 F.3d 340, 343 (5th Cir.1994) (quoting Willett v. Baxter Int'l, Inc., 929 F.2d 1094, 1099 (5th Cir.1991)). Plaintiffs "must come forward with evidence which would be sufficient to enable [them] to survive a motion for directed verdict at trial." Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 913 (5th Cir.1992) (citation omitted). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2096660/ | 13 F. Supp. 847 (1936)
McCAMPBELL
v.
McCAMPBELL et al.
No. 1007.
District Court, W. D. Kentucky.
February 6, 1936.
*848 R. Ruthenberg, of Louisville, Ky., and Harvey H. Smith, of Cincinnati, Ohio, for plaintiff.
Gilbert Burnett, of Louisville, Ky., for defendants Georgia McCampbell Miller, Francis H. Miller, Lelia McCampbell Anderson, and Roberta McCampbell.
HAMILTON, District Judge.
This case is pending before me on a motion to dismiss under Equity Rule 29 (28 U.S.C.A. following section 723).
In May, 1901, Amos G. McCampbell, Jr., ward of the plaintiff, was by a judgment of the Jefferson county circuit court of Kentucky adjudged insane, pursuant to the laws of the commonwealth. This judgment has never been modified or set aside.
McCampbell left Kentucky in 1903 and took up his residence in South Africa, and on August 22 of that year joined the Cape Mounted Police, District No. 2, Kimberly, Cape Colony, South Africa, thereby enlisting in the military forces of the British Empire, at which time he was required to, and did, take the oath of allegiance to that country. Afterwards the date not shown in the record he left the British Empire and returned to Kentucky.
On April 26, 1935, by an order entered in the circuit court of Jefferson county, Ky., criminal branch, pursuant to the judgment entered by that court in May, 1901, Ben J. Johnson, plaintiff, was appointed committee for the plaintiff McCampbell, as provided under the statutory laws of the commonwealth. He qualified as such, and has, since that time, been so acting.
On October 26, 1935, this action was instituted by the committee against several defendants, brothers and sisters of his ward, their husbands, wives, and descendants, seeking to recover from them approximately $9,583, and an accounting of rents, issues, and profits, claimed as a result of a fraudulent conspiracy formed and executed by the defendants and their attorneys.
The jurisdiction of this court is sought on the ground of diversity of citizenship. The defendants Georgia McCampbell Miller, Francis H. Miller, Lelia McCampbell Anderson, and Roberta McCampbell move to dismiss the bill as amended on the ground that diversity of citizenship does not exist. They contend plaintiff's ward is not a citizen of the British Empire, and further that the real party in interest is not the ward, but the committee. If either of these positions is correct, this court lacks jurisdiction.
Under 34 Stat. 1228, 1229 (8 U.S.C.A. c. 1, § 17), an American citizen expatriates himself when he takes an oath of allegiance to any foreign state. The early commonlaw doctrine of perpetual and unchangeable allegiance to the country of one's birth no longer prevails under international law. The phrase "once an Englishman, always an Englishman," has yielded to the freedom of the peoples of the earth to change their citizenship almost at will.
The Congress, in response to the modern demand of mankind to roam the face of the earth, has made it easy for a dissatisfied American citizen to move to a foreign country and there take up permanently his abode and renounce his allegiance to his native land.
The form of oath required of a British soldier before becoming a member of its army is as follows: "I, ____, do make oath that I will be faithful and bear allegiance to His Majesty, King Edward VIII, his heirs and successors, and that I will, as in duty bound, honestly and faithfully defend his Majesty, his heirs and successors, his person, crown, and dignity against all enemies, and will observe and obey all orders of His Majesty, his heirs and successors, and all of the Generals and officers set over me, so help me, God."
*849 Under the express language of the federal statute, a person taking such an oath ceases from that day to be a citizen of the United States. Ex parte Griffin (D.C.) 237 F. 445, 446; Camardo v. Tillinghast (C.C.A.) 29 F.(2d) 527; United States ex rel. Rojak v. Marshall (D.C.) 34 F.(2d) 219.
The right of expatriation is said to be the natural and inherent right of all people, indispensable to the enjoyment of the rights of life, liberty, and the pursuit of happiness.
A native-born citizen who has lost his citizenship by taking an oath of allegiance to a foreign country cannot resume his citizenship by returning to that country with the intention of again becoming a citizen thereof. Under the British Treaty of May 13, 1870 (16 Stat. 775), citizens of the United States of America who are, have become, or shall become, naturalized according to law within the British Dominions as British subjects shall become aliens, and in order to again become citizens of the United States must fully comply with the naturalization laws as would other foreign-born persons. Reynolds v. Haskins (C.C.A.) 8 F.(2d) 473, 45 A.L.R. 759.
If the plaintiff's ward were capable of renouncing allegiance to the United States, or expatriating himself, by taking the oath of allegiance, he would be a citizen of the British Empire. A person non compos mentis ordinarily does not possess the mental capacity to make an election or enter into a contract. To abandon one's native land and change one's allegiance and loyalty to a foreign people should require the highest degree of mental intelligence. So serious a step is one of importance to both countries, and also to the individual. So far as I am concerned, I shall not, by my decision, give judicial sanction to one without mental capacity renouncing this country and adhering to a foreign flag. After a person has been duly adjudged a lunatic by a court of competent jurisdiction, it is presumed that he is incapable of intelligent action, and has no power by his own will or act to change his state or national domicile from the place therof at the time or after he becomes incompetent, because he lacks the mental capacity to exercise either choice or intention twin elements generally regarded as essential to a change of domicile or citizenship. In other words, the domicile or citizenship of one becoming mentally incompetent remains his citizenship until his sanity has been restored.
In the case at bar, the plaintiff's ward was judicially declared insane before he took the oath of allegiance to the British Empire, and so far as this record shows, he still labors under that handicap. In fact, his lack of mental power is the basis of this suit. It would seem clear that one whose mental faculties are unbalanced, "in whose chambers of thought chaos reigned supreme, confusion worse confounded," would be wholly incapable of making a choice between his native land and a foreign country. According to the philosophy of enlightened humanity, one could not be held responsible while in such mental state for contracts, and in some instances could not be punished for crimes. The weight of all reason repels the judicial mind from holding that plaintiff's ward could, while insane, become a citizen of the British Empire. The cases are legion that an insane person cannot change his domicile during the period of his mental infirmity. The same rule is applicable to a change of citizenship. Chew v. Nicholson (D.C.) 281 F. 400; Sumrall's Committee v. Commonwealth, 162 Ky. 658, 172 S.W. 1057; Urquhart v. Butterfield, L.R. 37 Ch.Div. 357, 57 L.T.N.S. 780, 36 Week.Rep. 376, 37 L.J.Ch.N.S. 521 (C.A.); Commonwealth of Virginia v. Kernochan, 129 Va. 405, 106 S.E. 367, 30 A.L.R. 601; Coppedge v. Clinton (C.C.A.) 72 F.(2d) 531.
There are no exceptions to the rule that an infant lacks the power to renounce his allegiance to the United States. Even though such minds are immature, they have reason; a lunatic has none, and if an infant lacks the power to expatriate himself, a fortiori so would an insane person. United States ex rel. Baglivo v. Day, Commissioner (D.C.) 28 F.(2d) 44; In re Reid (D.C.) 6 F. Supp. 800.
Having reached the conclusion that plaintiff and his ward are both citizens of the United States and of the state of Kentucky, and some of the defendants also being citizens of the commonwealth of Kentucky, this court has no jurisdiction over the subject of this suit and it should be dismissed. The question of whether the citizenship of the ward or of the committee is controlling is not important, in view of the conclusion I have reached herein, and is not decided.
The plaintiff's petition will be dismissed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2486719/ | 2 F. Supp. 2d 914 (1998)
Robert YOUNG and David C. Distad
v.
NATIONWIDE LIFE INSURANCE COMPANY, American Century Mutual Funds, Inc., American Century Investment Services, Inc., American Century Variable Portfolios, Inc., American Century Investment Management, Inc., and American Century Investment Management International, Ltd.
Civil Action No. G-97-628.
United States District Court, S.D. Texas, Galveston Division.
April 27, 1998.
*915 *916 *917 Gregory N. Jones, Franklin Cardwell & Jones, Houston, TX, for Robert Young and David C. Distad.
B. Daryl Bristow, Bristow Hackerman Wilson & Peterson, Houston, TX, Charles C. Platt, Peter K. Vigeland, LeBoeuf Lamb Greene & MacRae, New York City, for Nationwide Life Ins.
Robin C. Gibbs, Gibbs & Bruns, Houston, TX, Kathy D. Patrick, Gibbs and Bruns, Houston, TX, James F. Moyle, Rogers & Wells, New York City, James N. Benedict, Rogers & Wells, New York City, Mark Holland, Rogers & Wells, New York City, for American Century Mutual Funds, Inc., American Century Inv. Services, Inc., American Century Variable Portfolios, Inc., American Century Inv. Management, Inc. and American Century Inv. Management Intern., Ltd.
ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS AND CONDITIONAL STAY AND ADMINISTRATIVE CLOSURE
KENT, District Judge.
This is a class action in which the class member Plaintiffs assert securities violations in addition to various common law causes of action, including breach of contract, fraud, civil conspiracy, and gross negligence. Now before the Court are Defendant Nationwide Life Insurance Company's Motion to Dismiss Plaintiffs' First Amended Complaint,[1] filed January 22, 1998, and the American Century Defendants' Motion to Dismiss the First Amended Complaint, filed January 15, 1998 and amended on January 22, 1998. For the following reasons, both Motions are GRANTED IN PART and DENIED IN PART.
I. BACKGROUND
Plaintiffs Robert Young and David C. Distad are representatives of an alleged class of *918 purchasers of variable life insurance policies from Defendant Nationwide Life Insurance Company ("Nationwide"). Through its "Best of America Life Planning Series," Nationwide offers variable policies which allow the policy owner to allocate net premiums and cash value to one or more "sub-accounts" of certain variable and fixed accounts. The assets allocated to the sub-account are then used to purchase shares of a designated underlying mutual fund. The variable account mutual fund options offered by Nationwide are managed by, inter alia, the following well known mutual fund investment advisors: Dreyfus Corp., Fidelity Management Research Company, Nationwide Financial Services, Neuberger Berman Management Inc., Oppenheimer Management Corp., Strong/Corneliuson Capital Management, Inc., Twentieth Century, and Van Eck Associates Corp. The variable account at issue here is "TCI Portfolios, Inc.," which includes the sub-accounts "TCI Growth," "TCI Balanced," and "TCI International." Nationwide advertises these accounts as a part of "the Twentieth Century Family of Mutual Funds," and all of the Twentieth Century funds are managed by the same investment advisor, Investors Research Corporation, now American Century Investments.[2]
The sub-accounts offered by Nationwide through its Best of America program are mutual funds that offer their shares only to insurance companies. Although the policy owners do not invest directly in the mutual fund, they can allocate their investment to a variable account, and choose the sub-accounts in which they want their premiums invested. The value of their investment is then dependent upon the performance of the particular insurance mutual fund, or "sub-account," they choose. Specifically, the plaintiff policy owners were told by Nationwide:
As a contract holder, you invest in the mutual funds offered in your life insurance contract. However, you do not buy shares of the mutual fund. Instead, the Account buys shares of the fund and you in turn purchase units of the Account.... The value of your contract can change based on the value of the units you own.
The crux of Plaintiffs' complaint arises from their allegations that the Defendants made material misrepresentations and/or omissions in connection with the marketing and sale of the variable contracts. Specifically, although Plaintiffs acknowledge that they knew they were not investing in publicly traded mutual funds, they claim that the Defendants represented the sub-accounts, or underlying mutual funds, to be "clones" or replicas of well known, publicly traded mutual funds with the same or similar names. Plaintiffs claim that it was their understanding that the "TCI Portfolios" were insurance funds which tracked the investments of the publicly traded "Twentieth Century" Funds. For instance, Plaintiffs claim that Defendants represented the TCI insurance funds "TCI Growth Fund" and "TCI International Fund" to be clones of the publicly traded Twentieth Century Funds with the names "Twentieth Century Growth Fund" and "Twentieth Century International Fund," respectively.
Young, who purchased his policy on December 14, 1992, requested that 100% of his payments be allocated to TCI Growth. Distad purchased two policies on April 17, 1996, and requested that 20% of his payments on each of the policies be allocated to the "20th Century International" fund.[3] In November of 1996, Distad changed mutual fund options, allocating substantial portions of his investment to "Twentieth Cent Growth."[4] Plaintiffs then began tracking their investments, and noticed that the performance of their portfolios differed substantially from the performance *919 of the publicly traded funds which they believed they had purchased. For instance, in 1996, the TCI Growth Fund owned by Plaintiffs incurred a loss of over 5%, while the Twentieth Century Growth Fund posted a 15% increase. When Distad called Nationwide to inquire as to the differing results between the two funds, he was told that the Nationwide fund was a separate fund with different objectives than the public fund.
Plaintiffs brought this action on October 31, 1997. In their Second Amended Complaint, they allege the following causes of action: (1) violations of § 10(b)[5] of the Securities Act of 1934; (2) violations of the § 35(d)[6] of the Investment Company Act of 1940 ("ICA"); (3) violations of § 36(a)[7] of the ICA; (4) violations of § 34(b)[8] the ICA; (5) fraud; (6) civil conspiracy; (7) breach of contract (against Nationwide only); and (8) gross negligence.
II. STANDARD FOR MOTION TO DISMISS
When considering a Motion to Dismiss for failure to state a claim, the Court accepts as true all well-pleaded allegations in the complaint, and views them in the light most favorable to the plaintiff. See Malina v. Gonzales, 994 F.2d 1121, 1125 (5th Cir.1993). Such motions should be granted only when it appears without a doubt that the plaintiff can prove no set of facts in support of his claims that would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102, 2 L. Ed. 2d 80 (1957); Tuchman v. DSC Communications Corp., 14 F.3d 1061, 1067 (5th Cir.1994).
III. FEDERAL SECURITIES LAW VIOLATIONS
A. Section 10(b) of the Securities and Exchange Act of 1934
Plaintiffs allege that Defendants violated § 10(b) of the Securities and Exchange Act of 1934 ("1934 Act") by knowingly making material misstatements or omissions about the relationship between the Nationwide fund and the publicly traded fund, with intent to mislead investors. Section 10(b), the anti-fraud provision of the 1934 Act, provides:
It shall be unlawful for any person, directly or indirectly, ... [t]o use or employ, in connection with the purchase or sale of any security ... any manipulative or deceptive device or contrivance....
15 U.S.C. § 78j(b). Rule 10b-5 "casts the proscription in similar terms." Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 172, 114 S. Ct. 1439, 1445, 128 L. Ed. 2d 119 (1994). To state a claim under Rule 10b-5, a plaintiff must allege that (1) the defendant made a false misrepresentation or omission, (2) of a material fact, (3) knowing its falsity and intending that the plaintiff rely on it, (4) the plaintiff justifiably relied on the misrepresentation or omission, and (5) the plaintiff suffered damage resulting from this reliance. Oppenheimer v. Prudential Securities Inc., 94 F.3d 189, 194 (5th Cir.1996); Shores v. Sklar, 647 F.2d 462, 468 (5th Cir.1981).
American Century argues that Plaintiffs' Rule 10b-5 claim fails for two reasons: first, there is no allegation that American Century misrepresented or omitted material facts; and second, there is no allegation that American Century acted with scienter. By incorporation of American Century's Motion to Dismiss, Nationwide makes the same arguments on its own behalf. The Court finds otherwise.
1. Material Misrepresentations or Omissions
Plaintiff alleges that the Defendants made the following material misstatements. Viewing the evidence in the light most favorable to the Plaintiffs, the Court finds one or all of these allegations sufficient to state a cause of action under Rule 10b-5:
(a) The fact that the names of the Twentieth Century Investors ("TCI") Funds, as named in Nationwide's "Best of America" marketing literature, are very nearly identical to the names of the publicly traded Twentieth *920 Century funds foreseeably gives rise to great confusion as to whether the insurance funds are clones. This factor alone gives rise to an actionable omission claim; that is, that despite the potential confusion, American Century never clarified that the Twentieth Century Investor funds were not clones or replicas of the Twentieth Century funds.[9] Furthermore, Nationwide never clarified that the TCI funds were not Twentieth Century clones, despite the potential for confusion, especially considering that several of Nationwide's sub-accounts were in fact clones of well known, publicly traded mutual funds.
(b) The Initial Registration statement of TCI Portfolios, Inc. states:
Growth Portfolio and Select Portfolio will, respectively, be managed in the same style as Twentieth Century Growth and Twentieth Century Select. The portfolios of Twentieth Century Growth and Growth Portfolio will include many of the same securities, as will the portfolios of Twentieth Century Select and Select Portfolio.[10]To the extent practicable the portfolios of Growth Portfolio and Select Portfolio will clone or replicate the portfolio respectively of Twentieth Century Growth and Twentieth Century Select.
(emphasis added). Defendants argue that the initial registration statement should not be considered because it was later amended, and the quoted language removed, before it became effective. However, it is important for purposes of determining whether the fund names misrepresented the nature of the funds. Because the insurance funds were initially intended to be clones of the publicly traded funds, the names were obviously matched. Although Twentieth Century later decided that the insurance funds would not be clones, it nevertheless consciously decided to maintain the nearly identical names. This fact gives rise to a genuine issue regarding misrepresentation, and whether there arose a duty to clarify the predictable confusion that could result.
(c) In the Transaction Confirmation Statements sent by Nationwide to Distad, Nationwide consistently referred to his investment in the "Twentieth Century Growth" fund rather than the "TCI Growth" fund.
(d) Nationwide instructs agents to tell potential clients that its "Best of America" series has "23 funds (clone or retail) ... rated 4 or 5 stars by Morningstar." Therefore, several of the sub-accounts it offers are in fact clones. This factor may give rise to a duty to clarify which funds are clones and which are not; again, because of predictable confusion.
(e) The name "Best of America," in and of itself, may be misleading. Most investors would assume that the funds in Best of America are indeed the best of America because they are based on the well known mutual funds that carry the same name. In fact, Distad stated that he purchased the policies because of the choice of thirty mutual funds which "were instantly recognizable as some of the best mutual fund groups in America, including 20th Century, Fidelity, Dreyfus, [etc.]." This allegation is strengthened by Plaintiffs' assertions that cloning is a common and well known practice in the mutual fund industry.
(f) The insurance policy issued by Nationwide to David Distad defines a "subaccount" to be "part of a variable account." Each variable account, in turn, "is a separate investment account of the company." With this definition given, the policy then goes on to list the sub-account "Twentieth Cent Growth"[11] as corresponding to the variable *921 account "20th Century TCI Growth Portfolio," the sub-account "Twentieth Cent Balanced"[12] as corresponding to the variable account "20th Century TCI Balanced Portfolio," and the sub-account "Twentieth Cent Intl"[13] as corresponding to the variable account "20th Century TCI International Portfolio." Therefore, in the Distad contracts, Nationwide misrepresented the insurance sub-accounts as having the exact same names as the publicly traded Twentieth Century funds, which are Twentieth Century Growth, Twentieth Century Balanced, and Twentieth Century International.
(g) In Nationwide's June, 1997 marketing literature, it consistently referred to its underlying investment fund as "Twentieth Century Growth." It also included an "Investment Performance Summary" of returns dating back ten years. Plaintiffs allege that the figures for "Twentieth Century Growth" annuity fund are actually the figures for the publicly traded Twentieth Century Growth fund. On its face, this allegation establishes a deceptively false and misleading statement by Nationwide.
(h) Plaintiffs allege that Nationwide consistently makes representations to the public that the investments of its "Best of America" contract holders in Twentieth Century Growth would reap the same gains as investors in the publicly traded Twentieth Century Growth fund.
Furthermore, Plaintiffs allege that all of Nationwide's false and misleading statements were made "in cooperation with" American Century.
In its Motion to Dismiss, American Century places great emphasis on the disclaimer in the TCI Growth prospectus, which states that the TCI Growth Fund is not publicly traded, but is available only to insurance companies. This factor, however, is completely irrelevant to Plaintiffs' allegation that American Century represented TCI Growth Fund as a clone of the publicly traded fund. American Century also argues that the statements or omissions of Nationwide cannot be attributed to American Century because there is no aider or abettor liability under Rule 10b-5. While Defendants are correct in asserting that there is no aider and abettor liability under 10b-5, see Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 114 S. Ct. 1439, 128 L. Ed. 2d 119 (1994), it is not factually clear that American Century did not have a more substantial role in the alleged misrepresentations. Furthermore, some of the Plaintiffs' allegations are sufficient to implicate American Century directly.
Nationwide, for its part, argues that it disclaimed any guarantee of results in both its 1995 and 1992 Prospectuses for the TCI Growth Fund. Once again, Plaintiffs' allegation is not that Nationwide guaranteed results, but that Nationwide represented the TCI Funds as clones of the Twentieth Century Funds that were publicly traded. A disclaimer regarding results has no relevance to alleged misrepresentations about investment strategies and the structure of the fund itself.
2. Scienter
Furthermore, the Court finds that scienter has been properly pled in this case. Scienter is defined as "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, 1381 n. 12, 47 L. Ed. 2d 668 (1976). Lovelace v. Software Spectrum, Inc., 78 F.3d 1015, 1018 (5th Cir. 1996). The Reform Act requires that plaintiffs alleging Rule 10b-5 violations "state with particularity facts giving rise to a strong inference that the defendant acted with" scienter. 15 U.S.C. § 78u-4(b)(2). Establishing scienter requires a showing that the defendants acted with knowledge or severe recklessness. See Lovelace, 78 F.3d at 1018 n. 2 (citing Broad v. Rockwell Int'l Corp., 642 F.2d 929, 961 (5th Cir.1981)). Recklessness requires two elements: (1) an extreme departure from the standards of ordinary care, and (2) a danger of misleading buyers or sellers which is either known to the defendant or so obvious that the defendant must have been aware of it. Id. at 1018.
*922 At a minimum, the allegations listed above establish recklessness on the part of both Defendants. The Court finds that the allegations are also sufficient to imply knowledge. Defendants now assert that the TCI funds are not clones of Twentieth Century Funds, and that they never represented them as such. Defendants did know, however, that some of the insurance funds sold in the annuity contracts were clones, and that cloning is a common industry practice. Defendants should have known that their representations of the funds to be the "Best of America," and their use of nearly identical monikers, posed a danger of misleading investors. The Defendants' use of identical or nearly identical names was done in an industry where cloning is commonplace; an inference arises that they were attempting to associate the insurance funds with the retail funds, despite the fact that the two in fact did not correlate, in order to capitalize on the popularity of the well known publicly traded mutual funds with the same name. These are not "rote conclusory allegations that the defendants `knowingly did this' or `recklessly did that.'" See 78 F.3d at 1019 (such bare allegations are insufficient to meet the heightened pleading requirements of Rule 9(b)). Nor are Plaintiffs' allegations nonspecific to the case at hand. Cf. id. at 1020.
Defendants cite cases which hold that allegations that the defendant acted with the motive and opportunity to make a profit will not suffice to establish scienter. Using case law that rejects allegations that "they did it for the money," American Century attempts to convert the Reform Act's "strong inference" standard into a requirement that the plaintiff prove motive. Finding another motive, however, is not a requirement for establishing scienter. Indeed, it is difficult for the Court to imagine a situation, in securities fraud cases, where the motive would be anything other than financial profit. The cited case law merely stands for the proposition that, absent other factors establishing scienter, a mere motive to make money is insufficient. See Melder v. Morris, 27 F.3d 1097, 1102 (5th Cir.1994) ("Simply put, the lone allegation of motive is insufficient.") (emphasis added). In this case, however, Plaintiffs have established the existence of false or misleading statements, along with facts that, in the Court's view, support a strong inference that the Defendants knew that their representations could be interpreted as statements that the insurance funds were clones of the retail funds, aside from any allegations of motive.[14]
3. Causation
Nationwide argues that Plaintiffs have failed to show causation, finding it critical that the TCI Growth Fund outperformed the Twentieth Century Growth Fund in 1996. Nationwide argues that "the vicissitudes of the market," rather than any misrepresentations on its part, caused the injuries of which Plaintiffs complain. Nationwide confuses legal and factual causation: while market fluctuations may cause the amount of damages in a factual sense, they have no bearing on legal causation. Legal causation, on the other hand, is the causation created by reliance on misrepresentations. If Plaintiffs' allegations are correct, then Defendants' misrepresentations induced them to believe that their investment would track the publicly traded funds, which legally caused any damages they incurred from that investment. Whether the investment did, in fact, consistently perform poorly bears only on the question of whether there are any compensable damages.
B. Investment Company Act of 1940
Defendants first argue that there are no implied private causes of action under § 36(a) or 35(d) of the ICA. Next, they argue that, even if the Court finds that private causes of action do exist, Plaintiffs lack standing under the Act because Nationwide, not Plaintiffs, is the investor. Next, Defendants argue that Plaintiffs' substantive allegations do not state a claim under the ICA. Finally, Nationwide argues that the ICA applies *923 only to registered investment companies, and is therefore not applicable to an insurance company such as Nationwide.
1. Nationwide's Status as an "Investment Company"
The Court first addresses Nationwide's argument that, as an insurance company, it cannot be held liable under the ICA because the ICA applies only to "registered investment companies" or their officers, directors, and investment advisors. See 15 U.S.C. § 80a-35(a)(1), (2).[15] The ICA excepts insurance companies from the definition of "investment company." See 15 U.S.C. § 80a-3(c)(3). Although Plaintiffs have completely failed to respond to this argument, the Court finds it utterly unpersuasive.
First, several cases have held or implied that the funds created by the issuance of variable annuity contracts are "investment companies" under the ICA. In SEC v. Variable Annuity Life Ins. Co., 359 U.S. 65, 79 S. Ct. 618, 3 L. Ed. 2d 640 (1959), the Supreme Court held that certain types of variable annuity contracts are not insurance contracts. Therefore, the issuers of such contracts fit under the definition of "investment company." In another case, the Third Circuit persuasively held that an investment fund resulting from the sale of variable annuity contracts to members of the public by an insurance company, very similar to the funds at issue here, was an "investment company." See Prudential Ins. Co. v. SEC, 326 F.2d 383 (3d Cir.1964).
In the 1995 and 1992 Prospectuses for Nationwide's "Best of America" Policy, Nationwide states that it has "caused the Variable Account to be registered with the [SEC] as a unit investment trust pursuant to the provisions of the Investment Company Act of 1940." (emphasis added). Therefore, according to Nationwide's own marketing literature, the "variable accounts" that Nationwide owns are registered investment companies, and subject to the ICA. Section 36(a) of the ICA makes clear that the principal underwriter of a unit investment trust can be liable under its provisions. See 15 U.S.C. § 80a-35(a)(2). Nationwide's arguments that it cannot be held liable under the ICA are therefore blatantly false, and borderline deceptive.
2. Existence of a Private Cause of Action Under § 36(a)
The Court must first determine whether there is a private cause of action under § 36(a) of the ICA. That section provides:
The [Securities and Exchange] Commission is authorized to bring an action in the proper district court of the United States ... alleging that a person serving or acting in one or more of the following capacities has engaged within five years of the commencement of the action or is about to engage in any act or practice constituting a breach of fiduciary duty involving personal misconduct in respect of any registered investment company for which such person so serves or acts
(1) as officer, director, member of any advisory board, investment adviser, or depositor ....
If such allegations are established, ... the court may ... award such injunctive or other relief against such person as may be reasonable and appropriate in the circumstances, having due regard to the protection of investors and to the effectuation of the policies declared in section 80a-1(b) of [the ICA].
15 U.S.C. § 80a-35(a).
Defendants argue that, under strict statutory construction principles, § 36(a) does not provide a private cause of action; that is, by specifying that the Securities and Exchange Commission ("SEC") may bring judicial actions, Congress did not intend to provide for a private parties to be empowered under this section. Defendants support their argument with the recent Supreme Court decision in Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 114 S. Ct. 1439, 128 L. Ed. 2d 119 (1994).
In a 5-4 decision, the Central Bank Court adhered to a strict textualist approach to statutory interpretation to find that Congress did not intend to provide for aider and abettor *924 liability under Rule 10b-5. In so holding, the Court overturned literally decades of unanimous case law to the contrary, and stunned courts, lawyers and academics alike. See, e.g., Whirlpool Financial Corp. v. GN Holdings, Inc., 873 F. Supp. 111, 119 (N.D.Ill. 1995) (Central Bank "struck the securities bar like a thunderbolt because it was so unexpected"); Robert A. Prentice, Locating that "Indistinct" and "Virtually Nonexistent" Line Between Primary and Secondary Liability Under Section 10(b), 75 N.C.L.REV. 691, 691 (1997) ("In ruling that there is no aiding and abetting liability under § 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, the Court overturned thirty years of precedent and seemingly freed securities professionals from a kind of statutory sword of Damocles.").
In reaching its conclusion, the Central Bank Court analyzed the case law addressing § 10(b) and Rule 10b-5, noting that two main issues have been confronted: first, determining the scope of conduct prohibited by § 10(b); and second, determining the elements of the cause of action. Critically, the Court stated that "[t]he latter issue ... has posed difficulty because Congress did not create a private § 10(b) cause of action and had no occasion to provide guidance about the elements of a private liability scheme. We thus have had `to infer how the 1934 Congress would have addressed the issue[s] had the 10b-5 action been included as an express provision in the 1934 Act.'" Central Bank, 511 U.S. at 173, 114 S. Ct. at 1446 (citation omitted) (emphasis added) (alteration in original); see Nathan F. Coco, Comment, Has Legislative History Become History?: A Critical Examination of Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 20 J.CORP.L. 555, 565 (1995) ("It is difficult to reconcile [the Court's method of interpretation] with the Court's recognition of a private cause of action under section 10(b) of the 1934 Act and Rule 10b-5 generally."). The Court recognized that such a cause of action had been implied, calling it "the most familiar private cause of action: the one we have found to be implied by § 10(b)." Central Bank, 511 U.S. at 171, 114 S. Ct. at 1445.
Without determining whether implying a private cause of action under § 10(b) is proper under its new method of interpretation,[16] the Court went on to the first issue, determining the scope of conduct prohibited by § 10(b), and stated that with regard to that issue, "the text of the statute controls our decision." Id., 511 U.S. at 173, 114 S. Ct. at 1446. Thus, Central Bank does not stand for the principle that causes of action may not be judicially implied without textual support; the Court merely applied the strict textualist approach to discerning the statute's scope of prohibited conduct.
The fact that the Court left intact the 10b-5 cause of action, where clearly not provided for in the text, sheds considerable doubt on Defendants' arguments here. The question of whether a private cause of action exists under § 36(a) of the ICA is much more closely analogous to the existence of a cause of action under § 10(b) of the 1934 Act than to the issue actually addressed by Central Bank, the scope of conduct prohibited by the Act. And the Court's presumption that a § 10(b) cause of action exists, despite its strict textualist approach, bolsters the existence of the private cause of action asserted here.[17]
Moreover, the only courts to address the issue in light of Central Bank have decided that a private cause of action does exist under § 36(a). See Strougo v. Scudder, Stevens & Clark, Inc., 964 F. Supp. 783, 796-97 (S.D.N.Y.1997); In re Nuveen Fund Litigation, No. 94-360, 1996 WL 328006, *3-5 (N.D.Ill.1996).[18] In Strougo, the court presented *925 a well reasoned and thoughtful opinion for the existence of a private cause of action. That court found it critical that Central Bank addressed the scope of conduct prohibited by a statute, and not the existence of implied rights of action. Strougo, 964 F.Supp. at 796. Strougo also found determinative subsequent legislative history acknowledging a private cause of action. Id. at 797-98.
This Court is also persuaded that a private cause of action should and does exist under § 36(a) of the ICA. First, the majority of federal courts had recognized implied rights of action under § 36(a) prior to Central Bank. See, e.g., Bancroft Convertible Fund, Inc. v. Zico Inv. Holdings, Inc., 825 F.2d 731 (3d Cir.1987); Fogel v. Chestnutt, 668 F.2d 100 (2d Cir.1981); Esplin v. Hirschi, 402 F.2d 94, 103 (10th Cir.1968); Brown v. Eastern States Corp., 181 F.2d 26 (4th Cir.1950). The First Circuit has recognized a private right of action under § 17(a)(2) of the ICA. See Lessler v. Little, 857 F.2d 866, 873 (1st Cir.1988) (agreeing with the Second and Third Circuits that "it is consistent with congressional intent and with governing law to imply a private cause of action under the Investment Company Act"). The Supreme Court has assumed without deciding that private causes of action exist under the ICA. See Kamen v. Kemper Financial Services, Inc., 500 U.S. 90, 97 n. 4, 111 S. Ct. 1711, 1717 n. 4, 114 L. Ed. 2d 152 (1991). The Eighth Circuit appears to be the only court to have found that the ICA does not provide for private enforcement. See Brouk v. Managed Funds, Inc., 286 F.2d 901, 918 (8th Cir.1961), vacated as moot by agreement, 369 U.S. 424, 82 S. Ct. 878, 8 L. Ed. 2d 6 (1962). Because Central Bank did not address this issue, it did not overrule the governing authority regarding ICA causes of action.
Second, as pointed out in Strougo, the legislative history of the ICA lends strong, even definitive, support that Congress did intend courts to infer private causes of action under § 36(a). In the legislative history of the Small Business Investment Incentive Act of 1980, amending the ICA, the legislative committee stated:
The Committee wishes to make plain that it expects the courts to imply private rights of action under this legislation, where the plaintiff falls within the class of persons protected by the statutory provision in question. Such a right would be consistent with and further Congress' intent in enacting that provision, and where such actions would not improperly occupy an area traditionally the concern of state law. In appropriate instances, for example, breaches of fiduciary duty involving personal misconduct should be remedied under Section 36(a) of the [ICA]. With respect to business development companies, the Committee contemplates suits by shareholders as well as by the Commission, since these are the persons the provision is designed to protect, and such private rights of action will assist in carrying out the remedial purposes of Section 36.
H.R.1341, 96th Cong. at 28-29 (1980), reprinted in 1980 U.S.C.C.A.N. 4800, 4810-11 (emphasis added), quoted in Strougo, 964 F.Supp. at 798. Furthermore, when § 36 was amended in 1969 and an express private remedy was added to subsection (b), the legislative history indicates that "the fact that subsection (b) specifically provides for a private right of action should not be read by implication to affect subsection (a)." S.REP. No. 91-184, at 16 (1969). Courts have interpreted this to mean that Congress did not intend to eliminate the judicially implied private remedy under subsection (a). See, e.g., Bancroft, 825 F.2d at 735-36; Fogel, 668 F.2d at 112; Tannenbaum v. Zeller, 552 F.2d 402, 417 (2d Cir.1977).
Defendants, citing Central Bank, assail this legislative history as unpersuasive because it was not promulgated contemporaneously with the statute. While Central Bank did express misgivings about relying on subsequent legislative history to interpret a statute, it acknowledged that its cases have been inconsistent in using subsequent history and congressional inaction. Central Bank, 511 U.S. at 187, 114 S. Ct. at 1453. Moreover, it *926 ultimately rejected arguments based on "oblique references" and inaction because "the competing arguments here would not point to a definitive answer." Id. In this case, there is only one definitive answer that can be gleaned from the legislative history of the 1980 amendments: Congress expects courts to imply private rights of action.[19] The Court cannot ignore such strong Congressional sentiments.
Finally, § 36 itself grants the courts broad power to enforce its provisions when the elements of the cause of action are established, "having due regard to the protection of investors and to the effection of the [ICA's] policies." 15 U.S.C. § 80a-35(a). Those policies declare that:
[u]pon the basis of facts disclosed by the record and reports of the [SEC] ... and facts otherwise disclosed and ascertained, it is declared that the national public interest and the interest of investors are adversely affected
(1) when investors purchase ... securities issued by investment companies without adequate, accurate, and explicit information, fairly presented, concerning the character of such securities.
The Court feels that private rights of action are important in effectuating the policies of the ICA. For all of the reasons stated above, the Court finds that a private cause of action exists under § 36(a) of the ICA.
3. Standing
Defendants argue that Plaintiffs lack standing to bring claims under the ICA because they did not directly invest in the insurance funds at issue; rather, they purchased policies from Nationwide, and Nationwide invested in the funds. Nationwide's marketing materials tell the investors "[a]s a contract holder, you invest in the mutual funds offered in your annuity contract. However, you do not buy shares of the mutual fund. Instead, the Account buys shares of the fund and you in turn purchase units of the Account." Plaintiffs argue that they possessed a beneficial interest in the insurance funds, and therefore are within the class of persons that the ICA was designed to protect.
The Supreme Court has posed the essential inquiry into the constitutional requirement of standing as: "have the [plaintiffs] alleged such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends ...?" Baker v. Carr, 369 U.S. 186, 204, 82 S. Ct. 691, 703, 7 L. Ed. 2d 663 (1962). The constitutional minimum for standing involves three elements: (1) an "injury in fact"; that is, "an invasion of a legally-protected interest which is (a) concrete and particularized ... and (b) `actual or imminent, not conjectural or hypothetical'"; (2) a causal connection between the injury and the conduct complained of; and (3) a likelihood that the injury will be redressed by a favorable decision. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S. Ct. 2130, 2136, 119 L. Ed. 2d 351 (1992); Pelican Chapter, Associated Builders & Contractors, Inc. v. Edwards, 128 F.3d 910, 915-16 (5th Cir.1997).
While technically Plaintiffs do not have a legal interest in the investments at issue, it is clear that the total value of their insurance policy would rise and fall with the value of the underlying investment options they chose. The insurance policy sent to Distad by Nationwide states "[t]he Contract Value will change with a change in the investment results of the Subaccounts." The policyholder's success was therefore contingent upon the success of the insurance fund itself. A breach of fiduciary duty, as contemplated in the ICA, would have a direct impact upon the policyholder. As Plaintiffs point out, they are actually the only persons with standing, because their alleged injuries are the most direct. Nationwide itself would not be injured, other than indirectly by loss of reputation and/or business. If Plaintiffs do not have standing to bring ICA claims, then no person does. The Court therefore holds that the Plaintiffs do have standing.[20]
*927 4. Failure to State a Claim Under § 36(a) of the ICA
Defendants next argue that Plaintiffs cannot prevail in their ICA cause of action because their allegations do not state violations of the statute. First, Defendants claim that Plaintiffs' allegations do not encompass "a breach of fiduciary duty involving personal misconduct," as required by § 36(a) of the ICA. 15 U.S.C. § 80a-35(a). According to Defendants, the term "personal misconduct" requires that self-dealing or personal impropriety be alleged. In Response, Plaintiffs argue first that their allegations do involve personal misconduct, and second, that § 36(a) requires only that a general breach of fiduciary duty be alleged.
The Court refuses to limit § 36(a)'s scope to only those violations that involve self-dealing or personal impropriety, especially at this stage of the proceedings. First, the legislative history supports a reading of the statute that any "nonfeasance of duty or abdication of responsibility would constitute a breach of fiduciary duty involving personal misconduct." S.REP. No. 91-184, at 16 (1970), reprinted in 1970 U.S.C.C.A.N. 4897, 4931, quoted in Nuveen, 1996 WL 328006, at *12; see also H.R.REP. No. 96-1341, reprinted in 1980 U.S.C.C.A.N. 4800, 4808 ("The Committee believes that the type of misconduct covered by [§ 36(a)] ... extends to personal misconduct evidenced by misfeasance or nonfeasance in carrying out legal responsibilities as well as self-dealing and other examples of unjust enrichment."), quoted in Nuveen, 1996 WL 328006, at *12 n. 7 (emphasis added).
Considering the structure and purpose of the ICA, "that Congress entrusted to the independent directors of investment companies, exercising the authority granted to them by state law, the primary responsibility for looking after the interests of the funds' shareholders," Burks v. Lasker, 441 U.S. 471, 484-85, 99 S. Ct. 1831, 1840-41, 60 L. Ed. 2d 404 (1979), it would be inconsistent to find that liability could only attach where self-dealing or conflicts of interest are involved, if the interests of the protected class were not adequately defended.
To support their argument that § 36(a) only encompasses self-dealing or conflicts of interest, Defendants have cited one case that found a violation of § 36(a) where such conduct was involved.[21]See SEC v. Commonwealth Chem. Securities, Inc., 410 F. Supp. 1002, 1018 (S.D.N.Y.1976), aff'd in part, modified in part, 574 F.2d 90 (2d Cir.1978). However, none of the authority cited by Defendants analyzes or discusses the "personal misconduct" standard. In fact, Defendants have failed to cite to any authority rejecting a claim where self-dealing or conflicts of interest are not involved, aside from language from a Senate Committee hearing stating that "some clearcut personal impropriety" is required.
Furthermore, even if more than a general breach of fiduciary duty is required, the Court finds that Plaintiffs' allegations regarding personal misconduct are sufficient to support the existence of a cause of action.
Accordingly, for each of the reasons stated above, Defendants' Motions to Dismiss Plaintiffs' claims under § 36(a) of the ICA are DENIED.
5. Failure to State a Claim Under § 35(d) of the ICA
Defendants next argue that Plaintiffs have failed to allege the essential elements of a cause of action under § 35(d) of the ICA. That section provides:
It shall be unlawful for any registered investment company to adopt as a part of the name or title of such company, or of *928 any securities of which it is the issuer, any word or words that the Commission finds are materially deceptive or misleading.
15 U.S.C. § 80a-34(d) (emphasis added). Defendants argue that Plaintiffs can have no claim under § 35(d) unless the SEC has found the name of the fund to be materially deceptive or misleading. Because the SEC has not addressed the lawfulness of the names of the funds at issue, under Defendants' argument the Plaintiffs have no cause of action under § 35(d). Defendants cite two cases to support their argument, both of which address only the term "interested persons" under 15(f) of the ICA, and are not, therefore, directly on point. See Block v. SEC, 50 F.3d 1078 (D.C.Cir.1995); Olesh v. Dreyfus Corp., No. CV-94-1664, 1995 WL 500491 (E.D.N.Y. Aug. 8, 1995).[22]
Plaintiffs argue that an implied private right of action exists under § 35(d) and that no prior SEC determination is required, based on two cases that implied such a right of action. See Monheit v. Carter, 376 F. Supp. 334 (S.D.N.Y.1974); Taussig v. Wellington Fund, Inc., 313 F.2d 472 (3d Cir. 1963). Plaintiffs argue that these decisions, coupled with "congressional silence," evidence Congress's intent that an implied private right of action does not require an explicit SEC finding.
The Court is not persuaded that Congress intended such a result. First, Monheit and Taussig did not expressly hold that a private right of action exists under § 35(d) even without an SEC finding. Taussig merely found the federal claim under § 35(d) substantial enough to justify the district court in taking pendent jurisdiction over the common law claim. Taussig, 313 F.2d at 476. Because relief was sought and granted solely on the common law, "it was unnecessary for the court in Taussig to determine finally whether or not § 35(d) gave rise to a private claim or cause of action in a federal court." Monheit, 376 F.Supp. at 340. Monheit adhered to this reasoning, stating that "[e]ven assuming that a private right were not created by § 35(d) ... this court can take pendent jurisdiction of the issues raised in this count since the claim is sufficiently related to the other federal claims pleaded in the complaint." Id. Therefore, neither case supports Plaintiffs' contentions that an SEC finding is not required for a § 35(d) cause of action.
In this case, the Court cannot deny the clear import of the text. Section 35(d) unequivocally prohibits the use of "any word or words that the Commission finds are materially deceptive or misleading." 15 U.S.C. § 80a-34(d) (emphasis added). The words of the statute are subject to no other interpretation than that which requires an SEC finding before a party can be found liable. See Central Bank, 511 U.S. at 175, 114 S. Ct. at 1447 (statutory text controls the definition of conduct prohibited by the securities laws). Where Congress requires that the SEC make a finding of prohibited conduct, the Court cannot find otherwise. Accordingly, Defendants' Motions to Dismiss Plaintiffs' claim under § 35(d) of the ICA are GRANTED, and such claim is DISMISSED WITH PREJUDICE as to all Defendants.
IV. COMMON LAW CAUSES OF ACTION
A. Fraud
Defendants' Motion to Dismiss the common law fraud claims is contingent upon Defendants' argument that Plaintiffs do not state a claim for statutory fraud. "[T]he only element that distinguishes statutory fraud from common law fraud is the additional requirement for statutory fraud that the alleged fraudulent activity must be made in connection with a particular purchase or sale of a security." Oppenheimer v. Prudential Securities Inc., 94 F.3d 189, 195 (5th Cir. 1996) (citing Blue Chip Stamps v. Manor *929 Drug Stores, 421 U.S. 723, 95 S. Ct. 1917, 44 L. Ed. 2d 539 (1975); First Virginia Bankshares v. Benson, 559 F.2d 1307, 1315 (5th Cir.1977)). Because the Court has found Plaintiffs' allegations sufficient to support a cause of action for statutory fraud under § 10(b), the allegations are also sufficient to support a common law fraud cause of action. Accordingly, Defendants' Motions to Dismiss Plaintiffs' common law fraud claims are DENIED.
B. Civil Conspiracy
Defendants' Motions to Dismiss Plaintiffs' civil conspiracy claims are contingent on their argument that Plaintiffs have failed to allege any intentional acts of wrongdoing. Because the Court has found otherwise, Defendants' Motions to Dismiss Plaintiffs' civil conspiracy claims are DENIED.
C. Breach of Contract
Plaintiffs assert breach of contract claims only against Defendant Nationwide, as American Century was not a contracting party to the insurance policies. In its Motion to Dismiss, Nationwide argues that the parol evidence rule prohibits consideration of anything other than the contract, and Plaintiffs cannot show that any contract terms have been breached.
First, as recognized earlier, Plaintiff Distad's policy contracts refer to the Twentieth Century sub-accounts using the names of the publicly traded Twentieth Century funds. This raises a fact issue as to breach of contract. Next, the parol evidence rule does not apply in this case. The parol evidence rule has been stated as follows: "When parties have concluded a valid integrated agreement with respect to a particular subject matter, the rule precludes the enforcement of inconsistent prior or contemporaneous agreements." Hubacek v. Ennis State Bank, 159 Tex. 166, 317 S.W.2d 30, 32 (Tex.1958), quoted in F.D.I.C. v. Wallace, 975 F.2d 227, 229 (5th Cir.1992). However, the parol evidence rule does not apply when assent to the contract was induced by fraud or mistake. See Wallace, 975 F.2d at 229; Dallas Farm Machinery Co. v. Reaves, 158 Tex. 1, 307 S.W.2d 233 (Tex.1957).[23] Because Plaintiffs here allege fraud, the parol evidence rule does not apply. Furthermore, the allegations that the Court has found sufficient to state a claim for fraud are also sufficient to state a claim for breach of contract. Those alleged misrepresentations, if relied upon by Plaintiffs, are sufficient to form the basis of a valid breach of contract claim based on fraud in the inducement. Accordingly, Nationwide's Motion to Dismiss Plaintiffs' breach of contract claim is DENIED.
D. Gross Negligence
Gross negligence has been defined as the "entire want of care which would raise the belief that the act or omission complained of was the result of a conscious indifference to the right or welfare of the person or persons to be affected by it." Bennett v. Howard, 141 Tex. 101, 170 S.W.2d 709, 713 (Tex.1943). It requires that the actor has subjective actual knowledge of an objectively extreme risk created by his behavior. Transportation Ins. Co. v. Moriel, 879 S.W.2d 10, 21 (Tex.1994). "The `extreme risk' prong is not satisfied by a remote possibility of injury or even a high probability of minor harm, but rather `the likelihood of serious injury' to the plaintiff." Id. (quoting Wal-Mart Stores, Inc. v. Alexander, 868 S.W.2d 322, 327 (Tex.1993)). The possibility that Plaintiffs could suffer a decline in the value of their insurance policies and annuities does not even begin to rise to the level of extreme risk or conscious indifference required for gross negligence. Accordingly, Plaintiffs' claim of gross negligence is hereby DISMISSED WITH PREJUDICE.
V. CONCLUSION
For the reasons stated above, the Defendants' Motions to Dismiss are GRANTED as *930 to Plaintiffs' claim under § 35(d) of the ICA and gross negligence claim, and those claims are DISMISSED WITH PREJUDICE as to all Defendants. Furthermore, Plaintiffs' claims of negligent misrepresentation, common law negligence, and RICO violations are DISMISSED WITHOUT PREJUDICE. The Motions to Dismiss are DENIED in all other respects. The parties are ORDERED to bear their own costs and attorney's fees incurred herein to date. It is also ORDERED that the parties file nothing further regarding the issues herein considered and the claims dismissed in this Order, including motions to reconsider and the like, unless supported by compelling new evidence not available at the time of the instant submissions.
Finally, despite the foregoing rulings, the Court notes that the Fifth Circuit has never directly ruled on three critical issues addressed in this Order: first, the question of whether a cause of action exists under § 36(a) of the ICA, either before or after Central Bank; second, whether the term "personal misconduct" in § 36(a) of the ICA requires self-dealing or personal impropriety; and third, whether § 35(d) requires an SEC finding of "materially deceptive or misleading" names before a private action may be brought. The Federal Rules of Civil Procedure state that:
When a district judge, in making in a civil action an order not otherwise appealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, he shall so state in writing in such order.
It is clear from the foregoing discussion that the existence of a cause of action under § 36(a) of the ICA allows for considerable difference of opinion, given the paucity of case law on the issue since Central Bank. Furthermore, the Court recognizes that the other two issues listed above may similarly allow for differences of opinion. Accordingly, and while not abrogating its obligation to handle matters on its own docket fairly and expeditiously, but rather with an eye toward maximizing efficiency and minimizing expense, and deferring to the wisdom of the Fifth Circuit in establishing policy, the Court feels that an interlocutory appeal of the Order regarding these three issues would be appropriate to best save the parties potentially tens or even hundreds of thousands of dollars in litigating this case, only to have the outcome overturned on appeal for the reason that no such causes of action exist. Accordingly, pursuant to 28 U.S.C. § 1292(b), the parties have ten (10) days from the date of this Order[24] to appeal the issues of (1) the existence of a cause of action under § 36(a) of the ICA; (2) the standard required for "personal misconduct" under § 36(a); and (3) the requirement of an SEC finding in § 35(d) of the ICA. No other issues addressed in this Order shall be interlocutorily appealable; however, because the Court again wishes to minimize expense and inconvenience of the parties, this case is hereby STAYED and ADMINISTRATIVELY CLOSED pending such appeal. The case will be reopened upon determination of the appealable issues by the Fifth Circuit, or, if no appeal is filed, upon timely motion by any party.
IT IS SO ORDERED.
NOTES
[1] Although the Motions are based on the First Amended Complaint, Plaintiffs were given leave to file the Second Amended Complaint on April 9, 1998. The Responses to the Motions, and the Replies to the Responses, incorporate the Second Amended Complaint. Therefore, the Court will consider the arguments in the context of the Second Amended Complaint. In the Second Amended Complaint, Plaintiffs eliminated claims based on negligent misrepresentation, common law negligence, and RICO violations. Consequently, those claims will not be addressed in this Order, and for procedural clarity each of those claims is DISMISSED WITHOUT PREJUDICE.
[2] Although the names of the investment manager and the funds have changed from "Twentieth Century" to "American Century," the Court will use the former names in order to avoid confusion.
[3] As stated in Distad's contracts. Nationwide actually allocated the payments to the "TCI International" fund. See discussion in Section II. A., infra.
[4] According to Distad, he decided to make this change based on the performance data of the publicly traded "Twentieth Century Growth" fund, which he acquired by reading the Wall Street Journal, "primarily because of the paucity of timely printed returns results coming from Nationwide."
[5] 15 U.S.C. § 78j(b); see 17 C.F.R. § 240.10b-5 ("Rule 10b-5").
[6] 15 U.S.C. § 80a-34(d).
[7] 15 U.S.C. § 80a-35(a).
[8] 15 U.S.C. § 80a-33(b).
[9] It is also at least somewhat telling that when Distad filled out Nationwide's insurance policy form he specified that 40% of his funds be allocated to "Fidelity Contrafund" and 20% to "20th Century International," which are the, names of publicly traded mutual funds. Upon receipt of this form, Nationwide, apparently without question, allocated 40% of Distad's funds to "Fidelity VIP-2 Contrafund Portfolio" and 20% to "20th Century TCI International Portfolio," the respective names of the allegedly "cloned" insurance funds. (The Fidelity VIP-2 Contrafund actually is a clone, and is not at issue here). This factor at least shows that Nationwide was aware of possible confusion in its fund names, and should have taken steps to clarify the confusion.
[10] "Twentieth Century Growth" and "Twentieth Century Select" are the publicly traded mutual funds, while "Growth Portfolio" and "Select Portfolio" are, respectively, the related insurance-only funds.
[11] Nationwide so named the sub-account in its policy. Although Plaintiffs note the distinction, the Court finds no legitimate difference between "Twentieth Cent Growth" and "Twentieth Century Growth." Any investor would assume that the two are one and the same.
[12] See supra note 11.
[13] Id.
[14] Furthermore, if Plaintiffs' allegations are true that Defendants provided performance summary data of the publicly traded fund in marketing literature for the insurance fund, in light of Defendants' contentions that the insurance fund was never intended as a clone, fraud is conclusively established. Defendants' objections to this allegation, that the literature at issue was actually an advertisement for the publicly traded fund, is an issue of fact to be saved for a later date.
[15] As explained infra, § 36(a) also applies to the principal underwriter of a unit investment trust. See 15 U.S.C. § 80a-35(a)(2).
[16] The Court merely cited to Superintendent of Ins. of N.Y. v. Bankers Life & Casualty Co., 404 U.S. 6, 13 n. 9, 92 S. Ct. 165, 169 n. 9, 30 L. Ed. 2d 128 (1971) as authority for a private right of action.
[17] The Supreme Court's acceptance of an implied right of action under § 10(b) was bolstered by the fact that a later Congress enacted a statute that acknowledged the implied right. See 15 U.S.C. § 78aa-1. As discussed infra, a later Congress has also expressed its expectation that courts will imply private rights of action under the ICA.
[18] Plaintiffs also cite to Seidel v. Lee, 954 F. Supp. 810, 818-19 (D.Del.1996) as a recent post-Central Bank decision that has recognized the existence of an implied private right of action under § 36(a). While technically Seidel did come after Central Bank, the decision to find a private cause of action under § 36(a) was made in an order in a previous, related case. See id. at 818; In re ML-Lee Acquisition Fund II, L.P. Litigation, 848 F. Supp. 527, 542 (D.Del.1994). The prior order was issued on March 31, 1994, nineteen days before Central Bank was decided. Obviously, then, the Seidel court's decision to find a 36(a) cause of action did not rest upon a Central Bank analysis.
[19] As stated by one court, the subsequent legislative history of § 36(a) demonstrates an "enthusiastic expression of [congressional] intent" that "provides more than mere silence or legislative inaction." Nuveen, 1996 WL 328006, at *6.
[20] Defendants cite several cases to bolster their standing argument, none of which involve similarly situated plaintiffs. See, e.g., Herpich v. Wallace, 430 F.2d 792 (5th Cir.1970) (minority shareholders asserting ICA violations against majority shareholder); Greater Iowa Corp. v. McLendon, 378 F.2d 783, 794 (8th Cir.1967) (plaintiffs had no injuries and no interest whatsoever in voting trust controlled by defendants); Avnet, Inc. v. Scope Indus., 499 F. Supp. 1121, 1126 n. 8 (S.D.N.Y.1980) (defendant company was a shareholder of plaintiff company, so plaintiff had no direct interest). In the cases cited by Defendants, standing to sue was denied because the damage allegedly suffered by the plaintiffs was outside the scope of interests protected by the ICA. See, e.g., Goodall v. Columbia Ventures, Inc., 374 F. Supp. 1324, 1328 (S.D.N.Y.1974). In this case, Plaintiffs are clearly within the scope of interests to be protected, in that they had beneficial ownership in the funds.
[21] Although Defendants cited two other cases, one is an unpublished opinion, and the other is merely an SEC litigation release.
[22] Furthermore, only one of the cited cases, Olesh, actually holds that an SEC determination that a director is an "interested person" is a prerequisite to bringing a private cause of action under § 15(f). In Block, the plaintiffs challenged the SEC's decision not to hold a hearing to determine whether certain directors were "interested persons" within the meaning of § 2(19) of the ICA. The court determined that the SEC's decision not to hold a hearing was within its discretion, and therefore the plaintiffs could not bring a claim under § 15(f) of the ICA. Critically, however, the court assumed without deciding that the plaintiffs were "correct in maintaining that a private action to enforce § 15(f)(1) cannot go forward without the SEC having first issued an order declaring that more than 25 percent of the directors are `interested persons.'" Block, 50 F.3d at 1083.
[23] For purposes of this Motion to Dismiss, the Court applies Texas law, as there is apparently no choice-of-law provision in the contracts at issue. See Amoco Chemical Co. v. Tex Tin Corp., 925 F. Supp. 1192, 1202 n. 9 (S.D.Tex.1996). However, this does not preclude the possibility that other states' laws may apply to the supplemental claims in this case. See De Aguilar v. Boeing Co., 47 F.3d 1404 (5th Cir.1995) (listing choice-of-law rules Texas courts apply in determining which state's law governs). At this stage of the proceedings, however, the Court is unable to make an informed choice-of-law decision.
[24] While frankly the Court would allow the parties twenty days to appeal, the Court is limited by the express ten-day provision in the statute. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2574132/ | 267 F.Supp.2d 841 (2003)
Muhammad AL-QUDHAI'EEN, et al., Plaintiffs,
v.
AMERICA WEST AIRLINES, INC., et al., Defendants.
No. C-2-00-1380.
United States District Court, S.D. Ohio, Eastern Division.
April 30, 2003.
*842 Craig Douglas Andrew, Andrew Law Offices LLC2, Columbus, OH, Dale A. Danneman, John Charles Hinderaker, Lewis & Roca, Phoenix, AZ, for defendant.
Paul Joseph Gattone, Southern Arizona People's Law Center, Tucson, AZ, for plaintiffs.
OPINION AND ORDER
GEORGE C. SMITH, District Judge.
Plaintiffs, Muhammad Al-Qudhai'een and Hamdan Al-Shalawi, assert federal claims for violation of their civil rights pursuant to 42 U.S.C. § 1981, 42 U.S.C. § 1985(3), and 49 U.S.C.A. § 40127. Plaintiffs also assert state law claims of false arrest/imprisonment, defamation and *843 privacy invasion (portrayal in false light), intentional infliction of emotional distress, negligence, breach of contract and trespass to chattels.[1] Defendants, America West Airlines, Inc., and America West employees Captain Robert Patterson, First Officer Ron Moore, Robert De Campo, Carol Asada, and Leslie Franklin, move for summary judgment. (Doc. 95). For the reasons that follow, the Court GRANTS defendants' motion for summary judgment.
I. FACTS
Plaintiffs are Saudi Arabian citizens residing in Arizona with their wives and children on F-l student visas. Plaintiffs are studying to receive doctoral degrees. Defendant, America West Airlines, Inc. ("America West"), is a Delaware corporation doing business in the United States as a common carrier, providing passenger air travel services to the public. Defendants, Robert Patterson, Ron Moore, Robert De Campo, Carol Asada, and Leslie Franklin, are the America West employees who served as pilots and flight attendants on Flight 90.
Plaintiffs planned to attend a series of events and lectures at the Saudi Cultural Attache in Washington, D.C. on November 19, 1999, however, plaintiffs did not make reservations for the flight until after 9:00 p.m. on November 18, 1999. On November 19, 1999, plaintiffs were issued boarding passes and boarded America West Flight 90 from Phoenix, Arizona to Washington, D.C. with a layover in Columbus, Ohio.[2] Prior to departure, plaintiff Al-Qudhai'een asked flight attendant DeCampo if he could get plaintiff Al-Shalawi to sit in the empty seat next to him. Plaintiff was instructed that he would have to wait until the plane was airborne. Ignoring DeCampo's instruction, Al-Qudhai'een decided to get up from his seat and tell Al-Shalawi to come sit next to him. Plaintiff Al-Shalawi then remained in his seat for the duration of the flight and did not do anything that defendants considered suspicious.
The only other time plaintiff Al-Qudhai'een got up during the flight was to use the bathroom. Plaintiff decided to go to the first class bathroom because people were waiting to use the bathroom at the rear of the airplane. Flight attendant Asada observed Al-Quadhai'een walk straight to the cockpit door and pull on the handle. Plaintiff now denies that he ever touched the cockpit door. Plaintiff claims that before he even reached the first class bathroom, he was told by flight attendant Asada that the first class lavatory was reserved for first class passengers only and he would have to use the bathroom at the rear of the plane. Plaintiff used the bathroom at the rear of the airplane and then returned to his seat and remained there for the remainder of the flight.
Although plaintiff now denies that he touched the cockpit door or even got close to the first class bathroom, plaintiff did state to the FBI later that day that he may have inadvertently touched the door *844 to the flight deck due to its close proximity to the handle of the forward lavatory. Additionally, a first class passenger, Renato Fernandez, observed Al-Qudhai'een walk directly to the cockpit and try to get into the cockpit.
After plaintiff used the bathroom at the rear of the plane, flight attendant De Campo searched the bathroom. He also searched under the seat originally assigned to Mr. Al-Shalawi, but did not find anything. Plaintiffs also note that no other passengers on Flight 90 had their seats searched, nor were the bathrooms searched after other passengers used them.
Although plaintiff claims to have returned to his seat after using the bathroom, flight attendant De Campo states that Al-Qudhai'een approached him after returning from the bathroom and asked a series of questions related to the flight. De Campo recalls that plaintiff asked, how long would the plane be on the ground in Columbus and whether they would be on the same plane going to Washington, D.C. After some discussion between the flight attendants regarding plaintiffs' behavior, they decided to inform Captain Patterson that plaintiff had asked similar questions about the flight to two different flight attendants, plaintiff disobeyed the flight attendant's order to remain in his seat, and plaintiff attempted to get into the cockpit. Flight attendant De Campo also mentioned to Captain Patterson that plaintiffs were Arab and plaintiffs believe that defendants relied on this information to justify the allegation that plaintiffs were hijackers.
Captain Patterson was concerned with the report by the flight attendants and believed that the circumstances posed a security threat to the flight. Therefore, he notified America West's Dispatch and relayed his concerns. Captain Patterson provided plaintiffs' names and seating information and suggested that when they arrived they should be met by security to determine their intent and examine their luggage. When the plane arrived in Columbus, Captain Patterson was instructed by airport security to taxi at a remote parking area away from the terminal. When the plane stopped, airport security boarded the plane, handcuffed plaintiffs and escorted them off the plane and then interrogated them for four hours, while the rest of the passengers were able to continue on to their destinations. After being questioned by the FBI, plaintiffs were advised that they were not under arrest and were free to leave. America West apologized to plaintiffs and upgraded them to first class for their flight to Washington, D.C.
Plaintiffs assert that defendants allegedly relayed false information based on racial stereotypes and this led to the unlawful harassment and detention of the plaintiffs. Based on these actions, plaintiffs filed their complaint alleging defendants violated their civil rights. Defendants believe they are entitled to summary judgment on all of plaintiffs' claims because they have broad discretionary authority under the Federal Aviation Act ("FAA") to request investigatory assistance from law enforcement authorities and/or remove any passenger the pilot determines may be inimical to safety.
II. SUMMARY JUDGMENT
The standard governing summary judgment is set forth in Fed.R.Civ.P. 56(c), which provides:
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 *845 moving party is entitled to judgment as a matter of law.
Summary judgment will not lie if the dispute about a material fact is genuine; "that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Summary judgment is appropriate, however, if the opposing party fails to make a showing sufficient to establish the existence of an element essential to that party's case and on which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); see also Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 588, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
When reviewing a summary judgment motion, the Court must draw all reasonable inferences in favor of the nonmoving party, and must refrain from making credibility determinations or weighing the evidence. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150-51, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000).[3] The Court disregards all evidence favorable to the moving party that the jury would not be not required to believe. Id. Stated otherwise, the Court must credit evidence favoring the nonmoving party as well as evidence favorable to the moving party that is uncontroverted or unimpeached, if it comes from disinterested witnesses. Id.
The Sixth Circuit Court of Appeals has recognized that Liberty Lobby, Celotex, and Matsushita have effected "a decided change in summary judgment practice," ushering in a "new era" in summary judgments. Street v. J.C. Bradford & Co., 886 F.2d 1472, 1476 (6th Cir.1989). The court in Street identified a number of important principles applicable in new era summary judgment practice. For example, complex cases and cases involving state of mind issues are not necessarily inappropriate for summary judgment. Id. at 1479.
Additionally, in responding to a summary judgment motion, the nonmoving party "cannot rely on the hope that the trier of fact will disbelieve the movant's denial of a disputed fact, but must `present affirmative evidence in order to defeat a properly supported motion for summary judgment.' " Id. (quoting Liberty Lobby, 477 U.S. at 257, 106 S.Ct. 2505). The nonmoving party must adduce more than a scintilla of evidence to overcome the summary judgment motion. Id. It is not sufficient for the nonmoving party to merely "`show that there is some metaphysical doubt as to the material facts.' " Id, (quoting Matsushita, 475 U.S. at 586, 106 S.Ct. 1348).
Moreover, "[t]he trial court no longer has a duty to search the entire record to establish that it is bereft of a genuine issue of material fact." Id. at 1479-80. That is, the nonmoving party has an affirmative *846 duty to direct the court's attention to those specific portions of the record upon which it seeks to rely to create a genuine issue of material fact. In re Morris, 260 F.3d 654, 665 (6th Cir.2001).
III. DISCUSSION
Plaintiffs assert that defendants, America West Airlines, Inc., and America West employees Captain Robert Patterson, First Officer Ron Moore, Robert De Campo, Carol Asada, and Leslie Franklin, violated their civil rights under 42 U.S.C. § 1981, 42 U.S.C. § 1985(3), and 49 U.S.C.A. § 40127. Plaintiffs also assert state law claims of false arrest/imprisonment, defamation and privacy invasion (portrayal in false light), intentional infliction of emotional distress, negligence, breach of contract and trespass to chattels. Defendants argue that the FAA gives pilots broad discretionary authority to request investigatory assistance from law enforcement authorities and/or remove any passenger the pilot decides is or may be inimical to safety. In the alternative, defendants argue that summary judgment is appropriate because each of plaintiffs' claims fails to state a cause of action and/or fails because plaintiffs have insufficient evidence to substantiate those claims.
A. Immunity under 49 U.S.C. § 44902(b)
Defendants contend that Captain Patterson had authority to refuse transportation to plaintiffs and also the authority to remove or have law enforcement remove plaintiffs pursuant to 49 U.S.C. § 44902(b) and they are therefore immune from all of plaintiffs' claims against them. The Federal Aviation Act, 49 U.S.C. § 44902(b), states that an air carrier "may refuse to transport a passenger or property the carrier decides is or might be inimical to safety." "Such a refusal cannot give rise to a claim for damages under either federal or [state] law unless the carrier's decision was arbitrary and capricious." Williams v. Trans World Airlines, 509 F.2d 942, 948 (2d Cir.1975); Schaeffer v. Cavallero, 54 F.Supp 2d 350, 351 (S.D.N.Y. 1999).
Plaintiffs correctly assert that airline personnel are given broad, but not absolute, discretion to remove passengers for safety reasons. Williams, 509 F.2d at 948, sets forth the following test to analyze whether an airline's action of removing passengers was proper:
The test of whether or not the airline properly exercised its power under [§ 44902] to refuse passage to an applicant or ticket-holder rests upon the facts and circumstances of the case as known to the airline at the time it formed its opinion and made its decision and whether or not the opinion and decision were rational and reasonable and not capricious and arbitrary in the light of those facts and circumstances.
Williams, and other cases applying § 44902, confirm thai: the statute protects any decision that is not arbitrary and capricious. See e.g., Schaeffer, 54 F.Supp.2d at 351 (Refusal to transport cannot give rise to liability unless arbitrary and capricious.); Norman v. TWA 2000 WL 1480367, at *2 (S.D.N.Y. Oct.6, 2000)(same).
Plaintiffs argue that defendants should not be entitled to immunity because their actions were arbitrary and capricious. Plaintiffs, in comparing their behavior to cases in which immunity under § 44902 was found, assert that they did not assault or threaten to assault a passenger or crewmember; they were not hostile or disruptive but were in fact described as being "calm" when arrested; plaintiffs did not make any remarks that could be interpreted as threatening a hijacking or making a *847 bomb-threat; nor did plaintiffs possess weapons. Plaintiffs believe that the only allegation of any attempted breach of security is defendant Asada's claim that plaintiff Al-Qudhai'een touched the cockpit door, which he contests.
Defendants, however, dispute plaintiffs' argument that they did nothing unusual or out of the ordinary on Flight 90. Defendants assert that plaintiffs' own testimony and undisputed evidence demonstrates that: 1) plaintiffs disobeyed defendant DeCampo's instructions and changed seats without permission; 2) plaintiff Al-Qudhai'een entered the first class area and proceeded to walk toward the cockpit without obtaining permission; 3) plaintiff Al-Qudhai'een appeared to be "anxious" when he asked defendant Asada questions regarding the flight and became "irritated" and "uneasy" when informed that it would be stopping in Columbus, Ohio; and 4) defendant DeCampo considered plaintiff Al-Qudhai'een's questions about whether the plane they were currently on would also be the one that would travel on to Washington, D.C. to be uncommon for a passenger. In addition, while plaintiff Al-Qudhai'een appears to deny it now, he did admit to the FBI that he "might have inadvertently touched the door to the flight deck."[4] Plaintiffs behavior was reported to Captain Patterson, who made the decision to notify America West and have plaintiffs' bags subjected to a canine sniff search based on the facts known to him at that time.
The Court must make an "objective assessment" of the carrier's decision, which involved "taking into account all the circumstances surrounding the decision, including the (perhaps limited) facts known at the time; the time constraints under which the decision is made; and, not least, the general security climate in which the events unfold." Dasrath v. Continental Airlines, Inc., 228 F.Supp.2d 531, 539 (D.N.J.2002). Additionally, the Court in Williams noted that one of the factors contributing to the decision not to transport plaintiff was "the danger of hijacking in light of those recently experienced [in 1969] by TWA and other airlines." 509 F.2d at 945. In this case, plaintiffs even acknowledge that this incident took place "within weeks of the Egypt Air crash."
Plaintiffs additionally appear to argue that Captain Patterson should have conducted some investigation prior to radioing for assistance when they state "Without attempting to verify Mr. De Campo's allegations by speaking with plaintiffs or other passengers, Captain Patterson radioed America West and said he needed to have plaintiffs' bags `sniffed' for explosives upon arriving in Columbus." Pls' Mem. Opp'n Defs' Mot. for Summ. J. at 6. A captain of an airplane, however, is "entitled without further inquiry to rely upon a flight attendant's representations that a conflict with a passenger might distract the flight attendant from performing his or her safety-related duties." Christel v. AMR Corp., 222 F.Supp.2d 335, 340 (E.D.N.Y.2002). In Christel, as the plane approached the runway for takeoff, the flight attendant called the cockpit and told the captain there was a disruptive passenger who interfered with her duties and refused to comply with her instructions. Upon re *848 ceiving this information, the Captain acted within his discretion and decided to remove Christel from the plane. The Court concluded that "even if the battle of the egos escalated between [flight attendant] making exaggerated or even false representations to the Captain, the Captain did not have an obligation to leave the cockpit and investigate the truthfulness of [flight attendant's] statements." Id. at 340.
Taking into account all the circumstances known to Captain Patterson at the time he made the decision to radio America West for assistance and the fact that he is entitled to rely on the information provided to him by his crew despite any exaggerations or false representations, the Court finds as a matter of law that Captain Patterson's decision to remove plaintiffs from the airplane and to request a search of their baggage was not arbitrary or capricious. Defendants are therefore entitled to immunity under 49 U.S.C. § 44902(b), and are entitled to summary judgment on all of plaintiffs' federal claims against them.
B. State law claims
The Court has granted defendants' motion for summary judgment on plaintiffs' federal claims. The Court therefore declines to exercise supplemental jurisdiction over plaintiffs' state law claims. It is well settled that a District Court may decline to exercise supplemental jurisdiction over statelaw claims once it has dismissed all claims over which it possessed original jurisdiction. Saglioccolo v. Eagle Ins. Co., 112 F.3d 226, 233 (6th Cir.1997). Indeed, the Sixth Circuit has recognized that if all federal claims are dismissed before trial, remaining state claims generally should be dismissed. Id.; Taylor v. First of Am. Bank-Wayne, 973 F.2d 1284, 1287 (6th Cir.1992). Therefore, pursuant to 28 U.S.C. § 1367(c)(3) and (d), the Court will dismiss plaintiffs' state law claims against defendants without prejudice.
IV. DISPOSITION
Based on the foregoing, the Court GRANTS defendants' summary judgment motion.
The Clerk shall enter final judgment in favor of defendants, and against plaintiffs, dismissing all plaintiffe' federal claims with prejudice and dismissing plaintiffs' state claims without prejudice.
The Clerk shall remove this case from the Court's pending cases and motions lists.
The Clerk shall remove Doc. 95 from the Court's pending motions list.
IT IS SO ORDERED.
NOTES
[1] Plaintiffs' claims for breach of duty as a common carrier and violation of Arizona Public Accommodations Law were dismissed in the Court's Opinion and Order dated March 23, 2001. (Doc. 30). Plaintiffs also voluntarily dismissed Count V of their complaint for violation of the Civil Rights Act of 1964.
[2] Plaintiffs claim that the America West reservation agent told Mr. Al-Qudhai'een when he made the reservation that Flight 90 was nonstop. Mr. Al-Qudhai'een was first told that the flight was stopping in Columbus, Ohio by Mr.Al-Shalawi. Mr. Al-Quadhai'een apparently needed further confirmation of the flight itinerary and asked flight attendant Asada if there would be a stop. When she responded yes, plaintiff became irritated and tense, claiming he was not told that there would be a stop.
[3] Reeves involved a motion for judgment as a matter of law made during the course of a trial under Fed.R.Civ.P. 50 rather than a pretrial summary judgment under Fed.R.Civ.P. 56. Nonetheless, standards applied to both kinds of motions are substantially the same. One notable difference, however, is that in ruling on a motion for judgment as a matter of law, the Court, having already heard the evidence admitted in the trial, views the entire record, Reeves, 530 U.S. at 150, 120 S.Ct. 2097. In contrast, in ruling on a summary judgment motion, the Court will not have heard all of the evidence, and accordingly the non-moving party has the duty to point out those portions of the paper record upon which it relies in asserting a genuine issue of material fact, and the court need not comb the paper record for the benefit of the nonmoving party. In re Morris, 260 F.3d 654, 665 (6th Cir.2001). As such, Reeves did not announce a new standard of review for summary judgment motions.
[4] The factual conflict between the parties regarding whether plaintiff Al-Qudhai'een touched the door to the cockpit is not material and the Court does not rely on this dispute in reaching its conclusion. The Court is only required to assess what was known to Captain Patterson at the time he made the decision to call America West officials, not to look beyond the flight attendants' representations. See Christel v. AMR Corp., 222 F.Supp.2d 335, 340 (E.D.N.Y.2002) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1740465/ | 726 F. Supp. 1411 (1989)
BANQUE ARABE et INTERNATIONALE D'INVESTISSEMENT, Plaintiff,
v.
BULK OIL (USA) INC., Defendant.
No. 86 CIV 5552 (LBS).
United States District Court, S.D. New York.
December 12, 1989.
*1412 *1413 Rogers & Wells, New York City, for plaintiff; Joseph H. Spain, Paul M. Hellegers, and C. Ryan Reetz, of counsel.
John P. McMahon, New York City, for defendant; John P. McMahon, of counsel.
SAND, District Judge.
This diversity action arises from purchase and repurchase agreements between two petroleum dealers and the extension of credit to one of those dealers by a bank. The plaintiff bank asserts claims as a third party beneficiary of the purchase agreement and as an assignee of rights of one dealer under that purchase agreement, and on the grounds of breach of contract, fraud and fraudulent conveyance. Defendant moves for summary judgment on all claims.
I. Background
On December 13, 1985, Will Petroleum Inc. (hereinafter "Will") entered into an agreement to sell 550,000 barrels of regular gasoline to Defendant Bulk Oil (USA), Inc. (hereinafter "BOUSA") at 71 cents per gallon. In a separate agreement executed at the same time, Will arranged to repurchase the same volume of gasoline from BOUSA at 71.3 cents per gallon. The deal was brokered by D. Checki, a petroleum broker employed by Triad Petroleum Inc. (hereinafter "Triad"), and no direct contact took place between Will and BOUSA at the time of the agreements. Both contracts (hereinafter "the BOUSA/Will contracts") provided that the gasoline would be deliverable during the period from December 15, 1985 to January 31, 1986 at BOUSA's barges in New York Harbor or by book transfer. Payment was to be made by "telegraphic transfer ... to seller's designated bank." The only explanation offered by either party for this transaction is that Will essentially agreed to pay BOUSA the difference in price as compensation for accepting the responsibilities of a buyer in the transaction.
On December 13, 1985, Will sent a telex to Plaintiff Banque Arabe et Internationale D'Investissement (hereinafter "BAII") requesting a loan of $12,440,256.04. The telex requested that the money be forwarded to ARCO Petroleum Products Company (hereinafter "ARCO") on December 16, 1985 to pay for 48,344 metric tons of pentane *1414 plus condensate which Will had already contracted to buy from ARCO. The pentane plus condensate was evidently intended to be a component of the goods to be sold to and then repurchased from BOUSA. According to plaintiff, the general practice in requests of this kind from Will was for Will to provide a description of the purchase contract needing financing and a description of one or more contracts of sale corresponding in volume to the intended purchase. Will then assigned the contracts to plaintiff in return for the requested financing arrangement. Will's December 13, 1989 telex described the sale of the 550,000 barrels to BOUSA, but did not mention Will's agreement to buy back the same volume from BOUSA. The telex also indicated that BOUSA would issue a purchase/payment confirmation in support of the transaction.
On December 13, 1985, R. Fuchs, the Executive Vice President of BOUSA who negotiated the BOUSA/Will contracts for BOUSA, was apparently unaware that the contracts related in anyway to a transaction between BAII Paris and Will. D. Checki, the Triad petroleum broker who brokered the deal between Will and BOUSA, was apparently unaware of the existence of any arrangement between Will and BAII at the time he negotiated the contracts. At 4:58 New York time on December 13, 1985,[1] Triad confirmed the first Will/BOUSA contract in a telex to Will. At 5:00 pm, Triad quoted to BAII by telex its earlier telex confirming the Will/BOUSA contract. Finally, at 5:21 pm, Triad confirmed the contract in a telex to BOUSA, though the telex did not indicate that a copy had been sent to BAII.
At 9:46 am on December 16, 1985, Will sent a telex to BOUSA requesting that BOUSA transmit a purchase/payment confirmation to BAII with specific wording suggested by Will. Defendant alleges, though plaintiff denies, that the precise wording was composed by Will's treasurer, D. Pirner, and J.R. Finot, the BAII officer in charge of Will's account. The suggested language read:
[BOUSA] confirms the purchase from [Will] of 550,000 barrels regular gasoline.... [BOUSA] agrees to post a letter of credit in favor of [Will] prior to lifting of this product, and to advise such letter of credit through [BAII].
Much of this case turns on the parties' differing interpretations of this language.
At 11:06 am on December 16, BAII informed ARCO by telex that it would credit ARCO's account at Irving Trust New York with the $12,440,256.04 requested by Will. At 12:50 pm BAII instructed its New York correspondent to transfer the money to ARCO. BAII now claims that Will had advised BAII that the written purchase/payment confirmation of the Will/BOUSA contracts from BOUSA could be expected and that it transferred the money in anticipation of receiving the confirmation. At 2:51 pm BOUSA sent a telex to BAII conforming to the language specified by Will. BAII contends that in reliance upon the anticipated security of full payment of the purchase price which BOUSA's letter of credit would have afforded, it carried the pentane loan on its books and extended new credit to Will.
Pursuant to an agreement between BOUSA and Will made on or before January 23, 1986, the Will/BOUSA contracts were performed through a book transfer. BOUSA never actually posted a letter of credit, advised the letter of credit through BAII or paid any of the purchase price for the gasoline to BAII. Instead, after a book transfer of the product, BOUSA "netted out" payment of the contract purchase price against Will's debt under the repurchase agreement.
On January 29, 1986, Will filed a petition under Chapter 11 of the Bankruptcy Code. Will was subsequently unable to repay all of the outstanding loans it had received from BAII. On January 31, 1986 BAII sent a telex to BOUSA advising that BAII was the assignee of and holder of a security interest in the Will/BOUSA contract. *1415 The telex concluded by stating: "We would appreciate your response and comments on the above topic ..." A second telex in stronger terms but also suggesting a proposed amicable resolution was sent on March 13, 1986.
On February 13, 1986, with the value of Will's petroleum product inventory declining rapidly in the market conditions prevailing at the time, the Bankruptcy Court entered an order authorizing Will to abandon the inventory and accounts receivable to BAII. BAII completed its sale of Will's inventory by June 26, 1986, but the proceeds were insufficient to satisfy all of Will's debts to BAII. BAII then commenced this action on July 14, 1986, seeking to recover the difference between the unpaid purchase price of the first Will/BOUSA contract and the proceeds from the sale of equivalent amounts of Will's inventory. In a separate count, plaintiff sought the difference between the amount of its extension of credit to Will and the proceeds of the sale of Will's inventory. Defendant filed a motion to dismiss and for summary judgment with respect to this action on November 3, 1987. Without deciding the merits of the motion, the Court then granted plaintiff leave to file an amended complaint. In July 1988, pursuant to a stipulation between the parties, plaintiff filed a second amended complaint containing the counts set forth below. BOUSA now moves for summary judgment on the amended complaint, to strike portions of plaintiff's affidavits and for sanctions.
II. Discussion
Fed.R.Civ.P. 56(c) stipulates that a motion for summary judgment shall be granted if there is "no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Materiality of facts is determined by the applicable substantive law, and a genuine dispute exists over a material fact if a reasonable factfinder viewing the evidence could decide in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S. Ct. 2505, 2509-10, 91 L. Ed. 2d 202 (1985).
A. Third-Party Beneficiary Claim
In Count I of its complaint, plaintiff alleges that it was a third-party beneficiary of the first BOUSA/Will contract and is therefore entitled to recover damages for BOUSA's failure to make payment to Will's account at BAII. Defendant moves to dismiss Count I, arguing that plaintiff was at most an incidental beneficiary of the BOUSA/Will contract and as such has no third-party beneficiary claim.
Under New York law, only an intended beneficiary of a contract may assert a claim as a third party. Port Chester Elec. Constr. Corp. v. Atlas, 40 N.Y.2d 652, 655, 389 N.Y.S.2d 327, 330, 357 N.E.2d 983, 987 (1976). A beneficiary of a promise is an intended beneficiary if:
recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either
(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or
(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.
Septembertide Publishing B.V. v. Stein and Day, Inc., 884 F.2d 675, 679-80 (2d Cir.1989) (quoting Restatement Second of Contracts § 302(1)(a) & (b) (1979)). See Fourth Ocean Putnam Corp. v. Interstate Wrecking Co., Inc., 66 N.Y.2d 38, 45, 495 N.Y.S.2d 1, 5, 485 N.E.2d 208, 213 (1985) (adopting Restatement formulation). It is also established that "the obligation to perform to the third party plaintiff need not necessarily be expressly stated in the contract." United States v. Ogden Technology Laboratories, Inc., 406 F. Supp. 1090, 1092 (E.D.N.Y.1973). See also Strauss v. Belle Realty Co., 98 A.D.2d 424, 469 N.Y. S.2d 948, 950 (2d dep't 1983) (quoting Airco Alloys Div. v. Niagara Mohawk Power Corp., 76 A.D.2d 68, 430 N.Y.S.2d 179, 186 (4th Dep't 1980)), aff'd, 65 N.Y.2d 399, 492 N.Y.S.2d 555, 482 N.E.2d 34 (1985).
Whether BAII was a third-party beneficiary depends entirely upon the meaning of the terms of the first December 13, 1985 BOUSA/Will contract and the December *1416 16, 1985 purchase/payment confirmation sent by BOUSA. These terms, the meanings of which are not obvious from their face, and the circumstances surrounding their adoption, must be scrutinized by the Court to determine whether a reasonable factfinder could find from them that BAII was a third-party beneficiary.
Defendant maintains that BOUSA's agreement on December 13, 1985 to make payment for the gasoline "to seller's designated bank" was an agreement to pay Will at a bank to be designated by Will. In contrast, plaintiff contends that this clause meant that BOUSA was to pay BAII specifically. Plaintiff does not dispute that payment was to be made to Will's account at BAII, but argues that the distinction between money in Will's account at BAII and money at BAII is meaningless for the purposes of this case. Finally, plaintiff alleges that BOUSA's agreement in the December 16, 1985 purchase/payment confirmation to post a letter of credit in favor of Will and to advise the letter of credit through BAII was intended to protect BAII's right to repayment for its extensions of credit to Will. Defendant counters that even if it had advised the letter of credit through BAII, BAII would not have received protection for its right to repayment from Will.
A reasonable factfinder could find that the circumstances surrounding the December 13, 1985 BOUSA/Will contract suggest that BAII was the "seller's designated bank" referred to in the payment clause. It is undisputed that on December 13, 1985 Will both requested a loan for a purchase of a component of gasoline from ARCO and arranged to sell and buy back from BOUSA 550,000 barrels of gasoline. It is also clear that BAII was conveniently not told of Will's arrangement to buy the gasoline back. A factfinder could infer that Will and BOUSA entered into the contracts because BAII demanded that Will provide a responsible buyer for the product the purchase of which it was financing. BAII's only apparent interest in the transaction was to secure repayment for its loans, and its actions can reasonably be interpreted as efforts to arrange that outcome.
Payment to Will's account at BAII can also be considered payment to BAII. As defendant's own financial officer, Clara Schroeder, conceded in deposition testimony, the purpose of directing payment through a specific bank is to guarantee that the money comes under that bank's control. Moreover, under New York law:
[m]oney deposited in a general account at a bank does not remain the property of the depositor. Upon deposit of funds at a bank, the money deposited becomes the property of the depositary bank; the property of the depositor is the indebtedness of the bank to it, a mere chose in action.
Miller v. Wells Fargo Bank Int'l Corp., 540 F.2d 548, 560 (2d Cir.1976). See also Sundail Constr. Co., Inc. v. Liberty Bank of Buffalo, 277 N.Y. 137, 141, 13 N.E.2d 745 (1938). As a practical matter, the funds, once deposited in BAII, could not have been recovered by Will unless BAII agreed to transfer them elsewhere. Finally, defendant offers no evidence to suggest that BAII could not have exercised control over funds deposited in it.
While plaintiff's complaint alleges that BOUSA was in fact told that the BOUSA/Will contract would be used as a security for credit extended by BAII, defendant contends that it was unaware that BAII was Will's "designated bank" or that BAII had any interest whatsoever in the transaction. A factfinder could conclude, however, that BOUSA should have at least presumed that a transaction such as this one had such a purpose. At the very least, whether BOUSA knew of BAII's interest is an issue for a factfinder to resolve at trial. Furthermore, it is doubtful that the promisor need know the identity of the third-party at the time of the agreement to establish the third-party's right of enforcement. Certainly the Restatement test neither expressly nor implicitly requires such knowledge. See also Goodman-Marks Assocs., Inc. v. Westbury Post Assocs., 70 A.D.2d 145, 420 N.Y.S.2d 26, 29 (2d Dep't 1979) (intention of promisor is of "primary importance" in determining whether party is intended beneficiary, and promisee can be *1417 presumed to have intended natural results of his acts and promises).
It is certainly true that advising a letter of credit might not always protect a bank's right to repayment for its extensions of credit. The New York Uniform Commercial Code defines an advising bank as a bank which "gives notification of the issuance of a credit by another bank." N.Y. Uniform Commercial Code § 5-103(1)(e) (McKinney 1964). See also H. Harfield, Letters of Credit 10-11 (1979) (Advising bank transmits fact of issuance and terms and conditions of the credit, but function is "confined to the transmission of information and the authentication of the information transmitted"). From these definitions, it would seem that the advising bank is not generally given tools with which to secure repayment of a debt owed to it by the beneficiary of the letter of credit.
Nevertheless, the parties disagree as to the actual practice in the industry. Plaintiff contends that these definitions neglect the reality that the advising bank would have received the actual letter of credit which the seller would need in order to receive payment. Plaintiff argues further that with the advising bank in possession of the instrument itself, the seller would then have to forward the payment to the bank in order to effect cancellation of the instrument. Plaintiff also represents that a letter of credit is usually advised through a bank for the purpose of making the cash available to that bank to reimburse itself. At the same time, defendant counters that physical possession of the letter of credit has no significance, and that the beneficiary of the letter of credit would still have been entitled to payment. Defendant also denies that an advising bank generally receives the payment from either the issuing bank or the buyer, unless the letter of credit specifies explicitly that it is "payable at the counters" of the advising bank.
Clearly, factual questions about the general practices in the oil trading and banking industries have arisen. The Court is not prepared to answer them conclusively on the basis of the present record. In light of the emphasis placed during these transactions on the payment flowing through BAII and the fact that defendant's own financial officer conceded that a bank would "probably" advise a letter of credit to guarantee that payment traveled through it, a factfinder could reasonably conclude from the evidence presented that the parties intended the funds to flow through BAII.
B. Assignment Claim
Count II of plaintiff's complaint alleges that Will assigned to BAII its right to receive the purchase price from BOUSA for the first BOUSA/Will contract. Defendant moves to dismiss Count II on the grounds that the purchase price was actually payable to Will and that BOUSA never received adequate notice of the assignment.
Under New York law, an assignment is valid only where the assignor retains no control over the funds, no authority to collect and no power to revoke. In Re Knowlton's Will, 208 Misc. 454, 143 N.Y.S.2d 111, 120 (Sur.Ct.1955). Accord Miller v. Wells Fargo, 540 F.2d at 558. The use of the word "assign" is not essential to effect a valid assignment. In Re Boissevain's Estate, 40 Misc. 2d 237, 243 N.Y.S.2d 36, 43 (Sur.Ct.1963). Indeed, "any act or words are sufficient which show an intention of transferring the chose in action to the assignee, when the assignor is divested of all control and right to cause of action and the assignee is entitled to control it and receive its fruits." Advance Trading Corp. v. Nydegger & Co. Inc., 127 N.Y.S.2d 800, 801 (Sup.Ct.1953).
The thrust of defendant's argument is that because BAII would have credited any payment from BOUSA to Will's account, Will would have retained control over the payments. Defendant argues further that any consequences arising from the arrangement between plaintiff and Will for use of the funds would necessarily have transpired after Will's account was credited. As the Court concluded above, however, a factfinder could find that under the circumstances of this case payment to Will's account would have constituted payment to BAII or at the least constituted a fund over which BAII had control. It follows *1418 that a factfinder could find that BAII would have exercised control over the funds even if they had been credited to Will's account.
Defendant directs the Court to Miller v. Wells Fargo, 540 F.2d at 557-560, which it contends stands for the proposition that crediting the repayment of a loan to the purported assignor's account is proof that no assignment took place. In Miller a bankrupt borrower used the proceeds of a loan to complete a complicated foreign exchange arbitrage transaction, which involved the purchase of Swiss Francs, the depositing of those Francs in a time deposit account in a European bank, and the repurchase of those Francs by a Swiss bank six months later. The lender, who was repaid out of the proceeds of the sale of the Swiss Francs, claimed that the repayment was not a voidable preference in the bankruptcy context because the choses in action had been assigned to it. While it did consider the fact that the Swiss bank had transferred the proceeds back to the borrower's account at the lender in deciding that the borrower had not divested itself of all control of the funds, id. at 559, the Second Circuit's decision rested on a number of factors not present in this case. In Miller the other banks were never told of the lender's purported interest in the funds, and the borrower's access to the funds was not restricted in any way until the funds reached the lender. In fact, it was the borrower itself that had to instruct that the Francs at the European Bank be transferred to the Swiss Bank and that the dollars from the Swiss Bank be transferred to the borrower's account at the lender. Here, in contrast, a factfinder could find that the funds for repayment of the BOUSA/Will contract were never intended to come under Will's control.
That the funds were to be transferred to Will's account at BAII does not by itself indicate that Will would not have divested itself of all control over the funds. As the Fifth Circuit has held in analogous circumstances,[2] "merely simultaneous bookkeeping entries reflecting the credit and debit to the [borrower's] account" do not create a "magic moment." Coral Petroleum, Inc. v. Banque Paribas-London, 797 F.2d 1351, 1360 (5th Cir.1986). Under circumstances such as those which exist in this case, the bank continues to have "actual and lawful control" over the money in the borrower's account. Id. at 1361. As a result, a factfinder could reasonably find that the parties intended for Will to divest itself of all control over the funds.
Defendant also claims that BOUSA never received legally adequate notice of the assignment. Notice of an assignment is effective under the applicable provision of the Uniform Commercial Code when the debtor receives notice that the funds have been assigned and that payment is to be made to the assignee. Estate of Haas v. Metro-Goldwyn-Mayer, Inc., 617 F.2d 1136, 1139 (5th Cir.1980). The New York Uniform Commercial Code states that a person has "notice" of a fact when:
(a) he has actual knowledge of it; or
(b) he has received a notice or notification of it; or
(c) from all the facts and circumstances known to him at the time in question he has reason to know that it exists.
N.Y. Uniform Commerical Code § 1-201 (McKinney 1964). See also Robert Parker's Truck & Trailer Repair, Inc. v. Speer, 722 S.W.2d 45, 48 (Tex.Ct.App.1986) ("`Actual notice' embraces those things that a reasonably diligent inquiry and exercise of the means of information at hand would have disclosed.") A debtor's general knowledge that the creditor uses a specific bank for financing is not sufficient to constitute notice. Banque De Paris Et Des Pays-Bas v. Amoco Oil Co., 573 F. Supp. 1464, 1472 (S.D.N.Y.1983).
Plaintiff claims that the payment clause in the BOUSA/Will contract and the *1419 request by Will to send the December 16 telex, against the background of general industry practice and custom, provided adequate notice to BOUSA. The Court has already concluded that under the circumstances, and especially in light of the nature of the BOUSA/Will transaction, the "designated bank" in the payment clause could have referred to BAII. Moreover, the request to send the telex identified BAII specifically and required BOUSA to make a commitment to BAII, alerting BOUSA of something more than the fact that Will generally used BAII for financing. Finally, based on BAII's representation about the general practices and customs in the industry, a factfinder could find that BOUSA committed itself to forward payment to BAII and that it knew that BAII planned to exercise full control over the funds.
C. Contract Claim
In Count III plaintiff alleges that in reliance upon Will's representation that the purchase/payment confirmation would be forthcoming, it loaned Will the money to buy the pentane from ARCO. Plaintiff also claims that it relied upon BOUSA's promise in the purchase/payment confirmation to advise a letter of credit in favor of Will through BAII by "continuing to carry and extend new loans to Will at an increased level corresponding to [BOUSA's] commitment." Complaint at 21. In essence, plaintiff maintains that these representations constituted an enforceable promise by BOUSA to pay plaintiff, and that plaintiff suffered an injury by relying upon that promise.
To be enforceable, a contract must be supported by valid consideration. Under New York law, consideration can be either benefit to promisor or loss or detriment to promisee. Morgan Guar. Trust Co. of N.Y. v. Metcalf, 28 Misc. 2d 1057, 214 N.Y.S.2d 77, 79 (Sup.Ct.1961). It can also be understood as a bargained for exchange. In other words, "[t]he promise and the consideration must purport to be motive each for the other, in whole or at least in part; it is not enough that the promise induces the detriment or that the detriment induces the promise if the other half is wanting...." Tuition Plan, Inc. v. Zicari, 70 Misc. 2d 918, 335 N.Y.S.2d 95, 100 (Dist.Ct.1972). See also 1 S. Williston, A Treatise on the Law of Contracts § 142 (3d ed. 1957) ("Consideration, by its very definition, must be given in exchange for the promise, or at least in reliance upon the promise. Accordingly, something which has been given ... without reference to [the promise], cannot, properly speaking, be legal consideration.")
Plaintiff argues that BOUSA agreed to advise the letter of credit through BAII to induce plaintiff's extension of credit to Will, "thereby facilitating [BOUSA's] own dealings with Will and the receipt of the profits which [BOUSA] anticipated would flow to [BOUSA] as a result of those dealings." Complaint at 21. However, a factfinder could not find that BAII's extension of credit to Will, its detriment, was BOUSA's motive for promising to advise a letter of credit through BAII. In other words, BOUSA's promise cannot be said to have been induced by the detriment BAII agreed to incur. Nor can it be said that the detriment was bargained for by BOUSA and BAII. As plaintiff itself concedes, BOUSA's motive in the transaction was to receive the difference between the prices of the sale and resale of the gasoline from Will as compensation for accepting the responsibilities of a buyer in the transaction. Plaintiff offers no evidence to suggest that payment of this compensation was dependent upon plaintiff actually extending credit to Will. In fact, the text of the BOUSA/Will contract makes no reference to any loan from BAII and it would appear that the agreement would have been enforceable whether or not BAII loaned the money to Will.
Plaintiff also claims that even if there was no bargained for consideration, BOUSA's promise is enforceable under the doctrine of promissory estoppel. Under New York law, the elements of promissory estoppel are: "a clear and unambiguous promise; a reasonable and foreseeable reliance by the party to whom the promise is *1420 made; and an injury sustained by the party asserting the estoppel by reason of his reliance...." Ripple's of Clearview, Inc. v. Le Havre Assocs, 88 A.D.2d 120, 452 N.Y.S.2d 447, 449 (2d Dep't), appeal denied, 57 N.Y.2d 609, 456 N.Y.S.2d 1026, 442 N.E.2d 1277 (1982). A "substantial change in position" by the promisee in reliance upon the promise is required, Schmidt v. McKay, 555 F.2d 30, 36 (2d Cir.1977), and action taken in expectation of a promise does not satisfy the reliance requirement. R.G. Group, Inc. v. Horn & Hardart Co., 751 F.2d 69, 79 (2d Cir.1984). Accord Armored Motor Serv. of Am., Inc. v. First Fed. Sav. and Loan Ass'n of Rochester, 138 A.D.2d 954, 526 N.Y.S.2d 287, 288 (4th Dep't 1988).
Plaintiff alleges that "believing that [BOUSA's] purchase/payment confirmation was in the process or about to be sent," it paid the money to ARCO for Will's purchase. The evidence indicates that BAII instructed its New York correspondent to transfer the money to ARCO at 12:50 pm on December 16, 1985. Although BAII claims that Will had advised BAII that the written purchase/payment confirmation from BOUSA could be expected, BOUSA actually sent the confirmation to BAII at 2:51 pm, two hours and one minute after BAII had paid ARCO. In the actions it took before 2:51 pm, BAII was relying upon the expectation of BOUSA's promise. Under these circumstances, there was no clear and unambiguous promise from BOUSA and BAII's reliance was neither reasonable nor foreseeable. To the extent that BOUSA had promised Will that it would make a commitment to BAII before 2:51 pm, only Will could have enforced that promise. Therefore, plaintiff cannot recover under Count III for injuries incurred before its receipt of BOUSA's 2:51 pm telex because BOUSA's promise to advise a letter of credit through BAII only became enforceable under the doctrine of promissory estoppel when BOUSA communicated it to plaintiff.
Plaintiff also claims that after it received the telex containing the promise, it continued to carry and extend new loans to Will at an increased level, incurring "additional" injury in reliance upon the promise. Complaint at 21. In its purchase/payment confirmation, BOUSA "agree[d] to advise such letter of credit through [BAII]." A factfinder could find that this constituted a clear and unambiguous promise. Moreover, the act of sending the text to BAII could be seen as a deliberate communication of the promise to BAII. BAII's willingness to continue to carry and extend new loans to Will after the telex was received can be seen as reasonable and foreseeable reliance upon the promise.
Defendant argues that any promise it made is void under New York's statute of frauds because it would have been a promise to answer for the debt of another. Under New York General Obligation Law,
[e]very agreement, promise or undertaking is void, unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, or by his lawful agent, if such agreement, promise or undertaking: ...
2. Is a special promise to answer for the debt, default or miscarriage of another person; ...
N.Y. General Obligation Law § 5-701a (McKinney 1989). According to defendant, Will was the primary debtor and BOUSA's promise, as characterized by plaintiff, was to pay Will's debt. Defendant bases its argument on the allegation in plaintiff's complaint that BAII wanted the payment in order to protect its right to repayment for its extensions of credit to Will.
In reality, however, BOUSA's promise was to pay the purchase price of the gasoline to BAII, a different and separate sum from the loans extended to Will by BAII. BAII evidently did intend, if need be, to deduct the amount of its loan from the payment that came from BOUSA, and Will may never have actually received any of the money, but there is no indication that the amounts were correlated or interdependent in any way. The case which defendant cites, Waddell v. Greenhall, 6 N.Y.S. 267 (1st Dep't 1889), is easily distinguishable. In Waddell, cigar dealers promised a bank that they would pay the amount of *1421 the checks drawn against them by a cigar manufacturer in return for the bank extending a loan to the manufacturer. Each check was a debt incurred by the manufacturer and the dealers had agreed to repay those particular debts. In this case, only if BOUSA had communicated to BAII a promise to pay back the actual sum of the ARCO loan in return for BAII extending credit to Will would Waddell apply.
D. Fraud Claim
Count IV of plaintiff's complaint alleges a cause of action based on fraud. According to plaintiff, it's interest in the transaction was finding a genuine buyer for Will's gasoline from whom payment would be guaranteed. Plaintiff also asserts that it was unaware of the agreement between BOUSA and Will for repurchase of the gasoline (the second BOUSA/Will contract). As the second BOUSA/Will contract makes clear, BOUSA may have had no intention of posting a letter of credit or paying the full purchase price, but instead may have planned from the beginning to offset payment against Will's debt under the repurchase agreement after a book transfer of the gasoline. Plaintiff alleges that the purchase/payment confirmation from BOUSA was intended by its very nature to represent that a genuine purchase was to take place and was also purposefully worded to mislead BAII. Defendant seeks to dismiss Count IV on the grounds that it asserts multiple theories of liability, is redundant, does not state a cause of action for fraud and fails to establish reliance.
Defendant contends that because Count IV incorporates by reference the allegations made in the earlier counts, it impermissibly asserts multiple theories of recovery. While courts have held that plaintiff may not assert two theories of liability in the same claim, see East River Sav. Bank v. Secretary of Hous. and Urban Dev., 702 F. Supp. 448, 459 (S.D.N.Y.1988); Donahue v. Pendleton Woolen Mills, Inc., 633 F. Supp. 1423, 1443-44 (S.D.N.Y.1986), plaintiff has alleged a separate fraud claim in Count IV which appears nowhere else in the complaint and has only incorporated the facts stated in the other claims by reference. Defendant does not suggest that there is anything particularly confusing about plaintiff's presentation of his claims, and a mechanical application of the rule precluding the assertion of multiple theories of liability in one count would serve no purpose in this case.
Defendant also claims that plaintiff's fraud claim is merely a repetition of its contract claim and therefore redundant. A claim for fraud will be dismissed when "the only fraud charged relates to a breach of contract." Trusthouse Forte v. Garden City Hotel, Inc., 106 A.D.2d 271, 483 N.Y. S.2d 216, 218 (1st Dep't 1984); Brick v. Cohn-Hall-Marx Co., 276 N.Y. 259, 263-64, 11 N.E.2d 902 (1937). The inclusion of allegations of intent and/or concealment in the complaint "does not change the nature of the action ... from an action upon contract to an action upon fraud." Calamel v. Ridge View Realty Corp., 115 A.D.2d 279, 496 N.Y.S.2d 154, 155 (4th Dep't 1985), appeal dismissed, 67 N.Y.2d 799, 501 N.Y. S.2d 324, 492 N.E.2d 397 (1986). In this case, however, plaintiff is alleging that BOUSA not only did not intend to keep the promise it made but also effectively misrepresented the nature of the BOUSA/Will transaction to BAII in exchange for compensation from Will. BOUSA's alleged fraud interfered with the business relationship between Will and BAII, causing injury to a relationship wholly outside any contract between BAII and BOUSA. While BOUSA's conduct might also have breached an agreement between BOUSA and BAII had this Court found one, it would have been of concern to BAII whether or not a contract existed. Compare Vista Co. v. Columbia Pictures Industries, Inc., 725 F. Supp. 1286 (S.D.N.Y.1989) (WESTLAW, DCT file) (while conduct which breached contract may have been sufficient to establish fraud, only important to plaintiff because of impact on benefits derived from contract). Therefore, the Court finds that plaintiff's fraud claim is not redundant.
Defendant also challenges whether its conduct could be found to constitute fraud. *1422 According to defendant, the December 13, 1985 contract stated that the gasoline could have been deliverable "by barge or by book transfer" and the possibility of a book transfer should have alerted BAII that BOUSA's payment might be "netted out" and never reach BAII. Defendant argues further that its December 16, 1985 purchase/payment confirmation, which said that BOUSA would post a letter of credit "prior to lifting of this product," should be read to mean that a letter of credit would be posted if the product was actually delivered and not if a book transfer and net out took place.
Of course, plaintiff presents an alternative explanation for these terms. It is undisputed that BOUSA, when it made these representations, had already concluded a repurchase agreement with Will. It follows that BOUSA might never have really intended to make full payment for gasoline. According to plaintiff, "book transfer," as it is understood in the industry, still contemplated that full payment or posting of letters of credit would take place. Even if book transfer and a netting out had been anticipated on December 13, 1985, however, the December 16, 1985 purchase/payment confirmation can be read as an unambiguous representation that "lifting" (delivery) of the product would take place. Even BOUSA's own operations manager acknowledged that the term "prior to lifting" would not be used when a book transfer and netting out were still contemplated.
Under New York law, a statement in a business transaction which, "while stating a truth so far as it goes, the maker knows or believes to be materially misleading because of his failure to state qualifying matter is a fraudulent misrepresentation." Sheridan Drive-In, Inc. v. New York, 16 A.D.2d 400, 228 N.Y.S.2d 576, 585 (4th Dep't 1962) (quoting Restatement (Second) of Torts, § 529 (1977)). A factfinder, after accepting BAII's allegations that BOUSA knew the purpose of the BOUSA/Will contracts was for Will to receive credit from BAII, could determine from the existence of the second BOUSA/Will contract and from BOUSA's failure to disclose its existence to BAII that BOUSA never intended to post any letter of credit and that the December 16 purchase/payment confirmation, if not the entire transaction, was calculated to mislead BAII.
Finally, defendant argues that plaintiff cannot demonstrate that it relied on BOUSA's purported misrepresentation. Plaintiff alleges that in reliance upon BOUSA's misrepresentation, it "accepted the contract and defendant's assurances as sound security for its loans to Will, ... [and] continued to carry the loan and extend new credit to Will and to carry large amounts of Will inventory in transit and in storage." Complaint at 23. The Court does not read this passage in plaintiff's complaint as seeking damages for loans extended before 2:51 pm on December 16, 1985, the time at which BOUSA sent the purchase/payment confirmation which contained the alleged misrepresentation. Since plaintiff does not allege that it relied upon the alleged misrepresentation in extending the ARCO loan to Will, the Court need not consider whether plaintiff could recover damages arising from that loan under its fraud claim. Plaintiff can claim, however, that its reliance upon defendant's misrepresentation after its receipt of the purchase/payment confirmation was reasonable and foreseeable. Defendant offers other objections to what plaintiff seeks to recover, but these objections address the appropriate amount of damages, a factual question that should be resolved at trial.
E. Fraudulent Conveyance Claim
Count V of plaintiff's complaint alleges that by permitting Will to net out the payments due under the first BOUSA/Will contract and the amount owed by Will under the second BOUSA/Will contract, Will fraudulently conveyed BOUSA's contractual obligation to pay BAII in order to "extricate [BOUSA] from Will's impending collapse." Complaint at 28. More specifically, plaintiff alleges that Will effected a fraudulent conveyance by freeing BOUSA from its burdensome obligation to pay BAII in exchange for the cancellation of its own virtually worthless unsecured obligation *1423 to pay BOUSA the contract price under the repurchase agreement. Defendant seeks summary judgment on several grounds that have already been dealt with by the Court. However, defendant also argues that New York Debtor and Creditor Law permitted Will to set-off the amounts it owed BOUSA against the amounts due under the first BOUSA/Will contract, that plaintiff is precluded by the Bankruptcy Court order from pursuing this claim, and that BAII has not pled fraud with sufficient particularity.
While New York Debtor and Creditor law does permit a debtor to set-off its own debt against an amount owed to it by the creditor, N.Y. Debtor and Creditor Law § 151 (McKinney 1989), BOUSA's promise to pay BAII could be found to have been a waiver of that right. Moreover, at least in the context of bankruptcy law, courts when passing upon set-offs will look at the interest a third party has in the property which is being set-off. See e.g. In re Multiponics, Inc., 622 F.2d 725 (5th Cir.1980). Finally, it is doubtful that § 151 could authorize a set-off which effected a fraudulent conveyance in any event.
Defendant also characterizes the set-off as a legitimate preference for one creditor over another. Absent fraudulent intent, a debtor is entitled to transfer an antecedent debt even if that transfer prefers one creditor over another. Atlanta Shipping Corp., Inc. v. Chemical Bank, 631 F. Supp. 335, 346-47 (S.D.N.Y.1986), aff'd, 818 F.2d 240 (1987). Nevertheless, a debtor is clearly not permitted to prefer a party with whom it perpetrated a fraud over an authentic creditor who was also the victim of the fraud. In order to evaluate the conveyance at issue here, the Court must cut through the form of the transaction and look at its substance. The essence of the transaction, as described by BAII, was for Will to pay BOUSA to pose as a legitimate buyer so BAII would extend credit to Will.[3] Once it had duly sent the purchase/payment confirmation to BAII, BOUSA no doubt expected to get paid, and the set-off can be seen as an effort to pay BOUSA and prevent BAII from receiving any payment. If the transaction is viewed as plaintiff suggests, it was clearly fraudulent, and BOUSA, having knowingly participated, would hardly be a good faith creditor whom Will could prefer over the victim of the fraud. Under New York Debtor and Creditor Law, a conveyance made with "actual intent ... to hinder, delay, or defraud" creditors is fraudulent, N.Y. Debtor and Creditor Law § 276 (McKinney 1945), and the creditor may have the conveyance set aside or annulled to the extent necessary to satisfy his claim. Id. at § 278.
The Bankruptcy Court Order to which defendant refers prevents plaintiff from pursuing an avoidance action pursuant to §§ 547 & 548 of the Bankruptcy Code. However, the order expressly permits plaintiff to pursue precisely the type of state law fraudulent conveyance claim it now asserts. The Court also finds no basis for concluding that the Bankruptcy Court order prevents plaintiff from raising principles of bankruptcy law to support its claim under New York Debtor and Creditor Law.
The Court finds no merit to defendant's allegation that fraud was not pled with particularity. Plaintiff has alleged what actions were taken, when they were taken, the motives for taking them and how they were fraudulent. Defendants have clearly been given sufficient notice of what they are charged with. Goldman v. Belden, 754 F.2d 1059, 1070 (2d Cir.1985).
F. Motion to Strike or Disregard
Defendant offers a number of objections to the content of plaintiff's exhibits, affidavits and pleadings. Most of these objections go to the weight of the evidence. For the purposes of this motion alone, the Court also finds no basis for defendant's objections based on foundation or admissibility.
*1424 G. Sanctions
Defendant also moves for sanctions under Fed.R.Civ.P. 11. The Court does not find any basis for concluding that "a pleading has been interposed for any improper purpose, or ... after reasonable inquiry, a competent attorney could not form a reasonable belief that the pleading is well grounded in fact." Eastway Constr. Corp v. New York, 762 F.2d 243, 254 (2nd Cir. 1985).
III. Conclusion
Defendant's motion for summary judgment with respect to Counts I, II, IV, V is denied. Defendant's motion for summary judgment on Count III, the breach of contract claim, is granted to the extent that plaintiff seeks damages for injuries incurred before its receipt of BOUSA's 2:51 pm telex because BOUSA's promise to BAII to advise a letter of credit through BAII only became enforceable when it was actually communicated to BAII. Defendant's motions to strike and for sanctions are denied.
SO ORDERED.
NOTES
[1] For the sake of simplicity, all times referred to in this opinion will be Eastern Standard Time, though this is not meant to suggest that all the relevant events took place in New York.
[2] While Coral Petroleum involved a voidable preference claim against a lender which had repaid itself from funds deposited in the lender before the borrower declared bankruptcy and not a claim that the funds had been assigned to the lender, the issue before the Court was also the degree of the borrower's control over the funds.
[3] It should be noted that nowhere does defendant offer an alternative explanation for this transaction. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1809600/ | 89 B.R. 538 (1988)
In re SIMPLIFIED INFORMATION SYSTEMS, INC., a/k/a SIS, Debtor.
SIMPLIFIED INFORMATION SYSTEMS, INC., a/k/a SIS, Plaintiff,
v.
Dennis R. CANNON and Robert J. Barthalow, Defendants.
Dennis R. CANNON, Plaintiff,
v.
Robert J. BARTHALOW, Defendant.
Bankruptcy No. 85-1222, Adv. Nos. 85-463, 87-245.
United States District Court, W.D. Pennsylvania.
May 11, 1988.
*539 Bernhard Schaffler, Schaffler & Bohm, Pittsburgh, Pa., for plaintiff/debtor.
Bart J. Tyson, Pittsburgh, Pa., for defendant/Cannon.
Donald J. Barley, Pittsburgh, Pa., for defendant/Barthalow.
ORDER OF COURT
GERALD J. WEBER, District Judge.
AND NOW at Pittsburgh in said District this 11th day of May, 1988, in accordance with the FINDINGS OF FACT and CONCLUSIONS OF LAW executed Mar 14, 1988 it is hereby ORDERED, ADJUDGED and DECREED that Plaintiff Cannon's Complaint be and is hereby DISMISSED on all counts.
United States Bankruptcy Court Western District of Pennsylvania
MEMORANDUM OPINION
BERNARD MARKOVITZ, Bankruptcy Judge.
Before the Court are two (2) adversary proceedings consolidated for trial: 1) Debtor's Complaint to Determine Property of the Estate, and 2) Cannon's Complaint for Judgment against Robert J. Barthalow ("Barthalow"), Debtor's President. In the first action the Debtor asserts that the asset in question, computer software, is property of the Debtor's estate. Cannon challenges that assertion and claims ownership of same. He further contends that the property was only in Debtor's possession as a result of an exclusive licensing agreement. In the second adversary proceeding Cannon accuses Barthalow of breaching his fiduciary duties as a corporate director, wasting corporate assets, and using the corporation as his alter ego. Barthalow challenges Cannon's claims, asserting that he and the Debtor are separate entities, and that in his official capacity, he has exercised care and diligence in the performance of his duties.
Trial was held on February 18, 1988, at which time testimony was heard. Based upon same, and this Court's own research, we find that the computer software constitutes property of the estate. We further find that Cannon's Complaint should be dismissed, as the evidence is woefully insufficient to support the allegations.
*540 JURISDICTION
Cannon originally disputed this Court's jurisdiction to hear this case. At hearing it was determined that Cannon did not in fact contest this Court's jurisdiction to hear the issues, but rather, questioned whether these issues constitute core proceedings, allowing this Court to enter final judgment; or related proceedings requiring this Court to submit Findings of Fact, Conclusions of Law and a Proposed Order to the District Court for final adjudication. Initially, we note that the question of jurisdiction was determined, at least inferentially, by the District Court, when it granted Defendant's application for removal from state court and referral to the Bankruptcy Court.
This Court has previously discussed jurisdiction in substantial detail, In re Allegheny Inc., 68 B.R. 183 (Bankr.W.D.Pa. 1986). Our previous determinations include the following distinction between core and related matters:
. . . core matters are those which either involve a statutorily-created bankruptcy cause of action, such as recovery of preferential transfers and avoidance of liens; or are required for the orderly reorganization of the debtor-creditor relationship, such as turnover actions and determinations of secured status. Related proceedings, on the other hand, are present whenever
. . . [t]he outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy . . . if the outcome could alter the debtor's rights, liabilities, options or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankruptcy estate. In re Bobroff, 766 F.2d 797, 802 (3rd Cir. 1985) quoting Pacor Inc. v. Higgins, 743 F.2d 984, 994 (3rd Cir.1984).
In re Yobe, 75 B.R. 873, 875-76 (Bankr.W.D. Pa.1987).
Having this background against which to measure the present issues, we find that the determination as to whether the computer software is property of the estate constitutes a core matter; the remaining issues, raised by Cannon, i.e. alter ego, breach of fiduciary duty, and corporate waste, are related proceedings. While Cannon's Complaint does not involve a bankruptcy cause of action, clearly the outcome affects the administration of Debtor's estate. Had Cannon succeeded on these claims, and had Barthalow been held jointly and severally liable with the corporation, substantial funds would have been saved for the benefit of other creditors of the estate.
FACTS
Robert J. Barthalow ("Barthalow") and Dennis R. Cannon ("Cannon") were employees of Control Data Corporation: Barthalow as a financial manager and engineer; and Cannon as a software developer. Nedra Barthalow, Robert's wife ("Nedra"), was employed as a computer consultant and medical records specialist for various health related companies.
Early in 1981 Barthalow approached Cannon with an idea to create and sell computer-based billing/charting systems for use in physicians' offices. The parties met several times to discuss incorporating for this purpose. Concurrently with these discussions, Cannon's position with Control Data was eliminated. Since this radically changed his financial picture, Cannon insisted that if he agreed to this venture, he be permitted to devote time to pursuing other, more immediately lucrative computer opportunities.
The Debtor was incorporated on April 22, 1981. Barthalow and Nedra owned 50% of the corporation and Cannon owned the other 50%. In consideration for such shares, the Barthalows contributed $10,000.00, and Cannon contributed $5,000.00 and an Apple Computer and Printer, with an estimated value of $5,000.00.
On May 29, 1981, two employment contracts were executed: one between the Debtor and Barthalow; the other between the Debtor and Cannon. These contracts were identical, other than the titles bestowed upon the parties: Barthalow as Associate Executive Director, and Cannon as Executive Director. Neither contract contained *541 an explicit "job description"; they stated only that Barthalow and Cannon were to devote their ". . . full and exclusive time and attention and [their] best efforts to the discharge of [their] duties . . ." Plaintiff's Exhibits 2A and 2B.[1] Barthalow and Cannon testified as to what their specific jobs included:
1) Barthalow was to raise capital by locating investors, and to sell the computer hardware and software packages to physicians.[2]
2) Cannon was to take the information offered by Nedra, combine it with his specialized computer skills, and create the computer software to perform the necessary functions.
On June 29, 1981 Debtor registered its stock with the Pennsylvania Securities Commission. Its registration, and stock offering memorandum, both executed by its President, Cannon, certify that its business ". . . is to develop a simplified computer system for the medical profession, with emphasis on the single doctor practice, to be operated by personnel without data processing background." Plaintiff's Exhibit 4.[3]
Barthalow was still employed by Control Data Corporation, and began depositing substantial portions of his paychecks into Debtor's checking account for Debtor's use. Between August 1981 and June 1982 those moneys were routinely paid to Cannon, as compensation, while he designed the computer software.[4] Barthalow has never received any salary from the Debtor.
PROPERTY OF THE ESTATE
Debtor has asserted that the computer software, created by Cannon, is property of the estate. Cannon argues that Debtor merely possesses an exclusive license to use the software for the life of the corporation, with reversion to Cannon upon corporate dissolution. Cannon bases this assertion upon his claim that Barthalow and he made an oral contract to that effect.
With the exception of certain factors not presently relevant, property of the estate includes ". . . all legal or equitable interests of the [D]ebtor in property as of the commencement of the case." 11 U.S.C. § 541(a). This also includes both intangible and transitory property. In re Sheppard's Dental Centers Inc., 65 B.R. 274 (Bankr.S. D.Fla.1986); Glosband v. Watts Detective Agency Inc., 21 B.R. 963 (D.Mass.1981). Therefore, software ownership can be property of the estate. However, the parameters of Debtor's interest are determined by state and federal non-bankruptcy law. Butner v. U.S., 440 U.S. 48, 99 S. Ct. 914, 59 L. Ed. 2d 136 (1979); In re Livingston, 804 F.2d 1219 (11th Cir.1986); In re William H. Vaughan & Co. Inc., 52 B.R. 701, affirmed 63 B.R. 438 (E.D.Pa.1986). In the instant case we must turn to federal copyright law in order to determine ownership of the software design.
The right of copyright is statutorily created, and is based upon Article I, § 8, cl. 8 of the U.S. Constitution. M. Kramer Mfg. Co. v. Andrews, 783 F.2d 421 (4th Cir. 1986); Digital Communications Associates, Inc. v. Softklone Distributing Corporation, 659 F. Supp. 449 (N.D.Ga.1987). The Copyright Act of 1976, as amended in 1980, is codified at 17 U.S.C. § 101 et seq. Section 102(a) states in pertinent part:
*542 § 102(a). Copyright protection subsists in accordance with this title, in original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced or otherwise communicated, either directly or with the aid of a machine or device. Works of authorship include the following categories:
(1) literary works; . . .
A computer program is a work of authorship and is classified as a literary work for the purpose of obtaining copyright protection. Whelan Associates Inc. v. Jaslow Dental Laboratory Inc., 797 F.2d 1222 (3rd Cir.) cert. denied, 479 U.S. 1031, 107 S. Ct. 877, 93 L. Ed. 2d 831 (1987); Digital Communications, supra.
Section 201(a) of the Copyright Act states that "[c]opyright in a work . . . vests initially in the author or authors," and, "[i]n the case of a work made for hire, the employer or other person for whom the work was prepared is considered the author . . . [and] owns all of the rights comprised in the copyright" unless otherwise expressly agreed in writing. Community for Creative Non-Violence v. Reid, 652 F. Supp. 1453 (D.D.C.1987); 17 U.S.C. §§ 201(b), 201(d), 204(a). Clearly then, the ownership of the copyright depends upon the identity of the statutory "author", which in turn depends upon whether the "work" is a "work made for hire".
A "work made for hire" is "a work prepared by an employee within the scope of his or her employment . . ." 17 U.S.C. § 101. Under the Copyright Act, one may be an employee without regard to the method of payment, i.e., salary, piecework, royalty, or gratis, Community for Creative Nonviolence, supra; Nimmer on Copyright, § 5.03[B][1][a] (1985). The employer's president may also be considered an employee, Gallery House Inc. v. Yi, 582 F. Supp. 1294 (N.D.Ill.1984). Furthermore, the "work made for hire" doctrine is not avoidable merely by performing the work in a separate location, or on non-work time. Marshall v. Miles Laboratories Inc., 647 F. Supp. 1326 (N.D.Ind.1986).
This doctrine does not prevent the employer and employee from forming an agreement to the contrary; the "work made for hire" doctrine creates a presumption in favor of its validity, which can be rebutted only by express written agreement of the parties. Real Estate Data Inc. v. Sidwell Co., 809 F.2d 366 (7th Cir. 1987); Moran v. London Records Ltd., 642 F. Supp. 1023 (N.D.Ill.1986), affirmed 827 F.2d 180 (7th Cir.1987).
In the case at bar, Cannon's claim to the software cannot be sustained. The whole purpose for the corporation's formation was the creation and marketing of a computer process which would assist doctors' staffs in their various clerical duties, such as scheduling, charting, and billing. The program written by Cannon was intended to perform these functions.
Cannon was the Debtor's President when he wrote the program; that he wrote it during "off" hours, or at his other business facility is not relevant. Cannon's employment contract required him to devote his time and attention, and his best effort ". . . to the discharge of his duties." His duty regarding the corporation was to create this software. From August 1981 to June 1982 Cannon received $400.00 per week, to sustain him and his family while he worked on the program. The Board of Directors even consented to his outside employment, so long as it did not interfere with the Debtor's business purpose the development and marketing of the software for use in physicians' offices.
Cannon asserts that an oral agreement to the contrary was reached, creating authorship in Cannon, and an exclusive licensure with the Debtor; however, the Copyright Act requires a written agreement between the parties in order to rebut the "work for hire" presumption. There exists no such agreement in this case. To the contrary, the credible evidence presented leads to the conclusion that this software constitutes "work made for hire". As such, the statutory authorship of same goes to the Debtor corporation. Therefore, upon the filing of the bankruptcy petition, *543 said software became and is property of the Debtor's estate.
CANNON'S COMPLAINT
Because the Plaintiff in this adversary proceeding does not consent to this Court's entry of final judgment on these related matters, we submit the following Proposed Findings of Fact and Conclusions of Law. The aforesaid "Facts" are incorporated herein by reference with the same effect as if said "Facts" were set forth at length.
FINDINGS OF FACT
1) Plaintiff, Dennis R. Cannon ("Cannon"), was the President of the Debtor corporation from April 1981 until June 1983, and he served as Vice President from June 1983 until his resignation in January 1985.
2) Defendant, Robert J. Barthalow ("Barthalow"), was the Vice President of the Debtor corporation from April 1981 until June 1983, and he has served as President since June 1983.
3) Cannon and Barthalow formed the Debtor to develop and market computer software; Debtor's Offering Memorandum, executed by Cannon as President, states that the business of the company is ". . . to develop a simplified computer system for the medical profession, with emphasis on the single doctor practice, to be operated by personnel without data processing background."
4) Debtor's initial business address was Barthalow's residence. Thereafter, Debtor leased office space and changed said address. Debtor's bank statements continued to be mailed to Barthalow's home; however, all corporate checks and records were kept at Debtor's office.
5) Barthalow's job was to raise capital by locating investors, and to market the completed computer system to practicing physicians.
6) Cannon's job was to create the computer software.
7) Cannon conditioned his involvement in the corporation upon the Debtor's acquiescence to his employment in computer programming outside the corporation. The Board of Directors consented, provided he did not directly compete. Cannon then created CDR Systems, Inc.
8) Barthalow has never received any compensation from the Debtor.
9) In August 1981, Cannon received $2,000.00 in compensation from the Debtor. Thereafter, through the middle of June 1982, Cannon received compensation of $400.00 per week, totaling $12,800.00. These funds were received from moneys deposited by Barthalow, and represent Barthalow's wages from his employment at Control Data Corporation.
10) Between January 1983 and April 1983, Cannon's other business, CDR Systems, Inc., received $4,620.00 for programming services to the Debtor.[5]
11) Between October 1982 and February 1985, Debtor paid CDR Systems, Inc. $30,416.40 for computer hardware and repairs.
12) During the corporation's existence Barthalow has made several loans to the Debtor to keep it operational. To date, none of those funds, totaling over $24,000.00, have been repaid.
13) The first sale of the computer system occurred in December 1982. The sale price was $36,920.00, but was reduced $3,000.00 based upon the physician's willingness to be a "guinea pig" for this prototype system.
14) Substantial problems appeared in the software after it was installed and operating. Over many months of correspondence the Purchaser and his staff questioned, complained, and threatened legal action.
15) Concurrent with said installation, it became apparent that Cannon was spending the majority of his time and effort on *544 his private computer business, and worked on Debtor's business only sporadically.
16) By 1983 Cannon had essentially ceased his creative involvement; however, the program was still malfunctioning. As a result Debtor found it necessary to hire independent contractors to solve the problems.
17) A second, slightly different prototype system was sold to another doctor in June 1984, again being offered at the $3,000.00 discount.
18) In June 1981, registration was made to the State of Pennsylvania in order for Debtor's stocks to be publicly sold.
19) Barthalow attracted a few small investors, primarily physicians interested in the project.
20) Hesitation by the investors to inject further capital or to encourage other financial backing is traceable to problems with the two original installations.
21) At this juncture Barthalow and Cannon "switched chairs", making Barthalow Debtor's President. Both parties believed that investors would more readily deal with Barthalow if he had the title; practically speaking, the change created no substantial changes.
22) In mid-1983, by vote of the Board of Directors, Cannon was removed as a signatory to the corporate bank account.
23) In October 1983, Barthalow prepared an updated business plan for circulation to perspective investors. Few, if any dollars were realized by this effort.
24) Barthalow's search for capital did realize two (2) small grants to continue the development.
25) Barthalow was advised by Debtor's accountant that another of his client's ("Econocast") was in the business of raising venture capital.
26) Barthalow met with a representative of Econocast, who presented a proposal for the Debtor's capitalization in the form of a public stock offering. Econocast sought a retainer of $25,000.00; however, Barthalow advised that the corporation could only pay $10,000.00 with a note for the remainder. This proposal was circulated to all directors, including Cannon, and was also reviewed by the Debtor's attorney and accountant.
27) A meeting of the Board of Directors was held in October 1984, at which time the proposal was discussed. The Directors voted to accept the proposal. Cannon was present and cast an affirmative vote.
28) In January 1985, Cannon resigned all of his official capacities, retaining only his stock holdings.
29) In May 1985, upon resolution of the Debtor's Board of Directors, Debtor filed a voluntary Chapter 11 petition.
CONCLUSIONS OF LAW
1) Pennsylvania law governs issues relating to the internal affairs of the Debtor corporation. Application of state law provides the necessary certainty and predictability of results, and protects the justified expectations of all interested parties. First National City Bank v. Banco Para El Comercio Exterior De Cuba, 462 U.S. 611, 103 S. Ct. 2591, 77 L. Ed. 2d 46 (1983); Davis & Cox v. Summa Corporation, 751 F.2d 1507 (9th Cir.1985); Treco Inc. v. Land of Lincoln Savings and Loan, 749 F.2d 374 (7th Cir.1984).
2) The application of the alter ego theory to pierce the corporate veil should only be used by the Court in specific instances: a) to prevent fraud, illegality or injustice; b) to support a public policy; or c) to expose criminal liability. The burden of proof is on the party seeking to pierce the veil, and must be supported by the facts on the record. The general body of Pennsylvania corporate law holds that the corporate entity should be recognized unless specific, unusual circumstances require an exception be made. To do so, this Court must be convinced that the individual in control of the corporation used that control for an improper purpose, as an abuse of the immunities connected with corporate entities. Carpenters Health and Welfare Fund v. Kenneth R. Ambrose, Inc., 727 F.2d 279 (3rd Cir.1983); Publicker Industries, Inc. v. Roman Ceramics Corporation, 603 F.2d 1065 (3rd Cir.1979); Zubik v. Zubik, *545 384 F.2d 267 (3rd Cir.1967), cert. denied 390 U.S. 988, 88 S. Ct. 1183, 19 L. Ed. 2d 1291 (1968); DuSesoi v. United Refining Company, 540 F. Supp. 1260 (W.D.Pa.1982); American Kitchen Foods, Inc. v. Hersch Cold Storage Company, 435 F. Supp. 1127 (W.D.Pa.1977); In re BDW Associates, Inc., 75 B.R. 909 (Bankr.W.D.Pa.1987); Ashley v. Ashley, 482 Pa. 228, 393 A.2d 637 (1978); College Watercolor Group Inc. v. Newbauer, 468 Pa. 103, 360 A.2d 200 (1976); Sams v. Redevelopment Authority, 431 Pa. 240, 244 A.2d 779 (1968); Gagnon v. Speback, 389 Pa. 17, 131 A.2d 619 (1957).
3) Those factors which have been considered as indications of alter ego include:
a) failure to observe corporate formalities;
b) nonpayment of dividends;
c) siphoning of corporate funds by the dominant stockholder;
d) nonfunctioning of other officers or directors;
e) absence of corporate records;
f) undercapitalization; and
g) insolvency of debtor corporation.
Carpenters Health and Welfare Fund v. Kenneth R. Ambrose, Inc., supra; In re BDW Associates, Inc., supra.
4) There is no cause to pierce the corporate veil between the Debtor and Barthalow. While the corporation was admittedly undercapitalized, and has been periodically insolvent, the clear weight of the evidence shows that all corporate formalities were followed, the officers and directors participated, in the actual business of the Debtor and/or as consultants, and that the only corporate officer or director to receive any of the corporate funds was Cannon himself.
5) Pursuant to Pennsylvania law, officers and directors stand in a fiduciary relationship with the corporation. They are responsible for the proper discharge of their duties in good faith; and must do so with the same degree of diligence, care and skill as that exercised by the ordinarily prudent person in the same or similar circumstances. These officers and directors may bind the corporation by any contract which is within said corporation's express or implied powers, and which they determine is necessary and/or proper to carry out the corporate objectives. In recognition that it is the directors, not the shareholders, who manage the corporation, and that directors must be afforded a wide range of latitude in their handling of corporate business, the courts have developed the "business judgment rule". This rule provides that directors are not liable for honest mistakes of judgment, and presupposes a decision by said directors that is honest and unbiased. Lewis v. Curtis, 671 F.2d 779 (3rd Cir.) cert. denied, 103 S. Ct. 176 (1982); Cramer v. General Telephone Electronics Corporation, 582 F.2d 259 (3rd Cir.) cert. denied, 439 U.S. 1129, 99 S. Ct. 1048, 59 L. Ed. 2d 90 (1979); Higgins v. Shenango Pottery Company, 279 F.2d 46 (3rd Cir.1960); Enterra Corporation v. SGS Associates, 600 F. Supp. 678 (E.D.Pa. 1985); DuSesoi v. United Refining Company, supra; Bellis v. Thal, 373 F. Supp. 120 (E.D.Pa.1974), affirmed 510 F.2d 969 (3rd Cir.1975); In re Anthos Steel and Aluminum Inc., 71 B.R. 525 (Bankr.E.D. Pa.1987); In re Complete Drywall Contracting, Inc., 11 B.R. 697 (Bankr.E.D.Pa. 1981); Wolf v. Fried, 473 Pa. 26, 373 A.2d 734 (1977); Selheimer v. Manganese Corporation of America, 423 Pa. 563, 224 A.2d 634 (1966); 42 Pa.C.S.A. § 8363.
6) Directors and officers of a corporation may be held liable for any loss which the corporation suffers as a result of said officer or director's failure to use reasonable and ordinary skill, care, and diligence in the conduct of corporate business. Cannon bears the burden of proving that Barthalow breached his duty and that his conduct was not in the corporate interest. The burden does not shift to Barthalow to prove the fairness of his actions. To do so would be to require a corporate fiduciary to act as an insurer of corporate profits. Not only must Cannon show that Barthalow breached his fiduciary duty, Cannon must also show that the breach was the proximate cause of Debtor's demise. Bellis v. Thal, supra; Selheimer v. Manganese Corporation of America, supra; Hunt v. *546 Auferheide et. al., 330 Pa. 362, 199 A. 345 (1938).
7) A director's dealings with the corporation are subject to rigorous scrutiny. If his actions are challenged, he must prove good faith and inherent fairness. The test is whether or not under all the circumstances the transaction is handled as if it were an arm's length bargain. Pepper v. Litton, 308 U.S. 295, 60 S. Ct. 238, 84 L. Ed. 281 (1939); Pappas v. Moss, 393 F.2d 865 (3rd Cir.1968); Bellis v. Thal, supra; In re Complete Drywall Contracting, Inc., supra.
8) Barthalow has not breached his fiduciary duty and is not guilty of corporate waste. All testimony provided indicates that Barthalow has made general day-to-day corporate decisions in his capacity as President and that said decisions have been made in good faith. All major decisions, including removal of Cannon from the corporate checking account signature card, and the payment to Econocast, were made on affirmative vote by a majority of the corporate directors. Barthalow has loaned substantial funds to the corporation; said loans are clearly acknowledged on Debtor's financial statements. To date, Barthalow has never received any salary or return on either his loan or his capital investment.
ORDER OF COURT
AND NOW at Pittsburgh in said District this 14th day of March, 1988, in accordance with the foregoing Memorandum Opinion of this same date, it is hereby ORDERED, ADJUDGED and DECREED that the computer software is property of the estate.
NOTES
[1] On June 19, 1981, the Board of Directors issued a Consent to permit Cannon to engage in other business activities, including computer programming, which did not compete with the Debtor's business purposes.
[2] Nedra was to offer her medical expertise, as it pertained to the utility of the program; she was the only one of the three who knew what procedures would be required in physicians' offices. As she was to act as a consultant, rather than an employee, she did not execute an employment agreement.
[3] Debtor indicated its intent to copyright this system at the outset; the pendency of same is noted on both the software and the user's manual.
[4] Anyone interested in a more detailed description of the computer aspects of the case is directed to the seminal opinion on computer software copyright, Whelan Associates Inc. v. Jaslow Dental Laboratory Inc., 797 F.2d 1222 (3rd Cir.1986) which provides a useful introduction to the world of computer software at 1229-31.
[5] While the issue is not presently before this Court, we note that Cannon's receipts of payment for services rendered to the Debtor, through his separate corporation, CDR Systems, Inc., may constitute a violation of his agreement not to compete and in fact may have been payment for services which should have been rendered to the corporation by Cannon as Executive Director. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2182891/ | 146 F. Supp. 926 (1956)
Charles WAGNER and Bridget Wagner, his wife, Plaintiffs,
v.
NEW YORK, ONTARIO AND WESTERN RAILWAY, Defendant.
Civ. A. No. 5364.
United States District Court M. D. Pennsylvania.
November 20, 1956.
*927 James D. Stone, Walter W. O'Hara Carbondale, Pa., for plaintiffs.
Paul Bedford, Wilkes-Barre, Pa., for defendant.
JOHN W. MURPHY, Chief Judge.
In this diversity action plaintiffs seek to recover for property damages and injuries *928 sustained in a grade crossing accident. Pennsylvania law determines the substantive rights and obligations of the parties. Erie R. Co. v. Tompkins, 1938, 304 U.S. 64, at page 78, 58 S. Ct. 817, at page 822, 82 L. Ed. 1188, and see Smith v. Piper Aircraft Corp., D.C.M.D. Pa.1955, 18 F.R.D. 169, at pages 171-175. Suits for personal injuries must be brought within two years; Act of 1895, June 24, P.L. 236, § 2, 12 P.S.Pa. § 34; do, suits by a husband for injuries to his wife. Black v. Eastern Pennsylvania Rys. Co., 1917, 257 Pa. 273, 101 A. 644; six years as to property damages; Act of 1713, March 27, 1 Sm.L. 76, § 1, 12 P.S. § 31.
The complaint named the New York, Ontario and Western Railway, a New York corporation described as "doing business within the jurisdiction as an interstate common carrier" as defendant. A summons was promptly issued and executed by the Marshal "on the New York, Ontario and Western Railway by making service on Mr. J. A. Pfeifer, trainmaster in his office in this district."
Before answer or otherwise pleading defendant moved for dismissal of the complaint; (a) because it was not filed within two years; (b) defendant was not "doing business" within the jurisdiction of this court; (c) the court lacks jurisdiction of the defendant; (d) failure to state a claim upon which relief may be granted.
Where the problem of limitations normally an affirmative defense, Federal Rules of Civil Procedure, Rule 8(c), 28 U.S.C.A. is apparent on the face of the pleadings it may be raised on a motion to dismiss; Di Sabatino v. Mertz, D.C.M.D.Pa.1949, 82 F. Supp. 248; Shandelman v. Schuman, D.C.E.D. Pa.1950, 92 F. Supp. 334; 2 Moore's Fed. Prac. 2d Ed., § 12.10; similarly as to the legal sufficiency of the complaint. In passing upon the motion all well pleaded material allegations are taken as admitted, not conclusions of law or unwarranted deductions of fact. Moore op. cit. supra, Id. § 12.08, p. 2244; Clark v. Uebersee Finanz-Korporation, A.G., 1947, 332 U.S. 480, 482, 68 S. Ct. 174, 92 L. Ed. 88. "No matter how likely it may seem that the pleader will be unable to prove his case, he is entitled, upon averring a claim, to an opportunity to try to prove it." Continental Collieries, Inc., v. Shober, 3 Cir., 1942, 130 F.2d 631, at page 635.[1]
Here the complaint was not filed until two years and two days after the injury. Plaintiffs' brief states that on Friday, the day before, and Saturday, the day on which the two year period expired, they attempted but were unable to file their complaint because the district court had ordered the clerk's office closed temporarily because an extraordinary flood had crippled public utility and other essential facilities in the area. The first day the clerk's office was opened, the complaint was filed and served within two days thereafter.[2] Upon plaintiffs' request, taking judicial notice of our official records, IX Wigmore on Evidence, 3d Ed., § 2579, we find that the clerk's office was closed as indicated. However the attempt to file should be presented by stipulation or affidavit, affording opportunity for denial by opposing counsel.
While the plea of the statute of limitations is a meritorious defense, see cases cited in Carr-Consolidated Biscuit Co. v. Moore, D.C.M.D.Pa.1954, 125 F. Supp. 423, at pages 430-431. "* * * *929 most courts recognize a limited class of exceptions arising from necessity * * The broad rule is laid down that whenever some paramount authority prevents a person from exercising his legal remedy, the time during which he is thus prevented is not to be counted against him in determining whether the statute of limitations has barred his right, even though the statute makes no specific exception in his favor in such cases." 34 Am.Jur. 152, Limitations of Actions, § 187;[3] Hanger v. Abbott, 1867, 6 Wall. 532, at pages 534, 540, 542, 73 U.S. 532, at pages 534, 540, 542, 18 L. Ed. 939; Braun v. Sauerwein, 1869, 10 Wall. 218, at page 222, 77 U.S. 218, at page 222, 19 L. Ed. 895; United States v. Wiley, 1870, 11 Wall. 508, at page 513, 78 U.S. 508, at page 513, 20 L. Ed. 211; Brown v. Hiatts, 1872, 15 Wall. 177, at page 184, 82 U.S. 177, at page 184, 21 L. Ed. 128; Oerlikon Machine Tool Works Buehrle & Co. v. United States, 1952, 102 F. Supp. 417, at pages 420, 421, 121 Ct. Cl. 616; United States v. Lazenby, D.C.N.D.Tex. 1925, 5 F.2d 827, at page 828, and see F.R.C.P. Rule 6(a), Pennsylvania Statutory Construction Act of 1937, May 28, P.L. 1019, Art. III, § 38, 46 P.S. § 538, where the last day is a Sunday or a holiday. Joint Council, etc. v. Delaware, L. & W. R. Co., 2 Cir., 1946, 157 F.2d 417, at page 420, suggests that Rule 6(a) does not apply until an action is commenced and therefore cannot modify a statute of limitations.[4] Cf. however Wilkes v. United States, 5 Cir., 1951, 192 F.2d 128, and see Union National Bank of Wichita, Kan. v. Lamb, 1949, 337 U.S. 38, at pages 40, 41, 69 S. Ct. 911, at page 912, 93 L. Ed. 1190; Sherwood Bros., Inc., v. District of Col., 1940, 72 App.D.C. 155, 113 F.2d 162; McCord v. Commissioner of Int. Rev., 1941, 74 App.D.C. 369, 123 F.2d 164, at page 165, holding that a court or a department "* * * cannot by rules or conduct limit the time or opportunity for filing given by statute." Jacobs Pharmacy Co., Inc., v. United States, D.C.N.D.Ga., 71 F. Supp. 584, 585, "`The rule [6a] does not attempt to change a jurisdictional statute, but merely provides a method of computing the statutory period different from that fixed by judicial decision.'" Wilson v. Southern Ry. Co., 5 Cir., 1945, 147 F.2d 165, at page 166.
The statute was tolled during the emergency. The complaint was filed on time.
Defendant's motion asserts it is a New York corporation; that it was not doing business within this district; inferentially that Mr. Pfeifer was not its trainmaster; that it was not amenable to service (see Shambe v. Delaware & H. R. Co., 1927, 288 Pa. 240, at page 245, 135 A. 755, at page 757; Goodrich-Amram Standard Pennsylvania Practice, Vol. 13, § 11, p. 132, and Pa.Rules of Civil Procedure, § 2179(a) (2) and § 2179-9, § 2179-10; 12 P.S.Appendix); and that the court does not have jurisdiction of the person of the defendant. Defendant's brief states that by decree of the United States District Court for the Southern District of New York, a trustee has been the owner in control and operation of defendant railway since 1937. (See New York Times, October 21, 1956.) See 11 U.S.C.A. § 205, sub. i, Bankruptcy Act. Upon appointment a receiver or trustee comes into possession and is vested with title to the property of the railroad. Isaacs v. Hobbs Tie and Timber Co., 1931, 282 U.S. 734, at page 737, 51 S. Ct. 270, at page 271, 75 L. Ed. 645; Dugan v. Gardner, D.C.S.D.N.Y.1946, 68 F. Supp. 709, 711, "* * * the railroad company, although its corporate existence may not have terminated, cannot be said to have been doing business * * * cannot be held liable * * * for the negligence of * * * employees of *930 its trustee in re-organization. (Detwiler v. Chicago, R. I. and Pac. Ry. Co., D.C.Minn. 1st Div., 15 F. Supp. 541, 542)"; and see Jakubowski v. Central R. Co. of N. J., D.C.1950, 88 F. Supp. 258.
"A receiver appointed by a court of equity to hold, manage, and operate an insolvent railroad is not the agent of the insolvent railroad corporation, and is not a substitute for the board of directors. He is but the hand of the court appointing him, and holds, manages, and operates the property under the orders and directions of the court as its custodian, and not for or under the control of the directors or shareholders of the corporation. His management is for the benefit of those ultimately entitled under decree of the court. His acts are not the acts of the corporation, and his servants are not the agents or servants of the corporation." Memphis & C. R. Co. v. Hoechner, 6 Cir., 1895, 67 F. 456, at page 457.
"If the plaintiff had no cause of action against the * * * Railroad Company * * * a suit against that company would not be a suit against the receivers, and could not operate to stop the running of the statutory limitation in favor of the receivers." Id., 67 F. 459.
"The appointment of receivers * * was an act of such notoriety * * * that all persons have constructive notice. * * * There was no evidence tending to show any concealment of the facts. Public notices were posted * * * if the plaintiff did not know it, it * * * cannot have the legal effect of suspending the statute of limitations affecting his suit, or estop the receivers from relying upon it." Id., 67 F. 459, 460.
Assuming the trusteeship was properly before the court by stipulation, motion for summary judgment and accompanying affidavit, or other competent evidence; piercing the allegations of the complaint, in the absence of a dispute as to a material fact,[5] it would appear that the railroad company was not doing business in this district at the time in question, was not responsible for the conduct of the train crew, was not subject to process herein and is therefore not a party to the record so as to give the court jurisdiction of the person of the defendant.
The trustee, not the railroad company, was the real party in interest. See 11 U.S.C.A. § 205, sub. j.
An examination of the complaint, summons, and return of service indicates plaintiffs' intention to make the railroad company the party defendant. In fact, plaintiffs' brief argues that the railroad company is the proper party defendant, the real party in interest, and that under Pennsylvania law suit must be brought against the corporation qua corporation, citing Pennsylvania Rule of Civil Procedure 2177. In this respect they are obviously in error. Although adequate opportunity was afforded, plaintiffs have not by motion spelled out their theory by moving to amend the complaint and summons, F.R.C.P. 15(a), (c), the return of service, Id. Rule 4(h), or in any manner moved to substitute the trustee as the proper party defendant. Plaintiffs' brief suggests that if necessary an amendment may be made correctly stating the name of the defendant, citing Pennsylvania Rules, supra, 1033, contending that since there is no question of identity or as to the real name of the defendant that would be merely a formal correction which does not introduce a new cause of action or change the parties to the action. They are arguing at cross purposes.
Statutes permitting amendments are to be liberally construed to *931 give effect to their intent, i. e., to prevent a defeat of justice through mere mistake as to parties or form of action. Thus if the proper party is actually in court and the effect of the amendment is to correct the name under which it has been sued, an amendment will be allowed. Wright v. Eureka Tempered Copper Co., 1903, 206 Pa. 274, 55 A. 978. It is well settled however that an amendment which brings in a new party will not be permitted after the statute has run. In re Fitzgerald's Estate, 1916, 252 Pa. 568, at page 572, 97 A. 935, at page 936. See and cf. Bahas v. Wilczek, 1936, 324 Pa. 212, 215, 216, 188 A. 139, 140. "Plaintiff is not seeking to amend under the Act of April 16, 1846, P.L. 353, § 2, 12 P.S. § 532, or the Act of 1852, P.L. 574, 12 P.S. § 533, by changing or correcting the name of the party to the record * * the purpose is to bring in a new party * * * if the wrong party was sued * * * the right one cannot be brought in by amendment * * *." And see Thompson v. Peck, 1935, 320 Pa. 27, at page 30, 181 A. 597, at page 598; Coyne v. Lakeside Elec. Ry. Co., 1910, 227 Pa. 496, 76 A. 224. The same rule applies in federal court. See Sanders v. Metzger, D.C.E.D.Pa.1946, 66 F. Supp. 262, at page 263; Schram v. Poole, 9 Cir., 1938, 97 F.2d 566, at page 572; Davis v. L. L. Cohen & Co., 1925, 268 U.S. 638, at page 642, 45 S. Ct. 633, at page 634, 69 L. Ed. 1129; Lindgren v. United States Shipping Board Merchant Fleet Corp., 4 Cir., 1932, 55 F.2d 117, at page 120; Mellon v. Arkansas Land & Lumber Co., 1928, 275 U.S. 460, 463, 48 S. Ct. 150, 151, 72 L. Ed. 372, "The substitution * * * was not the correction of an error in the name of the defendant, but the bringing in of a different defendant, and was in effect the commencement of a new and independent proceeding * * *." Mellon v. Weiss, 1926, 270 U.S. 565, at pages 567-568, 46 S. Ct. 378, 70 L. Ed. 736; Philadelphia Life Ins. Co. v. Burgess, D.C.E.D.S.C.1927, 18 F.2d 599, at page 604; Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., D.C.Del.1950, 92 F. Supp. 943, at page 947; Kerner v. Rackmill, D.C. M.D.Pa.1953, 111 F. Supp. 150; see and cf. Weldon v. United States, 1 Cir., 1933, 65 F.2d 748, 749; Hammond-Knowlton v. United States, 2 Cir., 1941, 121 F.2d 192, and see Note 8 A.L.R.2d at pages 174, 176.
The principles in themselves relatively simple are obscured by problems which arise in connection with the application thereof to the facts of the individual cases. Do we have here a case of correction of a misnomer or substitution of a new party defendant? As to the impracticability of applying a subjective standard, see Glint Factors, Inc., v. Schnapp, 2 Cir., 1942, 126 F.2d 207, at pages 209, 210; Professor Moore, Vol. II, op. cit. supra, § 4.44, p. 1042, suggests that "the test should be whether, on the basis of an objective standard, it is reasonable to conclude that plaintiff had in mind a particular entity or person, merely made a mistake as to the name, and actually served the person or entity intended; or whether plaintiff actually meant to serve and sue a different person." And see Grandey v. Pacific Indemnity Co., 5 Cir., 1954, 217 F.2d 27, at page 29. See United States v. A. H. Fischer Lumber Co., 4 Cir., 1947, 162 F.2d 872, at page 873, "If it names them in such terms that every intelligent person understands who is meant * * * courts should not put themselves in the position of failing to recognize what is apparent to everyone else." See Note 8 A.L.R.2d supra, at page 157, as to the measure of neglect or fault.
The court must also consider the admonition that "`* * * time has long since gone by when the rights of a litigant are to be measured solely by the skill of the pleader.'" Smith v. Piper Aircraft Corp., supra, 18 F.R.D. at page 176, citing cases. But general principles do not decide cases.
What of the service upon the trainmaster? New York Cent. & H. R. Co. v. Kinney, 1922, 260 U.S. 340, at page 346, 43 S. Ct. 122, at page 123, 67 L. Ed. 294, teaches that "when a defendant has had notice from the beginning that the plaintiff sets up and is trying to enforce a *932 claim against it because of specified conduct, the reasons for the statute of limitations do not exist * * *." But see Miller's Heirs and Devisees v. McIntyre, 1832, 6 Pet. 61, 64, 31 U.S. 61, 64, 8 L. Ed. 320, "Until the defendants were made parties to the bill, the suit cannot be considered as having been commenced against them. It would be a novel and unjust principle, to make defendants responsible for a proceeding of which they had no notice; and where a final decree in the case could not have prejudiced their rights."
The company was under no duty to appear and plead until required to do so in a legal manner. It would not be bound by a judgment until it was properly brought upon the record. Barrilo v. Frank, 1935, 116 Pa.Super. 461, at page 463, 177 A. 58, at page 59; City of Pittsburgh v. Eyth, 1902, 201 Pa. 341, 50 A. 769; United States ex rel. Rauch v. Davis, 1925, 56 App.D.C. 46, 8 F.2d 907; Sanders v. Metzger, supra, 66 F.Supp. at page 264.
While notice to the agent when it is the duty of the agent to act upon such notice or communicate it to his principal in the proper discharge of his duty as agent is notice to the principal (St. Louis Fire & Marine Ins. Co. v. Witney, D.C.M.D.Pa.1951, 96 F. Supp. 555, at page 561, and see Id. as to knowledge) Davis v. L. L. Cohen & Co., supra, 268 U.S. at page 641, 45 S.Ct. at page 634, and its progeny, teach by analogy that the trustee would not be bound by the service in question.[6]
Ordinarily the train crew would report the accident, the trainmaster the attempted service, to their superiors, the trustees. Plaintiffs no doubt wish to recover from those actually responsible. Suit was however delayed until the last moment; the complaint and summons directed against and service made upon the company, plaintiffs' counsel insisting the company was the proper defendant, the real party in interest, and the one required to be sued by Pennsylvania law. Counsel were obviously mistaken as to the law and the facts. See and cf. Note, 8 A.L.R. 2d at 158, citing cases. Having taken that position, how can we find they did not sue the wrong party and that what they now suggest in the alternative is the substitution of a new party?[7]
*933 Granting the trend toward liberality, the desire that cases be decided upon their merits, and that justice be done between the parties, the statute of limitations in aim and purpose is a part of the law and should not be expunged by interpretation from the statute books. See Carr-Consolidated Biscuit Co. v. Moore, supra, 125 F. Supp. 423; Anderson v. Brady, D.C.1946, 7 F.R.D. 84.
Upon proof of the trusteeship, in the absence of countervailing evidence, the complaint will be dismissed.
NOTES
[1] Cf. discussion, Report October 1955, proposed amendments to F.R.C.P. Rule 56(e); Gallup v. Caldwell, 3 Cir., 1941, 120 F.2d 90, at page 93; Victory v. Manning, 3 Cir., 1942, 128 F.2d 415, at page 417; 2 Moore op. cit. supra, § 12.09 (3).
[2] Timely filing commences an action, F.R. C.P. Rules 3, 4(a); service within a reasonable time thereafter is sufficient; Gallagher v. Carroll, D.C.E.D.N.Y.1939, 27 F. Supp. 568; Thomas v. McLean Coal Co., 1949, 97 Pittsb.Leg.J.,Pa., 330; Id., 1951, 79 Pa.Dist. & Co.R. 492, 100 Pittsb.Leg.J. 51; Harris v. Stone, D.C. D.C.1953, 115 F. Supp. 531; see 2 Moore op. cit. supra, § 3.07, p. 746.
[3] As to paramount authority, see Yoder v. Nu-Enamel Corp., 8 Cir., 1944, 145 F.2d 420, at page 427, where the judicial hand effectively blocks enforcement of a party's rights during a particular period.
[4] And see Siegelschiffer v. Pennsylvania Mutual Life Ins. Co., 2 Cir., 1917, 248 F. 226; Walters v. Baltimore & O. R. Co., 3 Cir., 1935, 76 F.2d 599, as to time for appeal.
[5] See note 1 supra, F.R.C.P. Rule 56; Sartor v. Arkansas Natural Gas Corp., 1944, 321 U.S. 620, at page 627, 64 S. Ct. 724, at page 728, 88 L. Ed. 967. Rule 56 speaks only of pleadings, depositions, admissions on file and affidavits. See Id., 321 U.S. 623, 64 S. Ct. 727, as to allegations in counsels' brief; see Sardo v. McGrath, 1952, 90 U.S.App.D.C. 795, 196 F.2d 20, at page 23, "Such memoranda are neither mentioned in Rule 56 nor, in our view, may they be classed inferentially among the documents in which extra-pleading matters may be presented for purposes of summary judgment."
[6] See e. g., United States v. A. H. Fischer Lumber Co., supra; Waugh v. Steelton Taxicab Co., 1952, 371 Pa. 436, 89 A.2d 527; Dress v. Schuylkill County Railway Co., 83 Pa.Super. 149; Bowles v. Marx Hide & Tallow Co., D.C.W.D.Ky.1945, 4 F.R.D. 297; Godfrey v. Eastern Gas and Fuel Associates, D.C.D.Mass.1947, 71 F. Supp. 175; Hartford Accident & Indemnity Co. v. Interstate Equipment Corp., D.C.N.J.1947, 74 F. Supp. 791, affirmed, D.C., 81 F. Supp. 357, and cf. Linn & Lane Timber Co. v. United States, 236 U.S. 574, 35 S. Ct. 440, 59 L. Ed. 725.
Acknowledging that in Davis v. L. L. Cohen & Co., supra, and its progeny, sovereign consent to be sued gave rise to the principle of strict construction, see Finn v. United States, 1887, 123 U.S. 227, 8 S. Ct. 82, 31 L. Ed. 128; United States ex rel. Rauch v. Davis, supra, 8 F.2d at page 909; Phoenix State Bank & Trust Co. v. Bitgood, D.C.Conn.1939, 28 F. Supp. 899, and see Knickerbocker Fuel Co. v. Mellon, 2 Cir., 1927, 22 F.2d 500, as to the statute itself; (see and cf. Grandey v. Pacific Indemnity Co., supra, 217 F.2d at page 29), merely because service upon the trainmaster would be sufficient in an action against the trustee is not controlling. See Note 8 A.L.R. 2d 160.
[7] In the following cases, under their peculiar facts, the court allowed amendment to correct a misnomer: Longsdorf v. Pennsylvania Greyhound Lines Inc., D.C., 148 F. Supp. 476; Wright v. Eureka Tempered Copper Co., supra; McGinnis v. Valvoline Oil Works, Ltd., 1916, 251 Pa. 407, 96 A. 1038; Waugh v. Steelton Taxicab Co., supra; United States v. A. H. Fischer Lumber Co., supra; Hartford Accident & Indemnity Co. v. Interstate Equipment Corp., supra (conduct of defendant); Porter v. Theo. J. Ely Mfg. Co., D.C.W.D.Pa.1946, 5 F.R.D. 317; Sechrist v. Palshook, D.C.M.D.Pa. 1951, 97 F. Supp. 505; Godfrey v. Eastern Gas and Fuel Associates, supra (conduct of defendant); Grandey v. Pacific Indemnity Co., supra; Dress v. Schuylkill County Railway Co., supra (conduct of defendant); Deupree v. Levinson, 6 Cir., 1950, 186 F.2d 297, at page 302; Bowles v. Marx Hide & Tallow Co., supra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2507928/ | 203 F. Supp. 2d 292 (2002)
Alia SABUR, by her mother and natural guardian Julie KESSLER a/k/a Julie Sabur, and her father and natural guardian, Mohammed Sabur, for Alia Sabur and for themselves, Plaintiffs,
v.
William BROSNAN, Evelyn Abruzzo, Gary Burns, Dolly Narain, NorthportEast Northport Board of Education and Northport East Northport Union Free School District, Defendants.
No. CV-00-2660 (ADS).
United States District Court, E.D. New York.
May 8, 2002.
*293 *294 *295 Frederick K. Brewington, Hempstead, NY, for Plaintiffs.
Ingerman Smith, L.L.P. by Warren H. Richmond, Northport, NY, for Defendants.
MEMORANDUM OF DECISION AND ORDER
SPATT, District Judge.
The plaintiffs Julie Sabur and Mohammed Sabur (collectively, the "Saburs") bring this action on behalf of their daughter Alia Sabur ("Alia") alleging that the defendants William Brosnan ("Brosnan"), Evelyn Abruzzo ("Abruzzo"), Gary Burns ("Burns"), Dolly Narain ("Narain"), the East Northport Board of Education (the "Northport BOA") and the East Northport Union Free School District (the "Northport School District") (collectively, the "School District") failed to provide Alia with appropriate educational services in violation of the Individuals with Disabilities Education Act ("IDEA"), 42 U.S.C. § 1983 and Article XI, § 1 of the New York State Constitution. Presently before the Court is a motion by the School District to dismiss seven of the eight counts in the amended complaint pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure.
I. BACKGROUND
The facts are taken from the amended complaint unless otherwise stated. Alia is a twelve year old girl who has advanced skills in, among other things, mathematics, music, reading and science. In the fall of 1995, Alia enrolled in the Dickinson Avenue Elementary School ("Dickinson"), which is part of the School District.
For the 1995-1996 school year, the School District provided Alia with an individually-tailored curriculum, which placed her in the first grade with children her own age for art, physical education, music and lunch, while allowing her to spend time with older students in the areas of reading and mathematics. In addition, the School District provided Alia with individual instruction in computer science.
For the 1996-1997 school year, Alia entered the second grade and continued with her individually-tailored curriculum. In particular, the School District provided Alia with individual instruction in mathematics and computer science while she remained with her second grade classmates for half of the day. In June of 1997, the Saburs requested that the School District provide Alia with a long-term education plan.
*296 For the 1997-1998 school year, Alia entered the third grade. During this school year, Alia took a class in physical science at the Northport middle school. There, Alia encountered older students who occasionally ridiculed and harassed her. Also, Alia continued to receive individual instruction at Dickinson. By the fall of 1998, the School District offered the Saburs a choice: either agree to have Alia take math and science in a ninth grade class or have Alia remain in a fourth grade class for these subjects. The Saburs chose to keep Alia in the fourth grade for the 1998-1999 school year.
In November of 1998, the Saburs filed a request for a hearing before an Impartial Hearing Officer ("IHO") to investigate the status of an alleged referral in 1997 by the School District to the Committee on Special Education ("CSE") to evaluate Alia's educational needs and to determine the appropriate accommodations for Alia's special needs. A hearing was set for December 23, 1998. On that date, the Saburs, accompanied by counsel, appeared before the IHO with a private camera crew hired by the Saburs to record the hearing. The IHO refused to proceed with the hearing unless the Saburs waived their request to record the proceedings. The Saburs refused to waive their request and the hearing was adjourned for a ruling from the State Education Commissioner's Office (the "Commissioner") on the issue of whether the IHO must permit the hearing to be recorded.
Shortly thereafter, the Commissioner informed the IHO that the decision whether to permit the recording of the hearing is within his discretion. The IHO adhered to his earlier decision to prohibit video recording and re-scheduled the hearing for January 13, 1999. On January 12, 1999, the Saburs filed a written request that the IHO recuse himself claiming that he could not render a fair decision in this matter.
On January 13, 1999, the Saburs again requested that the IHO recuse himself citing his alleged bias in favor of the School District. After affording their counsel and the Saburs themselves an opportunity to note their reasons for the recusal request, the IHO denied the request and stated that the hearing will proceed with or without the Saburs. The Saburs then chose to leave and not participate in the hearing. The IHO continued the proceedings in the absence of the Saburs.
On January 22, 1999, the IHO issued a decision remanding the case back to the CSE. In the Matter of A.S. Mr. and Mrs. S., Impartial Hearing, Northport East Northport Union Free District School (Jan. 22, 1999) is annexed as Exhibit I to the Affidavit of Warren H. Richmond sworn to in November of 2000 (the "Richmond Affidavit"). In particular, the IHO stated "[i]t is the parent's responsibility to follow the process, as explained in 200.4 of the Commissioner's regulations, to go through the necessary testing, health evaluation, social evaluation, and educational evaluation necessary to comply with the Commissioner's regulations." Id.
On January 29, 1999, the School District sent the Saburs consent forms for educational and psychological evaluations to enable the CSE to make determinations with respect to Alia's classification and placement. Richmond Affidavit ¶ 14. The Saburs did not return the consent forms to the School District. Id. On March 10, 1999, the CSE met with respect to Alia and concluded:
Although assessments do exist within Alia's file, these assessments are outdated and not comprehensive enough for the CSE's purpose. The parents wish to pursue an Independent Educational *297 Evaluation. The district concurs with this request and will provide parameters for an Independent Educational Evaluation which will include psychological, educational and speech assessments. Upon completion, the parents will submit these evaluations to the school district for review. The CSE will reconvene to consider these evaluations within special education regulations. Targeted case management will be provided.
Minutes of CSE, Northport East Northport, dated March 10, 1999 annexed as Exhibit M to the Richmond Affidavit. The Saburs did not submit an Independent Educational Evaluation to the School District. Instead, the Saburs enrolled Alia as a student at the State University of New York, Stony Brook, where she currently maintains a 3.95 grade point average.
On May 11, 2000, the Saburs commenced this action against the School District and the New York State Department of Education alleging, among other things, that the defendants failed to provide Alia with appropriate educational services. On July 23, 2001, this Court dismissed all of the claims which arose out of the allegation that Alia was not provided an appropriate education because the Saburs failed to exhaust their administrative remedies. Sabur v. Brosnan, No. 00-2660, slip op. (E.D.N.Y. July 23, 2001). In addition, the Court dismissed the remaining claims, except for one involving the First Amendment, for failure to state a claim upon which relief can be granted. Id. at 17. Finally, the Court granted the Saburs permission to file an amended complaint within thirty days of its decision. Id.
On August 23, 2001, the Saburs filed an amended complaint in which they assert seven causes of action. Counts one through four allege violations under 28 U.S.C. § 1983 for the failure to provide Alia with appropriate educational services. Count five charges a violation under the First Amendment for hindering the Saburs' right to speak publicly concerning Alia. Count six alleges a violation under the IDEA for the failure to provide Alia with appropriate educational services. Count seven alleges a violation of Article XI, § 1 of the New York State Constitution for the failure to provide Alia with appropriate educational services.
Presently before the Court is a motion by the School District to dismiss all of the counts in the amended complaint, except count five, pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure.
II. DISCUSSION
A. The Standard for Rule 12(b)(1)
When considering a motion for lack of subject matter jurisdiction under Rule 12(b)(1), the Court may consider affidavits and other materials beyond the pleadings to resolve the jurisdictional question. Robinson v. Gov't of Malaysia, 269 F.3d 133, 141 n. 6 (2d Cir.2001); Antares Aircraft, L.P. v. Fed. Republic of Nigeria, 948 F.2d 90, 96 (2d Cir.1991), vacated on other grounds, 505 U.S. 1215, 112 S. Ct. 3020, 120 L. Ed. 2d 892 (1992); Exch. Nat'l Bank of Chicago v. Touche Ross & Co., 544 F.2d 1126, 1130 (2d Cir. 1976). Under Rule 12(b)(1), the Court must accept as true all material factual allegations in the complaint, but will not draw inferences favorable to the party asserting jurisdiction. Shipping Fin. Servs. Corp. v. Drakos, 140 F.3d 129, 131 (2d Cir.1998); Atl. Mut. Ins. Co. v. Balfour Maclaine Int'l Ltd., 968 F.2d 196, 198 (2d Cir.1992). Hearsay statements contained in affidavits may not be considered. Kamen v. Am. Tel. & Tel. Co., 791 F.2d 1006, 1011 (2d Cir.1986).
*298 B. The IDEA
Congress passed the IDEA to ensure that children with disabilities receive "a free appropriate public education that emphasizes special education and related services designed to meet their unique needs and prepare them for employment and independent living...." 20 U.S.C. § 1400(d)(1)(A). IDEA establishes an educational scheme which requires each state that receives federal education funds to prepare an Individualized Education Program ("IEP") for each disabled child. Hope v. Cortines, 872 F. Supp. 14, 16 (E.D.N.Y.1995) (citation omitted), aff'd on the opinion of the district court, 69 F.3d 687 (2d Cir.1995).
The IEP provides, among other things, the child's present performance level, goals and objectives, specific services that will permit the child to achieve those goals, and evaluation criteria and procedures to evaluate whether the child has met the goals outlined. 20 U.S.C. § 1414(d)(1)(A). "The IEP is the central mechanism by which public schools ensure that their disabled students receive a free appropriate public education." Polera v. Bd. of Educ. of the Newburgh Enlarged City School Dist., 288 F.3d 478, 481-82 (2d Cir.2002).
The IDEA mandates that states "offer parents of a disabled student an array of procedural safeguards designed to help ensure the education of their child...." Id. at 482-83. "Primary among the procedural safeguards employed by IDEA is the requirement that states provide parents of disabled students the right to seek review of any decision concerning their children's education." Hope, 872 F.Supp. at 16. As such, parents may file complaints about "any matter relating to the identification, evaluation, or educational placement of the child, or the provision of a free appropriate public education to such child." 20 U.S.C. § 1415(b)(6). Parents must first seek review through an impartial hearing conducted by either the local school district or the state. Id. § 1415(f)(1). If the hearing is done by a local school district, the parents may appeal the decision to the state educational agency. Id. § 1415(g). Only after the parents have exhausted these procedures may they seek review in either federal or state court. Id. § 1415(l).
Congress permits states to fashion their own educational scheme to comply with the IDEA. Heldman v. Sobol, 962 F.2d 148, 152 (2d Cir.1992). This, New York has done. Id. In New York, the CSE, which is made up of individuals appointed by the board of education or the trustees of the school district, prepares the IEPs for disabled children. N.Y. Educ. Law § 4402(1)(b)(1). New York has a two-level system for the review of an IEP. First, a hearing officer, appointed by the board of education from a list of state-certified officers, conducts the initial hearing and makes a determination with regard to the action of the CSE. N.Y. Educ. Law § 4404(1). If unsatisfied with this determination, a party may then appeal the determination to a State Review Officer ("SRO"). Id. § 4404(2).
"Although the IDEA provides for a federal cause of action to enforce such rights, it imposes a broadly applicable requirement that plaintiffs first exhaust administrative remedies...." Polera, at 482-83. Indeed, "[a] plaintiff's failure to exhaust administrative remedies under the IDEA deprives a court of subject matter jurisdiction." Id. (citing Hope v. Cortines, 69 F.3d 687, 688 (2d Cir.1995)).
1. The Applicability of the IDEA's Exhaustion Requirement to the Plaintiffs' Section 1983 Claims
Where a plaintiff brings a claim under Section 1983 that seeks relief available *299 under the IDEA, she or he must first exhaust the administrative remedies under the IDEA. See Polera, at 482-83 (citing 20 U.S.C. § 1415(l)); Hope, 872 F.Supp. at 19 (stating that the exhaustion requirement applies to Section 1983 claims which seek relief that IDEA could provide). A plaintiff may not frame a cause of action under Section 1983 or any other federal statute and thus avoid the exhaustion requirements. See Polera, at 488-89 (stating that a plaintiff may not sidestep the exhaustion requirements of the IDEA).
Counts one through four allege violations under Section 1983. Each of these counts seek relief for the alleged failure to provide Alia with appropriate educational services. The IDEA is precisely intended to remedy this type of claim. See Polera, at 488-89 (stating that the IDEA was intended to remedy a claim were the plaintiff sought relief for a school district's alleged failure to provide her with appropriate educational services). Accordingly, absent an applicable exhaustion exception, the Saburs were required to exhaust their administrative remedies before bringing these claims.
2. The Requirement of Exhaustion under IDEA
"The IDEA's exhaustion requirement was intended to channel disputes related to the education of disabled children into an administrative process that could apply administrators' expertise in the area and promptly resolve grievances." Polera, at 486-87. "The exhaustion requirement `prevents courts from undermining the administrative process and permits an agency to bring its expertise to bear on a problem as well as to correct its own mistakes.'" Id. (citing Heldman v. Sobol, 962 F.2d 148, 159 (2d Cir.1992)). "Exhaustion of the administrative process allows for the exercise of discretion and educational expertise by state and local agencies, affords full exploration of technical educational issues, furthers development of a complete factual record, and promotes judicial efficiency by giving these agencies the first opportunity to correct shortcomings in their educational programs for disabled children." Id. (internal quotation marks and citations omitted).
The Second Circuit has recently stated:
[T]he exhaustion requirement is predicated on Congress's belief, expressed through the statutory scheme, that administrative agencies can `get it right': that the agencies themselves are in the optimal position to identify and correct their errors and to fine-tune the design of their programs. Sweeping exceptions to the exhaustion requirement are at odds with this belief.
Polera, at 489-90. It is undisputed that the Saburs failed to exhaust their administrative remedies under the IDEA. Accordingly, the Court need only decide whether this failure is excusable.
3. Exceptions to the Exhaustion Requirement under the IDEA
Congress provided three general situations where the exhaustion of the administrative remedies under the IDEA are not required: (1) where it would be futile to use the due process procedures; (2) where an agency has adopted a policy or pursued a practice of general applicability that is contrary to the law; or (3) where it is improbable that adequate relief can be obtained by pursuing administrative remedies. Mrs. W. v. Tirozzi, 832 F.2d 748, 756 (2d Cir.1987) (citations omitted). The Second Circuit has collapsed exceptions two and three into exception one, namely the futility exception. Hope, 872 F.Supp. at 22 ("The Second Circuit in Heldman effectively collapsed (2) and (3) above into *300 the futility exception...."). See also Polera, at 489-90 (stating that exhaustion is futile if the "administrative procedures do not provide adequate remedies.") (internal quotation marks and citations omitted).
a. The Futility Exception
A plaintiff has the burden of showing that the futility exception applies. Polera, at 489-90 n. 8. The Saburs argue that the futility exception applies to her claims for the following reasons: (a) failure of the School District to timely conduct the administrative proceedings; (b) failure of the CSE to evaluate Alia in a timely fashion; (c) failure of the School District to develop and implement an adequate educational plan; (d) failure of the School District to develop an educational plan unless the Saburs waived their right to legal recourse against the School District; (e) failure of the School District to comply with the IHO's determination; (f) failure to appoint an unbiased hearing officer; and (g) failure of the School District to produce certain notes concerning Alia. None of these arguments excuse the exhaustion requirement.
The Court finds that the administrative proceedings were conducted in a timely fashion. In November of 1998, the Saburs requested a hearing before an IHO. A hearing was set for December 23, 1998. On that date, the Saburs appeared with a private camera crew, which compelled the IHO to seek instructions on the use of video recording devices at the hearing. After receiving the appropriate instructions, the IHO set a new hearing date for January 13, 1999. Despite the Saburs' choice not to participate in the hearing, the IHO held the hearing and issued a written decision on January 22, 1999.
In addition, the Court finds that the Saburs are responsible for the CSE's inability to evaluate and place Alia in an IEP. Seven days after the written decision of the IHO, the School District sent the Saburs consent forms for educational and psychological evaluations to permit the CSE to make a determination on Alia's classification and placement in an IEP. The Saburs did not return the consent forms. Approximately a month and a half after the IHO's decision, the CSE met and stated that they will be in a position to evaluate Alia once the Saburs submit an Independent Educational Evaluation, which they wished to do. The Saburs did not submit an Independent Educational Evaluation. As such, the Saburs' failure to comply with these instructions is largely the reason that the CSE was and is unable to evaluate Alia.
Courts in this circuit have routinely held that the futility exception does not apply where the parents unilaterally withdraw from the administrative hearing before its conclusion. See Kielbus v. Wertheimer, No. 01-1130, 2002 WL 24446, *3 (E.D.N.Y. Jan. 4, 2002) (withdrawing from the hearing process without allowing the IHO a chance to fashion a remedy); Ajala v. N.Y.C. Bd. of Educ., No. 97-0469, 1997 WL 736699, *4 (S.D.N.Y. Nov. 28, 1997) (same); D.R. v. Bedford Bd. of Educ., 926 F. Supp. 47, 49 (S.D.N.Y.1996) (same). Here, the Saburs unilaterally withdrew from the hearing before the IHO. Despite this withdrawal, the IHO rendered a determination which remanded the case back to the CSE for a classification and placement of Alia in an IEP. Instead of participating in the process before the CSE or appealing the IHO's determination to the SRO, the Saburs enrolled Alia in the State University of New York, Stony Brook and commenced an action against the School District in federal court.
The remainder of the Saburs' arguments to invoke the futility exception lack merit because each argument could have been *301 and should have been made in the administrative proceedings. See Garro v. State of Conn., 23 F.3d 734, 737 (2d Cir.1994) (stating that any alleged procedural violations by the local school district should be raised in the administrative proceedings); D.R., 926 F.Supp. at 49-50 (stating that had the parents not withdrawn from the administrative process they "would have had the right to pursue an administrative appeal of the hearing officer's decision, challenging both the substance of the ruling and the alleged bias of the hearing officer."); Jacky W. v. N.Y.C. Bd. of Educ., 848 F. Supp. 358, 361 (E.D.N.Y.1994) (stating that the destruction of draft opinions by the IHO can be appealed to the SRO).
By commencing this action before the exhaustion of administrative remedies, the Saburs leave the Court with an insufficient factual record to review the alleged violations. See Garro, 23 F.3d at 737-38 ("[T]he failure to comply with the exhaustion requirements has not only deprived the state administrative authorities of an opportunity to redress the claimed violations at a far more appropriate time but has also deprived this Court of the factual record necessary to review the alleged violations."). First, the Court has no classification of Alia because the Saburs chose not to participate in the proceedings before the CSE. Second, because the CSE had insufficient records to assess Alia, there is no IEP for the Court to review. Accordingly, the Court does not have a sufficient factual record to review the alleged violations.
Because the Saburs failed to exhaust their administrative remedies, the Court lacks subject matter jurisdiction over counts one, two, three, four and six in the amended complaint. Accordingly, the motion to dismiss these counts under Rule 12(b)(1) is granted.
C. Article XI, § 1 of the New York State Constitution
On a motion to dismiss for failure to state a claim under Rule 12(b)(6), a court should dismiss the complaint if it appears beyond doubt that the plaintiff can prove no set of facts in support of her or his complaint which would entitle her or him to relief. King v. Simpson, 189 F.3d 284, 286 (2d Cir.1999); Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir.1996). A court must accept all well-pled factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Koppel v. 4987 Corp., 167 F.3d 125, 127 (2d Cir.1999); Jaghory v. N.Y. State Dep't of Educ., 131 F.3d 326, 329 (2d Cir.1997). The issue is not whether the plaintiff will ultimately prevail but whether the plaintiff is entitled to offer evidence to support the claims. Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir.1995).
As to materials presented outside the pleadings, the Second Circuit has stated that:
Rule 12(b) gives district courts two options when matters outside the pleadings are presented in response to a 12(b)(6) motion: the court may exclude the additional material and decide the motion on the complaint alone or it may convert the motion to one for summary judgment under Fed.R.Civ.P. 56 and afford all parties the opportunity to present supporting material. See Fed. R.Civ.P. 12(b).
Fonte v. Bd. of Managers of Cont'l Towers Condo., 848 F.2d 24, 25 (2d Cir.1988). The Second Circuit has strictly enforced "the conversion requirement of Rule 12(b)(6) where there is a legitimate possibility that the district court relied on inappropriate material in granting the motion." Amaker v. Weiner, 179 F.3d 48, 50 (2d Cir.1999). The purpose is to ensure that "courts will refrain from engaging in fact-finding when *302 considering a motion to dismiss, and also that plaintiffs are given a fair chance to contest defendants' evidentiary assertions. ..." Id.
In a motion to dismiss under Rule 12(b)(6), a court must confine its consideration "to facts stated on the face of the complaint, in documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken." Leonard F. v. Israel Disc. Bank of N.Y., 199 F.3d 99, 107 (2d Cir.1999); Hayden v. County of Nassau, 180 F.3d 42, 54 (2d Cir.1999). The Court decides the School District's motion to dismiss count seven of the amended complaint solely on the facts stated on the face of the amended complaint.
Article XI, § 1 of the New York State Constitution provides that "[t]he legislature shall provide for the maintenance and support of a system of free common schools, wherein all the children of this state may be educated." N.Y. Const. Art. XI, § 1. Article XI, § 1 does not create a private cause of action. See Donohue v. Copiague Union Free School Dist., 47 N.Y.2d 440, 443, 418 N.Y.S.2d 375, 377, 391 N.E.2d 1352 (N.Y.1979) (stating that no private cause of action exists under Article XI, § 1 of the New York State Constitution). Accordingly, the motion to dismiss count seven is granted.
III. CONCLUSION
Based upon the foregoing, it is hereby
ORDERED, that the motion to dismiss counts one, two, three, four and six for lack of subject matter jurisdiction on the ground that the Saburs failed to exhaust their administrative remedies is GRANTED; and it is further
ORDERED, that the motion to dismiss count seven for failure to state a claim for relief is GRANTED; and it is further
ORDERED, that the parties are directed to appear forthwith before United States Magistrate Judge Michael L. Orenstein to set a discovery schedule with respect to count five in the amended complaint.
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2297098/ | 23 F. Supp. 2d 623 (1998)
HARTFORD INSURANCE COMPANY OF THE MIDWEST, Plaintiff,
v.
AMERICAN AUTOMATIC SPRINKLER SYSTEMS, INC., Defendant.
Civ No. AMD 97-976.
United States District Court, D. Maryland.
October 15, 1998.
*624 Jeffrey Allan Wothers, Baltimore, MD, for Plaintiff.
Kevin Bock Karpinski, Allen, Johnson, Alexander & Karp, Baltimore, MD, for Defendant.
MEMORANDUM
DAVIS, District Judge.
This is a subrogation action based on diversity of citizenship brought by Hartford Insurance Company of the Midwest ("Hartford") against American Automatic Sprinkler Systems ("American"). Hartford seeks to recover 1.6 million dollars for damages caused by a sprinkler system leak and consequent flooding at the Holiday Inn in Timonium, Maryland. Hartford alleged that American's construction and installation of the sprinkler system in 1982 was responsible for the leak; in the alternative, Hartford alleged that American's renovations of the system in 1996 were the cause of the flooding. The suit is based on theories of negligence, strict liability, and breach of contract under Maryland law.
*625 American has moved for summary judgment, contending first, that Hartford's claims based on American's installation and construction of the sprinkler system are barred by Maryland's statute of repose and second, that Hartford has insufficient evidence to sustain its burden of proof as to its remaining claims.
Hartford has cross-moved for summary judgment. Primarily, it contends that because American discarded critical evidence, including the coupling,[1] Hartford should be awarded judgment as a matter of law, in part through the doctrine of spoliation. For the reasons discussed below, I will grant American's motion for summary judgment and deny Hartford's cross motion.
I. FACTS
There is no dispute of material facts. In 1982, American designed and installed a sprinkler system at the Holiday Inn in Timonium, Maryland. The sprinkler system consists of three standpipe risers that are located in the hotel stairwells. Two of the three risers provide water to the sprinkler system. These two risers also contain valves which enable the fire department to connect hoses in case of a fire emergency.[2] The remaining riser does not supply water to the sprinkler system, but rather only connects to fire department hoses. The sprinkler system is designed with zone control assemblies that permit the system to be drained zone by zone, without disturbing the entire sprinkler system.
The system existed as it was initially installed by American until January 1996. At that time, the Holiday Inn sought to obtain "Select" status, which required that extensive renovations be completed.[3] As a part of these renovations, American returned to the Holiday Inn to replace the escutcheon plates. Escutcheon plates are plates located underneath a sprinkler head. The renovations took approximately one week to complete and were finished on January 26, 1996.
On February 7, 1996, the cap and coupling separated from standpipe riser # 1, which caused water to escape from the pipe and flood into the Holiday Inn. Water leaked into many of the guest rooms, the main atrium, the stairwells, and cascaded onto the exterior facade of the building. The building engineer, Seekford, was able to shut off the water main. An extensive clean-up began immediately. As might be expected, Hartford's insured enlisted American to make repairs. Two American employees, Klender and Brunner, arrived at the Holiday Inn and made the necessary repairs. They replaced a damaged section of the pipe, the cracked fire hose, the coupling, and reinstalled the original cap in its proper place. Klender and Brunner concluded that the pipe had frozen, in part because of unusually cold winter temperatures, and in part because of inadequate heating in the stairwell.[4] Seekford signed their work order and the employees left the Holiday Inn with the damaged materials.
Shortly thereafter, Hartford suggested to Seekford that he try to have the replaced pipe returned. Seekford, and later counsel for Hartford, contacted American and requested the return of the materials.[5] American informed Hartford on February 15, 1996, that it was no longer in possession of the pipe, as it had been discarded in a trash dumpster and removed from the premises in the usual course of business. This subrogation action followed.
II. SUMMARY JUDGMENT STANDARD
Pursuant to Fed.R.Civ.P. 56(c), summary judgment is appropriate "if the pleadings, *626 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." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). In considering a motion for summary judgment, the facts, as well as the inferences to be drawn therefrom, must be viewed in the light most favorable to the nonmovant. Matsushita Elec. Indust. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). A party moving for summary judgment is entitled to a grant of summary judgment only if no issues of material fact remain for the trier of fact to determine at trial. Id. at 587, 106 S. Ct. 1348. A fact is material for purposes of summary judgment, if when applied to the substantive law, it affects the outcome of the litigation. Anderson, 477 U.S. at 248, 106 S. Ct. 2505. "Summary judgment is not appropriate when there is an issue of fact for a jury to determine at trial, which is the case when there is sufficient evidence favoring the non-moving party upon which a jury can return a verdict for that party." Shealy v. Winston, 929 F.2d 1009, 1012 (4th Cir.1991).
A party opposing a properly supported motion for summary judgment bears the burden of establishing the existence of a genuine issue of material fact. Anderson, 477 U.S. at 248-49, 106 S. Ct. 2505. The nonmovant "cannot create a genuine issue of fact through mere speculation or the building of one inference upon another." Beale v. Hardy, 769 F.2d 213, 214 (4th Cir.1985). See O'Connor v. Consolidated Coin Caterers Corp., 56 F.3d 542, 545 (4th Cir.1995), rev'd on other grounds, 517 U.S. 308, 116 S. Ct. 1307, 134 L. Ed. 2d 433 (1996). "When a motion for summary judgment is made and supported as provided in [Rule 56], an adverse party may not rest upon the 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. 6(e). See Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986); Anderson, 477 U.S. at 252, 106 S. Ct. 2505; Shealy, 929 F.2d at 1012.
III. SPOLIATION OF EVIDENCE
Hartford argues that it is entitled to judgment as a matter of law because American intentionally destroyed evidence that was critical to a determination of the cause of the water leak. Thus, Hartford contends that American's behavior warrants "application of the evidentiary spoliation doctrine." See generally Anderson v. National R.R. Passenger Corp., 866 F. Supp. 937, 945 (E.D.Va. 1994), aff'd, 74 F.3d 1230 (4th Cir.1996).
The evidentiary spoliation doctrine is a rule of evidence, administered at the discretion of the trial court to respond to circumstances in which a party fails to present, loses, or destroys evidence. Id; see also Vodusek v. Bayliner Marine Corp., 71 F.3d 148, 156 (4th Cir.1995). The spoliation doctrine authorizes a court to order dismissal, to grant summary judgment, or permit an adverse inference to be drawn against a party, as a means to "level the evidentiary playing field and for the purpose of sanctioning improper conduct." Vodusek, 71 F.3d at 156. The application of this rule "must take into account the blameworthiness of the offending party and the prejudice suffered by the opposing party." Anderson, 866 F.Supp. at 945. Additionally, whether or not a party has notice of the evidence's relevance to a lawsuit must be considered. See id.
Hartford seeks judgment as a matter of law against American because of its allegedly willful destruction of the pipe, as evidenced by its conflicting explanations as to the whereabouts of the pipe, and its resistance in helping to locate the pipe. Imposition of this drastic sanction, however, is plainly unwarranted on this record. The Fourth Circuit has held that it was error for a lower court to grant judgment against a spoliator, where that party did not destroy evidence intentionally and in the absence of bad faith. See Cole, 132 F.3d at 1047 (noting that the remedy of dismissal was "simply too severe" in a case where the plaintiff, without bad faith, destroyed the ladder at issue in the case). Cole recognized that the weight of *627 authority indicated that "absent bad-faith conduct, applying a rule of law that results in dismissal on the grounds of spoliation of evidence is not authorized." Id. at 1047.[6]See also Schmid v. Milwaukee Elec. Tool Corp., 13 F.3d 76, 78-81 (3d Cir.1994) (reversing the district court's judgment for the defendant because the plaintiff did not intentionally destroy the evidence at issue, nor had a suit been filed at the time the evidence was destroyed).
Hartford has proffered no probative evidence supporting its claim that American destroyed the pipe willfully and in bad faith. In fact, it is undisputed that when Seekford initially requested the return of the pipe, he did not inform American of the possibility of a lawsuit, he did not mention the amount of damage to the Holiday Inn, and he did not explain why he wanted the materials returned. Moreover, American's witnesses testified, without contradiction, that American discarded the damaged pipe in the ordinary course of business. Thus, no substantial evidence supports the assertion that American willfully destroyed evidence it knew was relevant to a lawsuit. See Anderson, 866 F.Supp. at 945 ("[C]ases require at a minimum that the party must have tampered with the evidence in some way while on notice that the evidence `might be necessary' to some party's claim.") (citation omitted). Accordingly, as there is insufficient evidence of willfulness or bad faith to warrant judgment as a matter of law for Hartford, I will deny Hartford's motion for summary judgment. But see White v. Office of the Public Defender, 170 F.R.D. 138 (D.Md.1997) (dismissing the plaintiff's complaint after she willfully destroyed evidence known to be relevant during discovery).
Even in the absence of bad faith, however, a court has "broad discretion to permit a jury to draw adverse inferences from a party's failure to present evidence, the loss of evidence, or the destruction of evidence." Vodusek, 71 F.3d at 156. This inference suggests that the destroyed evidence would have been unfavorable to the party responsible for its destruction. See Vodusek 71 F.3d at 156; Schmid, 13 F.3d at 76. "An adverse inference about a party's consciousness of the weakness of his case, however, cannot be drawn merely from his negligent loss or destruction of evidence; the inference requires a showing that the party knew the evidence was relevant to some issue at trial and that his willful conduct resulted in its loss or destruction." Vodusek, 71 F.3d at 156. Although American is the party responsible for the disappearance of the piping, it is not disputed that Seekford did not make American aware that there might be lawsuit. Thus, Hartford has not made a prima facie showing that American knew or should have known, at the critical time, the "evidence was [or might be] relevant to some issue at [a potential] trial." Id. Consequently, I decline to draw an adverse inference against American.
Even were I to permit the jury to draw an adverse inference in this case (and, thus, were I to draw such an inference as a part of these summary judgment proceedings), however, such an inference does not "amount to substantive proof that the evidence was unfavorable." DiLeo v. Nugent, 88 Md.App. 59, 71, 592 A.2d 1126, 1131 (1991) (citing Miller v. Montgomery County, 64 Md.App. 202, 214, 494 A.2d 761, 761, cert. denied, 304 Md. 299, 498 A.2d 1185 (1985)). "The presumption that arises from a party's spoliation of evidence cannot be used by [a party] as a surrogate for presenting evidence of ... negligence in his prima facie case." Anderson v. Litzenberg, 115 Md.App. 549, 561, 694 A.2d 150, 156 (Md.App.1997). Consequently, even the allowance of this adverse inference would not alleviate Hartford of its burden to project evidence, as required by Fed.R.Civ.P. 56, which if believed would permit a reasonable fact finder to reach a verdict in its favor. See also Stanojev v. Ebasco Serv., Inc., 643 F.2d 914, 923-924 n. 7 (2d Cir.1981) (noting that an adverse "inference could not serve to supply the missing element of the prima facie case"). As Hartford has failed to satisfy the requirements of its prima facie case,[7] its motion for summary judgment must be denied.
*628 IV. STATUTE OF REPOSE
American argues that it is entitled to summary judgment on Hartford's negligence, strict liability, and contract claims that are based on the construction and installation of the original sprinkler system in 1982.[8] The Maryland statute of repose grants a defendant immunity from any cause of action for damages caused by a "defective and unsafe condition of an improvement to real property" occurring more than 20 years after the date the improvement becomes available for use. Md.Code Ann., Cts. & Jud.Proc. § 5-108(a) (1995). This statute was enacted as an "attempt to relieve builders, contractors, landlords, and realtors" from liability based on latent defects in improvements to property. Allentown Plaza Assoc. v. Suburban Propane Gas Corp., 43 Md.App. 337, 342, 405 A.2d 326, 329 (1979).
The portion of the statute at issue in this case states:
Except as provided by this section, a cause of action for damages does not accrue and a person may not seek contribution or indemnity from any architect, professional engineer, or contractor for damages incurred when wrongful death, personal injury, or injury to real or personal property, resulting from the defective and unsafe condition of an improvement to real property, occurs more than 10 years after the date the entire improvement first became available for its intended use.
Md.Cts. & Jud.Proc. § 5-108(b). This section was enacted in 1979 in response to complaints by architects and engineers that the general grant of immunity after 20 years was insufficient. Rose v. Fox Pool Corp., 335 Md. 351, 366, 643 A.2d 906, 913 (1994). Contractors were added to the protected list in 1980. Id.
It is undisputed that the original construction of the system occurred in 1982, more than 10 years before the 1996 occurrence. Moreover, the parties do not dispute that the sprinkler system is an "improvement to real property." Consequently, the parties' only disagreement is whether the statute bestows immunity on American.
Hartford contends that American is not entitled to immunity because of its status as a subcontractor, rather than as a contractor. In support of this contention, Hartford relies on Maryland's Mechanic's Lien Law,[9] which provides separate definitions for contractor and subcontractor.[10] Thus, Hartford argues that the two entities are distinct, and therefore the statute of repose, in its sole reference to "contractors," intended to exclude subcontractors.
The rigid construction of the term "contractor" offered by Hartford is not warranted.
The goal of statutory construction is to determine and effectuate the Legislature's intention. Legislative intent is indicated primarily by the words of the provision. *629 In examining the language, however, we cannot view individual provisions in isolation, but must look at the entire statutory scheme. Also, we must consider the objective and purpose of the statute. Moreover, we seek to avoid constructions that are illogical, unreasonable, or inconsistent with common sense.
Reed v. Sears, Roebuck, & Co., 934 F. Supp. 713, 717 (D.Md.1996) (quoting Ward v. Department of Public Safety & Correctional Services, 339 Md. 343, 351-52, 663 A.2d 66, 70 (1995)). The plain meaning of the term "contractor" encompasses the work of a subcontractor, as well as that of a general contractor. See e.g., Black's Law Dictionary (A contractor is "a person who ... undertakes to procure the performance of works or services on a large scale ... whether for the public or a company or individual. Such are generally classified as general contractors and subcontractors.").[11] To exclude American from the protection of the statute of repose, drafted to shield those connected to the design and construction of an "improvement to real property," would be to ignore the manifest legislative intent of the drafters of the statutory immunity.
Consequently, the conclusion is inescapable that the statute of repose bars Hartford's negligence, strict liability, and breach of contract claims that are predicated on American's 1982 installation of the system. Therefore, I will grant American's motion for summary judgment on these counts.
V. REMAINDER OF HARTFORD'S CLAIMS
The only claims that remain, then, are Hartford's rather redundant claims of negligence and breach of contract, as applied to the 1996 renovations. As demonstrated below, Hartford has not produced sufficient evidence to generate a genuine dispute of material fact as to certain elements of these claims. Accordingly, I will grant summary judgment in favor of American.
To satisfy the elements of its negligence claim, Hartford must demonstrate (1) that American owed a duty to the Holiday Inn, (2) that American breached that duty, (3) a causal connection between the breach of this duty and the flood, and (4) resulting damages. See May v. Giant Food, Inc., 122 Md.App. 364, 712 A.2d 166 (1998). In support of this claim, Hartford argues that the American employees who renovated the system did not know the location of the sprinkler system components and did not know how the system was piped. Moreover, Hartford alleges that during the renovations, the water was drained from the pipes and repressurized each day. It argues, therefore, that this draining led to the separation of the cap and coupling from the pipe, causing the system to fail.
These allegations are insufficient to demonstrate a genuine issue of material fact that American was negligent in the renovations. American employees did not renovate the standpipe riser that leaked; rather, they replaced a completely different part of the system. Furthermore, there is no evidence that the water was drained from the entire system each day.[12] In fact, the evidence is to the contrary: that American did not drain the entire system, but rather proceeded to drain the water floor by floor. There is simply no basis on which a jury could conclude by a preponderance of the evidence that American breached any tort-based duty of reasonable care owed to the Holiday Inn in its renovations of the sprinkler system.
Similarly, Hartford has not demonstrated any evidence supporting its claim that American breached the 1996 contract, through negligent performance of the contract or otherwise. The contract called for the replacement of the escutcheon plates; the work was completed on January 26, 1996. As discussed above, Hartford has not generated a genuine issue of material fact as to *630 whether American negligently damaged the riser at issue during the renovations. Although Hartford argues that the absence of the pipe is alone sufficient to preclude summary judgment, I disagree. Even if the pipe were available to the parties, it would not contradict the undisputed evidence that American did not perform any work on the riser that leaked. Nor has Hartford demonstrated a reasonable likelihood that if the pipe were available, its examination by an expert chosen by Hartford would reveal any secrets sufficient to supply proof that American employees, in spite of their testimony to the contrary, redrained the entire system every day, which in turn caused the leak and the resulting flood. Consequently, Hartford has failed to establish the existence of a genuine dispute of material fact on either its negligence or breach of contract claim based on the 1996 renovations.[13] The absence of the discarded material does not dictate a contrary result. Accordingly, I will grant summary judgment in American's favor.
VI. CONCLUSION
For the reasons stated, judgment shall be entered in favor of defendant as to all claims. An order follows.
ORDER
For the reasons set forth in the accompanying Memorandum, it is this 15th day of October, 1998, ORDERED
(1) That plaintiff's Motion for Summary Judgment is DENIED; and it is further ORDERED
(2) That defendant's Motion for Summary Judgment is GRANTED AND JUDGMENT IS ENTERED IN FAVOR OF DEFENDANT AS TO ALL CLAIMS; and it is further ORDERED
(3) That the clerk shall CLOSE THIS CASE and TRANSMIT copies of this Order and the accompanying Memorandum to counsel of record.
NOTES
[1] The coupling holds the cap on the pipe in place.
[2] The standpipe riser that leaked was this type of riser.
[3] For example, to achieve "Select" status, the Holiday Inn must have sufficient meeting room space, improved amenities in bedrooms, and other upgraded facilities.
[4] As originally designed, the stair towers were intended to be insulated by 5/8" glass; however, only a 1/8" glass pane was installed, apparently as a cost saving measure.
[5] The precise nature of these efforts is somewhat disputed by the parties, as Hartford claims that American repeatedly promised to return the pipe, and only later reported that it had discarded the pipe. This dispute, however, is not material to the resolution of the summary judgment motions.
[6] This reference to judicial authority was to the Virginia courts, as the case arose in Virginia. See id. at 1047.
[7] See discussion, infra, section V.
[8] Hartford alleges that American has waived this defense by failing to plead it in its answer. Although courts have characterized the statute of repose as a grant of immunity, see Allentown Plaza Assoc. v. Suburban Propane Gas Corp., 43 Md.App. 337, 342, 405 A.2d 326, 329 (1979), for pleading purposes the statute serves as a statute of limitations. The provision is included in the Maryland Annotated Code in the Courts & Judicial Proceedings Article under the Limitations subtitle. Since American pled the defense of limitations in its answer, this defense clearly has not been waived.
Hartford also argues that even if the statute applies, the breach of contract claim should still be submitted to a jury. The crux of the contract claim, however, is based on the "defective and unsafe condition" of the pipe; thus, this claim, too, would be barred by the statute.
[9] See Md.Code. Ann., Real Prop. § 9-101(d)(g) (1995). "Contractor" is defined as "a person who has a contract with the owner," and "subcontractor" is defined as "a person who has a contract with anyone except the owner or his agent."
[10] The Mechanic's Lien Law sets forth certain statutory requirements before subcontractors who have not been paid by their general contractor may seek relief against an owner of a building. See Md.Code Ann., Real Prop. § 9-101 et seq. Because the statute addresses the specific contractual relationships between general contractors and subcontractors, it is obvious why the statute defines them separately. This statute serves a drastically different purpose than the statute of repose, which seeks to protect those involved in the construction of real property improvements from liability for occurrences which are temporally remote. Thus, the definitions in the Mechanic's Lien Law are of scant relevance here.
[11] A contractor is also defined as "one who in pursuit of independent business undertakes to perform a job or piece of work, retaining in himself control of means, method, and manner of accomplishing the desired result." Id.
[12] Seekford testified on deposition that on one occasion he was asked to open a water valve under the stairwell. Hartford exaggerates the significance of this incident, which does not translate into the repeated draining and repressurizing alleged to have caused the pipe leak. Moreover, Seekford further testified that he had no ability to describe how one would drain a sprinkler system, nor how it would be refilled.
[13] The conclusions of Hartford's experts highlight the lack of evidence on the negligent renovation claims. For example, the report of Roger Link lists five conclusions, none of which reference the renovations. In fact, he states that "the coupling and end cap assembly separated as a result of a problem with the installation or the parts installed by American." Although he disclaims that the precise cause cannot be determined because of the missing pipe, this conclusion does not implicate the renovations completed in 1996 whatsoever. Hartford's other expert, Webb, does mention the renovations work, yet does so in only two of his eight findings. He states that "the system, based upon the testimony, was not properly recharged following draining for alterations." There is no evidence substantiating this conclusion except for Seekford's testimony of turning on a water valve on one occasion. Thus, Hartford's expert opinion evidence reveals the insufficiency of the evidence as to its negligence and breach of contract claims based on the 1996 renovations.
Since I have granted summary judgment for American on all counts, American's motion to strike Hartford's last minute attempt to expand upon its expert's opinion by offering the testimony of Webb is moot. The admission of Webb's testimony would not alter my decision to grant summary judgment in favor of American, but, in any event, I would grant the motion to strike because the testimony was developed too late and unfairly prejudiced American's defense by coming after the close of discovery. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/612808/ | 652 F.3d 905 (2011)
UNITED STATES of America, Plaintiff-Appellee,
v.
Clifton D. TAYLOR, Defendant-Appellant.
No. 10-2758.
United States Court of Appeals, Eighth Circuit.
Submitted: April 11, 2011.
Filed: August 30, 2011.
*906 John R. Osgood, Lee's Summit, MO, argued, for appellant.
Daniel M. Nelson, Asst. U.S. Atty., Kansas City, MO, argued (Beth Phillips, U.S. Atty., on the brief), for appellee.
Before LOKEN, BALDOCK,[*] and MURPHY, Circuit Judges.
LOKEN, Circuit Judge.
Clifton D. Taylor entered the FDIC-insured Central Bank of Kansas City, slid a threatening note to a bank-teller, and exited the bank with $2,700 in hundred-dollar bills. Bank employees followed Taylor as he fled on foot, abandoned the green cap and jacket he was wearing, and entered a store. They called the police, who arrested Taylor as he left the store. At Taylor's bank robbery trial, the government presented video evidence of Taylor in the store and DNA evidence linking Taylor to the green hat found in a parked truck along with a leather jacket and $2700 cash. Based on this and other overwhelming evidence, a jury convicted Taylor of bank robbery in violation of 18 U.S.C. § 2113(a). Taylor appeals the conviction, arguing that he is entitled to a new trial because the district court[1] abused its discretion when it denied his repeated pretrial requests for new appointed counsel, which rendered involuntary his ultimate decision to waive his Sixth Amendment right to counsel and defend himself at trial. We affirm.
I.
Taylor was indicted and arraigned in April 2009. Assistant Federal Public Defender Travis Poindexter was appointed to represent Taylor and moved to continue trial from the June docket. Taylor soon filed many extensive pro se motions, followed in June by a Motion for Ineffective Assistance seeking the appointment of substitute counsel. Magistrate Judge Larsen held a hearing and asked Taylor why *907 he was dissatisfied with attorney Poindexter. Taylor complained that Poindexter had refused to file Taylor's pro se motions "alleging Government misconduct" and requesting a hearing "to challenge the reliability of witness statements." After a lengthy colloquy discussing these issues, Magistrate Judge Larsen concluded that a different lawyer would not have filed those motions.[2] "So I'm not going to replace him because I don't think he's done anything or failed to do anything that reflects on the adequacy of the representation." Magistrate Judge Larsen explained that Taylor's options were to continue to be represented by Poindexter, to retain substitute counsel, or to represent himself with Poindexter likely serving as standby counsel. Taylor's response: "I want a change of venue."
Taylor next filed a "criminal complaint" against Poindexter alleging due process violations and entrapment. He also filed numerous additional pro se motions, including one that Magistrate Judge Larsen interpreted as a motion to recuse. All were denied because Taylor was represented by counsel, but Magistrate Judge Larsen also explained why each motion was baseless. In denying the motion to recuse, Magistrate Judge Larsen explained:
Defendant's second reason ... is essentially that I will not give him his own way. Defendant asked for a new attorney. I held a hearing on that motion and determined that Mr. Poindexter had done a satisfactory job of representing defendant and that no other attorney would have handled defendant's issues differently. Refusing to terminate an attorney and hire a new one to start all over, without any plausible grounds at all, does not provide justification for my recusal.... There is no competent attorney who would do the things defendant is requesting as they have no basis in law.
After this ruling, Taylor continued to file numerous pro se motions, including an August motion giving notice that his appointed counsel was making him insane. Attorney Poindexter filed a motion for mental examination, which was granted. In October, Taylor was found competent. He filed more pro se motions and again alleged ineffective assistance of counsel, prompting Magistrate Judge Larsen to hold another hearing on the repeated requests for appointment of new counsel. At the start of this hearing, Magistrate Judge Larsen asked Taylor, "tell me what it is that you're complaining about here with regard to Mr. Poindexter." Taylor replied:
"I don't like him. He's not working in my best interest. He's not arguing with the evidence. He hasn't filed one motion since I've been incarcerated. He doesn't come to see me, he doesn't talk about my case. And he's like a dead-beat dad. And I don't need him on my case. And it's going to be a problem because I don't want him on my case.
Taylor then lost control and was removed from the courtroom. Poindexter advised the court that Taylor had refused Poindexter's recent attempts at contact. Returned to the courtroom, Taylor reiterated the meritless evidentiary motions he wanted Poindexter to file and asserted, "there's *908 just no way he's going to be working in my best interest because I requested that he be removed from the bar." Magistrate Judge Larsen explained to Taylor the flaws in each of his motions. After a further exchange, Magistrate Judge Larsen informed Taylor he was not going to replace Poindexter, upon which Taylor stood up violently, overturning the counsel table, an action raising serious security issues that were carefully resolved at trial.
Taylor continued to file ineffective assistance motions asserting the same issues, which were denied without a hearing. Three weeks before the January 2010 trial, Taylor filed a motion to proceed pro se. Magistrate Judge Larsen held a hearing at which he advised Taylor regarding aspects of pretrial preparation and trial for which Taylor would become responsible, and extensively warned Taylor of the dangers of proceeding pro se. When Taylor persisted, Magistrate Judge Larsen found a knowing, intelligent, and voluntary waiver of Taylor's Sixth Amendment right to counsel, relieved Poindexter as appointed counsel, and appointed Poindexter as standby counsel "to be available in the courtroom if we run into a problem." When Taylor protested, "I want [Poindexter] out of my life," Magistrate Judge Larsen directed that Poindexter "be available by phone," not in the courtroom, "if that's acceptable with Judge Smith, who makes the final decisions on these issues."
At the start of trial, Judge Smith again cautioned Taylor about the disadvantages of representing himself and offered to have standby counsel Poindexter reappointed as trial counsel. Taylor reaffirmed his waiver of counsel and refused to have any assistance from Poindexter at trial.
II.
A motion for appointment of substitute counsel is committed to the district court's sound discretion. United States v. Webster, 84 F.3d 1056, 1062 (8th Cir.1996). Taylor argues the district court abused its discretion in denying his repeated motions for appointment of new counsel. To prevail on this claim, Taylor must show "justifiable dissatisfaction" with attorney Poindexter, which "can arise from irreconcilable conflict, a complete breakdown in communication, or any other factor interfering significantly with an attorney's ability to provide zealous representation." United States v. Boone, 437 F.3d 829, 839 (8th Cir.2006). Given the importance of the attorney-client relationship, "[t]he court must conduct an adequate inquiry into the nature and extent of an alleged breakdown in attorney-client communications." United States v. Barrow, 287 F.3d 733, 738 (8th Cir.), cert. denied, 537 U.S. 1024, 123 S.Ct. 535, 154 L.Ed.2d 435 (2002).
It is clear from this record that the district court made a careful and thorough inquiry into Taylor's repeated claims of justifiable dissatisfaction with appointed counsel Poindexter before denying Taylor's requests for substitute counsel. "The defendant's right to counsel ... does not involve the right to a `meaningful relationship' between an accused and his counsel." United States v. Swinney, 970 F.2d 494, 499 (8th Cir.1992), citing Morris v. Slappy, 461 U.S. 1, 13-14, 103 S.Ct. 1610, 75 L.Ed.2d 610 (1983). Thus, frustration with appointed counsel's performance or disagreement with counsel's tactical decisions is not justifiable dissatisfaction. "The proper focus in evaluating claims of dissatisfaction with counsel is on the quality of advocacy." United States v. Exson, 328 F.3d 456, 460 (8th Cir.) (citation omitted), cert. denied, 540 U.S. 1011, 124 S.Ct. 549, 157 L.Ed.2d 421 (2003). After careful review of the record, we agree with Magistrate Judge Larsen that Taylor failed to show that attorney Poindexter was unprepared, *909 was unable or unwilling to continue representing Taylor, or had failed to take actions on Taylor's behalf that would cause "justifiable dissatisfaction" with the quality of Poindexter's advocacy.
By the time Magistrate Judge Larsen granted Taylor's request to represent himself at trial, it was obvious there was "a complete breakdown in communication" between attorney and client. For months, Taylor had refused all contact with a competent appointed attorney. He filed a "criminal complaint" against counsel, demanded a "change of venue," and employed every other tactic he could think of to coerce the court into appointing a new counsel with whom, the court reasonably concluded, Taylor was unlikely to have any better relations. Is this a variety of "justifiable dissatisfaction" requiring us to conclude the district court abused its discretion? This court, and others, have sensibly declined to do so. Taylor "was not entitled to new counsel if his refusal to cooperate with [Poindexter] was simply a `stonewalling effort to select counsel of his own choice.'" Hunter v. Delo, 62 F.3d 271, 275 (8th Cir.1995), quoting United States v. Horton, 845 F.2d 1414, 1418 (7th Cir.1988); accord United States v. Simpson, 645 F.3d 300, ___ (5th Cir. 2011). Properly viewed, this was not a breakdown of communication requiring appointment of new counsel, only an unwillingness on Taylor's part to communicate with appointed counsel. See United States v. Anderson, 570 F.3d 1025, 1032 (8th Cir.2009), and cases cited. The district court did not abuse its discretion by declining to grant Taylor's requests for new counsel. See Exson, 328 F.3d at 460-61.
Taylor further argues that his waiver of counsel was involuntary because the district court refused to grant him substitute counsel. A defendant's right to counsel includes the right to conduct his own defense. Faretta v. California, 422 U.S. 806, 835, 95 S.Ct. 2525, 45 L.Ed.2d 562 (1975). But the court must "assure itself that the waiver of the right to appointed counsel is knowing and voluntary." United States v. Mentzos, 462 F.3d 830, 838 (8th Cir.2006), cert. denied, 549 U.S. 1359, 127 S.Ct. 2079, 167 L.Ed.2d 799 (2007). A waiver is involuntary if the defendant is offered the "Hobson's choice" of proceeding to trial with unprepared counsel or no counsel at all. See Gilbert v. Lockhart, 930 F.2d 1356, 1360 (8th Cir.1991). "However, if defendant's counsel is competent and defendant cannot establish good cause entitling him to appointment of new counsel, his waiver will be deemed voluntary." United States v. Taylor, 183 F.3d 1199, 1203 (10th Cir.), cert. denied, 528 U.S. 904, 120 S.Ct. 244, 145 L.Ed.2d 205 (1999). "[A] persistent, unreasonable demand for dismissal of counsel and appointment of new counsel... is the functional equivalent of a knowing and voluntary waiver of counsel. In such an instance, the trial court may proceed to trial with the defendant representing himself." United States v. Moore, 706 F.2d 538, 540 (5th Cir.), cert. denied, 464 U.S. 859, 104 S.Ct. 183, 78 L.Ed.2d 163 (1983); accord Meyer v. Sargent, 854 F.2d 1110, 1114 (8th Cir.1988). The district court properly cautioned Taylor as to the dangers of self-representation. In these circumstances, his waiver of counsel was valid.[3]
*910 The judgment of the district court is affirmed. We deny Taylor's pro se motion claiming ineffective assistance of appellate counsel.
NOTES
[*] The Honorable Bobby R. Baldock, United States Circuit Judge for the Tenth Circuit, sitting by designation.
[1] The Honorable Ortrie D. Smith, United States District Judge for the Western District of Missouri. Pretrial motion rulings, including those at issue on appeal, were made initially by the Honorable Robert E. Larsen, United States Magistrate Judge for the Western District of Missouri.
[2] Appellate counsel argues that Magistrate Judge Larsen "missed" Taylor's legitimate concern with Poindexter's failure to move to suppress an incriminating statement Taylor made to FBI agents. After careful review of the hearing transcript and Taylor's pro se motions, we conclude Taylor expressed a desire to suppress only inadmissible "hearsay evidence," not his admission. The record on appeal contains not the slightest hint that a motion to suppress the admission had merit.
[3] Taylor also rejected Poindexter's services as standby counsel at trial and unwisely called Poindexter as a witness, attempting to show that Poindexter had conspired with the prosecution in gathering incriminating DNA evidence. But this was Taylor's choice. "There is no constitutional right to hybrid representation." United States v. Einfeldt, 138 F.3d 373, 378 (8th Cir.), cert. denied, 525 U.S. 851, 119 S.Ct. 126, 142 L.Ed.2d 102 (1998); see generally McKaskle v. Wiggins, 465 U.S. 168, 104 S.Ct. 944, 79 L.Ed.2d 122 (1984). | 01-03-2023 | 08-30-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/110361/ | 449 U.S. 117 (1980)
UNITED STATES
v.
DIFRANCESCO.
No. 79-567.
Supreme Court of United States.
Argued October 6, 1980.
Decided December 9, 1980.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT.
*118 Deputy Solicitor General Frey argued the cause for the United States. With him on the briefs were Solicitor General McCree, Assistant Attorney General Heymann, and Victor D. Stone.
Edgar C. DeMoyer argued the cause and filed a brief for respondent.[*]
JUSTICE BLACKMUN delivered the opinion of the Court.
The Organized Crime Control Act of 1970, Pub. L. 91-452, 84 Stat. 922, contains, among other things, a definition of "dangerous special offender," 18 U.S. C. §§ 3575 (e) and (f);[1] authorizes the imposition of an increased sentence upon *119 a convicted dangerous special offender, § 3575 (b); and grants the United States the right, under specified conditions, to *120 take that sentence to the Court of Appeals for review, § 3576.[2] The issue presented by this case is whether § 3576, *121 authorizing the United States so to appeal, violates the Double Jeopardy Clause[3] of the Fifth Amendment of the Constitution.[4]
*122 I
At a 1977 jury trial in the United States District Court for the Western District of New York, respondent Eugene DiFrancesco was convicted of conducting the affairs of an enterprise through a pattern of racketeering activity, and of conspiring to commit that offense, in violation of 18 U.S. C. §§ 1962 (c) and (d).[5] At another jury trial in 1978before a different judge in the same Districtbased on an indictment returned prior to the racketeering indictment, respondent was convicted of damaging federal property, in violation of 18 U.S. C. § 1361, of unlawfully storing explosive materials, in violation of 18 U.S. C. § 842 (j), and of conspiring to commit those offenses, in violation of 18 U.S. C. § 371.[6]
Respondent was first sentenced, in March 1978, on his convictions at the later trial. He received eight years on the charge for damaging federal property and five years on the conspiracy charge, these sentences to be served concurrently, and one year on the unlawful storage charge, to be served consecutively to the other sentences. This made a total of nine years' imprisonment. In April, respondent was sentenced as a dangerous special offender under § 3575 to two 10-year terms on the racketeering counts upon which he was convicted at the earlier trial; the court specified that these sentences were to be served concurrently with each other and with the sentences imposed in March. The dangerous special *123 offender charge and sentences thus resulted in additional punishment of only about a year.
Respondent appealed the respective judgments of conviction to the Court of Appeals for the Second Circuit, and the United States sought review, under § 3576, of the sentences imposed upon respondent as a dangerous special offender. The Court of Appeals unanimously affirmed the judgments of conviction. By a divided vote, however, that court dismissed the Government's appeal on double jeopardy grounds. 604 F.2d 769 (1979). The two judges in the majority thus did not address the merits of the special offender issue. The third judge, while agreeing that the Government's appeal was to be dismissed, based that conclusion not on constitutional grounds, as did the majority, but on the grounds that §§ 3575 and 3576 were inapplicable to the facts of the case. 604 F.2d, at 787.[7] Because of the importance of the constitutional question, we granted the Government's petition for certiorari, which confined itself to that single issue. 444 U.S. 1070 (1980). Respondent has not filed a cross-petition.
II
At the earlier racketeering trial, the evidence showed that respondent was involved in an arson-for-hire scheme in the Rochester, N. Y., area that was responsible for at least eight fires between 1970 and 1973; that the ring collaborated with property owners to set fire to buildings in return for shares of the insurance proceeds; and that insurers were defrauded of approximately $480,000 as a result of these fires. At the second trial, the evidence showed that respondent participated *124 in the 1970 "Columbus Day bombings," including the bombing of the federal building at Rochester.
Prior to the first trial, the Government, in accordance with § 3575 (a), filed with the trial court a notice alleging that respondent was a dangerous special offender. This notice recited the Government's intention to seek enhanced sentences on the racketeering counts in the event respondent was convicted at that trial. After respondent was found guilty, a dangerous special offender hearing, pursuant to § 3575 (b), was held. At the hearing, the Government relied upon the testimony adduced at the trial and upon public documents that attested to other convictions of respondent for the Columbus Day bombings, for loansharking, and for murder. App. 27-28, 30. The defense offered no evidence. It conceded the validity of the public records, id., at 31-32, but objected to any consideration of the murder offense because that conviction had been vacated on appeal. Id., at 28-29.
The District Court made findings of fact and ruled that respondent was a dangerous special offender within the meaning of the statute. The findings set forth respondent's criminal record and stated that that record revealed "virtually continuous criminal conduct over the past eight years, interrupted only by relatively brief periods of imprisonment in 1975, 1976 and 1977." Id., at 41. The court found, in addition, that respondent's "criminal history, based upon proven facts, reveals a pattern of habitual and knowing criminal conduct of the most violent and dangerous nature against the lives and property of the citizens of this community. It further shows the defendant's complete and utter disregard for the public safety. The defendant, by virtue of his own criminal record, has shown himself to be a hardened habitual criminal from whom the public must be protected for as long a period as possible. Only in that way can the public be protected from further violent and dangerous criminal *125 conduct by the defendant." Id., at 43.[8] The court thereupon sentenced respondent under § 3575 (b) to the concurrent 10-year terms hereinabove described. App. 45-46.
The United States then took its appeal under § 3576, claiming that the District Court abused its discretion in imposing sentences that amounted to additional imprisonment of respondent for only one year, in the face of the findings the court made after the dangerous special offender hearing.[9]*126 The dismissal of the Government's appeal by the Court of Appeals rested specifically upon its conclusion, which it described as "inescapable," that "to subject a defendant to the risk of substitution of a greater sentence, upon an appeal by the government, is to place him a second time `in jeopardy of life or limb.'" 604 F.2d, at 783.
III While this Court, so far as we are able to ascertain, has never invalidated an Act of Congress on double jeopardy grounds, it has had frequent occasion recently to consider and pass upon double jeopardy claims raised in various contexts. See United States v. Jorn, 400 U.S. 470 (1971); Colten v. Kentucky, 407 U.S. 104 (1972); Illinois v. Somerville, 410 U.S. 458 (1973); Chaffin v. Stynchcombe, 412 U.S. 17 (1973); United States v. Wilson, 420 U.S. 332 (1975); United States v. Jenkins, 420 U.S. 358 (1975); Serfass v. United States, 420 U.S. 377 (1975); Breed v. Jones, 421 U.S. 519 (1975); United States v. Dinitz, 424 U.S. 600 (1976); Ludwig v. Massachusetts, 427 U.S. 618 (1976); United States v. Martin Linen Supply Co., 430 U.S. 564 (1977); Lee v. United States, 432 U.S. 23 (1977); Arizona v. Washington, 434 U.S. 497 (1978); Burks v. United States, 437 U.S. 1 (1978); Greene v. Massey, 437 U.S. 19 (1978); Crist v. Bretz, 437 U.S. 28 (1978); Sanabria v. United States, 437 U.S. 54 (1978); United States v. Scott, 437 U.S. 82 *127 (1978); Swisher v. Brady, 438 U.S. 204 (1978); Whalen v. United States, 445 U.S. 684 (1980); Illinois v. Vitale, 447 U.S. 410 (1980).
These cited cases are the additions of just the past decade to the less numerous list of well-known double jeopardy decisions of past years. Among those earlier cases are United States v. Perez, 9 Wheat. 579 (1824); Ex parte Lange, 18 Wall. 163 (1874), United States v. Ball, 163 U.S. 662 (1896); Kepner v. United States, 195 U.S. 100 (1904); Green v. United States, 355 U.S. 184 (1957); Fong Foo v. United States, 369 U.S. 141 (1962); Downum v. United States, 372 U.S. 734 (1963); United States v. Tateo, 377 U.S. 463 (1964).
That the Clause is important and vital in this day is demonstrated by the host of recent cases. That its application has not proved to be facile or routine is demonstrated by acknowledged changes in direction or in emphasis. See, e. g., United States v. Scott, supra, overruling United States v. Jenkins, supra; and Burks v. United States, 437 U. S., at 18, overruling, at least in part, certain prior cases in the area. See also Note, 24 Minn. L. Rev. 522 (1940); Westen & Drubel, Toward a General Theory of Double Jeopardy, 1978 S. Ct. Rev. 81, 82. Nonetheless, the following general principles emerge from the Court's double jeopardy decisions and may be regarded as essentially settled:
The general design of the Double Jeopardy Clause of the Fifth Amendment is that described in Green v. United States:
"The constitutional prohibition against `double jeopardy' was designed to protect an individual from being subjected to the hazards of trial and possible conviction more than once for an alleged offense. . . . The underlying idea, one that is deeply ingrained in at least the Anglo-American system of jurisprudence, is that the State with all its resources and power should not be allowed to make repeated attempts to convict an individual *128 for an alleged offense, thereby subjecting him to embarrassment, expense and ordeal and compelling him to live in a continuing state of anxiety and insecurity, as well as enhancing the possibility that even though innocent he may be found guilty." 355 U.S., at 187-188.
See also Serfass v. United States, 420 U. S., at 387-388; Crist v. Bretz, 437 U. S., at 35. This concept has ancient roots centering in the common-law pleas of autre fois acquit, autre fois convict, and pardon, 4 W. Blackstone, Commentaries 329-330 (1st ed. 1769), and found expression in the legal tradition of colonial America. See Green v. United States, 355 U. S., at 187; id., at 200 (dissenting opinion); United States v. Wilson, 420 U. S., at 339-342; United States v. Scott, 437 U. S., at 87.
The stated design, in terms of specific purpose, has been expressed in various ways. It has been said that "a" or "the" "primary purpose" of the Clause was "to preserve the finality of judgments," Crist v. Bretz, 437 U. S., at 33, or the "integrity" of judgments, United States v. Scott, 437 U. S., at 92. But it has also been said that "central to the objective of the prohibition against successive trials" is the barrier to "affording the prosecution another opportunity to supply evidence which it failed to muster in the first proceeding." Burks v. United States, 437 U. S., at 11; Swisher v. Brady, 438 U. S., at 215-216. Implicit in this is the thought that if the Government may reprosecute, it gains an advantage from what it learns at the first trial about the strengths of the defense case and the weaknesses of its own. See United States v. Scott, 437 U. S., at 105, n. 4 (dissenting opinion); United States v. Wilson, 420 U. S., at 352.
Still another consideration has been noted:
"Because jeopardy attaches before the judgment becomes final, the constitutional protection also embraces the defendant's `valued right to have his trial completed by a particular tribunal.'" Arizona v. Washington, 434 *129 U. S., at 503, quoting from Wade v. Hunter, 336 U.S. 684, 689 (1949).
See Swisher v. Brady, 438 U. S., at 214-215; Crist v. Bretz, 437 U. S., at 36.
On occasion, stress has been placed upon punishment:
"It is the punishment that would legally follow the second conviction which is the real danger guarded against by the Constitution." Ex parte Lange, 18 Wall., at 173.
The Court has summarized:
"That guarantee [against double jeopardy] has been said to consist of three separate constitutional protections. It protects against a second prosecution for the same offense after acquittal. It protects against a second prosecution for the same offense after conviction. And it protects against multiple punishments for the same offense." (Footnotes omitted.) North Carolina v. Pearce, 395 U.S. 711, 717 (1969).[10]
See Illinois v. Vitale, 447 U. S., at 415.
An acquittal is accorded special weight. "The constitutional protection against double jeopardy unequivocally prohibits a second trial following an acquittal," for the "public interest in the finality of criminal judgments is so strong that an acquitted defendant may not be retried even though `the acquittal was based upon an egregiously erroneous foundation.' See Fong Foo v. United States, 369 U.S. 141, 143. If the innocence of the accused has been confirmed by a final judgment, the Constitution conclusively presumes that a second trial would be unfair." Arizona v. Washington, 434 U. S., at 503. The law "attaches particular significance to an acquittal." United States v. Scott, 437 U. S., at 91.
*130 This is justified on the ground that, however mistaken the acquittal may have been, there would be an unacceptably high risk that the Government, with its superior resources, would wear down a defendant, thereby "enhancing the possibility that even though innocent he may be found guilty." Green v. United States, 355 U. S., at 188. See also United States v. Martin Linen Supply Co., 430 U. S., at 571, 573, n. 12. "[W]e necessarily afford absolute finality to a jury's verdict of acquittal no matter how erroneous its decision" (emphasis in original). Burks v. United States, 437 U. S., at 16.[11]
The result is definitely otherwise in cases where the trial has not ended in an acquittal. This Court has long recognized that the Government may bring a second prosecution where a mistrial has been occasioned by "manifest necessity." United States v. Perez, 9 Wheat, at 580. See Arizona v. Washington, 434 U. S., at 514-516; Illinois v. Somerville, 410 U.S. 458 (1973). Furthermore, reprosecution of a defendant who has successfully moved for a mistrial is not barred, so long as the Government did not deliberately seek to provoke the mistrial request. United States v. Dinitz, 424 U. S., at 606-611.
Similarly, where the trial has been terminated prior to a jury verdict at the defendant's request on grounds unrelated to guilt or innocence, the Government may seek appellate review of that decision even though a second trial would be necessitated by a reversal. See United States v. Scott, 437 U. S., at 98-99. A fortiori, the Double Jeopardy Clause does not bar a Government appeal from a ruling in favor of the defendant after a guilty verdict has been entered by the trier of fact. See United States v. Wilson, supra; United States v. Rojas, 554 F.2d 938, 941 (CA9 1977); United States v. De Garces, 518 F.2d 1156, 1159 (CA2 1975).
*131 Finally, if the first trial has ended in a conviction, the double jeopardy guarantee "imposes no limitations whatever upon the power to retry a defendant who has succeeded in getting his first conviction set aside" (emphasis in original). North Carolina v. Pearce, 395 U. S., at 720. "It would be a high price indeed for society to pay were every accused granted immunity from punishment because of any defect sufficient to constitute reversible error in the proceedings leading to conviction." United States v. Tateo, 377 U. S., at 466. "[T]o require a criminal defendant to stand trial again after he has successfully invoked a statutory right of appeal to upset his first conviction is not an act of governmental oppression of the sort against which the Double Jeopardy Clause was intended to protect." United States v. Scott, 437 U. S., at 91. There is, however, one exception to this rule: the Double Jeopardy Clause prohibits retrial after a conviction has been reversed because of insufficiency of the evidence. Burks v. United States, supra; Greene v. Massey, 437 U. S., at 24.
Where the Clause does apply, "its sweep is absolute." Burks v. United States, 437 U. S., at 11, n. 6.
The United States "has no right of appeal in a criminal case, absent explicit statutory authority." United States v. Scott, 437 U. S., at 84-85. But with the enactment of the first paragraph of what is now 18 U.S. C. § 3731 by Pub. L. 91-644 in 1971, 84 Stat. 1890, permitting a Government appeal in a criminal case except "where the double jeopardy clause of the United States Constitution prohibits further prosecution," the Court necessarily concluded that "Congress intended to remove all statutory barriers to Government appeals and to allow appeals whenever the Constitution would permit." United States v. Wilson, 420 U. S., at 337. See also United States v. Scott, 437 U. S., at 85.[12]
*132 IV
From these principles, certain propositions pertinent to the present controversy emerge:
A. The Double Jeopardy Clause is not a complete barrier to an appeal by the prosecution in a criminal case. "[W]here a Government appeal presents no threat of successive prosecutions, the Double Jeopardy Clause is not offended." United States v. Martin Linen Supply Co., 430 U. S., at 569-570. See also United States v. Wilson, 420 U. S., at 342; United States v. Scott, supra. From this it follows that the Government's taking a review of respondent's sentence does not in itself offend double jeopardy principles just because its success might deprive respondent of the benefit of a more lenient sentence. Indeed, in Wilson and again in Scott the defendant had won a total victory in the trial court, for that tribunal had terminated the case in a manner that would have allowed him to go free. The Government, nevertheless, over the constitutional challenge, was allowed to appeal.
B. The double jeopardy focus, thus, is not on the appeal but on the relief that is requested, and our task is to determine whether a criminal sentence, once pronounced, is to be accorded constitutional finality and conclusiveness similar to that which attaches to a jury's verdict of acquittal. We conclude that neither the history of sentencing practices, nor the pertinent rulings of this Court, nor even considerations of double jeopardy policy support such an equation.
As has been noted above, the Court has said that the prohibition against multiple trials is the "controlling constitutional principle." United States v. Wilson, 420 U. S., at 346; United States v. Martin Linen Supply Co., 430 U. S., at 569. But, of course, the Court's cases show that even the protection against retrial is not absolute. It is acquittal that prevents retrial even if legal error was committed at the trial. United States v. Ball, 163 U.S. 662 (1896). This is why the "law attaches particular significance to an acquittal." United *133 States v. Scott, 437 U. S., at 91. Appeal of a sentence, therefore, would seem to be a violation of double jeopardy only if the original sentence, as pronounced, is to be treated in the same way as an acquittal is treated, and the appeal is to be treated in the same way as a retrial. Put another way, the argument would be that, for double jeopardy finality purposes, the imposition of the sentence is an "implied acquittal" of any greater sentence. See Van Alstyne, In Gideon's Wake: Harsher Penalties and the "Successful" Criminal Appellant, 74 Yale L. J. 606, 634-635 (1965).
We agree with the Government that this approach does not withstand analysis. Any reliance the Court of Appeals may have placed on Kepner v. United States, 195 U.S. 100 (1904),[13] is misplaced, for the focus of Kepner was on the undesirability of a second trial. There are, furthermore, fundamental distinctions between a sentence and an acquittal, and to fail to recognize them is to ignore the particular significance of an acquittal.
Historically, the pronouncement of sentence has never carried the finality that attaches to an acquittal. The common-law writs of autre fois acquit and autre fois convict were protections against retrial. See United States v. Wilson, 420 U. S., at 340. Although the distinction was not of great importance early in the English common law because nearly all felonies, to which double jeopardy principles originally were limited, were punishable by the critical sentences of death or deportation, see Comment, Statutory Implementation of Double Jeopardy Clauses: New Life for a Moribund Constitutional Guarantee, 65 Yale L. J. 339, 342-343 (1956), it gained importance when sentences of imprisonment became common. The trial court's increase of a sentence, so long as it took place *134 during the same term of court, was permitted. This practice was not thought to violate any double jeopardy principle. See Ex parte Lange, 18 Wall., at 167; id., at 192-194 (dissenting opinion); 3 E. Coke, Institutes § 438 (13th ed. 1789). See also Commonwealth v. Weymouth, 84 Mass. 144 (1861). The common law is important in the present context, for our Double Jeopardy Clause was drafted with the common-law protections in mind. See United States v. Wilson, 420 U. S., at 340-342; Green v. United States, 355 U. S., at 200-201 (dissenting opinion). This accounts for the established practice in the federal courts that the sentencing judge may recall the defendant and increase his sentence, at least (and we venture no comment as to this limitation) so long as he has not yet begun to serve that sentence. See, e. g., United States v. DiLorenzo, 429 F.2d 216, 221 (CA2 1970), cert. denied, 402 U.S. 950 (1971); Vincent v. United States, 337 F.2d 891, 894 (CA8 1964), cert. denied, 380 U.S. 988 (1965). Thus it may be said with certainty that history demonstrates that the common law never ascribed such finality to a sentence as would prevent a legislative body from authorizing its appeal by the prosecution. Indeed, countries that trace their legal systems to the English common law permit such appeals. See Can. Rev. Stat. §§ 605 (1) (b) and 748 (b) (ii) (1970), Martin's Annual Criminal Code 523, 636 (E. Greenspan ed. 1979); New Zealand Crimes Act 1961, as amended by the Crimes Amendment Act of 1966, 1 Repr. Stat. N. Z. § 383 (2) (1979). See M. Friedland, Double Jeopardy 290 (1969).
C. This Court's decisions in the sentencing area clearly establish that a sentence does not have the qualities of constitutional finality that attend an acquittal. In Bozza v. United States, 330 U.S. 160 (1947), the defendant was convicted of a crime carrying a mandatory minimum sentence of fine and imprisonment. The trial court, however, sentenced the defendant only to imprisonment. Later on the same day, the judge recalled the defendant and imposed both fine and imprisonment. *135 This Court held that there was no double jeopardy. "The Constitution does not require that sentencing should be a game in which a wrong move by the judge means immunity for the prisoner." Id., at 166-167. What the judge had done "did not twice put petitioner in jeopardy for the same offense." Id., at 167. And in North Carolina v. Pearce, 395 U.S. 711 (1969), the Court held that there was no absolute constitutional bar to the imposition of a more severe sentence on reconviction after the defendant's successful appeal of the original judgment of conviction. The rule of Pearce, permitting an increase of sentence on retrial is a "well-established part of our constitutional jurisprudence." Id., at 720. See Chaffin v. Stynchcombe, 412 U. S., at 24. See also Stroud v. United States, 251 U.S. 15 (1919). If any rule of finality had applied to the pronouncement of a sentence, the original sentence in Pearce would have served as a ceiling on the one imposed at retrial.[14] While Pearce dealt *136 with the imposition of a new sentence after retrial rather than, as here, after appeal, that difference is no more than a "conceptual nicety." North Carolina v. Pearce, 395 U. S., at 722.
D. The double jeopardy considerations that bar reprosecution after an acquittal do not prohibit review of a sentence. We have noted above the basic design of the double jeopardy provision, that is, as a bar against repeated attempts to convict, with consequent subjection of the defendant to embarrassment, expense, anxiety, and insecurity, and the possibility that he may be found guilty even though innocent. These considerations, however, have no significant application to the prosecution's statutorily granted right to review a sentence. This limited appeal does not involve a retrial or approximate the ordeal of a trial on the basic issue of guilt or innocence. Under § 3576, the appeal is to be taken promptly and is essentially on the record of the sentencing court. The defendant, of course, is charged with knowledge of the statute and its appeal provisions, and has no expectation of finality in his sentence until the appeal is concluded or the time to appeal has expired. To be sure, the appeal may prolong the period of any anxiety that may exist, but it does so only for the finite period provided by the statute. The appeal is no more of an ordeal than any Government appeal under 18 U.S. C. § 3731 from the dismissal of an indictment or information. The defendant's primary concern and anxiety obviously relate to the determination of innocence or guilt, and that already is behind him. The defendant is subject to no risk of being harassed and then convicted, although innocent. Furthermore, a sentence is characteristically determined in *137 large part on the basis of information, such as the presentence report, developed outside the courtroom. It is purely a judicial determination, and much that goes into it is the result of inquiry that is nonadversary in nature.
E. The Double Jeopardy Clause does not provide the defendant with the right to know at any specific moment in time what the exact limit of his punishment will turn out to be. Congress has established many types of criminal sanctions under which the defendant is unaware of the precise extent of his punishment for significant periods of time, or even for life, yet these sanctions have not been considered to be violative of the Clause. Thus, there is no double jeopardy protection against revocation of probation and the imposition of imprisonment. See, e. g., Thomas v. United States, 327 F.2d 795 (CA10), cert. denied, 377 U.S. 1000 (1964). There are other situations where probation or parole may be revoked and sentence of imprisonment imposed. See, e. g., United States v. Kuck, 573 F.2d 25 (CA10 1978); United States v. Walden, 578 F.2d 966, 972 (CA3 1978), cert. denied, 444 U.S. 849 (1979); United States v. Jones, 540 F.2d 465 (CA10 1976), cert. denied, 429 U.S. 1101 (1977); Dunn v. United States, 182 U. S. App. D. C. 261, 561 F.2d 259 (1977). While these criminal sanctions do not involve the increase of a final sentence, and while the defendant is aware at the original sentencing that a term of imprisonment later may be imposed, the situation before us is different in no critical respect. Respondent was similarly aware that a dangerous special offender sentence is subject to increase on appeal. His legitimate expectations are not defeated if his sentence is increased on appeal any more than are the expectations of the defendant who is placed on parole or probation that is later revoked.
All this highlights the distinction between acquittals and sentences. North Carolina v. Pearce and Bozza v. United States demonstrate that the Double Jeopardy Clause does not require that a sentence be given a degree of finality that prevents its later increase. Because of the critical difference between *138 an acquittal and a sentence, the acquittal cases, such as Kepner v. United States, 195 U.S. 100 (1904), and Fong Foo v. United States, 369 U.S. 141 (1962), do not require a contrary result.
V
We turn to the question whether the increase of a sentence on review under § 3576 constitutes multiple punishment in violation of the Double Jeopardy Clause. The Court of Appeals found that it did. 604 F.2d, at 784-787. This conclusion appears to be attributable primarily to that court's extending to an appeal this Court's dictum in United States v. Benz, 282 U.S. 304, 307 (1931), to the effect that the federal practice of barring an increase in sentence by the trial court after service of the sentence has begun is constitutionally based.[15] The real and only issue in Benz, however, was whether the trial judge had the power to reduce a defendant's sentence after service had begun. The Court held that the trial court had such power. It went on to say gratuitously, however, id., at 307-308, and with quotations from a textbook and from Ex parte Lange, 18 Wall., at 167, 173, that the trial court may not increase a sentence, even though the increase is effectuated during the same court session, if the defendant has begun service of his sentence. But the dictum's source, Ex parte Lange, states no such principle. In Lange the trial court erroneously imposed both imprisonment and fine, even though it was authorized by statute to impose only one or the other of these two punishments. Lange had paid the fine and served five days in prison. The trial court then resentenced him to a year's imprisonment. The fine having been paid and the defendant having suffered one of the alternative punishments, "the power of the court to punish further was gone." Id., at 176. The Court also observed that to impose *139 a year's imprisonment (the maximum) after five days had been served was to punish twice for the same offense. Id., at 175. The holding in Lange, and thus the dictum in Benz, are not susceptible of general application. We confine the dictum in Benz to Lange's specific context. Although it might be argued that the defendant perceives the length of his sentence as finally determined when he begins to serve it, and that the trial judge should be prohibited from thereafter increasing the sentence, that argument has no force where, as in the dangerous special offender statute, Congress has specifically provided that the sentence is subject to appeal. Under such circumstances there can be no expectation of finality in the original sentence. See S. Rep. No. 91-617, p. 97 (1969); Dunsky, The Constitutionality of Increasing Sentences on Appellate Review, 69 J. Crim. L. & Criminology 19, 32 (1978).
The guarantee against multiple punishment that has evolved in the holdings of this Court plainly is not involved in this case. As Ex parte Lange demonstrates, a defendant may not receive a greater sentence than the legislature has authorized. No double jeopardy problem would have been presented in Ex parte Lange if Congress had provided that the offense there was punishable by both fine and imprisonment, even though that is multiple punishment. See Whalen v. United States, 445 U. S., at 688-689; id., at 697-698 (concurring opinion). The punishment authorized by Congress under §§ 3575 and 3576 is clear and specific and, accordingly, does not violate the guarantee against multiple punishment expounded by Ex parte Lange.
VI
The conclusion that § 3576 violates neither the guarantee against multiple punishment nor the guarantee against multiple trials is consistent with those opinions in which the Court has upheld the constitutionality of two-stage criminal proceedings. *140 See Ludwig v. Massachusetts, 427 U. S., at 630-632. See also Colten v. Kentucky, 407 U. S., at 118-120.[16]
Swisher v. Brady, 438 U.S. 204 (1978), affords particular support and, indeed, precedent for the decision we reach. That case concerned a Maryland scheme for the use of a master in a Juvenile Court proceeding. The master, after receiving evidence, concluded that the State had failed to show beyond a reasonable doubt that the minor had committed an assault and robbery. The master's recommendation to the Juvenile Court set forth that conclusion. The State filed exceptions, as it was authorized to do under a procedural rule, and the minor responded with a motion to dismiss the notice of exceptions on the ground that the procedural rule, with its provision for a de novo hearing, violated the Double Jeopardy Clause. The state courts denied relief. On federal habeas, this Court held that the Maryland system did not violate the Clause. Important in the decision was the fact that the system did not provide the prosecution a "second crack." Id., at 216. The record before the master was closed "and additional evidence can be received by the Juvenile Court judge only with the consent of the minor." Ibid. The Court also held that there was nothing in the procedure that "unfairly subjects the defendant to the embarrassment, expense, and ordeal of a second trial. . . ." Ibid. The "burdens are more akin to those resulting from a judge's permissible request for post-trial *141 briefing or argument following a bench trial than to the `expense' of a full-blown second trial . . . ." Id., at 217. And "[t]o the extent the Juvenile Court judge makes supplemental findings . . .either sua sponte, in response to the State's exceptions, or in response to the juvenile's exceptions, and either on the record or on a record supplemented by evidence to which the parties raise no objectionhe does so without violating the constraints of the Double Jeopardy Clause." Id., at 219.
The Court in Swisher characterized the proceedings before the master and those before the Juvenile Court judge as a continuing single process and distinguished the situation in Breed v. Jones, 421 U.S. 519 (1975), where it had been held that a juvenile was placed twice in jeopardy when, after an adjudicatory finding in Juvenile Court, he was transferred to an adult criminal court and tried and convicted for the same conduct.
Like the Maryland system at issue in Swisher, § 3576 does not subject a defendant to a second trial. The Maryland system, of course, concerns a master, whereas § 3576 concerns a federal trial court. This difference, however, is of no constitutional consequence, for the federal trial court has no power to impose a final dangerous special offender sentence that is not subject to appeal. Section 3576, indeed, is more limited in scope than the Maryland procedure in Swisher. The federal statute specifies that the Court of Appeals may increase the sentence only if the trial court has abused its discretion or employed unlawful procedures or made clearly erroneous findings. The appellate court thus is empowered to correct only a legal error. Under the Maryland procedure involved in Swisher, the judge need not find legal error on the part of the master; he is free to make a de novo determination of the facts relating to guilt or innocence. If that is consistent with the guarantee against double jeopardy, as the Court held it was, the limited appellate review of a sentence authorized by § 3576 is necessarily constitutional.
*142 The exaltation of form over substance is to be avoided. The Court has said that in the double jeopardy context it is the substance of the action that is controlling, and not the label given that action. See United States v. Martin Linen Supply Co., 430 U. S., at 571; United States v. Wilson, 420 U. S., at 336. Congress could have achieved the purpose of § 3576 by a slightly different statute whose constitutionality would be unquestionable. Congress might have provided that a defendant found to be a dangerous special offender was to receive a specified mandatory term, but that the trial court then could recommend a lesser sentence to the court of appeals, which would be free to accept the recommendation or to reject it. That scheme would offer no conceivable base for a double jeopardy objection. Yet the impact on the defendant would be exactly the same as, and possibly worse than, the impact under § 3576 as written. No double jeopardy policy is advanced by approving one of these procedures and declaring the other unconstitutional.
It is perhaps worth noting in passing that § 3576 represents a considered legislative attempt to attack a specific problem in our criminal justice system, that is, the tendency on the part of some trial judges "to mete out light sentences in cases involving organized crime management personnel." The Challenge of Crime in a Free Society, Report by the President's Commission on Law Enforcement and Administration of Justice 203 (1967). Section 3576 was Congress' response to that plea. See S. Rep. No. 91-617, pp. 85-87 (1969). The statute is limited in scope and is narrowly focused on the problem so identified. It is not an example of "Government oppression" against which the Double Jeopardy Clause stands guard. See United States v. Scott, 437 U. S., at 99. It has been observed elsewhere that sentencing is one of the areas of the criminal justice system most in need of reform. See M. Frankel, Criminal Sentences: Law Without Order (1973); P. O'Donnell, M. Churgin, & D. Curtis, Toward a Just and *143 Effective Sentencing System (1977). Judge Frankel himself has observed that the "basic problem" in the present system is "the unbridled power of the sentencers to be arbitrary and discriminatory." Frankel, supra, at 49. Appellate review creates a check upon this unlimited power, and should lead to a greater degree of consistency in sentencing.
We conclude that § 3576 withstands the constitutional challenge raised in the case before us. The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.
It is so ordered.
JUSTICE BRENNAN, with whom JUSTICE WHITE, JUSTICE MARSHALL, and JUSTICE STEVENS join, dissenting.
Title 18 U.S. C. § 3576[1] authorizes the United States to appeal[2] from a sentence imposed by a federal district judge on the ground that the sentence is too lenient and further permits the appellate court to increase the severity of the initial sentence. The Court holds that § 3576 violates neither *144 the prohibition against multiple punishments nor the prohibition against multiple trials embodied in the Double Jeopardy Clause of the Fifth Amendment.[3] Because the Court fundamentally misperceives the appropriate degree of finality to be accorded the imposition of sentence by the trial judge, it reaches the erroneous conclusion that enhancement of a sentence pursuant to § 3576 is not an unconstitutional multiple punishment. I respectfully dissent.
I
The Court acknowledges, as it must, that the Double Jeopardy Clause has two principal purposes: to "protect an individual from being subjected to the hazards of trial and possible conviction more than once for an alleged offense," Green v. United States, 355 U.S. 184, 187 (1957), and to prevent imposition of multiple punishments for the same offense, North Carolina v. Pearce, 395 U.S. 711, 717 (1969). An overriding function of the Double Jeopardy Clause's prohibition against multiple trials is to protect against multiple punishments: "It is the punishment that would legally follow the second conviction which is the real danger guarded against by the Constitution." Ex parte Lange, 18 Wall. 163, 173 (1874).
An unconstitutional punishment need not derive exclusively from a second prosecution, but may stem from the imposition of more than one sentence following a single prosecution. Ex parte Lange, supra, and In re Bradley, 318 U.S. 50 (1943), provide examples of unconstitutional multiple punishments flowing from a single trialimprisonment and fine for an offense punishable by either imprisonment or finebut neither case purports to exhaust the reach of the Double Jeopardy Clause's prohibition against multiple punishments. Indeed, this Court has consistently assumed that an increase in the *145 severity of a sentence subsequent to its impositionthe issue presented in this casealso constitutes multiple punishment in violation of the Double Jeopardy Clause.[4] For example, in United States v. Benz, 282 U.S. 304, 307 (1931), the Court stated that "[t]he distinction that the court during the same term may amend a sentence so as to mitigate the punishment, but not so as to increase it [is based] upon the ground that to increase the penalty is to subject the defendant to double punishment for the same offense . . . ."[5] Similarly, in Reid v. Covert, 354 U.S. 1, 37-38, n. 68 (1957), the Court stated: "In Swaim v. United States, 165 U.S. 553, this Court held that the President or commanding officer had power to return a case to a court-martial for an increase in sentence. If the double jeopardy provisions of the Fifth Amendment were applicable such a practice would be unconstitutional." Although the Benz and Reid statements may be dicta, nevertheless, the Court of Appeals correctly stated that "[a]lthough such dicta . . . are not legally binding, their number and the high authority of their sources offer impressive evidence of the strength and prevalence of the view that the double jeopardy clause bars an increase in the sentence imposed by the district court." 604 F.2d 769, 785 (CA2 1979). My Brother REHNQUIST only recently noted that "the Double Jeopardy Clause as interpreted in Ex parte Lange prevents a sentencing court from increasing a defendant's sentence *146 for any particular statutory offense, even though the second sentence is within the limits set by the legislature." Whalen v. United States, 445 U.S. 684, 703 (1980) (dissenting opinion).
II
Not only has the Court repeatedly said that sentences may not be increased after imposition without violating the double jeopardy prohibition against multiple punishments, but the analytic similarity of a verdict of acquittal and the imposition of sentence requires this conclusion. A verdict of acquittal represents the factfinder's conclusion that the evidence does not warrant a finding of guilty. United States v. Martin Linen Supply Co., 430 U.S. 564, 572 (1977). Similarly, a guilty verdict of second-degree murder where the charge to the jury permitted it to find the defendant guilty of first-degree murder represents the factfinder's implicit finding that the facts do not warrant a first-degree murder conviction. Thus, a retrial on first-degree murder is constitutionally impermissible. Green v. United States, supra; see Price v. Georgia, 398 U.S. 323 (1970). The sentencing of a convicted criminal is sufficiently analogous to a determination of guilt or innocence that the Double Jeopardy Clause should preclude government appeals from sentencing decisions very much as it prevents appeals from judgments of acquittal. The sentencing proceeding involves the examination and evaluation of facts about the defendant, which may entail the taking of evidence, and the pronouncement of a sentence. Thus, imposition of a 10-year sentence where a 25-year sentence is permissible under the sentencing statute constitutes a finding that the facts justify only a 10-year sentence and that a higher sentence is unwarranted. In both acquittals and sentences, the trier of fact makes a factual adjudication that removes from the defendant's burden of risk the charges of which he was acquitted and the potential sentence which he did not receive. Unless there is a basis for according greater *147 finality[6] to acquittals, whether explicit or implicit, than to sentences, the Court's result is untenable.[7]
The Court proffers several reasons why acquittals and sentences should be treated differently. None of them is persuasive. First, the Court suggests that common-law historical evidence supports its distinction between the finality accorded to verdicts and to sentences. Ante, at 133-134. The Court's observation that the "common-law writs of autre fois acquit and autre fois convict were protections against retrial," ante, at 133, is true, but that fact does not dispose of the additional purpose of the Double Jeopardy Clause to prevent multiple punishments of the sort authorized by § 3576. Moreover, the practice of increasing a sentence "so long as it took place during the same term of court," ante, at 133-134, or "so long as [the defendant] has not yet begun to serve that sentence," ante, at 134, has never been sanctioned by this Court.
*148 Second, the Court posits that the Government's right to appeal a final sentence imposed by a trial judge "is different in no critical respect," ante, at 137, from parole and probation revocation, an extraordinary statement that overlooks obvious differences between the proceedings. A defendant knows after sentencing the maximum length of time he may serve, a maximum which can only be shortened by parole or probation. On the other hand, since parole and probation by definition are conditional, a defendant is on notice from the outset that a breach of those conditions may result in revocation of beneficial treatment. At the very worst from the defendant's point of view, the original sentence may be reinstated. Furthermore, revocation of parole or probation only results from a change in circumstance subsequent to the grant of parole or probation. Here the Government's appeal of sentence is not predicated on a defendant's activity since imposition of the original sentence, and the Government would be unlikely to present evidence of such activity.
Third, the Court argues that Congress could have provided that dangerous special offenders be sentenced to a specified mandatory term that could then be reduced on appeal by the court of appeals. Ante, at 142. The Court thus concludes that striking down § 3576 would elevate "form over substance" since Congress could have obtained the same result sought by § 3576 "by a slightly different statute whose constitutionality would be unquestionable." Ante, at 142. This is a strange conclusion, for we must review statutes as they are written, not as they might have been written. In any event, the Court's hypothetical legislation is not "slightly different," but substantially different from § 3576: it would create a wholly unprecedented change in the relationship between trial and appellate courts. As long as Congress retains the present court structure in which the sentences of trial courts are final judgments, the "form" as well as the "substance" of the law militate against Government appeals in this situation.
Fourth, and apparently central to the Court's refusal to *149 accord finality to sentences is its faulty characterization of the sentencing phase of a criminal prosecution. Although the Court acknowledges that the double jeopardy guarantee is at least in part directed at protecting the individual from government oppression and undue embarrassment, expense, anxiety, and insecurity, Green v. United States, 355 U. S., at 187,[8] it reaches the startling conclusion that "[t]his limited appeal," ante, at 136, exposes the defendant to minimal incremental embarrassment and anxiety because "the determination of innocence or guilt . . . is already behind him." Ibid. I believe that the Court fundamentally misunderstands the import to the defendant of the sentencing proceeding.
I suggest that most defendants are more concerned with how much time they must spend in prison than with whether their record shows a conviction. This is not to say that the ordeal of trial is not important. And obviously it is the conviction itself which is the predicate for time in prison. But clearly, the defendant does not breathe a sigh of relief once he has been found guilty. Indeed, an overwhelming number of criminal defendants are willing to enter plea bargains in order to keep their time in prison as brief as possible.[9]*150 Surely, the Court cannot believe then that the sentencing phase is merely incidental and that defendants do not suffer acute anxiety. To the convicted defendant, the sentencing phase is certainly as critical as the guilt-innocence phase. To pretend otherwise as a reason for holding 18 U.S. C. § 3576 valid is to ignore reality.
The Court's contrary view rests on the circular notion that the defendant "has no expectation of finality in his sentence until the [Government] appeal [pursuant to § 3576] is concluded or the time to appeal has expired." Ante, at 136. That is, the very statute which increases and prolongs the defendant's anxiety alleviates it by conditioning his expectations. Logically extended, the Court's reasoning could lead to the conclusion that the Double Jeopardy Clause permits Government appeals from verdicts of acquittal.[10] If the purpose of insulating the verdict of acquittal from further proceedings is, at least in part,[11] out of concern that defendants not be subjected to Government oppression, the Congress could dispose of this objection by a statute authorizing the Government to appeal from verdicts of acquittal. Under the Court's view, such a statute would "charge" the defendant "with knowledge" of its provisions and thus eradicate any expectation of finality in his acquittal.
Finally, the Court attempts to differentiate the finality of acquittals from the finality of sentences through reliance on North Carolina v. Pearce, 395 U.S. 711 (1969), and Swisher v. Brady, 438 U.S. 204 (1978). Neither decision supports the Court's result. In Pearce, the Court allowed the imposition *151 of a longer sentence upon retrial following appellate reversal of the defendant's conviction. Our holding rested "ultimately upon the premise that the original conviction has, at the defendant's behest, been wholly nullified and the slate wiped clean." 395 U.S., at 721. But Pearce allowed imposition of a longer sentence because sentencing followed a retrial rather than an appeal.[12] It is the fact of the retrial itself that gives the trial court power to impose a new sentence up to the statutory maximum. As Pearce observed, there is a difference between "increases in existing sentences" and "the imposition of wholly new sentences after wholly new trials." Id., at 722. Since the Government does not argue that it is entitled to a new trial, Pearce provides no support for enhancement of an already existing sentence on appeal.
The Court's reliance on Swisher v. Brady, supra, is similarly misplaced. There, the Court upheld a Maryland rule allowing juvenile court judges to set aside proposed findings and recommendations of masters and to hold de novo proceedings that could ultimately lead to a harsher result for the juveniles. But Swisher is critically different from this case because the master under Maryland law had no authority to adjudicate facts or to impose a sentence, but could merely *152 transmit the results of his investigation to the trial judge for the latter's review.[13] Here, by contrast, the federal district judge had full power to conduct a trial to a conclusion of guilt or innocence and then to impose a final sentence upon the defendant if convicted. Merely because § 3576 provides the Government with appellate rights does not convert the judge's imposition of sentence into a mere recommendation.
III
Because the Court has demonstrated no basis for differentiating between the finality of acquittals and the finality of sentences, I submit that a punishment enhanced by an appellate court is an unconstitutional multiple punishment.[14] To conclude otherwise, as the Court does, is to create an exception to basic double jeopardy protection which, if carried to its logical conclusion,[15] might not prevent Congress, on double jeopardy grounds, from authorizing the Government to appeal verdicts of acquittal. Such a result is plainly impermissible under the Double Jeopardy Clause.
I, therefore, dissent.
JUSTICE STEVENS, dissenting.
While I join JUSTICE BRENNAN'S dissent, I also note that neither today nor in its opinion in North Carolina v. Pearce, *153 395 U.S. 711 (1969), has the Court adequately responded to Justice Harlan's powerful analysis of the double jeopardy issue in that case. Id., at 744-751 (concurring in part and dissenting in part). Its purported response in Pearcethat although the rationale for allowing a more severe punishment after a retrial "has been variously verbalized, it rests ultimately upon the premise that the original conviction has, at the defendant's behest, been wholly nullified," id., at 720-721 clearly has no application to the question whether a more severe sentence may be imposed at the prosecutor's behest when the original conviction has not been nullified.
The straightforward analysis by Justice Harlan is worthy of emphasis:
"Every consideration enunciated by the Court in support of the decision in Green [v. United States, 355 U.S. 184 (1957)] applies with equal force to the situation at bar. In each instance, the defendant was once subjected to the risk of receiving a maximum punishment, but it was determined by legal process that he should receive only a specified punishment less than the maximum. See id., at 190. And the concept or fiction of an `implicit acquittal' of the greater offense, ibid., applies equally to the greater sentence: in each case it was determined at the former trial that the defendant or his offense was of a certain limited degree of `badness' or gravity only, and therefore merited only a certain limited punishment. . . .
"If, as a matter of policy and practicality, the imposition of an increased sentence on retrial has the same consequences whether effected in the guise of an increase in the degree of offense or an augmentation of punishment, what other factors render one route forbidden and the other permissible under the Double Jeopardy Clause? It cannot be that the provision does not comprehend `sentences'as distinguished from `offenses'for it has long been established that once a prisoner commences service of sentence, the Clause prevents a court from *154 vacating the sentence and then imposing a greater one. See United States v. Benz, 282 U.S. 304, 306-307 (1931); Ex parte Lange, 18 Wall. 163, 168, 173 (1874)." Id., at 746-747.
The Court's response to this analysis is nothing more than a rather wooden extrapolation from a rationale that, however it may be "variously verbalized," id., at 720-721, is wholly irrelevant to the important question presented by this case.
Because I agree with what JUSTICE BRENNAN has written today as well as with what Justice Harlan wrote in 1969, I respectfully dissent.
NOTES
[*] Briefs of amici curiae urging affirmance were filed by Quin Denvir and Laurance S. Smith for the State Public Defender of California; and by Martin Michaelson for the American Civil Liberties Union.
[1] Section 3575 provides, so far as pertinent for this case:
"(a) Whenever an attorney charged with the prosecution of a defendant in a court of the United States for an alleged felony committed when the defendant was over the age of twenty-one years has reason to believe that the defendant is a dangerous special offender such attorney, a reasonable time before trial or acceptance by the court of a plea of guilty or nolo contendere, may sign and file with the court, and may amend, a notice (1) specifying that the defendant is a dangerous special offender who upon conviction for such felony is subject to the imposition of a sentence under subsection (b) of this section, and (2) setting out with particularity the reasons why such attorney believes the defendant to be a dangerous special offender. In no case shall the fact that the defendant is alleged to be a dangerous special offender be an issue upon the trial of such felony, [or] be disclosed to the jury . . . .
"(b) Upon any plea of guilty or nolo contendere or verdict or finding of guilty of the defendant of such felony, a hearing shall be held before sentence is imposed, by the court sitting without a jury. The court shall fix a time for the hearing, and notice thereof shall be given to the defendant and the United States at least ten days prior thereto. The court shall permit the United States and counsel for the defendant, or the defendant if he is not represented by counsel, to inspect the presentence report sufficiently prior to the hearing as to afford a reasonable opportunity for verification. . . . In connection with the hearing, the defendant and the United States shall be entitled to assistance of counsel, compulsory process, and cross-examination of such witnesses as appear at the hearing. A duly authenticated copy of a former judgment or commitment shall be prima facie evidence of such former judgment or commitment. If it appears by a preponderance of the information, including information submitted during the trial of such felony and the sentencing hearing and so much of the presentence report as the court relies upon, that the defendant is a dangerous special offender, the court shall sentence the defendant to imprisonment for an appropriate term not to exceed twenty-five years and not disproportionate in severity to the maximum term otherwise authorized by law for such felony. Otherwise it shall sentence the defendant in accordance with the law prescribing penalties for such felony. The court shall place in the record its findings, including an identification of the information relied upon in making such findings, and its reasons for the sentence imposed.
.....
"(e) A defendant is a special offender for purposes of this section if
.....
"(3) such felony was, or the defendant committed such felony in furtherance of, a conspiracy with three or more other persons to engage in a pattern of conduct criminal under applicable laws of any jurisdiction, and the defendant did, or agreed that he would, initiate, organize, plan, finance, direct, manage, or supervise all or part of such conspiracy or conduct, or give or receive a bribe or use force as all or part of such conduct.
". . . For purposes of paragraphs (2) and (3) of this subsection, criminal conduct forms a pattern if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristic[s] and are not isolated events.
"(f) A defendant is dangerous for purposes of this section if a period
[2] Section 3576 reads in full as follows:
"With respect to the imposition, correction, or reduction of a sentence after proceedings under section 3575 of this chapter, a review of the sentence on the record of the sentencing court may be taken by the defendant or the United States to a court of appeals. Any review of the sentence taken by the United States shall be taken at least five days before expiration of the time for taking a review of the sentence or appeal of the conviction by the defendant and shall be diligently prosecuted. The sentencing court may, with or without motion and notice, extend the time for taking a review of the sentence for a period not to exceed thirty days from the expiration of the time otherwise prescribed by law. The court shall not extend the time for taking a review of the sentence by the United States after the time has expired. A court extending the time for taking a review of the sentence by the United States shall extend the time for taking a review of the sentence or appeal of the conviction by the defendant for the same period. The taking of a review of the sentence by the United States shall be deemed the taking of a review of the sentence and an appeal of the conviction by the defendant. Review of the sentence shall include review of whether the procedure employed was lawful, the findings made were clearly erroneous, or the sentencing court's discretion was abused. The court of appeals on review of the sentence may, after considering the record, including the entire presentence report, information submitted during the trial of such felony and the sentencing hearing, and the findings and reasons of the sentencing court, affirm the sentence, impose or direct the imposition of any sentence which the sentencing court could originally have imposed, or remand for further sentencing proceedings and imposition of sentence, except that a sentence may be made more severe only on review of the sentence taken by the United States and after hearing. Failure of the United States to take a review of the imposition of the sentence shall, upon review taken by the United States of the correction or reduction of the sentence, foreclose imposition of a sentence more severe than that previously imposed. Any withdrawal or dismissal of review of the sentence taken by the United States shall foreclose imposition of a sentence more severe than that reviewed but shall not otherwise foreclose the review of the sentence or the appeal of the conviction. The court of appeals shall state in writing the reasons for its disposition of the review of the sentence. Any review of the sentence taken by the United States may be dismissed on a showing of abuse of the right of the United States to take such review."
Section 3576 has a twin in 21 U.S. C. § 849 (h). This was enacted as § 409 (h) of the Comprehensive Drug Abuse Prevention and Control Act of 1970, Pub. L. 91-513, 84 Stat. 1266.
[3] "[N]or shall any person be subject for the same offence to be twice put in jeopardy of life or limb . . . ." U. S. Const., Amdt. 5.
[4] Academic and professional commentary on the general issue is divided. For conclusions that prosecution appeals of sentences do not violate the Double Jeopardy Clause, see Westen, The Three Faces of Double Jeopardy: Reflections on Government Appeals of Criminal Sentences, 78 Mich. L. Rev. 1001 (1980); Stern, Government Appeals of Sentences: A Constitutional Response to Arbitrary and Unreasonable Sentences, 18 Am. Crim. L. Rev. 51 (1980); Dunsky, The Constitutionality of Increasing Sentences on Appellate Review, 69 J. Crim. L. & Criminology 19 (1978). For conclusions that such appeals are unconstitutional, see Spence, The Federal Criminal Code Reform Act of 1977 and Prosecutorial Appeal of Sentences: Justice or Double Jeopardy?, 37 Md. L. Rev. 739 (1978); Freeman & Earley, United States v. DiFrancesco: Government Appeal of Sentences, 18 Am. Crim. L. Rev. 91 (1980); Note, 63 Va. L. Rev. 325 (1977); Report on Government Appeal of Sentences, 35 Bus. Lawyer 617, 624-628 (1980). At least one commentator-witness some time ago regarded the answer to the constitutional issue as "simply unclear." Low, Special Offender Sentencing, 8 Am. Crim. L. Q. 70, 91 (1970) (reprint of statement submitted at Hearings on S. 30 et al. before the Subcommittee on Criminal Laws and Procedures of the Senate Committee on the Judiciary, 91st Cong., 1st Sess., 184, 197 (1969)).
See also ABA Standards for Criminal Justice 20-1.1 (d), and appended commentary, pp. 20-7 through 20-13 (2d ed. 1980).
[5] The maximum punishment for a violation of § 1962 is a fine of not more than $25,000 or imprisonment for not more than 20 years, or both, plus specified forfeitures. § 1963.
[6] Section 1361 specifies that the maximum punishment for its violation, if the damage exceeds $100, is a fine of not more than $10,000 or imprisonment for not more than 10 years, or both. The maximum punishment for a violation of § 842 (j) is a fine of not more than $1,000 or imprisonment for not more than one year, or both. § 844 (b). Section 371 specifies that the maximum punishment for its violation, when the offense that is the object of the conspiracy is not a misdemeanor, is a fine of not more than $10,000 or imprisonment of not more than five years, or both.
[7] The applicability of §§ 3575 and 3576 to this respondent, the issue upon which the concurring judge rested his conclusion, is not before us. The majority of the Court of Appeals observed, in passing, that the trial court "properly could find that the statute was applicable." 604 F.2d, at 780-781, n. 13. In any event, the issue may be considered, if there is any reason for so doing, on remand.
[8] The court then summarized its findings and set forth its conclusion as follows:
"In sum, this Court, on the basis of the facts above, finds that the defendant was over the age of 21 years when the crimes for which he stands convicted were committed; that the defendant stands convicted of two felonies; that one felony was committed in furtherance of a conspiracy (18 U.S. C. 1962 (c)); that the other felony was itself a conspiracy (18 U.S. C. 1962 (d)); that the conspiracy and the substantive crime involved at least four persons other than the defendant . . . ; that the conspiracy and the substantive crime was to engage in a pattern of conduct which was criminal under the laws of the State of New York (New York Penal Code, Article 150) and of the United States (18 U.S. C. 1341); that the defendant did initiate, organize, plan, direct, manage and supervise at least part of the conspiracy and the substantive criminal acts; [and that confinement of the defendant for a period longer than that provided for violation of 18 U.S. C. 1962 (c) or 1962 (d) is required for the protection of the public from further criminal conduct by the defendant.]
"WHEREFORE, it is the finding of this Court that the defendant Eugene DiFrancesco, having been convicted of two felony charges before this Court on October 31, 1977, and having been over the age of 21 years at the time of the commission of those felonies is a dangerous special offender within the meaning of sections 3575 (e) (3) and 3575 (f) of Title 18 of the United States Code, and therefore subject to the sentencing provisions of section 3575 (b) of Title 18 of the United States Code." App. 43-44.
The bracketed phrase is in the findings as typed, but a line has been drawn through it in ink by hand. No persuasive explanation for this deletion, if it is one, has been offered this Court.
[9] It was indicated at oral argument, Tr. of Oral Arg. 5, 37, 39, and in one of the briefs, Brief for Respondent 12, as well as in the opinion of the Court of Appeals, 604 F.2d, at 781, and n. 17, that this is the first case in which the United States specifically has sought review of a sentence under § 3576. Inasmuch as the statute was enacted a decade ago, this fact might be said to indicate either little use of the special offender statute by the United States, or prosecutorial concern about its constitutionality, or that federal trial judges are imposing sufficiently severe sentences on special offenders to make review unnecessary. No definitive explanation, however, has been offered. An attempt on the part of this Court to explain the nonuse of the statute would be speculation, and we shall not indulge in it.
[10] This recital is described as this Court's "favorite saying about double jeopardy" and is the subject of comment, not uncritical, in Professor Westen's provocative and thoughtful article, The Three Faces of Double Jeopardy: Reflections on Government Appeals of Criminal Sentences, 78 Mich. L. Rev. 1001, 1062-1063 (1980).
[11] Professor Westen describes it succinctly this way:
"The prohibition on retrial following an acquittal is based on a jury's prerogative to acquit against the evidence . . . ." Id., at 1012, 1063.
[12] And, of course, it is surely settled that the Double Jeopardy Clause of the Fifth Amendment has application to the States through the Fourteenth Amendment. Benton v. Maryland, 395 U.S. 784 (1969); Illinois v. Vitale, 447 U.S. 410, 415 (1980).
[13] While the challenge in Kepner was based not on the Double Jeopardy Clause, but on a statute extending double jeopardy protection to the Philippines, this Court has accepted that decision "as having correctly stated the relevant double jeopardy principles." See United States v. Wilson, 420 U.S. 332, 346, n. 15 (1975).
[14] The principal dissent fails to recognize the import of Pearce. According to that dissent, the "analytic similarity of a verdict of acquittal and the imposition of sentence" requires the conclusion that sentences may not be increased after imposition without violating the Double Jeopardy Clause. Post, at 146. Thus, the imposition of a 10-year sentence where a 25-year sentence is permissible is, in the dissent's view, an implicit acquittal of the greater sentence. Ibid. But precisely this argument was unsuccessfully advanced by Justices Douglas and Harlan in Pearce. See 395 U.S., at 726-728, and n. 1 (Douglas, J., concurring); id., at 744-746 (Harlan, J., concurring in part and dissenting in part). The majority in Pearce thus rejected the notion that the imposition of a sentence less than the maximum operates as an implied acquittal of any greater sentence. See id., at 720, and n. 16.
Further, the principal dissent's attempt to distinguish Pearce on the grounds that there the imposition of the sentence followed a retrial, rather than an appeal, is unconvincing. In Green v. United States, 355 U.S. 184 (1957), the Court held that a defendant who had been convicted of the lesser included offense of second-degree murder at his first trial could not be convicted of the greater offense of first-degree murder on retrial; thus, the conviction of the lesser included offense operated as an implicit acquittal of the greater. Since the defendant sought and obtained a retrial in each case, the difference in result reached in Green and Pearce can be explained only on the grounds that the imposition of sentence does not operate as an implied acquittal of any greater sentence.
JUSTICE STEVENS' dissent, with its reliance on Justice Harlan's separate opinion in Pearce, concurring in part and dissenting in part, 395 U.S., at 744, in effect argues nothing more than that Pearce was wrongly decided. We are not inclined to overrule Pearce.
[15] Somewhat similar dicta are present in Murphy v. Massachusetts, 177 U.S. 155, 160 (1900), and in the plurality opinion in Reid v. Covert, 354 U.S. 1, 37-38, n. 68 (1957). The latter is not a double jeopardy case.
[16] We read § 3576 as establishing at the most a two-stage sentencing procedure. Indeed, the original bill introduced in Congress specifically stated that the sentence was not to be considered final until after disposition of review or until the expiration of the time for appeal. S. 30, 91st Cong., 1st Sess., § 3577 (1969); Measures Relating to Organized Crime: Hearings on S. 30 et al. before the Subcommittee on Criminal Laws and Procedures of the Senate Committee on the Judiciary, 91st Cong., 1st Sess., 28-29 (1969). Congress, however, was advised that this language was not needed in order to preserve the constitutionality of the statute, and it was omitted. Id., at 196, and n. 18. See 65 Cornell L. Rev. 715, 730 (1980).
[1] Section 3576 states in pertinent part:
"[A] review of the sentence on the record of the sentencing court may be taken by the defendant or the United States to a court of appeals. . . . Review of the sentence shall include review of whether the procedure employed was lawful, the findings made were clearly erroneous, or the sentencing court's discretion was abused. The court of appeals on review of the sentence may, after considering the record, including the entire presentence report, information submitted during the trial of such felony and the sentencing hearing, and the findings and reasons of the sentencing court, affirm the sentence, impose or direct the imposition of any sentence which the sentencing court could originally have imposed, or remand for further sentencing proceedings and imposition of sentence, except that a sentence may be made more severe only on review of the sentence taken by the United States and after hearing . . . ."
[2] The United States may appeal decisions in a criminal case only if so authorized by statute. United States v. Scott, 437 U.S. 82, 84-85 (1978); United States v. Sanges, 144 U.S. 310 (1892).
[3] "[N]or shall any person be subject for the same offense to be twice put in jeopardy of life or limb . . . ." U. S. Const., Amdt. 5.
[4] Under my view of the double jeopardy protection against multiple punishments, a sentence may not be increased once a technically correct sentence has been imposed. I would distinguish correction of a technically improper sentence which the Court has always allowed. See, e. g., Bozza v. United States, 330 U.S. 160, 165-167 (1947).
[5] The Court dismisses the significance of Benz because it cited Ex parte Lange, 18 Wall. 163 (1874), which did not present the precise issue on which, according to the Court, Benz "gratuitously," ante, at 138, opined. It is true that Lange raised an issue somewhat different from Benz, but Lange did decide a question of unconstitutional multiple punishment. Benz' citation of Lange, then, was entirely appropriate.
[6] The finality accorded sentences has been recognized in other contexts. Berman v. United States, 302 U.S. 211, 212 (1937) (Sentence is appealable by defendant notwithstanding suspension of execution. "Final judgment in a criminal case means sentence. The sentence is the judgment"); see Corey v. United States, 375 U.S. 169 (1963).
[7] The Court suggests that "[t]he law `attaches particular significance to an acquittal,'" ante, at 129, quoting United States v. Scott, 437 U. S., at 91, and that "`we necessarily afford absolute finality to a jury's verdict of acquittalno matter how erroneous its decision,'" ante, at 130, quoting Burks v. United States, 437 U.S. 1, 16 (1978) (emphasis in original). See Fong Foo v. United States, 369 U.S. 141, 143 (1962) (directed verdict of acquittal by trial judge in middle of jury trial is entitled to finality and is unreviewable by appeal even though "based upon an egregiously erroneous foundation"). That explains in part the result reached in United States v. Wilson, 420 U.S. 332 (1975), which allowed an appellate court to reinstate a guilty verdict which was nullified by the trial judge's post-verdict dismissal of the indictment. Wilson involved correction of an error of law and reinstatement of an already existing fact adjudication. However, under § 3576, there is no fact adjudication for the court of appeals to reinstate where the purpose of the appeal is to increase the defendant's sentence. The appellate court would have to make its own fact determination and judgment as to the defendant's proper sentence.
[8] Another purpose of the Double Jeopardy Clause is to prevent "enhancing the possibility that even though innocent, [a defendant] may be found guilty." Green v. United States, 355 U. S., at 188. A similar analysis applies with respect to sentencing. Repeated attempts at sentencing are as likely to produce an unjustifiably harsh sentence as repeated trials are likely to result in an unwarranted guilty verdict. In both instances, the Government seeks a second opportunity to present evidence it could have presented in the first instance. Burks v. United States, supra, at 11; see 18 U.S. C. § 3576 ("The court of appeals . . . may . . . remand for further sentencing proceedings and imposition of sentence").
[9] For the 12 months ending June 30, 1979, of 32,913 convictions in the United States District Courts, 27,295 were by guilty plea and by plea of nolo contendere. Annual Report of the Director of the Administrative Office of the United States Courts 286 (1979).
Under the Court's view, there might be no double jeopardy bar against a Government appeal from the sentence meted out pursuant to a guilty plea. While defendants might bargain with prosecutors over the latter's appellate rights, that possibility is irrelevant for determining the double jeopardy consequences of an appeal from a sentence imposed pursuant to a plea bargain.
[10] The Court, of course, acknowledges that verdicts of acquittal are not appealable.
[11] Finality is also accorded to acquittals to protect against retrials leading to erroneous guilty verdicts. See n. 8, supra.
[12] The reason for allowing retrials following reversal of convictions rests on a legitimate concern for the "sound administration of justice. Corresponding to the right of an accused to be given a fair trial is the societal interest in punishing one whose guilt is clear after he has obtained such a trial. It would be a high price indeed for society to pay were every accused granted immunity from punishment because of any defect sufficient to constitute reversible error in the proceedings leading to conviction." United States v. Tateo, 377 U.S. 463, 466 (1964). Appeals of sentences by the Government pursuant to § 3576 do not implicate the considerations identified in Tateo. Section 3576 authorizes appeals of sentences which, in the Government's view, are simply too low. Indeed, as the court below noted, respondent was sentenced to 10 years' imprisonment and had already begun serving his sentence. There was no possibility here, therefore, that respondent would be "granted immunity from punishment." 377 U.S., at 466.
[13] Moreover, in Swisher, no evidence could be introduced once the proceeding before the master was terminated, unless the juvenile consented to the introduction of additional evidence. By contrast, § 3576 contemplates additional evidentiary proceedings in connection with appellate review of sentences. See nn. 1 and 8, supra.
[14] Similarly, subsequent fact adjudication by the court of appeals or by the district court on remand to it for an evidentiary hearing pursuant to 18 U.S. C. § 3576 is akin to an unconstitutional second trial following a verdict of acquittal.
[15] Under the Court's view, there is no double jeopardy bar to imposition of additional punishment by an appellate court after the defendant has completed service of the sentence imposed by the trial court, although such an outcome is not contemplated by § 3576 as presently drafted and would presumably violate due process in any event. | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/1249282/ | 493 F.3d 1021 (2007)
UNITED STATES of America, Plaintiff-Appellee,
v.
Wesley SINE, Defendant-Appellant.
No. 05-10575.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted September 11, 2006.
Filed May 1, 2007.
Amended July 17, 2007.
*1022 *1023 Russell A. Cline, Crippen & Cline, Salt Lake City, UT, for the defendant-appellant.
John K. Vincent, Assistant United States Attorney, Sacramento, CA, for the plaintiff-appellee.
Before: B. FLETCHER and MARSHA S. BERZON, Circuit Judges, and DAVID G. TRAGER,[*] District Judge.
ORDER
The government's Motion to Change Wording of Opinion is GRANTED. The opinion filed on May 1, 2007 is hereby amended as follows:
1) On slip op. 4792[483 F.3d at 992] the final two sentences of the paragraph beginning "This appeal arises . . ." are replaced with: "Such use of the judge's statements both created far too great a danger of unfairly prejudicing Sine and introduced impermissible hearsay into the trial."
2) On slip op. 4795[483 F.3d at 994], the sentence beginning "Also, Sine sued . . ." is replaced with: "Also, Sine sued Meddles and Delmarva in Utah again in 2001, this time in both state and federal court, along with two entities, Polly & Co. and Hare & Co., that were the true owners of the Ginnie Mae securities referenced in the transfer forms."
3) On slip op. 4811[483 F.3d at 1002], the sentence beginning "Sine argues . . ." is replaced with: "Sine argues that bringing the adverse, derogatory factual findings and comments in Judge Carr's opinion before the jury created too great of a danger of unfair prejudice and thus violated Rule 403 of the Federal Rules of Evidence."
* * *
The panel has unanimously voted to deny defendant's petition for rehearing. Judge Berzon has voted to deny the petition for rehearing en banc. Judge B. Fletcher and Judge Trager have recommended denial of the petition for rehearing en banc.
The full court has been advised of the petition for rehearing en banc, and no judge has requested a vote on whether to rehear the matter en banc. Fed. R.App. P. 35.
The defendant's petition for rehearing or rehearing en banc is DENIED. No further petitions for rehearing or rehearing en banc will be accepted.
AMENDED OPINION
BERZON, Circuit Judge:
Defendant Wesley Sine, a Utah lawyer, helped run a pyramid scheme that defrauded victims of more than two million dollars. Sine's role in the scheme was to reassure individuals that they were lending money to a legitimate real estate investor and that millions of dollars in legitimate *1024 collateral protected them in case of default. Once the scheme started to unravel and it became clear that the collateral was worthless, Sine began to weave a "good faith" defense to his actions, claiming that it was as much of a surprise to him as to anybody else that the collateral was illusory. To give credence to this story, Sine filed a number of lawsuits that purported to be seeking recovery of the value of the collateral. Ultimately, however, these lawsuits just added to Sine's troubles: An Ohio federal district court rejected his factual claims, enjoined his recovery efforts, held him in contempt, and denounced on the record his "chicanery, mendacity, deceit, and pretense."
This appeal arises from the criminal prosecution of Sine and his co-defendant Darra Panthaky, the mastermind of the fraud scheme, commenced in a California federal district court after the scheme unraveled.[1] During cross-examination of various defense witnesses including Sine, who testified in his own defense the government repeatedly referred to the factfinding and derogatory character assessments of the Ohio court. By doing so, the government created a substantial risk that the jury would pay undue and unwarranted attention to the strongly adverse assessment of a figure, the Ohio judge, who never appeared in the courtroom but who the jury likely assumed had both authority and expertise with regard to determining the true course of events and to making credibility determinations. Such use of the judge's statements both created far too great a danger of unfairly prejudicing Sine and introduced impermissible hearsay into the trial.
Sine did not, however, object during the trial to the use of the judge's observations. The government presented such strong admissible evidence of his guilt that, even without considering the Ohio court's decision, we cannot find plain error warranting reversal. We therefore affirm.
I.
Panthaky masterminded a wildly imaginative, bizarrely complex pyramid scheme in the late 1990s and early 2000s: First, he convinced victims that they were lending money to fund various real estate projects conducted by Alpha Funding Group, Inc. ("Alpha"), of which Panthaky was president. In making his pitch, Panthaky represented himself as a wealthy international financier and humanitarian who had led Alpha to great success, and promised potential "lenders" between twenty and one hundred percent interest on short-term loans. Using this persona and promise, Panthaky successfully solicited over five million dollars in loans. "Lenders" would receive a promissory note prepared by Sine as Alpha's lawyer and signed by Panthaky. In fact, the money provided by these "lenders" funded no legitimate projects. Instead, some of the money went to repay earlier "lenders" so that the pyramid scheme could continue, and some ended up in the personal coffers of Panthaky and his cohorts.
To reassure the victims, Panthaky promised them that in case anything went wrong with Alpha's projects, they would be protected by assets held in the Alpha Funding Group Trust ("Alpha Trust"). Sine was the trustee of Alpha Trust. In that capacity, he prepared and signed security letters to victims explaining that he would liquidate the trust if Alpha defaulted on loans. Both Sine and Panthaky stated on numerous occasions, including in the security letters, that the trust held $54 million in Ginnie Mae securities.[2]
*1025 Almost always, the "lenders" were not repaid as promised and then experienced increasing difficulty in contacting Panthaky. Even after receiving complaints that the loans were not repaid on time, Sine continued to tell the victims that Alpha was a legitimate investment opportunity and had a track record of successful repayment of loans. When such excuses ran out and a "lender" continued to press for repayment, Sine would then play hardball by, for example, insisting that the promissory note did not allow the "lender" to demand liquidation of the collateral or by instigating litigation against the "lender."
By 2000, under pressure from a growing number of unpaid victims, Sine purported to attempt as trustee of Alpha Trust to liquidate the collateral, only to find out for the first time, he maintained that the forms establishing the trust's ownership of the securities were worthless. That the forms were worthless was quite true: Such forms could only transfer ownership of securities issued in paper format, but the Ginnie Mae securities referenced by Alpha Trust's forms existed only in an electronic format. Moreover, Ginnie Mae had no record that Alpha Trust, Alpha, Sine, Panthaky, or the Delmarva Timber Trust ("Delmarva") the entity the defendants claimed had transferred the securities to Alpha[3] ever owned any of the securities referred to in the documents.
The main factual dispute at trial was whether Sine realized from the outset, rather than only after the victims demanded access to the collateral, that the supposed collateral was worthless. Sine testified during trial that he had a good faith belief that the trust legitimately owned the Ginnie Mae securities and made efforts to verify their ownership at the time the trust was established. One such effort, he represented, was a 1992 conversation with Jeffrey Franklin, a Maryland banker whose signature appears on the transfer forms. Sine also told the jury that when he learned in 2000 that the forms could not have transferred the securities, he entered into negotiations with Don Meddles, the current trustee of Delmarva, to obtain ownership of the securities. Sine ultimately filed several lawsuits in Utah, naming Meddles and Delmarva as defendants and supposedly seeking to recover the value of the securities.
The government set out at trial to portray all these purported indices of good faith as just further steps in Sine's fraudulent scheme. Several witnesses including Franklin refuted Sine's story that he received assurances in 1992 that Alpha Trust did own the Ginnie Mae securities. The government presented evidence that Sine's efforts to liquidate the securities began only after several years of complaints by victims about Alpha's defaults and became most active after federal prosecutors began showing interest in the defendants' activities. And the government's witnesses highlighted Sine's inconsistent stories about these efforts.
As part of its effort to disprove Sine's good faith, the government decided a decision that is at the core of this appeal to highlight the shady nature of the legal tactics Sine used in trying to recover on behalf of Alpha Trust. Jurors heard testimony, *1026 for example, that Sine did not serve Meddles and Delmarva with the complaint in the Utah state court suit he filed against them in late 2000, so it was dismissed for a lack of prosecution. Also, Sine sued Meddles and Delmarva in Utah again in 2001, this time in both state and federal court, along with two entities, Polly & Co. and Hare & Co., that were the true owners of the Ginnie Mae securities referenced in the transfer forms. In response to this second suit, Meddles in March 2003, over a year after the indictment in this case settled the two suits for $18 million. But, according to the government's evidence, the settlement was a sham: Although Meddles said he was acting on behalf of Polly and Hare, the two entities were never served with the complaint, and were in fact subsidiaries of the Bank of New York, with no connection to Meddles. Sine nonetheless used his supposed status as a judgment creditor of the two entities to request that companies who owed money to Polly and Hare redirect repayments of those debts to him, as trustee of Alpha Trust. When these requests were in several instances successful, Sine, inexplicably, gave the money he received to Meddles even though the settlement of the Utah case obligated Meddles to pay $18 million to Alpha Trust.
Eventually, the Bank of New York learned what was happening and took steps to stop the seizures of Polly's and Hare's assets. So Sine went to court again, this time filing a declaratory judgment action against the Bank of New York. That action was removed to the United States District Court for the Northern District of Ohio and assigned to Judge James Carr. In December 2003, Judge Carr entered a temporary restraining order against Sine to prevent his diversion of money owed to Polly and Hare. In March 2004, Judge Carr issued a preliminary injunction to the same effect and held Sine guilty of criminal contempt for violating the restraining order and continuing to redirect money from Polly and Hare.[4]
Well before the Ohio District Court proceedings, in February 2002, the government indicted Sine in the Eastern District of California for mail fraud, pursuant to 18 U.S.C. § 1341. A superseding indictment was filed in September 2004. That indictment alleged as the mail fraud a series of four letters sent in April and May 1999 between Clarence Trausch, a prospective "lender," and Renata Lee, an individual who was already a "lender" and whom the defendants had induced to seek out additional participants. In February 2005, a jury convicted Sine and his co-defendant Panthaky after one hour of deliberations. The judge sentenced Sine to seventy months in prison, which included an enhancement for lying during his trial testimony, and ordered him to pay $2.29 million in restitution. Sine timely appealed his conviction and sentence.
II.
Sine's primary complaint on appeal is that the government repeatedly used factual findings contained in Judge Carr's March 2004 order during its cross-examination of Sine and other defense witnesses, quoting large portions of the findings in doing so.[5]
*1027 In the Ohio case involving the Bank of New York, Judge Carr entered findings that, to put it mildly, were likely to lead the reader to distrust everything Sine said or did. For instance, one portion of Judge Carr's order states:
When equity looks for a reason to favor Sine and Meddles it finds none. The record presently before the court is rife with chicanery, mendacity, deceit, and pretense. The versions each has given about his activities, whether in court or out, ring false.
Sine purports to be a trustee a fiduciary acting on behalf of unidentified creditors. Yet he has taken none of the conventional steps to enforce the Utah judgment against Delmarva. He has not issued subpoenas duces tecum, demanded an accounting, or conducted a debtor's examination.
It is not just what he has failed to do it is what he has done that also compels a finding that Sine is not acting as a bona fide judgment creditor. Instead of keeping the funds coming to Meddles in the name of fake Polly and fake Hare, Sine sends them on to Meddles. When he does so, he has no idea what Meddles will do with them. He claims that he keeps the cash flowing in a one-way direction to keep Meddles "cooperative." This means, apparently, that Sine expects Meddles will "cooperate" if encouraged to pump more cash from wells belonging to others. But there is no indication of when, if ever, payments on the Utah judgment will be made.
Indeed, the inference is fair, and can fairly be drawn, that no payments on that judgment ever will be made. There is no incentive to do so why stop feeding a goose when it gives the promise of laying golden eggs forever? Once the judgment is satisfied, it cannot be a pretext for using fake Polly and fake Hare as putative judgment debtors to recover additional funds.
Sine holds in his hands a bottomless bucket, has done absolutely nothing to see that it gets filled, and is unlikely ever to do so.
In doing so, Sine appears to be breaching his duties as a trustee. In Utah, as elsewhere, a trustee's paramount duty is always to act for the best interest of the trust. To that end, "a trustee has a duty to use reasonable prudence and diligence in conserving and protecting all assets of the estate and to realize on claims in its favor if possible; and if he fails to do so he is subject to charge for any resulting loss."
I find, on the basis of the record presently before me, that Sine has failed to fulfill his fiduciary obligations to the judgment creditors he purports to represent. He has not acted with diligence or prudence to secure and protect the assets that he claims to be seeking. Indeed, his conduct has been entirely inconsistent with his obligations as trustee: even if his explanation for letting Meddles have funds were plausible, which it is not, he has not protected the creditors' interests by conditioning such receipt on performance of reciprocal, and, for the "trust," beneficial obligations by Meddles. While Sine may hold himself out as a trustee de jure, he is not functioning as one de facto.
Sine v. Bank of N.Y., No. 3:03CV7662, slip op. at 17-18 (N.D.Ohio Mar.29, 2004) (quoting Acott v. Tomlinson, 9 Utah 2d 71, 337 P.2d 720, 725 (1959)) (citations omitted).
Although the full text of Judge Carr's order was not admitted as evidence, the jury heard many of his findings. Explaining *1028 that it did not want to surprise the court, the government informed the court at the opening of the defense's case that it believed the Ohio litigation would become relevant and that it "intend[ed] to ask witnesses about [it]." Sine's lawyer acknowledged the prosecutor's statement and voiced no objection. And, as promised, the government asked more than two hundred questions of various defense witnesses about both the findings and the pervasively negative flavor of Judge Carr's order, providing in the course of doing so a thorough account of the order for the jury.
Many of these questions informed the jury about the sordid details of Sine's litigation against Polly and Hare. For example, during the cross-examination of Christopher Stappas, a lawyer who testified on the defendants' behalf, the following exchange took place between the prosecutor and the witness:
Q. Are you aware that the district judge in Toledo had concluded or written that Sine and Meddles stole the names of those partnerships, Polly and Co and Hare and Co, from the Bank of New York?
A. Yes.
Q. Are aware [sic] that the Court in Toldeo has written that Sine and Meddles acquired and sought to acquire securities registered in the names of the real Polly and Co and the real Hare and Co?
A. Yes, I'm aware of that.
Q. Are you aware that the district judge in Toledo has written that Sine and Meddles diverted money that should have gone to the real Polly and Co and the real Hare and Co but instead went to Meddles?
A. Yes, I'm aware of that.
Q. Are you aware that the district judge in Toledo has written that the judgments that Sine and Meddles entered into in Utah were collusive?
A. I was not aware of that.
Q. That the judgments were fraudulent?
A. I was not aware of that.
Q. That they used these Utah judgments to give their efforts to take money from Polly and Co and Hare and Co to give it an air of legitimacy?
A. I was not aware of that.
Q. Are you aware that the district judge has written that Sine and Meddles, that the collusive judgments are not supported by any legitimate or legally cognizable claims?
A. I recall reading that, I believe.
Q. Are you aware that the district judge has written that Meddles stole the names Polly and Co and Hare and Co from the Bank of New York?
A. I recall that.
Q. Are you aware that the district judge has also written that Meddles and Sine have used the names to acquire without lawful authority assets held in the names of the real Polly and Co and the real Hare and Co?
A. Yes, I'm aware of that.
Q. Are you aware that the district judge has written that it appears that Meddles aided and abetted by Sine has been engaged in an effort to obtain assets belonging to the Bank of New York and other financial institutions through a series of fraudulent schemes?
A. I recall that.
Q. That the scheme is perpetrated with fraud and to have [sic] operated exclusively with fraudulent intent?
A. I recall that.
*1029 Q. Are you aware that the district judge in Toledo has concluded that Sine's claims of ignorance and confusion are not plausible?
A. I don't recall that.
Q. His conduct is rife with chicanery, mendacity, deceit and pretense?
A. I don't recall that.
Q. That's [sic] Sine is not acting as a bona fide judgment creditor?
A. I do recall that someplace.
. . . .
Q. And the district judge in Toldeo has concluded that Sine has failed to fulfill his fiduciary obligations; correct?
A. I believe so, yes.
Q. That Sine has not acted with diligence and prudence to secure and protect the assets that he claims to be seeking; correct?
A. Yes. I remember reading this. I can't remember word-for-word what was in that order.
Q. And that Sine has acted in the detriment of the judgment creditors by letting money flow through his hands and into the hands of his alleged adversary, Don Meddles; correct?
A. Yes.
Other questions asked by the government went beyond the details of Sine's conduct vis-a-vis Polly and Hare, and instead focused on Judge Carr's overall assessment of Sine. Such use of the order comes across most clearly in the closing set of questions the government asked Sine himself during cross-examination:
Q. The Court also said that you testified at a hearing on the order to show cause, did you not?
A. On the contempt charge I was able to testify limitedly.
Q. And the Court concluded that your testimony was often inconsistent and thoroughly implausible; isn't that correct?
A. That's what the Court said.
Q. Now, you testified yesterday on direct that you do not lie?
A. That's correct.
Q. Is it not a fact, sir, that the Judge has written that your conduct is rife with chicanery; correct?
A. I still don't lie. He said that, but I still don't lie.
Q. Mendacity; that's what he wrote, right?
A. That's what he did.
Q. That's lying, isn't it?
A. I don't know. I don't know what "mendacity" means. "Chicanery" is certainly doing something different than what you look like you're doing.
Q. Your conduct was rife with deceit; correct?
A. That's what he said.
Q. And that your conduct was rife with pretense; correct?
A. That's what he said.
Likewise, during its closing argument, the government juxtaposed Sine's criminal trial testimony with Judge Carr's evaluation of his testimony in the Ohio civil case:
The judge also wrote that Sine's and Meddles is[sic] guilty of "chicanery and lying and deceit and pretense. It has been entirely inconsistent with his obligations as a trustee." Now, Sine's response to that when he was on the stand, basically all along is, "I haven't gotten a fair shake. I haven't gotten to testify for very long." Well, he testified for Judge Carr and it didn't take him long to conclude he was a liar.
Not only did the government place Judge Carr's findings before the jury in this fashion, but it stressed that a judge *1030 had already found those facts to be true in refuting Sine's efforts to disagree with Judge Carr's findings. Such use is apparent in the following portion of the cross-examination of Sine:
Q. The District Judge who was hearing this case in Ohio is James Carr; correct?
A. Correct.
Q. He has written that what you and Meddles have done has been to create a scheme where you purloined or stole the name of partnerships owned by the Bank of New York; isn't that correct?
A. That's what he said, but of course we don't agree with that.
Q. The names that you stole were Polly and Company and Hare and Company; isn't that correct?
A. We did not steal anything.
Q. That's what the judgment has concluded?
A. The Judge has said that based on the evidence he had and he says in his judgment that's based on what he had heard on the contempt charge.
. . . .
Q. The Court has also said that you diverted the flow of payments so that instead of going to the real Polly and the real Hare, they went to Don Meddles; correct?
A. Well, that's correct, but only after the security houses had been notified that we were a judgment creditor; that we were looking for assets of Owen Meddles, now deceased, and Don Meddles had taken over his area and that Delmarva Timber Trust was involved, and we requested to try to find out if these assets which we found by tracing backwards escheated funds.
In other words, from these particular accounts, funds had been escheated to the state of New York and other states. We traced it back to them, asked then if this belonged to them. They said what we needed to do was have Meddles file a change of address and change of officers and that they would then research it. If the research concluded he was the proper party, they would transfer it to him.
Q. My question was that the Judge has written that the scheme. . . . Is that correct?
A. Don Meddles signed the documentation. We allowed it to go through our address in Salt Lake City. We helped him fill out the forms.
The Court: Answer the question. . . .
A. That's correct.
The defense also referred to Judge Carr's order: During direct examination, Sine acknowledged that Judge Carr "wrote up some bad things about me" and found him in contempt.[6] After the government had asked Sine over one hundred questions about the order, he more extensively addressed the order during re-direct examination. Sine explained on redirect that the judge had found him in contempt as a result of Sine having taken actions actions he believed at the time were legitimate to recover on behalf of the lenders, and that Judge Carr's order was preventing him from going forward with efforts to recover for the lenders. In his closing argument, Sine's lawyer used Judge Carr's statements to portray Sine as an unsung hero in the effort to recover the lenders' money:
*1031 Judge Carr said some shocking things about Wesley Sine. There is no doubt about it. Well, why was Wesley Sine in Ohio? Why would you travel from Salt Lake City on [sic] Ohio to throw yourself in front of a judicial bus and take the kind of abuse that he has taken at the hands of Judge Carr. It can't be for fun. He was there trying to find and protect money that he believed belonged to Delmarva Timber Trust and could be used to pay the investors. . . .
. . .
. . . [T]o this day, Wesley Sine and the small group of investors or lenders are the only people still trying to make good on Mr. Panthaky's loans. If by doing so, it makes you think better of him, we are glad for that. But what is driving him to put himself at risk before judges across the land is the interest of these borrowers or lenders, the people who are out their money, and in the end, it's clear a lot of people lost a lot of money, and Mr. Sine feels very sorry for those people, but he is not responsible for their losses. Wesley Sine, more than anyone, has remained steadfast in his resolve to try to help these people get their money. The government doesn't think he can do it. But Mr. Sine, even as we sit here, still believes he can.
During the course of Sine's cross-examination, his attorney successfully objected when the government asked to admit a copy of the order into evidence.[7] Sine's attorney nonetheless allowed the questions about the order to continue without objection. Because no objection was raised, we review the questioning concerning Judge Carr's order for plain error. United States v. Tisor, 96 F.3d 370, 376 (9th Cir. 1996); see FED. R. EVID. 103(d); FED. R. CRIM. P. 52(b). Ultimately, although we agree that the many references to Judge Carr's adverse findings and comments should not have been allowed, the plain error standard of review proves fatal to Sine's contention that the conviction should be reversed because of those references.
III.
By presenting the thrust of Judge Carr's order to the jury through its cross-examination technique, the government used a tactic that had the potential unfairly to prejudice Sine. It also impermissibly placed hearsay evidence before the jury. Although many of the facts found in the order were quite relevant to the issues before the jury, the government could not properly use the suggestive short cut that it did to bring those facts before the jury.
We note preliminarily that although the order was never admitted into evidence, a line of questioning that repeatedly incorporates inadmissible evidence can be just as improper as the direct admission of such evidence. We agree with the Fourth Circuit that such "speaking" questions can violate the Federal Rules of Evidence. See United States v. Hall, 989 F.2d 711, 716-17 (4th Cir.1993) (noting that by "proceed[ing] to read the [inadmissible hearsay] statement to the jury under the guise of cross-examining . . . [t]he government's use of [the] unauthenticated statement violated Fed.R.Evid. Rule 802. . . ."); see also FED. R. EVID. 103(c) ("In jury cases, proceedings shall be conducted, to the extent practicable, so as to prevent inadmissible evidence from being suggested to the jury by any means, such as . . . asking questions in the hearing of the jury."); 21 CHARLES ALAN WRIGHT & KENNETH W. GRAHAM, JR, FEDERAL PRACTICE AND PROCEDURE: *1032 EVIDENCE § 5042, at 954, 963 (2d ed.2005) (noting that Rule 103(c) seeks to ensure the jury "goes into deliberations with their minds void of everything except evidence that has been properly validated by trial procedures" and that the rule should apply to leading questions to witnesses "that counsel should have known contained inadmissible evidence"); cf. Douglas v. Alabama, 380 U.S. 415, 419, 85 S. Ct. 1074, 13 L. Ed. 2d 934 (1965) (holding that "[a]lthough the Solicitor's reading of [the witness's] alleged statement, and [the witness's] refusals to answer, were not technically testimony, the Solicitor's reading may well have been the equivalent in the jury's mind of testimony that[the witness] in fact made the statement," and therefore was the basis for a Confrontation Clause violation).[8]
Here, the district court recognized that the government's strategy was little different in its impact from introducing the evidence when it observed in response to the government's request to admit the entire order that "it's been read into the record, much of it." In fact, the government premised its argument for admitting the order into evidence on the fact that "we have talked at great length about [the order], but it has come in in dribs and drabs," and reminded the jury during closing argument that "[w]e went through[the order] quite a bit during trial."
We have previously observed that "while prosecutors are not required to describe sinners as saints, they are required to establish the state of sin by admissible evidence unaided by aspersions that rest on inadmissible evidence, hunch, or spite." United States v. Schindler, 614 F.2d 227, 228 (9th Cir.1980). That observation applies as readily to questioning that incorporates inadmissible evidence as it does to the direct introduction of such evidence. We therefore turn to the determination of whether the portions of Judge Carr's order read to the jury in the guise of cross-examination were properly admitted.
A.
We begin by recounting why it was central to Sine's defense strategy to prove that the legal efforts to recover from Meddles, Polly, and Hare were legitimate. At the core of Sine's defense was the assertion that he held a good faith belief all along that Alpha Trust legitimately owned the Ginnie Mae securities, and therefore a good faith belief that the "lenders" would be repaid from those securities if not otherwise. Because he had such a good faith belief, Sine argued to the jury, he lacked the specific intent required for conviction under the mail fraud statute. See United States v. Shipsey, 363 F.3d 962, 967 (9th Cir.2004) (noting a good faith defense is covered by jury instructions specifying that mail fraud requires specific intent). To demonstrate his good faith to the jury, Sine presented evidence of the steps he had taken to verify Alpha Trust's legitimate ownership of the collateral and to recover the value of the Ginnie Mae securities once he discovered that the transfer documents were worthless. A critical piece of this lack-of-fraudulent-intent evidence was the litigation Sine instituted, namely the lawsuits involving Meddles, Polly, and Hare.
*1033 Given this defense, the government was entitled, to the extent consistent with the Federal Rules of Evidence, to introduce evidence calculated to prove the litigation efforts a sham. See FED. R. EVID. 402 ("All relevant evidence is admissible, except as otherwise provided . . . by these rules. . . ."). Facts that raised doubts as to whether Sine had a realistic legal basis for expecting a successful result when he brought suit would satisfy this relevance standard, as such facts would support the inference that the litigation was not filed with a good faith belief of recovery. The facts reviewed in Judge Carr's order, particularly the facts indicating that Sine failed to fulfill his fiduciary obligations as trustee of Alpha Trust, were therefore relevant evidence.[9] In addition, the adverse result in the Ohio district court litigation was itself pertinent to the jury's consideration of the good faith defense, because a successful suit would support the notion that the litigation efforts were good faith attempts to recover funds for the "lenders," while an unsuccessful suit might not. Our determination that these facts were relevant, however, does not resolve whether the government could introduce them by reading portions of Judge Carr's order. We now turn to that question.
B.
Sine argues that bringing the adverse, derogatory factual findings and comments in Judge Carr's opinion before the jury created too great of a danger of unfair prejudice and thus violated Rule 403 of the Federal Rules of Evidence. We agree.
Rule 403 provides that "[a]lthough relevant, evidence may be excluded if its probative value is substantially out-weighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury." FED. R. EVID. 403. We have previously observed that factual testimony from a judge unduly can affect a jury. See Chein v. Shumsky, 373 F.3d 978, 989 n. 6 (9th Cir.2004) (en banc).[10] Similarly, jurors are likely to defer to findings and determinations relevant to credibility made by an authoritative, professional factfinder rather than determine those issues for themselves. *1034 Cf. FED. R. EVID. 605 ("The judge presiding at the trial may not testify in that trial as a witness."); United States v. Frankenthal, 582 F.2d 1102, 1108 (7th Cir. 1978) ("[T]he possibility that prestige, dignity, and authority may have somehow been imparted to the prosecution's case by the judge's appearance on its behalf cannot lightly be dismissed.").
Although we have not previously addressed the question, other federal circuit courts have held that the use as evidence of facts as found in a judicial opinion can unfairly prejudice a party. Of particular relevance is the Fourth Circuit's review of a civil trial in which "[p]ortions of the findings of fact" from a previous civil lawsuit between the same parties "were read to the jury by plaintiffs' counsel during the direct examination of [a plaintiff]. The portions of [the judge's] order that plaintiffs' counsel read to the jury repeatedly referred to factual findings of misrepresentations made by [the defendant], [his] failure to disclose material information, and [his] participation in a civil conspiracy, as well as findings that [his wife] had knowingly filed false affidavits in the case." Nipper v. Snipes, 7 F.3d 415, 416 (4th Cir.1993). The Fourth Circuit held the admission of these findings over the defendant's objection erroneous and reversed the jury's verdict based on the prejudice produced by the evidence. Id. at 418.
As one of its grounds for reversal, the Fourth Circuit held that "[i]n circumstances similar to those in this case such evidence should be excluded under [Rule] 403. This is because judicial findings of fact `present a rare case where, by virtue of their having been made by a judge, they would likely be given undue weight by the jury, thus creating a serious danger of unfair prejudice.' Id. (quoting Zenith Radio Corp. v. Matsushita Elec. Indus. Co., 505 F. Supp. 1125, 1186 (E.D.Pa.1980)). The Eleventh Circuit has ruled similarly. See U.S. Steel, LLC v. Tieco, Inc., 261 F.3d 1275, 1287-88 (11th Cir.2001) ("The district court abused its discretion[under Rule 403] in admitting Judge Garrett's opinion. The jury, not Judge Garrett, was charged with making factual findings on Appellees' allegations in this case.").
Our determination that reference to facts found in a judicial opinion can unfairly prejudice a party does not mean that admission of such facts will always fail the balancing test of Rule 403. Such a holding would be inconsistent with courts' "increasing reluctance to reject in toto the validity of the law's factfinding processes outside the confines of res judicata and collateral estoppel," which was noted, with approval, by the drafters of the Federal Rules of Evidence. FED. R. EVID. 803(22) advisory committee nt. (1972); see also Hiroshi Motomura, Using Judgments as Evidence, 70 Minn. L. Rev. 979, 1038 (1986) ("[M]ost modern commentators would not categorically declare juries incompetent to weigh prior [judicial] determinations."). But cf. 2 KENNETH S. BROUN ET AL., McCORMICK ON EVIDENCE § 298, at 337 (6th ed.2006) ("Admitting civil judgments rendered against the defendant directly raises constitutional issues. . . ."). In this case, however, the nature of the facts found and comments made by Judge Carr directly opining on Sine's motivations and truthfulness, thereby implicating Sine's overall credibility as a witness heavily weighs on the unfair prejudice side of the balance. Cf. FED. R. EVID. 701 (limiting the use of opinion testimony by lay witnesses); United States v. Binder, 769 F.2d 595, 602 (9th Cir.1985) (holding that expert witness testimony was impermissible when it "in effect . . . impermissibly . . . asked [the jury] to accept an expert's determination that these particular witnesses were truthful" because "[i]t is the jurors' responsibility to determine credibility by assessing the witnesses and witness testimony in light of their own *1035 experience"), overruled on other grounds by United States v. Morales, 108 F.3d 1031 (9th Cir.1997) (en banc).
Supporting the conclusion that the use of Judge Carr's opinion was violative of Rule 403 as tending to prejudice the jury is the consideration that the government could have proved the facts in Judge Carr's findings through less prejudicial means. The Supreme Court has held that "what counts as the Rule 403 `probative value' of an item of evidence . . . may be calculated by comparing evidentiary alternatives." Old Chief v. United States, 519 U.S. 172, 184, 117 S. Ct. 644, 136 L. Ed. 2d 574 (1997); see also id. at 182-83, 117 S. Ct. 644 ("If an alternative were found to have substantially the same or greater probative value but a lower danger of unfair prejudice, sound judicial discretion would discount the value of the item first offered and exclude it if its discounted probative value were substantially outweighed by unfairly prejudicial risk."). As far as appears, the evidence that the Bank of New York presented to Judge Carr, which underlay his findings, was available to the government at the time of the criminal trial.
The government argues that requiring it to present alternate evidence about such facts would have created practical difficulties in tracking down witnesses and exhibits for an issue that only arose during the course of trial because of Sine's choice of defense strategy. A party cannot, however, avoid the dictates of the rules of evidence simply because they create a burden. Whether, as the government maintains, testimony about the facts underlying Judge Carr's order "would have been a terrible waste of time over a tangential issue of no moment" is not a pertinent consideration if, as here, the more efficient mode of proof was also considerably more likely to sway the jury against the defendant than the more traditional means.
Further, the suggestion that the Ohio federal court litigation concerned "a tangential issue of no moment" to this case bolsters our holding that the extensive recitation of Judge Carr's extremely critical findings violated Rule 403. Effectively, the government's argument is that the underlying facts concerning the Ohio suit were of little probative value, and that it was, instead, the resoundingly negative assessment of Sine's overall credibility contained in Judge Carr's opinion that the government wanted the jury to hear. We are unwilling to condone such a prejudicial shortcut.
C.
We also agree with Sine that some of the government's references to Judge Carr's order constituted the impermissible use of hearsay evidence. Under the Federal Rules of Evidence, "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" is not admissible absent an applicable exception. FED. R. EVID. 801, 802.[11]
*1036 A court judgment is hearsay "to the extent that it is offered to prove the truth of the matters asserted in the judgment." United States v. Boulware, 384 F.3d 794, 806 (9th Cir.2004), cert. denied 546 U.S. 814, 126 S. Ct. 337, 163 L. Ed. 2d 49 (2005); see also 2 McCORMICK ON EVIDENCE, supra, § 298, at 337 (noting the historic treatment of prior judgments as hearsay). It is even more plain that the introduction of discrete judicial factfindings and analysis underlying the judgment to prove the truth of those findings and that analysis constitutes the use of hearsay. The concern about evidence that is neither based on personal knowledge nor subject to cross-examination, which explains an ultimate judgment's treatment as hearsay, see Motomura, supra, at 980 n. 4, is even more pronounced when dealing with statements that recapitulate in detail others' testimony and declarations. We therefore agree with the Fourth, Tenth, and Eleventh Circuits that judicial findings of facts are hearsay, inadmissible to prove the truth of the findings unless a specific hearsay exception exists. Herrick v. Garvey, 298 F.3d 1184, 1191-92 (10th Cir.2002); United States v. Jones, 29 F.3d 1549, 1554 (11th Cir.1994); Nipper, 7 F.3d at 417.
By peppering Sine during cross-examination with questions referring to the fact that a judge had found that Sine stole the identity of Polly and Hare, failed to act as an appropriate fiduciary, and acted with mendacity, the government used the order to establish the truth of Judge Carr's findings.[12] The government wanted the jury to agree with Judge Carr's conclusions that Sine was not acting as a good faith fiduciary in conducting the Ohio litigation.[13] So, unless the order comes within a hearsay exception recognized by the Federal Rules of Evidence, the references to the order should not have been allowed.
The government does not argue that any such exceptions apply here, and we hold that none is available.[14] Two hearsay exceptions in the Federal Rules of Evidence explicitly allow for the admission of judgments. Those exceptions, however, are limited to (1) prior judgments involving *1037 criminal convictions subject to more than one year of imprisonment, FED. R. EVID. 803(22), and (2) judgments used to provide "proof of matters of personal, family or general history, or boundaries," id. 803(23). This case does not involve a judgment covered by those limited exceptions.[15] And although the Rule's public records hearsay exception allows "factual findings" resulting from "investigations" conducted by "public offices and agencies," that exception does not apply against criminal defendants. Id. 803(8).[16]
D.
The government argues that Sine's defense strategy "opened the door" to the questioning about Judge Carr's order even if it was otherwise inadmissible. We disagree.
As we have already recognized, Sine's arguments about his good faith efforts to recover money for the Ginnie Mae securities made Judge Carr's order relevant to the case. The government's use of the opened door principle is therefore correct to that extent.
But the "opening the door" doctrine is not so capacious as to allow the admission of any evidence made relevant by the opposing party's strategy, without regard to the Federal Rules of Evidence.[17] As we have explained, the "opening the door" principle allows parties "to introduce evidence on the same issue to rebut any false impression that might have resulted from the earlier admission." United States v. Whitworth, 856 F.2d 1268, 1285 (9th Cir. 1988) (emphasis added); see also United States v. Brown, 921 F.2d 1304, 1307-08 (D.C.Cir.1990) ("Although the government may prevent a defendant from using rules of evidence to select and enter pieces of evidence wholly out of context, the government may not shore up a prosecution by pushing through the open door evidence not necessary to remove any unfair prejudice created by defense counsel's tactics." (internal quotation marks omitted)).
Sine, in his direct testimony, made only passing reference to the opinion, accurately stating that Judge Carr "wrote up some bad things about me." The limited testimony was insufficient to open the door to the government's otherwise impermissible references to the order, as Sine did not introduce an inaccurate portrait of the order itself. Sine's limited and accurate reference to Judge Carr's opinion did not create an appeal to the professional authority of the judge that could have been countered by the government's use of the order.
The government does not maintain otherwise, but argues more broadly that "[t]he picture Sine painted . . . of selflessness and hope, that he was on the verge of *1038 making substantial repayments to the victims" opened the door. Presenting a theory of the case that can be effectively rebutted by otherwise-inadmissible evidence, however, does not by itself open the door to using such evidence; only partial, misleading use of the evidence itself can do so.
Our determination that Sine did not open the door to the government's use of Judge Carr's order accords with our previous holding that a party cannot appeal to the truth of the matter asserted by hearsay evidence even when its opponent has opened the door to the use of otherwise inadmissable hearsay. United States v. Collicott, 92 F.3d 973, 981 n. 8, 982 & n. 11 (9th Cir.1996). Instead, the adversary is limited to using the hearsay evidence for matters not concerning the truth of the statement, such as explaining or minimizing a witness's testimony represented to be inconsistent with a prior statement. Id. at 980-81. In this case, the government's use of Judge Carr's findings was not so limited. At least in part, the government referred to the order to assert that the truth of its conclusions that the facts asserted in the litigation were not true, and that Sine did not believe they were thereby undermining Sine's contrary representations.[18] The government's use of Judge Carr's order thus went well beyond the bounds of the opened door principle.
IV.
Our holding that the government erred in its use of the order, and that the use was to some degree prejudicial to Sine, cannot resolve this appeal. Despite its pervasiveness, Sine never objected during trial to questioning premised on Judge Carr's order, or to the prosecutor's use of the order during closing argument. So, applying the plain error standard, we may reverse only if the error is "`plain' and . . . `affect[s] substantial rights.' Moreover, [plain error review] leaves the decision to correct the forfeited error within the sound discretion of the court of appeals, and the court should not exercise that discretion unless the error seriously affect[s] the fairness, integrity or public reputation of judicial proceedings." United States v. Olano, 507 U.S. 725, 732, 113 S. Ct. 1770, 123 L. Ed. 2d 508 (1993) (first and third alterations in original) (quoting United States v. Young, 470 U.S. 1, 15, 105 S. Ct. 1038, 84 L. Ed. 2d 1 (1985)) (internal quotation marks omitted); see also Tisor, 96 F.3d at 376-77 (applying Olano to plain error review under Rule 103(d) of the Federal Rules of Evidence).
Under the plain error review standard applicable to the errors in this case, an individual's substantial rights are not affected unless he can show that the error may well have affected the outcome of the trial. Olano, 507 U.S. at 734, 113 S. Ct. 1770; see also United States v. Dominguez Benitez, 542 U.S. 74, 82, 124 S. Ct. 2333, 159 L. Ed. 2d 157 (2004) (holding that a defendant must show "a reasonable probability that, but for [the error claimed], the result of the proceeding would have been different" (alteration in original) (quoting United States v. Bagley, 473 U.S. 667, 682, 105 S. Ct. 3375, 87 L. Ed. 2d 481 (1985)) (internal quotation marks omitted)); United States v. Ameline, 409 F.3d 1073, 1078 (9th Cir.2005) (en banc) (holding a defendant "must establish `that the probability of a different result is sufficient to undermine confidence in the outcome of the proceeding'" (quoting Dominguez Benitez, 542 U.S. at 83, 124 S. Ct. 2333)).
*1039 Our plain error analysis in this case must reflect the two ways that Judge Carr's order could have affected the jury: It could have caused jurors to reject Sine's specific factual assertions about his litigation activities, based on Judge Carr's contrary findings about Sine's course of conduct. And it could have caused them generally to disbelieve Sine as a witness, based on Judge Carr's firmly negative findings about Sine's credibility such as the determination that he had displayed "chicanery, mendacity, deceit, and pretense."
As to the first potential effect, we readily find that plain error review does not dictate reversal. Given the overwhelming evidence presented to the jury in this case refuting Sine's good faith defense, Sine cannot show a "reasonable probability" that a trial conducted without the references to Judge Carr's order would have resulted in a different outcome. Even without the judicial findings refuting Sine's evidence that the litigation involving Meddles and the Bank of New York proved his good faith, the jury heard extensive evidence inconsistent with Sine believing that the scheme was legitimate and that the loans were actually secured by Ginnie Mae securities.[19] That evidence included: denials that various individuals had assured Sine about Alpha Trust's legitimate ownership of the securities; a 1998 meeting during which Sine offered excuses for his inability to physically produce the securities; exotic stories he told to excuse Panthaky's failure to pay; Sine's repeated lies about Alpha's supposedly rosy record of repayment; suits that Sine filed against several individuals who pressed Alpha for repayment; and the quick realization of several financial professionals that the collateral was not legitimate when they conducted due diligence on Alpha. Taken together, all of this evidence thoroughly undermined Sine's use of the Utah and Ohio litigation to prove his good faith belief in his representations to "lenders."
So, entirely leaving out Judge Carr's findings about Sine's tactics, Sine's use of the litigation involving Meddles and the Bank of New York to demonstrate his good faith was doomed to failure. No jury could have believed that Sine really thought that filing those suits demonstrated he was acting as trustee for a legitimate financing operation that owned legitimate securities. Judge Damrell, who had heard first-hand all the trial testimony, so concluded in denying Sine's post-trial motion for a new trial:
[Y]ou have substantial overwhelming evidence, in my view, of fraud committed by both defendants. . . . It's my assessment, that this jury, long before Judge Carr's name is mentioned in this courtroom could reasonably conclude, and I think did reasonably conclude, that there were two fraudsters on trial who bilked people of millions of dollars. One as an instrumentality using his law degree *1040 and legal profession and his role as trustee.
The evidence was absolutely overwhelming before we get to the issue of this lawsuit filed in Utah or Ohio.
We agree with this assessment of the evidence.
As to the second potential effect of the order its potential to substitute Judge Carr's evaluation of Sine's credibility for the jury's ultimate role to decide credibility we are much more troubled. The order's use of terms like "chicanery, mendacity, deceit, and pretense" are highly pejorative, however accurately they may have described Sine's behavior. The impact of this strongly negative assessment was bolstered by the prosecutor's juxtaposition, during Sine's cross-examination and during closing argument, of Judge Carr's unflattering conclusions with Sine's claims that he was now telling the truth. The jury's evaluation of Sine's entire testimony could well have been influenced by knowing that a judge who would be presumed to have expertise in judging credibility had already deemed him untrustworthy. See Chein, 373 F.3d at 989 n. 6 ("[T]he likely impact on the jury of a sitting state court judge pronouncing the existence of an essential element of a crime, while vigorously denouncing the defendant and his credentials, is difficult to ignore." (emphasis added)). The jury has the ultimate task of making credibility determinations about individual witnesses; those evaluations may be prejudiced when the jury is in effect asked to rely on a third party's expertise instead. See Binder, 769 F.2d at 602 (holding testimony that "in effect . . . impermissibly . . . asked [the jury] to accept an expert's determination that these particular witnesses were truthful" was erroneous because "[i]t is the jurors' responsibility to determine credibility by assessing the witnesses and witness testimony in light of their own experience," and finding this error was prejudicial when the credibility of the particular witnesses was crucial to the case).
In this case, however, we cannot find that Sine has demonstrated a "reasonable probability" that the jury's verdict would have been altered had the references to Judge Carr's findings not made it harder than it already was for the jury to view Sine as a credible witness. For, even without the order, it was already extremely unlikely that the jury would have viewed Sine as credible. Sine's testimony was contradicted by the testimony of several other witnesses and simply defied common sense.
For example, several financial professionals testified that they confronted Sine about the sham he was perpetrating. Yet, despite these clear warnings from knowledgeable individuals, Sine made no effort to confirm that Alpha Trust legitimately owned the securities but instead continued to promote the scheme. Had Sine genuinely been acting as a conscientious but naive trustee, the warnings certainly would have given him pause, causing him to take steps to confirm the validity, or even the existence, of the securities. But Sine took no such steps. Likewise, Sine admitted he did not retain copies of the letters he claimed to have written to confirm the legitimacy of the securities' transfer nor documented the conversations with third-parties who he claimed confirmed Alpha Trust's ownership. Given the critical importance of such confirmations for his task as trustee, these failure are inexplicable.
Again, we find Judge Damrell's observations instructive to our prejudice inquiry. In denying the motion for a new trial, Judge Damrell noted that "Mr. Sine's credibility was in tatters by the time this evidence [from Judge Carr] came in." He commented at length about the "[u]tterly incredible" and "[s]imply incredible" nature *1041 of Sine's testimony. Judge Damrell particularly highlighted Sine's claims that some of the transactions merely involved "refinancing" rather than a Ponzi scheme a claim so preposterous that "[t]he temperature in this courtroom dropped 20 degrees" when it was made. Ultimately, Judge Damrell concluded that "the defendant's testimony in this [case] was was [sic] the most powerful evidence of his guilt."[20]
Our independent review of the record supports the findings about Sine's complete lack of credibility from the judge who was the first-hand witness to his testimony. Sine has therefore failed to establish a "reasonable probability" that the jury would have acquitted him absent the references to Judge Carr's findings. Cf. United States v. Geston, 299 F.3d 1130, 1136-37 (9th Cir.2002) (holding that impermissible questioning that attacked a defense witness's credibility constituted reversible plain error when the defendant's "fate hinged on resolution of the conflicting testimony presented by the parties" and noting "[w]e may consider the relative strength of the parties' positions in deciding whether reversal is appropriate"); United States v. Brooke, 4 F.3d 1480, 1488 (9th Cir.1993) (refusing to find the trial court's erroneous admission of evidence that impugned a defendant's credibility was harmless when "the trial centered around the conflicting testimony" of the defendant and a government witness and the erroneous evidence "in all likelihood affected the jury's determination of which of the two antagonists to believe"); United States v. Necoechea, 986 F.2d 1273, 1278 (9th Cir.1993) (holding that reversing based on plain error partly depends on the "closeness of the case" when a prosecutor vouches for the truthfulness of a government witness).[21]
V.
The government's decision to inform the jury that a judge had made factual findings inconsistent with the defendant's theory of the case ran far too great a risk of unfairly prejudicing the defendant, and allowed the government to shortcut the usual process of proving facts by putting witnesses before a jury. In this case, however, the defendant completely failed to object to the government's repeated impermissible references to the judge's order. Because the trial judge's failure sua sponte to prevent such references did not affect Sine's substantial rights in a case where other evidence overwhelmingly proved the defendant's guilt, Sine's conviction must stand.
AFFIRMED.
NOTES
[*] The Honorable David G. Trager, Senior United States District Judge for the Eastern District of New York, sitting by designation.
[1] We deal with Sine's non-evidentiary claims, as well as the claims of Panthaky, in a memorandum disposition filed concurrently with this opinion.
[2] Ginnie Mae securities are pools of mortgages aggregated and guaranteed by the federally chartered Government National Mortgage Association ("Ginnie Mae") and resold to investors.
[3] The defendants claimed that Delmarva had conveyed the securities to Alpha in 1991. The defendants never explained why Delmarva transferred securities worth $54 million to Alpha. Instead, they presented a Byzantine tale about the extraordinary wealth of Delmarva's owner, his clandestine career as a CIA agent, the secretive handling of his finances, and the disappearance of his supposedly huge assets after his death.
[4] The Sixth Circuit upheld the criminal contempt judgment in an unpublished disposition. Sine v. Bank of N.Y., 174 Fed.Appx. 930 (6th Cir.), cert. denied, ___ U.S. ___, 127 S. Ct. 592, 166 L. Ed. 2d 440 (2006).
[5] We emphasize that nothing in this opinion is intended in any way as a criticism of Judge Carr or his order. The question before us is not whether Judge Carr's evaluation was a fair assessment of the evidence before him-which we have absolutely no basis to doubt. Rather, the issue is whether the government may shortcut its way to a criminal conviction by failing to put before the jury the same sort of evidence Judge Carr reviewed, while at the same time relying on the strong language of the Ohio order.
[6] Sine also mentioned that a subsequent order filed by Judge Carr vacated parts of the original order. The government has never disputed the accuracy of that statement.
[7] At the end of that day of testimony, the government renewed its motion to admit the order. The district court then agreed with Sine's argument that its admission would violate Rule 403.
[8] We have previously held that incorporating inadmissible evidence into questioning can constitute prosecutorial misconduct. See United States v. Sanchez, 176 F.3d 1214, 1222 (9th Cir.1999) (holding prosecutorial misconduct existed because "[i]t is improper under the guise of `artful cross-examination,' to tell the jury the substance of inadmissible evidence" (quoting Hall, 989 F.2d at 716) (internal quotation marks omitted)). Sine, however, frames his challenge in evidentiary terms and does not raise a prosecutorial misconduct claim.
[9] Judge Carr's findings did not collaterally estop Sine from arguing that the litigation against Polly and Hare proceeded in good faith and fulfilled his fiduciary responsibilities. Judge Carr made the bulk of his findings in the course of granting a preliminary injunction in a civil suit that prevented Sine from seizing Polly's and Hare's assets. Because these findings were made in a preliminary proceeding and pursuant to the burden of proof in civil cases, they cannot prevent Sine from relitigating the same issues in his criminal trial. See Dias v. Elique, 436 F.3d 1125, 1129 (9th Cir.2006); Starbuck v. City & County of S.F., 556 F.2d 450, 457 n. 13 (9th Cir.1977). The government therefore could not justify its use of Judge Carr's findings as an offensive use of collateral estoppel. Although Judge Carr's order also made some findings in the course of holding Sine guilty of criminal contempt, the government did not limit its references to those criminal contempt findings, which addressed only the narrow issue of whether Sine wrongly retained particular funds belonging to Polly after a temporary restraining order had been granted.
[10] In Chein, we held that no rational juror could have found that the record evidence proved that the defendant lied about a material matter, as required by California's perjury statute. In discussing why the jury nonetheless returned a guilty verdict, thereby violating the defendant's due process rights, we highlighted testimony by a superior court judge, who served as an "`expert' on materiality" and told the jury how the defendant's statement, in his view, would have been material. Chein, 373 F.3d at 989. We stated that "the likely impact on the jury of a sitting state court judge pronouncing the existence of an essential element of a crime, while vigorously denouncing the defendant and his credentials, is difficult to ignore. . . . [W]e note that this highly unusual testimony at least explains why the jury returned a guilty verdict on sparse, constitutionally insufficient evidence." Id. at 989 n. 6.
[11] We reject, however, Sine's terse claim that the use of this hearsay violated the Confrontation Clause. Only testimonial out-of-court statements raise Confrontation Clause concerns. Whorton v. Bockting, ___ U.S. ___, 127 S. Ct. 1173, 1183, 167 L. Ed. 2d 1 (2007) (citing Crawford v. Washington, 541 U.S. 36, 124 S. Ct. 1354, 158 L. Ed. 2d 177 (2004)). Although he cites Crawford in passing, Sine does not argue that Judge Carr's statements were testimony, with good reason: There is no reason to believe that Judge Carr wrote the order in anticipation of Sine's prosecution for fraud, so his order was not testimonial. See United States v. Ballesteros-Selinger, 454 F.3d 973, 974-75 (9th Cir.2006) (holding that an immigration judge's deportation order was nontestimonial because it "was not made in anticipation of future litigation").
[12] The government argues that its purpose in asking defense witnesses about the order was not to establish the truth of the findings in the order. Rather, posits the government, the reason for cross-examining witnesses with the order was to establish that they were not fully informed about Sine's efforts and were therefore less credible. This rationale does not, however, explain the questioning of Sine himself. We therefore need not and do not decide whether the government's non-hearsay rationale stands up with regard to the other witnesses.
[13] Even as part of Sine's cross-examination, the government could have referred to Judge Carr's order in more limited ways that would not have constituted the use of hearsay. Because "a prior judgment is not hearsay . . . to the extent that it is offered as legally operative verbal conduct that determined the rights and duties of the parties," Boulware, 384 F.3d at 806, the government could have asked Sine about the fact that Judge Carr's order denied recovery against Polly and Hare. The denial of recovery would have helped to prove that Sine's efforts were illusory and thus not in good faith.
[14] Sine concedes that the Federal Rules of Evidence's provision on impeaching a witness based on his commission of a prior crime involving dishonesty or false statements allowed the government to ask about Judge Carr's determination that he had committed criminal contempt. See FED. R. EVID. 609(a)(2). Assuming Rule 609 applies to a criminal contempt conviction which we do not decide "[a]bsent exceptional circumstances, evidence of a prior conviction admitted for impeachment purposes may not include collateral details and circumstances attendant upon the conviction." United States v. Rubio, 727 F.2d 786, 797 n. 5 (9th Cir.1983). The findings presented by the government went far beyond the mere fact that Judge Carr has found Sine guilty of criminal contempt.
[15] It is not apparent whether those exceptions cover judicial factfinding that accompanies the judgment or just the judgment itself. Because the exceptions do not apply to this case in any event, we express no opinion on that question.
[16] Even in civil cases, where the exception does apply, several other circuits have held that it covers only factual findings by executive branch agencies and officials, not judicial factfinding. Herrick, 298 F.3d at 1192; Jones, 29 F.3d at 1554; Nipper, 7 F.3d at 417.
[17] The Federal Rules of Evidence's "principle of completeness" also does not allow the admission of otherwise inadmissible statements. See United States v. Collicott, 92 F.3d 973, 983 (9th Cir.1996) ("Because [the witness's] out-of-court statements . . . do not fall within an exception to the hearsay rule, they are inadmissible, regardless of Rule 106."); see also FED. R. EVID. 106 ("When a writing or recorded statement or part thereof is introduced by a party, an adverse party may require the introduction . . . of any other part or any other writing or recorded statement which ought in fairness to be considered contemporaneously with it.").
[18] No limiting instructions were given to the jury about the purposes for which it could consider Judge Carr's order.
[19] In addition to Judge Carr's order, Sine complains about the introduction of other inadmissible evidence: A trial pleading filed by the government in the Utah federal district court suit against Polly and Hare; a Fifth Circuit opinion referencing a fraudulent scheme involving an entity called Delmarva; deposition testimony by Panthaky; a consent decree signed by Meddles; and testimony from several victims about the impact of the fraud. Each of those items received only cursory reference during the trial and the defense raised no contemporaneous objection to their introduction. Even assuming the evidence was inadmissible, our evaluation of the overwhelming nature of the admissible evidence of Sine's lack of good faith does not change. Our holding that referencing Judge Carr's order did not affect the outcome of the trial extends to the use of the other challenged evidence. We therefore do not resolve whether those pieces of evidence were properly admitted.
[20] During Sine's sentencing hearing, Judge Damrell again noted the perjurious nature of his testimony and accordingly applied an obstruction-of-justice enhancement to the Sentencing Guidelines calculations.
[21] Because we hold that the errors in this trial did not affect Sine's substantial rights, we need not decide whether they were "plain." We do note that although there is no Supreme Court case law or case law in this circuit precisely on point, Chein points in the direction of our evidentiary holdings, and the pertinent case law in other circuits all supports Sine's arguments. These circumstances suggest that the error was in fact plain. See United States v. Shwayder, 312 F.3d 1109, 1121 (9th Cir.2002). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1357767/ | 579 F.3d 1062 (2009)
In re Complaint of JUDICIAL MISCONDUCT.
No. 07-89141.
United States Court of Appeals, Ninth Circuit.
August 27, 2009.
*1063 ORDER
KOZINSKI, Chief Judge:
Complainant first presented his claims in a criminal proceeding and two civil cases, wherein the subject district judge presided. Unhappy with the results, complainant filed a motion to disqualify. In fact, he filed five motions to disqualify and *1064 two motions to reconsider those motions to disqualify. Complainant was declared a vexatious litigant and made subject to a pre-filing review order. He now brings a misconduct complaint and four supplements, all concerning the same judge.
The judicial misconduct system is emphatically not a forum for disappointed litigants to continue litigation already decided on the merits. See In re Charge of Judicial Misconduct, 685 F.2d 1226, 1227 (9th Cir. Jud. Council 1982). Yet complainant repeatedly attacks the subject judge's rulings-just as he did in his previous motions to disqualify. Complainant insists that he refers to the merits only to show the judge's persistent bias, but that is just another way of saying the judge was persistently wrong. These claims must be dismissed. Likewise, complainant's transparent attempt to relitigate his five disqualification motions by challenging the judge's failure to recuse is merits-related and must be dismissed. See 28 U.S.C. § 352(b)(1)(A)(ii); Misconduct Rule 4(c)(1); Implementation of the Judicial Conduct and Disability Act of 1980: A Report to the Chief Justice 146 (2006).
Complainant's non-merits related claims are either frivolous or unsubstantiated. Complainant alleges that the judge was biased against him and conspired with prosecutors and government officials. This charge must be dismissed because complainant has provided no objectively verifiable proof (e.g. names of witnesses, recorded documents or transcripts) of this allegation. See 28 U.S.C. § 352(b)(1)(A)(iii); Misconduct Rule 4(c)(3).
Complainant also alleges that the judge was hostile and derogatory towards him. Once again, this charge must be dismissed because complainant hasn't produced any objectively verifiable proof. See 28 U.S.C. § 352(b)(1)(A)(iii); Misconduct Rule 4(c)(3). Complainant did allude to one hearing in particular, but he does not provide a specific date or point to particular passages that would support his claim. An exhaustive (and time-consuming) search through the voluminous record in the underlying case reveals a hearing that is probably the one complainant is referring to. The transcript there indicates that the judge, while frustrated by the tactics of both parties, remained professional and did not exhibit bias. Allegedly improper statements quoted by complainant were, in context, completely benign.
Complainant's additional allegations are similarly unavailing. Complainant claims that the judge unduly delayed ruling on a motion, but delay is only a proper subject for a misconduct complaint in unusual circumstances, such as "where the delay is habitual, is improperly motivated or is the product of improper animus or prejudice toward a particular litigant, or, possibly, where the delay is of such an extraordinary or egregious character as to constitute a clear dereliction of judicial responsibilities." See Commentary on Misconduct Rule 1. This is not such a case.
Complainant also argues the judge should not have conducted a scheduled contempt hearing after complainant filed a motion to disqualify earlier that day. The judge quite properly did not issue a contempt order until the motion was resolved. Holding the hearing was not "prejudicial to the effective and expeditious administration of the business of the courts." 28 U.S.C. § 351(a); Misconduct Rule 4(c)(2)(A).
Finally, complainant makes allegations against federal officers, prosecutors and court staff. Because this complaint procedure applies only to federal judges, these charges are dismissed. See Misconduct Rule 1(d).
*1065 Sanctions will seldom be considered after a single misconduct complaint by someone who is not a lawyer, but this is not an ordinary complaint. Complainant appears to be using the judicial disqualification and judicial complaint processes as a means for achieving litigation objectives that he was unable to achieve on the merits. In light of complainant's repeated and vexatious use of judicial procedures to pursue unsubstantiated, frivolous and already-litigated claims, and the fact that complainant has already been declared a vexatious litigant, complainant is ordered to show cause why he should not be subject to a $1000 fine and an order requiring him to obtain leave before filing any further misconduct complaints. See In re Complaint of Judicial Misconduct, 552 F.3d 1146, 1148 (9th Cir. Jud. Council 2009). Complainant has thirty days from the filing of this order to file a response, which will be transmitted to the Judicial Council for its consideration.
DISMISSED and COMPLAINANT ORDERED TO SHOW CAUSE. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/112788/ | 505 U.S. 1079 (1992)
ESPINOSA
v.
FLORIDA
No. 91-7390.
United States Supreme Court.
Decided June 29, 1992.
ON PETITION FOR WRIT OF CERTIORARI TO THE SUPREME COURT OF FLORIDA
*1080 Per Curiam.
Under Florida law, after a defendant is found guilty of a capital felony, a separate sentencing proceeding is conducted to determine whether the sentence should be life imprisonment or death. Fla. Stat. § 921.141(1) (1991). At the close of a hearing at which the prosecution and the defense may present evidence and argument in favor of and against the death penalty, ibid., the trial judge charges the jurors to consider "[w]hether sufficient aggravating circumstances exist," "[w]hether sufficient mitigating circumstances exist which outweigh the aggravating circumstances," and "[b]ased on these considerations, whether the defendant should be sentenced to life imprisonment or death." § 921.141(2). The verdict does not include specific findings of aggravating and mitigating circumstances, but states only the jury's sentencing recommendation. "Notwithstanding the recommendation of a majority of the jury," the trial court itself must then "weig[h] the aggravating and mitigating circumstances" to determine finally whether the sentence will be life or death. § 921.141(3). If the trial court fixes punishment at death, the court must issue a written statement of the circumstances found and weighed. Ibid.
A Florida jury found petitioner Henry Jose Espinosa guilty of first-degree murder. At the close of the evidence in the penalty hearing, the trial court instructed the jury on aggravating factors. One of the instructions informed the jury that it was entitled to find as an aggravating factor that the murder of which it had found Espinosa guilty was "especially wicked, evil, atrocious or cruel." See § 921.141(h). The jury recommended that the trial court impose death, and the court, finding four aggravating and two mitigating factors, did so. On appeal to the Supreme Court of Florida, petitioner argued that the "wicked, evil, atrocious or cruel" instruction was vague and therefore left the jury with insufficient guidance when to find the existence of the aggravating factor. The court rejected this argument and affirmed, saying: *1081 "We reject Espinosa's complaint with respect to the text of the jury instruction on the heinous, atrocious, or cruel aggravating factor upon the rationale of Smalley v. State, 546 So. 2d 720 (Fla. 1989)." 589 So. 2d 887, 894 (1991).
Our cases establish that, in a State where the sentencer weighs aggravating and mitigating circumstances, the weighing of an invalid aggravating circumstance violates the Eighth Amendment. See Sochor v. Florida, 504 U. S. 527, 532 (1992); Stringer v. Black, 503 U. S. 222, 232 (1992); Parker v. Dugger, 498 U. S. 308, 319-321 (1991); Clemons v. Mississippi, 494 U. S. 738, 752 (1990). Our cases further establish that an aggravating circumstance is invalid in this sense if its description is so vague as to leave the sentencer without sufficient guidance for determining the presence or absence of the factor. See Stringer, supra, at 235. We have held instructions more specific and elaborate than the one given in the instant case unconstitutionally vague. See Shell v. Mississippi, 498 U. S. 1 (1990); Maynard v. Cartwright, 486 U. S. 356 (1988); Godfrey v. Georgia, 446 U. S. 420 (1980).
The State here does not argue that the "especially wicked, evil, atrocious or cruel" instruction given in this case was any less vague than the instructions we found lacking in Shell, Cartwright, or Godfrey. Instead, echoing the State Supreme Court's reasoning in Smalley v. State, 546 So. 2d, at 722, the State argues that there was no need to instruct the jury with the specificity our cases have required where the jury was the final sentencing authority, because, in the Florida scheme, the jury is not "the sentencer" for Eighth Amendment purposes. This is true, the State argues, because the trial court is not bound by the jury's sentencing recommendation; rather, the court must independently determine which aggravating and mitigating circumstances exist, and, after weighing the circumstances, enter a sentence "[n]otwithstanding the recommendation of a majority of the jury," Fla. Stat. § 921.141(3).
*1082 Our examination of Florida case law indicates, however, that a Florida trial court is required to pay deference to a jury's sentencing recommendation, in that the trial court must give "great weight" to the jury's recommendation, whether that recommendation be life, see Tedder v. State, 322 So. 2d 908, 910 (Fla. 1975), or death, see Smith v. State, 515 So. 2d 182, 185 (Fla. 1987), cert. denied, 485 U. S. 971 (1988); Grossman v. State, 525 So. 2d 833, 839, n. 1 (Fla. 1988), cert. denied, 489 U. S. 1071 (1989). Thus, Florida has essentially split the weighing process in two. Initially, the jury weighs aggravating and mitigating circumstances, and the result of that weighing process is then in turn weighed within the trial court's process of weighing aggravating and mitigating circumstances.
It is true that, in this case, the trial court did not directly weigh any invalid aggravating circumstances. But, we must presume that the jury did so, see Mills v. Maryland, 486 U. S. 367, 376-377 (1988), just as we must further presume that the trial court followed Florida law, cf. Walton v. Arizona, 497 U. S. 639, 653 (1990), and gave "great weight" to the resultant recommendation. By giving "great weight" to the jury recommendation, the trial court indirectly weighed the invalid aggravating factor that we must presume the jury found. This kind of indirect weighing of an invalid aggravating factor creates the same potential for arbitrariness as the direct weighing of an invalid aggravating factor, cf. Baldwin v. Alabama, 472 U. S. 372, 382 (1985), and the result, therefore, was error.
We have often recognized that there are many constitutionally permissible ways in which States may choose to allocate capital sentencing authority. See id., at 389; Spaziano v. Florida, 468 U. S. 447, 464 (1984). Today's decision in no way signals a retreat from that position. We merely hold that, if a weighing State decides to place capital sentencing authority in two actors rather than one, neither actor must be permitted to weigh invalid aggravating circumstances.
*1083 The motion for leave to proceed in forma pauperis and the petition for a writ of certiorari are granted. The judgment of the Supreme Court of Florida is reversed. We remand for proceedings not inconsistent with this opinion.
So ordered.
The Chief Justice and Justice White dissent and would grant certiorari and set the case down for oral argument.
Justice Scalia, dissenting.
For the reasons given in my opinion in Sochor v. Florida, 504 U. S. 527, 553 (1992), I dissent from the Court's summary reversal of Espinosa's death sentence. Since the Florida courts found several constitutionally sound aggravating factors in this case, Espinosa's death sentence unquestionably comports with the "narrowing" requirement of Furman v. Georgia, 408 U. S. 238 (1972). Compliance with that requirement is the only special capital sentencing procedure that the Eighth Amendment demands. See Walton v. Arizona, 497 U. S. 639, 669-673 (1990) (Scalia, J., concurring in part and concurring in judgment). I would deny the petition. | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/1646841/ | 766 F.Supp. 124 (1991)
MANUFACTURERS HANOVER TRUST COMPANY, Plaintiff,
v.
JAYHAWK ASSOCIATES, B & A Development, Inc., Robert L. Brock, B.B. Andersen, Alan D. Brock, Robert L. Brock, Jr., Clifton D. Gideon and Gary H. Keller, Defendants.
No. 90 Civ. 5307 (RPP).
United States District Court, S.D. New York.
June 7, 1991.
Herrick, Feinstein by Barry Werbin, New York City, for plaintiff.
Wolf, Haldenstein, Adler, Freeman & Herz by Betsy C. Manifold, New York City, for defendant B.B. Andersen.
Christy & Viener by James M. Minamoto, New York City, for defendants Jayhawk Associates, B & A Development, Robert L. Brock, Alan D. Brock, Robert L. Brock, Jr., Clifton D. Gideon and Gary H. Keller.
OPINION AND ORDER
ROBERT P. PATTERSON, Jr., District Judge.
Plaintiff Manufacturers Hanover Trust Company ("MHT") moves pursuant to Rule 56 of the Federal Rules of Civil Procedure for summary judgment against all defendants and also moves for dismissal of defendant B.B. Andersen's counterclaims. At oral argument on May 13, 1991, the Court granted summary judgment to MHT for the reasons stated below.[1] For the *125 same reasons, the counterclaims of defendant Andersen are also dismissed.
STATEMENT OF FACTS
The present suit is an action to recover the principal sum of $1,811,865.57, plus interest, under a First Amendment to Modification and Extension Agreement (the "Loan Agreement"), a Renewal Note (the "Note") and a Guarantee, each of which is dated October 31, 1989.[2] The documents were executed in order to permit the refinancing of a real estate venture in which the defendants, among others, participated and which was first financed by MHT in 1982. The venture was undertaken by a general partnership called Jayhawk Towers, which, under a 1986 agreement (the "Modification and Extension Agreement") obtained an extension of the original maturity date of its obligation to MHT prior to the 1989 refinancing at issue here. In conjunction with the 1989 refinancing, Jayhawk Towers was dissolved, some of its partners paid down their shares of the partnership's obligation to MHT and certain other Jayhawk Towers partners formed a new, limited partnership which assumed all outstanding obligations of Jayhawk Towers. These new arrangements in October 1989 were memorialized by, inter alia, the Loan Agreement, the Note and the Guarantee. See Notice of Motion for Summary Judgment, Affidavit of Mary Ellen Whelehan, February 27, 1991 (the "Whelehan Affidavit"), and exhibits thereto; Reply Affidavit of Mary Ellen Whelehan, April 11, 1991 (the "Reply Whelehan Affidavit"), and exhibits thereto. The Note specified that the amount due to MHT under the Note was equal to a principal amount of $1,810,478.73 plus interest as set by the terms of the Note.
The Note matured on April 30, 1990, on which date there remained due and owing under the Note and the Loan Agreement outstanding principal in the amount of $1,803,266.39 plus unpaid deferred interest in the amount of $8,599.18 (which latter amount was capitalized and added to the outstanding balance), for a total of $1,811,865.57 of outstanding principal, as well as accrued unpaid interest for the period February, 1990 to April, 1990, in the amount of $45,081.66. Since April 30, 1990, interest has accrued on the outstanding principal balance of $1,811,865.57 at a default rate of interest provided for in the Note.
DISCUSSION
MHT has established that the agreements were made by the defendants and the defendants have not met their obligations thereunder. The default and nonpayment of the obligations under the Loan Agreement, Note and Guarantee, and the execution of those documents, are not denied and are therefore deemed admitted. MHT has thus established a prima facie case that it is entitled to judgment. See, e.g., Ihmels v. Kahn, 126 A.D.2d 701, 511 N.Y.S.2d 306 (2d Dep't 1987). Defendants argue that MHT is not entitled to summary judgment because there exist genuine issues of material fact involving their defenses against enforcement of the obligation and their counterclaims against MHT.
In opposing a motion for summary judgment, when the moving party has carried its burden under Fed.R.Civ.P. 56(c), the non-moving party must come forward with "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). See Matsushita Electric Inc. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 325-26, 106 S.Ct. 2548, 2553-54, 91 L.Ed.2d 265 (1986).
I. The Claim of Improper Identification of the Corporate Defendants
Defendants Jayhawk Associates and B & A Development, Inc. argue, among other *126 things, that they were not properly named in this action, stating that their proper names are "Jayhawk Tower Associates, L.P." and "B & A Development Co., Inc.," respectively. This argument is without merit. The omission of "Co." from B & A Development's name is immaterial, as is the omission of "L.P." from the name of Jayhawk Associates. The parties are identified in the Complaint with sufficient detail that there is no confusion as to what entities are involved.
Defendants' argument that Jayhawk Associates is an unrelated entity and is not the limited partnership sought to be held here, and that the limited partnership which entered into the Loan Agreement, Note and Guarantee at issue here is Jayhawk Tower Associates, L.P., is also without merit. Each of the documents at issue, as well as the Dissolution Agreement of Jayhawk Towers, the original general partnership, states that the limited partnership assuming the general partnership's obligations, was to be named Jayhawk Associates. The Loan, the Note and the Guarantee signed by the partners referred to the new partnership as Jayhawk Associates. Exhibits A, B, C and J to the Whelehan Affidavit, supra. The Note, Exhibit B to the Whelehan Affidavit, is signed by "Robert L. Brock [Sr.]" directly under the two lines which read "Jayhawk Associates, L.P. (a Kansas limited partnership)" and his signature is notarized as having been signed by him "on behalf of Jayhawk Associates, a Kansas limited partnership," at which time he "acknowledged the execution of the same ... in his capacity as a duly authorized officer of the general partner of the partnership" based on his position as president of B & A Development Co., Inc. Exhibit B to the Whelehan Affidavit, supra; see also Exhibits A, C and J. Accordingly, whether Jayhawk Associates, L.P. is correctly named is not a genuine issue of material fact. The entity held in this action is that limited partnership which owns the buildings known as Jayhawk Towers, and whether it now uses the name Jayhawk Associates, L.P. or Jayhawk Tower Associates, L.P., the individuals named in this action are partners of that partnership and the guarantors of the Note. The Complaint and other papers in this action are clear as to what entities and what individuals are sued.[3]
II. Other Claimed Issues of Fact
The other alleged issues of fact raised by the defenses pleaded are:
1. Whether MHT was negligent in failing to obtain a letter of credit from Alfred Bloomingdale, who died in 1982 and was originally a general partner of Jayhawk Towers, in failing to pursue Bloomingdale's estate to recover his share of indebtedness (the "Bloomingdale share"), and in failing to disclose to defendants facts about MHT's relationship to Bloomingdale.
2. Whether the Loan Agreement, Note and Guarantee are invalid and unenforceable, because of lack of consideration and economic duress.
3. Whether the Releases of MHT, signed by the defendants in connection with the 1989 refinancing with respect to all prior actions, are unenforceable because of lack of consideration and economic duress.
Defendant B.B. Anderson expands upon these claims, claiming numerous issues of material fact which all relate to the validity and enforceability of the Loan Agreement, any relationship between MHT and Bloomingdale and MHT's dealings with Bloomingdale and whether they affect the amount of liability. Defendant B.B. Andersen's Memorandum of Law, at 38-40. In addition to claiming lack of consideration and economic duress, Andersen claims that the agreements at issue are "usurious" and thus unenforceable. Andersen also asserts six counterclaims against MHT, alleging lack of consideration, breach of contract, breach of the covenant of good faith and fair dealing, intentional and negligent misrepresentation and fraud, based on the same allegations *127 of fact. The other defendants join in those portions of Andersen's papers applicable to them. The Guarantee, by its terms, provides for payment by defendants of the underlying obligation without set-off or counterclaim.
A. The Claim of Negligence by MHT
Because all defendants, including Andersen, in November, 1989 released MHT "of and from any and all actions, causes of actions, suits, debts due, claims, obligations, liabilities and demands of any kind whatsoever, at law or in equity, known or unknown ... related to or in connection with any and all loans or other financings made or provided by MHT to JAYHAWK TOWERS, a Kansas general partnership ... arising out of or in any way connected with a certain extension of credit by MHT to the Partnership relating to the issuance of an Irrevocable Letter of Credit # SCO14158 ...", Exhibit H to the Whelehan Affidavit, supra, any claim that MHT was negligent in failing to pursue any amount due from the Bloomingdale estate in connection with MHT's prior extension of credit to Jayhawk Towers is irrelevant. Furthermore, defendant Robert L. Brock, Sr., had knowledge at least as early as November, 1986, that MHT had not obtained a letter of credit from Alfred Bloomingdale or any repayment from the Bloomingdale estate. Affidavit of Robert L. Brock, Sr., March 29, 1991, ¶¶ 7, 10. Under the New York law of partnership, this knowledge is imputed to all the partners and accordingly their Releases cover any claims based on MHT's actions with regard to the "Bloomingdale share." N.Y. Partnership Law § 23 (McKinney 1988). Any issues of fact as to the "Bloomingdale share" are, as a result, immaterial to this action.
Defendant B.B. Andersen asserts that further discovery is needed to determine the parties' intent as to the Releases, but the broad scope of the Releases is set forth in clear and unambiguous language and accordingly, further discovery is not necessary for the Court to construe it. Any claims of the partners that the amount of the Loan Agreement, Note or Guarantee should have been less should be directed to the general partner of Jayhawk Associates and those who represented the partners in the transaction, not to MHT, who would not have extended the terms of credit but for the defendants' agreement to the transaction in question.[4]
B. The Claim of Lack of Consideration for the Loan, Note and Guarantee
The presence of consideration for the refinancing agreement is evident in the fact that the Loan Agreement, Note and Guarantee recited, among other things, that the maturity date for all obligations had been previously modified and extended as of December 3, 1986 and provided that the maturity date was further extended for a six-month period from October 31, 1989, to April 30, 1990.[5] Exhibit A to the Whelehan Affidavit, Preamble, ¶ 3; see also, Exhibits B and C. See Weyerhaeuser Co. v. Gershman, 324 F.2d 163, 165, 165 n. 3 (2d Cir.1963) (past consideration consisting of prior extension of credit suffices under New York law where guaranty is in writing and states the consideration); Halpern v. Rosenbloom, 459 F.Supp. 1346, 1354 n. 8 (S.D.N.Y.1978) (extension of time for payment of previous obligation is value received by debtor and constitutes valid consideration for guarantee). See also, Exhibit *128 A to the Whelehan Affidavit, supra, at 1. Consideration is also evident in the fact that all the partners of Jayhawk Towers, a general partnership whose obligations were binding on each of its partners, were allowed to choose between paying down a part of the obligation at issue in proportion to their ownership, as some did, and thereby receiving a release from MHT, or becoming limited partners in the new entity, a limited partnership which would assume the outstanding balance of the obligation of Jayhawk Towers to MHT and increase each partner's interest in the real estate venture.
Defendants argue this does not constitute consideration on the ground that none of the partners of Jayhawk Towers were ever obligated for anything more than the amounts of their individual guarantees. Not only is this not the law as to the extent of the obligations of general partners, but each of the partners was on notice of the extent of his liability, as shown by the letter (and its enclosures) of Robert L. Brock, Sr., dated February 20, 1989, Exhibit L to the Reply Whelehan Affidavit, supra, and signed by Brock in his capacity as "Co-Managing Partner" of Jayhawk Towers. This letter forwarded to MHT the partnership's proposal, referred to as the "Parrish plan," for the reorganization of Jayhawk Towers as a limited partnership, and included the minutes of the partnership's meeting of January 30, 1989, during which Parrish explained to the partners the proposal for refinancing and generally outlined the refinancing which eventually took place. The Parrish plan states: "This plan is based on a basic premise that all general partners are now jointly and severally liable on all partnership obligations. One of those obligations is the indebtedness to MHT. Even though partners individually guaranteed only their proportional share of the note, the entire note itself is a general partnership obligation making all general partners liable." Exhibit L to the Reply Whelehan Affidavit, supra.
C. The Claim of Economic Duress in Execution of Loan, Note and Guarantee
Under New York law, a party claiming economic duress may only void a contract when it shows that there was a "wrongful threat by the other party which precluded the exercise of its free will" in making the contract at issue. 805 Third Avenue Co. v. M.W. Realty Assoc., 58 N.Y.2d 447, 451, 461 N.Y.S.2d 778, 448 N.E.2d 445 (N.Y.1983). See also Bank Leumi Trust Co. v. D'Evori International, Inc., 163 A.D.2d 26, 558 N.Y.S.2d 909, 914 (1st Dep't 1990). A threat to insist upon one's legal rights is not a wrongful threat and does not constitute economic duress. Edison Stone Corp. v. 42nd Street Development Corp., 145 A.D.2d 249, 538 N.Y.S.2d 249, 252 (1st Dep't 1989).[6]
The defendants have not made any factual showing that MHT did anything other than to protect its legal rights in connection with the 1989 refinancing. Defendants claim that they were under economic pressure in general but have not shown any duress by MHT. Because the defendants have made no factual showing of economic duress under New York law, there is no issue of fact as to duress. Accordingly, no genuine issue of material fact has been raised as to the validity and enforceability of the Loan, Note and Guarantee.
D. The Claim of Lack of Consideration for the Release of MHT and Economic Duress in the Execution Thereof
No genuine issue of material fact exists as to consideration or economic duress in *129 connection with the documents signed. As stated above, first, there is no evidence of any economic duress imposed by MHT on the defendants and second, MHT exchanged its release of specific claims against the defendants, attached as Exhibit T to the Reply Whelehan Affidavit, supra, for their execution of the Releases of MHT. There was additional consideration for the Releases in the form of the extended term of credit, since the execution by defendants of the Releases was a condition of the Loan Agreement and the refinancing. Exhibit A to the Whelehan Affidavit, supra, ¶ 6(c)(ii). Accordingly, the claims that consideration was lacking for the Releases of MHT executed by the defendants and that the defendants executed Releases of MHT under economic duress fail.
III. Defendants' Counterclaims
As to the counterclaims, the Guarantee, signed by each of the defendants, states that it is an "absolute and unconditional guarantee of payment without regard to the validity, regularity or enforceability of any document evidencing or securing the payment of the Obligations or the Assumed Obligations ... and without regard to any defense, set-off or counterclaim which may at any time be available to or be asserted by the Company or the Assuming Entity against the Bank ..." and that "the Assumed Obligations will be paid to the Bank without set-off or counterclaim." Whelehan Affidavit, supra, Exhibit C, ¶ 6; see also, id, ¶ 4.
Thus, the Guarantee makes immaterial any defenses, set-offs or counterclaims which rely on events related to the alleged "Bloomingdale share" or any defense related to it, or, indeed, any other defense to the enforceability against these defendants of the assumed obligations of Jayhawk Towers and the documents securing those obligations.[7] The Releases also operate to bar counterclaims such as those asserted here.[8]
A. Breach of Good Faith
The defendants claim breach of good faith, which claim, they assert, cannot be waived by release as a matter of law under the New York Uniform Commercial Code. Their claim is based on nothing more than the same allegation that MHT failed to disclose to the partners facts about the Bloomingdale share. As stated above, the defendants are charged with notice and constructive knowledge of those facts at least as early as November, 1986, under N.Y. Partnership Law § 23 (McKinney 1988). Accordingly, there can be no claim based on any failure after November, 1986 to disclose facts about Bloomingdale. Defendants have not presented any facts to show how a breach of good faith by MHT prior to November, 1986 affects their liability under the 1989 documents at issue in this action, in which they acknowledged their outstanding obligation, specified the total amount due and the applicable rate of interest, and individually guaranteed the payment of portions of that specific total with interest.[9] Thus the claim of breach of good faith fails to raise a genuine issue of material fact.[10]
*130 B. Usury
The claim of usury is based on the faulty premise that each partner's outstanding liability before the refinancing was measured only by the individual amount guaranteed by each partner before the 1989 refinancing. Defendants calculate a 25% interest rate for six months on MHT's forbearance for the six-month period, based on the 25% increase in the 1989 individual amounts guaranteed over the previous individual amounts guaranteed. This ignores the fact that defendants, the partners of Jayhawk Towers who did not pay down their liabilities in proportion to their ownership before the dissolution of the general partnership, were jointly and severally liable for the entire outstanding partnership obligation to MHT until the general partnership was dissolved.[11] The defendants' calculations of a usurious "interest rate" are based on an incorrect premise and accordingly there is no valid claim of usury.
All the counterclaims are barred by the terms of the Guarantee and the Note, are insufficient and do not show that a genuine issue of material fact exists.
CONCLUSION
For the reasons stated above, MHT's motion for summary judgment against all defendants is granted and the counterclaims are dismissed.
IT IS SO ORDERED.
NOTES
[1] MHT also moved originally for default judgment against defendants Jayhawk Associates and B & A Development but withdrew that motion at oral argument when the Court granted summary judgment to MHT from the bench, with an opinion to follow. Accordingly, the motion for a default judgment is not addressed.
[2] The Guarantee is a single document, signed by all the defendants in this action, by which each guarantor guaranteed an individual share of the total, proportionate to his share in the partnership. Next to each partner's name appears the percentage which he agreed to guarantee individually. Exhibit C to the Whelehan Affidavit, supra.
[3] It is also clear that this action does not name as a party the entity whose certificate of limited partnership is attached as Exhibit A to the Supplemental Affidavit of James W. Parrish, April 2, 1991, assuming that the representations therein are accurate and complete.
[4] Defendants also claim that there is an issue of fact as to whether MHT is estopped from asserting liability against defendants because of its own negligence. Their assertions do not establish a claim for equitable estoppel under New York law, since there is no showing of lack of knowledge or detrimental reliance when defendants entered into the 1989 agreements. See Triple Cities Construction Co. v. Maryland Casualty Co., 4 N.Y.2d 443, 176 N.Y.S.2d 292, 151 N.E.2d 856 (N.Y.1958).
[5] The December 3, 1986 Note had a maturity date of June 3, 1989. Exhibit 6 to the Affidavit of B.B. Andersen, March 28, 1991. This maturity date was apparently extended by 30 and 60-day increments while MHT and the Jayhawk Towers partnership worked out the 1989 refinancing which culminated in the Loan Agreement, Note and Guarantee of October 31, 1989. Exhibit I to the Whelehan Affidavit, supra.
[6] It is noted that the defendants did not repudiate the Loan Agreement, Note and Guarantee, until they defaulted on their obligations thereunder a substantial time after entering into the agreements, and made payments under them without objection. See Bank Leumi Trust Co. v. D'Evori Int'l, Inc., 163 A.D.2d 26, 558 N.Y.S.2d 909 (1st Dep't 1990). Under New York law, they will be deemed to have affirmed the agreements even if economic duress were evident. Edison Stone Corp. v. 42nd Street Development Corp., 145 A.D.2d 249, 538 N.Y.S.2d 249, 251 (1st Dep't 1989).
[7] Andersen and the other defendants are businessmen who acknowledged in the Loan Agreement they had access to counsel, legal or otherwise, and fully understood the terms of the Loan Agreement and Guarantee. Exhibit A to the Whelehan Affidavit, supra, ¶ 17.
[8] Andersen also asserts defenses of laches and failure to make timely demand, both of which are fully belied by the terms of the documents themselves and the other evidence before the Court.
[9] The New York Uniform Commercial Code, § 1-203, provides in part that "[e]very contract or duty within this Act imposes an obligation of good faith in its performance or enforcement." N.Y.U.C.C. § 1-203 (McKinney 1964 and Supp. 1991). Section 1-102(3) provides in part that "the obligations of good faith, diligence, reasonableness, and care prescribed by this Act may not be disclaimed by agreement but the parties may by agreement determine the standards by which the performance of such obligations is to be measured if such standards are not manifestly unreasonable." N.Y.U.C.C. § 1-102(3) (McKinney 1964 & Supp.1991).
[10] There are also claims of fraud and misrepresentation based on the Bloomingdale share which fail for the same reason, and there are more general claims of fraud and misrepresentation which do not specify what actions of MHT in 1989 might constitute fraud or misrepresentation and thus do not comply with Rule 9(b) of the Federal Rules of Civil Procedure.
[11] It was at this point that the limited partnership formed by them assumed ownership of the real estate venture and assumed the general partnership's obligations, including MHT's outstanding loan in accordance with the terms of the refinancing documents. As regards the 1989 refinancing, each individual partner received from MHT a limitation of his individual liability and a forbearance by MHT from immediate demand on his joint and several liability for the full amount of the partnership's outstanding obligation. The remaining partners also benefited by an increased ownership interest in the real estate venture. In return, each remaining partner's 1989 individual guarantee was in an amount which was 25% greater than the amount of his previous individual guarantee. The partner's exposure to liability to MHT was reduced, however, under the 1989 refinancing agreement. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2008406/ | 857 F.Supp. 935 (1994)
UNITED STATES of America, Plaintiff,
v.
ONE PARCEL OF REAL PROPERTY LOCATED AT 461 SHELBY COUNTY ROAD 361, PELHAM, ALABAMA, Defendant,
Perry H. Brasher and Patricia Ann Brasher, Claimants.
Civ. A. No. 93-AR-2669-S.
United States District Court, N.D. Alabama, Southern Division.
July 12, 1994.
*936 Claude Harris, James D. Ingram, U.S. Attorney's Office, Birmingham, AL, for U.S.
Alan C. Keith, Birmingham, AL, for Mortgage Investors, Inc.
Tamera Kaye Erskine, Birmingham, AL, for Ann Brasher and Perry Brasher.
Gary S. Olshan, Birmingham, AL, for Olshan Corp.
Frank C. Ellis, Jr., Wallace Ellis Fowler & Head, Columbiana, AL, for Bobbie Reynolds.
Joe A. Joseph, Lange Simpson Robinson & Somerville, Birmingham, AL, for Real Estate Financing, Inc.
Ricky Meeks Ceramic Tile, pro se.
MEMORANDUM OPINION
ACKER, District Judge.
On June 6, 1994, this court entered an order in the above-entitled case directing the Probation Service to furnish the court with findings and an opinion in the nature of a pre-sentence report as to whether the forfeiture here sought by the United States against real property owned by Perry H. Brasher and Patricia Ann Brasher would violate the Excessive Fines Clause in view of Austin v. United States, ___ U.S. ___, 113 S.Ct. 2801, 125 L.Ed.2d 488 (1993).[1] On June 22, 1994, the United States filed a brief entitled "Government's Response to Claimants' Challenge of Forfeiture Based Upon Excessive Fines Clause in Light of Austin/Alexander." On June 24, 1994, Probation Officer Cynthia McGough submitted the requested report, a copy of which is attached hereto as an important addendum to this opinion. On June 30, 1994, the court denied the United States' motion for summary judgment and set the case for jury trial, concluding at the time that there was a material issue of disputed fact bearing on whether or not the proposed forfeiture constitutes an excessive fine in violation of the Eighth Amendment.
Since June 30, 1994, the court has further researched the problems presented by Austin, not only to the resolution of this controversy but to the decisions in many future civil forfeiture cases, and possibly criminal forfeiture cases. The court is not so naive as to think that whatever it says in this case will be the last word on the subject. However, the court, upon reconsideration, now concludes that there are no disputes of material fact requiring jury resolution and that the case is ripe for final decision.
*937 The brief submitted to this court by the United States is a lightly tailored version of a Department of Justice memorandum produced on or about January 7, 1994, prepared by the Assistant Forfeiture Office, Criminal Division, "to provide guidance and uniformity in responding to excessive challenges" under Austin and Alexander v. United States, ___ U.S. ___, 113 S.Ct. 2766, 125 L.Ed.2d 441 (1993). The second of these two cases is a criminal forfeiture case never previously referred to by this court.
It becomes apparent that the United States anticipates a burgeoning number of "excessive fines" challenges in both civil and criminal forfeiture cases and has prepared a uniform defense strategy. In both Austin and Alexander, the United States strenuously argued to the Supreme Court that the Eighth Amendment has no application to forfeiture proceedings, which are in rem. The reaction of all nine justices to this argument amounted to a stunning rejection of the United States' position, after which the United States has retreated to the position that "only in the rarest and most extreme cases" should forfeiture be held to violate the Excessive Fines Clause and therefore that proposed forfeitures should be upheld unless they "would shock the conscience." Whether the United States would have a jury decide whether its collective conscience is shocked, or whether the court's conscience should be the conscience to be or not to be shocked, remains a matter of speculation. The generic brief filed by the United States seems designed to justify 90% of all forfeitures. Because the instant case is a civil case, Alexander is only of secondary or collateral interest. Yet, the United States argues broadly in an attempt to build a dam to staunch the flood of resistance to forfeitures in both the criminal and the civil contexts.
The United States obviously wants, at all costs, to avoid "proportionality" as the controlling criterion for judging the excessiveness question, and yet the word "excessive" necessarily implies an analysis based on an exercise of judicial discretion relating the degree of an individual owner's criminal culpability to the severity of the punishment represented by the value of his property to be divested. This has always been the analysis for applying the Excessive Fines Clause. Long before Austin the Supreme Court had recognized that "courts are competent to judge the gravity of an offense." Solem v. Helm, 463 U.S. 277, 292, 103 S.Ct. 3001, 3011, 77 L.Ed.2d 637 (1983). This historic confidence in the courts to sentence fairly may have been ameliorated by the introduction of guideline sentencing, which includes a computation of the prospective fine range. According to the Sentencing Guidelines, if the United States had obtained a conviction of the Brashers for violating the federal statute proscribing the distribution of controlled substances, the minimum fine based on the sentencing profiles of both Brashers would have been $3,000 each. See the addendum, paragraphs 65 and 69. Of course, before the Brashers could be fined, the essential elements of specific proscribed conduct would have to be proven beyond a reasonable doubt by the United States, whereas under 21 U.S.C. § 881(a)(7), probable cause that their real property was used to facilitate drug activity having been proven, the burden of proving innocence for the purpose of avoiding forfeiture (but for any Eighth Amendment limitation) is on the Brashers. They cannot meet that burden and have not attempted to meet it.
The Eleventh Circuit has already taken the proportionality road for applying Austin. In United States v. One Single Family Residence Located at 18755 North Bay Road, Miami, 13 F.3d 1493 (11th Cir.1994), the Eleventh Circuit said:
The Delios contend that the forfeiture of their home worth $150,000.00 as a penalty for the underlying gambling offense is so grossly disproportionate that it violates the Eighth Amendment's Excessive Fines Clause.
* * * * * *
Examining this case through the lens of Austin, and accepting the fact that Emilio Delio used his home for a gambling operation in violation of 18 U.S.C. § 1955, we conclude, under the particular facts of this case, that the forfeiture of his home, of an arguable value of $150,000.00, is an imposition of a disproportionate penalty.
*938 United States v. One Single Family Residence, 13 F.3d at 1498 (emphasis supplied).
The Third Circuit has opted for "proportionality" as the predominant, if not the sole, factor for making sense out of Austin. United States v. Premises Known as RR # 1, Box 224, Dalton, Scott Township and North Abington Township, Lackawanna County, PA., 14 F.3d 864, 874-76 (3d Cir.1994).
In United States v. Real Property Located at 6625 Zumirez Drive, Malibu, California, 845 F.Supp. 725 (C.D.Ca.1994), the district court held that under Austin greater protection should be given the home in any "excessive fines" analysis than where personal property or non-residential real property is sought to be forfeited. Obviously, the harshness of taking the roof from over the head of a person, even a wrongdoer, is something that must be carefully examined if the Eighth Amendment is to be given meaning, as it was unanimously in Austin, even over the strong resistance of the United States. Zumirez was the first case which unequivocally recognized that forfeiture is an "all or nothing" proposition.
Any analysis of the Eighth Amendment excessiveness question must factor in the ability of the offender to pay. The Sentencing Guidelines and its accompanying commentary recognize that before entering any order of restitution, or imposing any fine, the trial court must make a specific finding with respect to the financial ability of the defendant to pay it. This is necessary in order to avoid conflict with the prohibition against imprisonment for debt. Simply put, courts cannot order a culprit to pay more money in fines or restitution than he can reasonably be expected to pay, no matter how heinous his crime. This principle rarely comes into play in forfeiture cases because the mere fact that the wrongdoer owns the property to be forfeited proves his ability to turn it over, no matter what it is worth. But, this principle does dominate the excessiveness inquiry if the property to be forfeited is the offender's homestead, property historically given a high degree of protection. It is much more likely that the taking of the homeplace would constitute an excessive fine than the taking of other property of equal value. Society already has more homeless people than it wants or can take care of, and this court is wary of adding the Brashers to the list of the homeless. It makes this court wince to think of the Brashers, who have regularly made their home mortgage payments, being forced into the street while their mortgage payments enure to the benefit of the United States.
Another recent district court decision reflecting an intelligent and fair response to Austin is United States v. One Parcel of Property Located at Shelly's Riverside Heights, 851 F.Supp. 633 (M.D.Pa.1994). That court said:
The sanction the Government seeks to impose is a substantial one; even if the monetary value of the land and the cabin are not great, they seem to be the only significant possessions Mr. Deaner has.
* * * * * *
As noted, the statute proscribing Mr. Deaner's conduct, 21 U.S.C. § 841, exposed him to a potential fine of as much as $250,000. As noted, Mr. Deaner and Ms. Kurtz purchased the land in question for $7,950. Even with the addition of the log cabin, it is indisputable that the value of the property does not even approach the fine allowed by the statute. However, we do not find this fact to weigh heavily in favor of forfeiture. Section 841(b)(1)(D) sets forth the penalty for those who "manufacture, distribute or dispense" "less than 50 kilograms" of marijuana. Thus, the statute sweeps within its orbit offenders such as Mr. Deaner, who manufactured 23 kilograms but did not distribute it, as well as offenders who manufacture and distribute more than twice as much.
We believe the Government's forfeiture action in this case is clearly excessive in light of the crime committed. Indeed, in the words of the Third Circuit in Sarbello, the attempted forfeiture reaches "such a level of excessiveness that in justice the punishment is more criminal than the *939 crime." 985 F.2d at 724. Therefore, we find as a matter of law that forfeiture in this case would offend the Eighth Amendment as an excessive fine.
Because by the very language of the Excessive Fines Clause judges are deemed capable of distinguishing between a fine that is not excessive and an excessive fine, courts must look at the facts and circumstances in particular cases, none of which are exactly alike. And yet Austin cannot extend the trial court's responsibility beyond a trial judge's competence. When the United States undertakes a forfeiture, it is the United States which has selected the amount of the "fine", and not the Congress, and not the courts. If the United States decides to forfeit a 100,000 contiguous-acre ranch because one of the boys in the bunkhouse was found to be peddling pot, when the ranch owner knowingly let the ranchhand get by with it, if the whole 100,000 acres are taken from the owner, the amount of such a "fine" would clearly be out of proportion to the property owner's offense, if he, in fact, committed any criminal offense. In fact, simply knowing about a small marijuana deal, while theoretically destroying the "innocence" of the owner for the purpose of exposing his illegally-used real property to forfeiture under 21 U.S.C. § 881(a)(7), does not itself constitute a federal crime. This fact makes it difficult, if not impossible, to determine the degree of such an owner's culpability for the purpose of assessing him a "fine" to appropriately punish him for not having committed a crime but rather for not telling on another for that other's criminal conduct. This court has not found a statute in the United States Code making it a crime to fail to promptly report a state or federal crime. There is, of course, the obvious distinction between "aiding and abetting" a crime, on the one hand, and "failing to report a crime," on the other.
While this court acknowledges its responsibility to discriminate between "excessive" and "non-excessive" fines, it does not acknowledge that it, or any other court, is capable of declaring and implementing a partial forfeiture in order to prevent the punishment from being too severe, namely, being out of proportion to the criminal conduct. The very prospect of ordering the forfeiture of a 0.001 undivided interest in a 100,000 acre ranch, as reflective of the owner's failure to report his marijuana-selling ranchhand, is only topped by the thought of attempting to carve out a particular couple of hilly acres from the 100,000 acres, together with ingress and egress to it, and vesting it neatly in the United States. No court, high or low, has thus far told this court how to "split the baby," so to speak, and this court is not Solomon.
There are many federal judges who are smarter than this one, and federal judges, over a 200-year period of expanding federal jurisdiction, have met many challenges, but this court seriously doubts that any federal judge has the time, the Solomonic wisdom, and the magic wand with which to perform the miracle of achieving proportionality in forfeiture cases in which the value of the property proposed to be forfeited clearly exceeds the owner's culpability. Thus, the only solution in such circumstances is the Zumirez "all or nothing" solution. It is no wonder that the United States argued to the Supreme Court so strenuously in Austin that the owner's culpability is irrelevant to the excessiveness question. Fortunately or unfortunately, it lost.
The practical impossibility of achieving proportionality in every case, no matter what the degree of culpability and the value of the property, leaves this court with only one question, whether the whole property owned by the Brashers, as non-innocent owners, with different degrees of culpability, must be forfeited as a non-excessive fine, or whether none of their only piece of property can be forfeited. This formulation is consistent with the conclusion recently reached by two other district courts. See United States v. One Parcel of Property Located at 427 & 429 Hall Street, Montgomery, Montgomery *940 County, Alabama, 853 F.Supp. 1389 (M.D.Ala.1994), and United States v. Tanner, 853 F.Supp. 190 (W.D.Va.1994), in each of which a district court allowed the forfeiture of an entire parcel because its taking was found not out of proportion to the owner's crime.
To the extent that United States v. Sarbello, 985 F.2d 716 (3d Cir.1993), suggests that the impact of a criminal forfeiture can be reduced in order to conform it to the Eighth Amendment's prohibition against the imposition of an "excessive fine," this court would like for the Third Circuit to explain how to do it. If Sarbello has any application, it is not necessary to apply it to a civil forfeiture case, such as this one, because Sarbello dealt with a criminal forfeiture case, which is a markedly different animal. This court invited the parties and the Probation Service in the instant case to tell the court how to apply Sarbello, but no one made the attempt.
Although the United States had an opportunity to do so, it has made no effort to dispute the facts recited in the report of Probation Officer McGough. Her statement of facts is hereby ADOPTED as the court's statement of pertinent undisputed facts. Her suggested facts are consistent with the facts upon which the motion for summary judgment of the United States was based. In other words, the dispositive facts are not in dispute. This has led the court to a reconsideration of its setting of the case for jury trial when there are no determinative factual disputes or credibility determinations. The court in United States v. One Parcel of Property Located at Shelly's Riverside Heights, supra, correctly pointed out:
As a procedural matter, we note that Mr. Deaner has not filed a motion for summary judgment on behalf of the property. However, in certain circumstances, a district court can enter summary judgment in favor of a party sua sponte. Viger v. Comm'l Insurance Co. of Newark, 707 F.2d 769, 774 (3d Cir.1983). The Government has conceded that there are no genuine issues of material fact and that the case may be decided as a matter of law. See Fed.R.Civ.P. 56. Thus, we will enter judgment in favor of the property.
851 F.Supp. at 639. In other words, there is no purpose to be served in trying a case that has a foreordained outcome. This is such a case.
Based on the admitted facts, this court reaches the same conclusion that Probation Officer McGough reached in paragraph 75 of her report, viz:
It is the opinion of this officer that the Brashers have been sufficiently punished and any further fine by way of forfeiture is excessive.
Officer McGough's conclusion may be an overstatement. Nonetheless, in this court's opinion the forfeiture of the Brashers's home would constitute an excessive fine under these overall circumstances, and this court finds it impractical, if not impossible, to carve out a lesser interest in the residence for divestiture. The court does not mean to condone what the Brashers did, but the fact that drug trafficking cannot be condoned does not lead inexorably to the taking away of the only residence of two small drug traffickers long after those traffickers have paid their debts to society and have cooperated fully with law enforcement. A taking that would be as "unfair" as this one would be, would be "excessive."
In conclusion, this court will go so far as to hope that its conscience is not too easily shocked. Nobody has ever accused this court of being a bleeding heart, but its conscience nevertheless would be shocked if the Brashers' residence were forfeited to the United States in this case. Therefore, the court by separate order will sua sponte grant summary judgment in favor of the property and the Brashers by separate order.
*941 APPENDUM
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
UNITED STATES OF AMERICA )
)
v. ) CIVIL ACTION NO.
)
ONE PARCEL OF REAL PROPERTY ) 93-AR-2669-S
LOCATED AT 461 SHELBY COUNTY )
ROAD 361, PELHAM, ALABAMA )
)
Defendant )
__________________________________ )
)
PERRY H. BRASHER and PATRICIA )
ANN BRASHER, ET AL., )
)
Claimants )
---------------------------------------------------------------------------
Prepared For: Honorable William M. Acker, Jr.
U.S. District Judge
Prepared By: Cynthia McGough
U.S. Probation Officer
Birmingham, Alabama 35203
(205) 731-1754
Assistant U.S. Attorney Defense Counsel
James Ingram Tamara Erskine
1800 5th Avenue North 2107 5th Avenue N., Suite 100
Birmingham, Alabama 35203 Birmingham, Alabama 35203
(205) 731-1785 (205) 252-9751
Nature of Proceeding: Complaint for Forfeiture in Rem,
21 U.S.C. § 881(a)(7)
Related Cases: Shelby County Circuit Court Case Nos.:
CC-90-314
CC-90-315
CC-90-316
CC-90-317
CC-90-318
CC-90-319
CC-90-320
CC-90-321
CC-90-322
CC-90-323
CC-90-506
CC-90-507
CC-90-508
CC-90-509
Date Report Prepared: June 24, 1994 Date Report Revised:
Identifying Data:
Claimant: Perry H. Brasher Claimant: Partrica Ann Brasher
Date of Birth: 11-23-33 Date of Birth: 6-20-36
Age: 60 Age: 58
Race: White, Non-Hispanic Race: White, Non-Hispanic
Sex: Male Sex: Female
*942
SSN No: XXX-XX-XXXX SSN No: XXX-XX-XXXX
FBI No: 644 339 LA8 FBI No:
USM No: USM No:
Other ID No: Other ID No:
Education: 7th Grade Education: High School
Dependents: One (Wife) Dependents: One (Husband)
Citizenship United States Citizenship United States
Legal Address: 86 Highway 361 Legal Address: 86 Highway 361
Pelham, Alabama 35124 Pelham, Alabama 35124
Aliases: Tom Aliases: Ann
PART A. THE PROCEEDING
1. The United States filed a verified complaint for forfeiture in rem on the property located at 461
Shelby County Road 361, Pelham, Alabama, on December 22, 1993. The complaint was filed
pursuant to 21 U.S.C. § 881(a)(7). It alleges that the claimants used the property from December
1989 to March 1990 to facilitate the sale and possession of cocaine and marijuana. The legal address
for this property has been changed recently to 86 Highway 361.
2. On June 6, 1994, the Court issued an order directing the U.S. Probation Office to furnish the Court
with an opinion respecting what would be an appropriate and non-excessive fine to impose on the
claimants, considering their crimes of conviction upon which forfeiture is based and what other
punishment has already been meted out to them. The Court also invited the Probation Office to
suggest a manner of declaring forfeited less than all of the equity in the property subject to
foreclosure if the Probation Office concluded that the appropriate fine would be less than the
Brashers' equity in the real property sought to be forfeited.
The Underlying Offenses
3. In late 1989, the Alabama Alcoholic Beverage Control Board (ABC) and the Shelby County Sheriff's
Department were conducting an undercover drug investigation in Shelby County. This investigation
brought them into contact with Perry H. Brasher, a/k/a Tom Brasher, and his wife, Patricia Ann
Brasher, a/k/a Ann Brasher.
4. On December 28, 1989, an undercover officer made the first of what would be seven purchases of
drugs from either Tom Brasher, or Tom and Ann Brasher, at their residence.
5. On five occasions, the undercover officer purchased marijuana. On two occasions, he purchased
cocaine.
6. On March 22, 1990, law enforcement officers executed a search warrant at the residence. They
found marijuana in the residence on the day of the search. They also found a .25 caliber automatic
pistol on Tom Brasher's person, a plastic bag containing ten packets of cocaine, a prescription bottle
containing one packet of cocaine in his shirt pocket, and $852 in U.S. currency. A search of Mr.
Brasher's car revealed a .38 caliber Smith & Wesson revolver and packets containing cocaine and
marijuana.
7. The total amount of drugs sold on the various occasions and found during the search was as follows:
Marijuana 448.95 grams
Cocaine 14.10 grams
8. Tom and Ann Brasher entered guilty pleas on December 7, 1990, in Shelby County, Alabama, to
charges of Possession of Marijuana for Other Than Personal Use, Possession of a Controlled
Substance (Cocaine), and several counts of Unlawful Distribution of a Controlled Substance.
9. Ann Brasher pled guilty in case nos. CC-90-314, 315, 316, 506, and 507. Tom Brasher pled guilty in
case nos. CC-90-317, 318, 319, 320, 321, 322, 323, 508, and 509.
10. On March 11, 1991, Mrs. Brasher was placed on probation for a period of five years. She was not
fined but was ordered to pay restitution and court costs in each case. She also paid $100 to the
*943
Crime Victims Compensation Commission in each case. The total amount, which has been paid in
full, was $1,647.00.
11. On March 11, 1991, Mr. Brasher was sentenced to a five-year sentence with three years to serve and
the remainder on probation. The sentence was amended to five years custody. He was paroled on
August 24, 1992, and expired from parole supervision on December 13, 1993. Mr. Brasher was fined
$100 in each case ($900). He was also ordered to pay restitution and court costs as well as the
Crime Victims Compensation Commission (total $4,001). He has an outstanding balance of $4,768
according to the Shelby County Circuit Clerks Office.
12. Subsequent to their convictions, Mr. and Mrs. Brasher forfeited to the state of Alabama $852, a 1976
Ford, and the two firearms found on the property.
APPLICATION OF U.S. SENTENCING GUIDELINES TO THE STATE CHARGES
Victim Impact
13. There is no victim of this offense.
Adjustment for Obstruction of Justice
14. The Brashers have done nothing to obstruct justice in the investigation of the Shelby County
offenses.
Adjustment for Acceptance of Responsibility
15. The Brashers entered guilty pleas to all the charges brought against them in Shelby County Circuit
Court.
Offense Level Computations
16. The 1993 edition of the Guidelines Manual has been used in this case. All the cases were grouped
pursuant to U.S.S.G. § 3D1.2(d).
17. Base Offense Level: The Guideline for violation of these State of Alabama drug offenses is 12
found in § 2D1.1 and calls for a base offense level of 12. This level is reached by converting
the cocaine involved in this case (14.10 grams) to a marijuana equivalency of 2,804 grams.
Adding the amounts of marijuana to the marijuana equivalent of cocaine creates a total
amount of 3.2 kilograms, which has an offense level of 12.
18. Specific Offense Characteristics: Mr. Brasher had a gun in his pocket on the day his home +2
was searched. There was also a pistol in his car from which he sold drugs on at least one
occasion. Therefore, the offense level should be increased by 2.
19. Victim-Related Adjustments: None. 0
20. Adjustments for Role in the Offense: None. 0
21. Adjustment for Obstruction of Justice: None. 0
22. Adjusted Offense Level (Subtotal): 14
23. Adjustment for Acceptance of Responsibility: Pursuant to § 3E1.1(a), the offense level is -2
reduced 2 levels.
24. Total Offense Level: 12
PART B. CLAIMANTS' CRIMINAL HISTORY
Claimant: Patricia Ann Brasher
Juvenile Adjudication(s)
25. None.
*944
Adult Criminal Conviction(s)
26. None.
Claimant: Perry H. Brasher
Juvenile Adjudication(s)
27. None.
Adult Criminal Conviction(s)
Date of Conviction/ Date Sentence
Arrest Court Imposed/Disposed Guideline Pnt
28. 5/4/64 Insufficient Funds Check, Jefferson 5/4/64: Fined § 4A1.1(c) 0
County District Court
29. 7/31/64 Insufficient Funds Check, Jefferson 7/31/64: Fined. § 4A1.1(c) 0
County District Court
30. 9/10/64 Insufficient Funds Check, Jefferson 9/10/64: Convicted. § 4A1.1(c) 0
County District Court
31. 1/17/76 Reckless Driving, Pelham Police Department 1/17/76: Fined. § 4A1.1(c) 0
NOTE: This offense was reduced from a DUI charge.
32. 5/28/78 Grand Larceny, Jefferson County Circuit 12/11/78: 2 years, § 4A1.1(c) 0
Court suspended, 2 years
probation
33. 11/26/78 DUI, Alabaster, Alabama Police Department 11/26/78: Convicted. § 4A1.1(c) 0
34. 11/2/81 DUI, Hoover, Alabama Police Department 3/23/82: Convicted. § 4A1.1(c) 1
35. 3/21/86 DUI, Alabaster, Alabama Police Department 3/21/86: Convicted. § 4A1.1(c) 1
36. 11/4/86 DWLR, Improper Tag, Pelham, Alabama 11/4/86: Convicted. § 4A1.2 0
Police Department
37. 9/17/87 DWLS, DUI, Calera, Alabama Police Department 9/17/87: Convicted. § 4A1.1(c) 1
38. 3/22/88 Improper Tag, Shelby County District 3/22/88: Convicted. § 4A1.2(c) 0
Court
39. 9/2/90 DUI, Tarrant, Alabama Police Department 9/2/90: Convicted. § 4A1.1(c) 1
Criminal History Computation
40. The total of the criminal history points for Patricia Ann Brasher is 0. According to the sentencing
table at U.S.S.G. Chapter 5, Part A, 0 criminal history points establish a criminal history category of
I.
41. The total of the criminal history points for Perry H. Brasher is 4. According to the sentencing table
at U.S.S.G. Chapter 5, Part A, 4 criminal history points establish a criminal history category of III.
*945
PART C. PERSONAL HISTORY OF CLAIMANTS
Personal and Family Data
42. Perry H. Brasher, age 61, and Patricia Ann Brasher, age 58, have been married to each other since
1955. Both of them were born in the Birmingham area and have lived here all of their lives. Their
extended families also live in this area.
43. They have four adult children: James Perry Brasher, age 38, lives in Center Point and is a partner
in the business with his father, Brasher Masonry Company; Regina Diane Golden, age 35, lives in
Montevallo and is a Family Dollar Store manager; Janet Faye Maynard, age 33, lives in Pelham and
is the office manager at Birmingham Orthodontics; Darla Renee Wiles, age 31, lives in Panama
City, Florida, and is a bookkeeper.
Physical Condition
44. Mr. Brasher suffered a job injury to his back in 1976 that left him paralyzed from the waste down
for three years. He regained the ability to walk after undergoing therapy at BMC Montclair. He
has a 60% disability as a result of this injury.
45. Mrs. Brasher takes Procardia for high blood pressure. Approximately one year ago, her doctors
discovered that she has a blood disease which causes her spleen to destroy platelets. She is treated
by a hematologist at Brookwood Medical Center.
Mental and Emotional Health
46. Neither claimant has a history of mental or emotional problems.
Substance Abuse
47. Mrs. Brasher has no history of drug or alcohol abuse.
48. Although Mr. Brasher denied having a drug or alcohol problem, his arrest record indicates
otherwise. He has five DUI convictions and a reckless driving conviction which was reduced from a
DUI charge. Were he a candidate for supervision by this Court, this office would urge the Court to
place him in the drug and alcohol aftercare program.
Education and Vocational Skills
49. Mrs. Brasher graduated at Montevallo High School in 1954.
50. Mr. Brasher completed the 7th grade.
Employment Record
51. Mrs. Brasher has been employed at Wal-Mart in Pelham for the past 3½ years. She earns $6.20 per
hour at her 40-hour per week job. For seventeen years she was employed as a secretary for
Greyhound Bus Lines.
52. Mr. Brasher has been self-employed for the past 35 years in the masonry business. He and his son
still operate Brasher Masonry Company. They have three employees. In reality, Mr. Brasher is
not physically able to do much work, but he continues to help his son run the business.
Financial Condition: Ability to Pay
53.
Assets
Cash
Checking Account 424.00
__________
Subtotal: $ 424.00
Unencumbered Assets
1981 Ford Pick-up 300.00
__________
Subtotal: $ 300.00
*946
Equity in Other Assets
Residence 51,144.00
1991 Mitsubishi (Value $10,800) .00
__________
Subtotal: $51,144.00
Total Assets: $51,868.00
Unsecured Debts
Credit Cards 3,000.00
Personal Loan 25,000.00
Medical Bills 4,789.00
Alabama Dept. of Revenue (1990 Tax Year) 10,051.00
State Court Fines, Court Costs, etc. 4,800.00
__________
Total Unsecured Debt: $47,640.00
__________
NET WORTH: $ 4,228.00
Monthly Cash Flow
Income
Mr. Brasher's V.A. Benefits 651.00
Mrs. Brasher's Employment Income 528.00
__________
Total Income: $ 1,179.00
Necessary Monthly Living Expenses
Property mortgages/Rent 565.00
Food 250.00
Utilities 121.00
Telephone 64.00
Credit cards 123.00
Car insurance 59.00
State Court Fines 50.00
Exterminator 24.00
Car Note 253.00
Property Taxes 22.00
__________
Total Expenses: $ 1,531.00
Net Monthly Cash Flow: $ -352.00
54. The Brashers file joint tax returns. For the past three years they have had the following adjusted
gross incomes:
1991 $7,169.00
1992 $9,576.00
1993 $9,911.00
55. The claimants own their home and two vehicles. The 1981 Ford Pick-up truck is paid for. The loan
balance on the 1991 Mitsubishi exceeds the fair market value of the car.
56. The Brashers purchased their residence in 1975. In 1990, at the time of their conviction, the
property had an appraised value of $57,500. In 1993, the assessed value was $58,370. According to
the Shelby County Tax Assessor's Office, the property has been recently reappraised with a value of
approximately $70,000.
57. There are several potential claims against the property in addition to the mortgages. The Brashers
owe taxes to the Department of Revenue for 1990 in the amount of $10,051.74. Mrs. Brasher has
accumulated almost $5,000 in medical bills in the past year due to the blood disease she is being
*947
treated for. Mr. Brasher borrowed $25,000 from Steve Daily. He states that he does not make
regular payments on that loan but pays it as he can. There are also several other smaller potential
claims against the property, which the Court has recognized in an order dated June 6, 1994. As a
result, the figure of $51,144, which represents the Brashers' equity in their residence, overstates the
value of the property to them should it be sold.
58. The Alabama Department of Revenue began garnishing Mrs. Brasher's paycheck in June 1994.
Her check reflected a 25% deduction of $125.23 which is to be taken from each paycheck. Her
monthly income figure ($653) on the previous page reflects this garnishment.
59. Although Mr. Brasher assists his son in their masonry business, he depends on his V.A. benefits for
income. Mrs. Brasher has a full-time job at Wal-Mart at which she brings home $778 per month.
Their combined incomes do not cover the necessary monthly living expenses listed above.
60. It is the conclusion of the Probation Office that these claimants would not be a candidate to be fined
if they were defendants in this Court.
PART D. SENTENCING OPTIONS
Claimant: Patricia Ann Brasher
Custody
61. Guideline Provisions: Based on a total offense level of 12 and a criminal history category of I, the
guideline range for imprisonment is 10 to 16 months.
62. The defendant would have been eligible for a "split sentence" in Federal Court. The Court could
have sentenced her to serve at least five months with the remainder served in either community
confinement or home detention as a condition of supervised release.
Supervised Release
63. Guideline Provisions: The guideline range for a term of supervised release is at least three years
but not more than five years or the minimum required by statute, whichever is greater. U.S.S.G.
§ 5D1.2(a).
Probation
64. Guideline Provisions: Because the minimum of the guideline range is greater than six months, the
defendant is not eligible for probation. U.S.S.G. § 5B1.1(a)(2).
Fines
65. Assuming that the claimant had been convicted in Federal Court under 21 U.S.C. § 841(b)(1)(C), the
guideline fine range would have been $3,000 to $1,000,000.
Claimant: Perry H. Brasher
Custody
66. Guideline Provisions: Based on a total offense level of 12 and a criminal history category of III,
the guideline range for imprisonment is 15 to 21 months.
Supervised Release
67. Guideline Provisions: The guideline range for a term of supervised release is at least three years
but not more than five years or the minimum required by statute, whichever is greater. U.S.S.G.
§ 5D1.2(a).
Probation
68. Guideline Provisions: Because the minimum of the guideline range is greater than six months, the
defendant is not eligible for probation. U.S.S.G. § 5B1.1(a)(2).
*948
Fines
69. Assuming that the claimant had been convicted in Federal Court under 21 U.S.C. § 841(b)(1)(C), the
guideline fine range would have been $3,000 to $1,000,000.
PART E. OPINION OF PROBATION OFFICE ON ISSUES PRESENTED BY THE COURT
70. The Court in its order of June 6, 1994, directed this office to render an opinion respecting what
would be an appropriate and non-excessive fine for the claimants considering their crimes of
conviction and the punishment already meted out to them.
71. Tom and Ann Brasher were convicted in a total of 14 cases of selling and/or possessing small
amounts of marijuana on five occasions and cocaine on two occasions. The total sales come to about
$500.
72. Mrs. Brasher was placed on probation and is still on supervision. She has paid the court costs and
restitution totalling $1,647 in full. Mrs. Brasher would not have been eligible for probation under
the guidelines, however. The costs imposed on her ($1,647) is also less than the minimum of the fine
range ($3,000) in this case.
73. Mr. Brasher received a five-year sentence. He served 17 months. He was fined $900 and ordered
to pay additional amounts to Shelby County totalling $4,001. He has an outstanding balance of
$4,768. It is interesting to note that both the time he served (17 months) and the total fine and
costs imposed ($4,901) are within the ranges of punishment called for by the guidelines in a case
such as this.
74. The issue arises, however, of whether they would have been fined at all in this Court. Certainly, the
fines and costs imposed were reasonable, but it is my opinion that they would not have been fined
within the guideline range, if at all, based on their financial condition. They would have had to pay
the $50 assessment fee, of course ($700).
75. It is the opinion of this officer that the Brashers have been sufficiently punished and any further fine
by way of forfeiture is excessive.
Respectfully submitted,
/s/ Cynthia McGough
Cynthia McGough
Senior U.S. Probation Officer
CM/csp
Approved:
/s/ Oscar J. Stephenson, Jr. 6-24-94
__________________________________________
Oscar J. Stephenson, Jr. DATE
NOTES
[1] Austin v. United States, ___ U.S. ___, 113 S.Ct. 2801, 125 L.Ed.2d 488 (1993), makes clear that in rem forfeitures under 21 U.S.C. § 881(a)(4) and (a)(7) are to be considered as "punishment," implicating the Excessive Fines Clause of the Eighth Amendment, and because the Probation Service routinely furnishes this court its opinion with respect to the imposition of appropriate punishment in criminal cases, including fines, the Probation Service is hereby directed within twenty-one (21) days to furnish the court with a suggestion or opinion respecting what would be an appropriate and non-excessive fine to impose on Perry H. Brasher and Patricia Ann Brasher, considering their crimes of conviction upon which the forfeiture is based and what other punishment has already been meted out to them. If the Probation Service should conclude that the appropriate fine would be less than the Brashers' equity in the real property here sought to be forfeited, it is invited to suggest how to accomplish the miracle of declaring forfeited less than all of that equity.
The Probation Service and the parties are referred to United States v. Sarbello, 985 F.2d 716 (3d Cir.1993), wherein the Third Circuit held that the court may reduce the impact of a criminal forfeiture in order to conform to the Eighth Amendment prohibition against the imposition of an excessive fine. The United States and the Brashers are invited to brief the same subject that has been referred hereinabove to the Probation Service.
The court will delay its ruling on the motion of the United States for summary judgment until the court receives an opinion from the Probation Service in the nature of a pre-sentence report.
DONE this 6th day of June, 1994.
/s/ William M. Acker, Jr.
WILLIAM M. ACKER, JR.
United States District Judge | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2044825/ | 87 N.Y.2d 927 (1996)
663 N.E.2d 907
640 N.Y.S.2d 866
Yonkers Contracting Company, Inc., Appellant,
v.
Port Authority Trans-Hudson Corporation, Respondent.
Court of Appeals of the State of New York.
Argued January 3, 1996.
Decided February 8, 1996.
Watt, Tieder & Hoffar, L. L. P. (Garry R. Boehlert, Robert G. Watt and Douglas C. Proxmire, of the Virginia Bar, admitted pro hac vice, of counsel), and Berman, Paley, Goldstein & Kannry, New York City (Alvin Goldstein of counsel), for appellant.
Arthur P. Berg, New York City, Milton H. Pachter, Anne M. Tannenbaum and Valerie F. Mauceri for respondent.
Chief Judge KAYE and Judges SIMONS, TITONE, BELLACOSA, SMITH, LEVINE and CIPARICK concur.
*928MEMORANDUM.
The order of the Appellate Division should be affirmed, with costs.
Plaintiff-appellant, Yonkers Contracting Company, Inc., as prime contractor, entered into a multimillion dollar agreement with defendant-respondent Port Authority Trans-Hudson Corporation (PATH) to perform emergency tunnel ventilation and evacuation work in Jersey City, New Jersey. Paragraph 17 of the contract authorized PATH's Chief Engineer "to decide all questions of any nature whatsoever arising out of, under, or in connection with * * * the Contract (including claims in the nature of breach of Contract or fraud or misrepresentation * * *)." Paragraph 17 continued: "In any action against PATH relating to any such question the Contractor must allege in *929 [the] complaint and prove such submission [to the Chief Engineer], which shall be a condition precedent to any such action."
During construction of a slurry wall, a subcontractor encountered various delays and cost overruns, which Yonkers alleged were the result of PATH's prior misrepresentations as to the actual subsurface conditions. When negotiations between the parties failed to resolve that disagreement, Yonkers, in June 1990, submitted a claim to PATH's Chief Engineer pursuant to the provisions of paragraph 17. Before the Chief Engineer issued a preliminary report rejecting Yonkers' claim, Yonkers in December 1990 commenced the instant lawsuit seeking costs and damages. PATH moved to dismiss the complaint on the ground that it failed to contain, as a condition precedent, the allegation that Yonkers' claim had been submitted for decision by PATH's Chief Engineer. Despite a letter from PATH urging it to amend its complaint to acknowledge the applicability of paragraph 17's alternative dispute resolution (ADR) obligations, Yonkers, in what the Appellate Division characterized as "a calculated[,] tactical stance * * * to escape the bargained-for dispute resolution clause" (208 AD2d 63, 66), refused. Instead, Yonkers contended, as it does here, that because the contract's ADR provision vested sole authority in a PATH employee to decide legal as well as factual questions without explicitly providing for any standard of judicial review, that provision violated public policy. Yonkers claimed it was thus entitled to a de novo review of the contractual controversy in a court of law.
Relying on Westinghouse Elec. Corp. v New York City Tr. Auth. (82 N.Y.2d 47), the Appellate Division reversed the trial court's denial of defendant's motion and dismissed the complaint, concluding that "were we to accept Yonkers' argument we would * * * be condoning a practice by which experienced parties negotiate a lengthy and highly technical agreement, only to have one of its legal provisions ignored and undone" (208 AD2d 63, 68). This Court granted leave to appeal.
As a general proposition, "parties to an arbitration contract are completely free to agree upon the identity of the arbitrators," and New York courts have therefore regularly refused to disqualify arbitrators on grounds of conflict of interest or partiality "even in cases where the contract expressly designate[s] a single arbitrator * * * employed by one of the parties" (Matter of Astoria Med. Group [Health Ins. Plan], 11 N.Y.2d 128, 133, 136 [Fuld, J.] [emphasis in original]). In fact, on no *930 fewer than five separate occasions over the past 30 years this Court has approved ADR agreements between private contractors and public authorities like defendant PATH (Tufano Contr. Corp. v Port of N. Y. Auth., 18 AD2d 1001, affd 13 N.Y.2d 848; Ardsley Constr. Co. v Port Auth., 54 N.Y.2d 876; Maross Constr. v Central N. Y. Regional Transp. Auth., 66 N.Y.2d 341; Crimmins Contr. Co. v City of New York, 74 N.Y.2d 166; Westinghouse Elec. Corp. v New York City Tr. Auth., 82 N.Y.2d 47).
Three years ago, in Westinghouse, this Court upheld a contractual clause authorizing an employee of defendant New York City Transit Authority to decide disputes under the contract on the ground that the employee's decision was still subject to "some [form of] judicial review" (82 NY2d at 54). Given that paragraph 17 required Yonkers to allege submission of any unresolved claim to the Chief Engineer as a "condition precedent" to an action against PATH, a "natural and unstrained reading of its provisions indicates that both parties contemplated that the courts would have jurisdiction" to review the Chief Engineer's decision (Crimmins Contr. Co. v Cayuga Constr. Co., 74 N.Y.2d 166, 173 [construing ADR clause vesting engineer with authority to decide factual questions only]). Public policy, therefore, "has not been transgressed in this case" (Westinghouse, 82 NY2d at 54).
In view of our affirmance of the Appellate Division's order dismissing the complaint with prejudice, we leave for another day the question whether the standard to be applied in reviewing factual and legal determinations made in accordance with an ADR clause like the one at issue here is that provided in CPLR article 75 (Matter of Siegel, 40 N.Y.2d 687, 691), or some other standard (see, Tufano, 18 AD2d at 1001). Though paragraph 17 omits any mention of the particular standard of review to be applied in reviewing the Chief Engineer's decision (compare, Westinghouse, 82 NY2d at 55), that omission alone does not render the ADR clause unenforceable as violative of New York's public policy concerning the fair adjudication of disputes (Ardsley, supra).
Order affirmed, with costs, in a memorandum. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2044862/ | 349 Mass. 699 (1965)
212 N.E.2d 464
JAMES A. JENKINS
vs.
GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION, LIMITED.
Supreme Judicial Court of Massachusetts, Suffolk.
October 7, 1965.
December 7, 1965.
Present: SPALDING, WHITTEMORE, CUTTER, KIRK, SPIEGEL, & REARDON, JJ.
Monto Rosenthal for the plaintiff.
Philander S. Ratzkoff for the defendant.
SPIEGEL, J.
This is an appeal by a third-party plaintiff (Jenkins) from orders sustaining the answer in abatement *700 and a demurrer of the General Accident Fire and Life Assurance Corporation, Limited (Corporation) to Jenkins' third-party declaration.
One Ronald J. Hale brought an action against Jenkins to recover for personal injuries which Hale alleged he received while a passenger in Jenkins' car. Jenkins moved to implead the Corporation under G.L.c. 231, § 4B, which provides in pertinent part as follows: "a defendant ... may, as third-party plaintiff, enter a writ and have served a summons and third-party declaration upon a person not a party to the action who is or may be liable to him for all or part of the plaintiff's claim against him."
In count 1 of his declaration Jenkins alleged that the Corporation issued a policy to him in which it agreed to pay "all sums which the insured shall become legally obligated to pay as damages because of bodily injury, ... sustained by any person, caused by accident and arising out of the ownership, maintenance or use of the motor vehicle." Jenkins also alleged that the Corporation broke its agreement to "defend any suit against the insured seeking damages payable under the terms of this policy.... Wherefore Jenkins says the defendant company is legally liable for all sums which Jenkins shall become legally obligated to pay as damages to Hale because of bodily injuries to him, and for the expense of legal fees and disbursements incurred and to be incurred in connection with the defense of the action by Hale."
In count 2 of his declaration Jenkins repeated in substance the factual allegations contained in count 1 and alleged further that the Corporation in bad faith "totally ignored" a settlement offer of $4,500[1] despite an auditor's finding of gross negligence on the part of Jenkins and damages of $29,700.
The Corporation's demurrer states that Jenkins' declaration does not state a legal cause of action; that the allegations "are insufficient in law to enable the plaintiff *701 to maintain his action"; that "the court is without jurisdiction of the subject matter of this claim under G.L.c. 231, § 4B"; and that "the declaration does not state concisely and with substantial certainty the substantive facts necessary to constitute a cause of action."
The Corporation's answer in abatement states substantially the same grounds as are set forth in its demurrer.
Jenkins contends that the statute permits the impleading of an insurer. The statute on its face does not exempt insurers from its provisions. Impleading the insurer reduces duplication of actions because the question of coverage involves many of the fact issues essential to the determination of liability for negligence. Where coverage is found, collateral estoppel prevents the insurer from relitigating the issues. If the court finds no coverage, stare decisis deters further actions.
The Corporation argues that the statute does not apply to insurers because impleading prejudices the insurer. But where the prejudicial effect outweighs the advantages, a judge may sever the cases. See Fanciullo v. B.G. & S. Theatre Corp. 297 Mass. 44, 51; Boyajian v. Hart, 312 Mass. 264, 266. Cf. Collins v. Godfrey, 324 Mass. 574, 579; G.L.c. 213, § 3. Therefore, we conclude that the statute permits defendants to implead their insurers.
The Corporation also argues that Jenkins could not implead it because of a policy provision which states: "No action shall lie against the corporation unless ... the amount of the insured's obligation to pay shall have been finally determined.... [N]or shall the corporation be impleaded by the insured or his legal representative."
If given effect, such a provision would nullify the intent of the Legislature in enacting the impleader statute; for the purpose of the statute is to avoid multiplicity of actions. The Corporation cannot by means of a contract between the parties limit the court's right to determine whether the Corporation is liable to the insured for a claim against the insured until there has been a final judgment on that claim. See Jordan v. Stephens, 7 F.R.D. 140, 142 *702 (W.D. Mo.); Irvin v. United States, 148 F. Supp. 25, 32 (D.S. D.). Nor can the parties prevent prosecution of the cause by agreeing that the Corporation cannot be impleaded. See Nashua River Paper Co. v. Hammermill Paper Co. 223 Mass. 8, 16.
With regard to count 2 of his declaration Jenkins contends that the Corporation has a duty to act in good faith in determining whether to settle or to try the case. See Murach v. Massachusetts Bonding & Ins. Co. 339 Mass. 184. The Corporation argues that it has no duty to settle a case which it refuses to defend because in that situation an insured can recover from the insurer for a reasonable settlement. But this argument ignores the situation where an insured may not have sufficient assets with which to reach a settlement. In such a case, an insurer cannot reduce its obligations by a willful breach of its contract. The Corporation still has a duty to consider in good faith an offer for settlement. See Communale v. Traders & Gen. Ins. Co. 50 Cal.2d 654, 660.
Jenkins also contends that no allegations regarding ability to pay a judgment need be made. We agree. An insured may be damaged by the effect on his credit of an outstanding claim where he cannot pay it. In addition, if solvency is required in order to sue for damages, an insurer is likely to be less responsive to its duty to act in good faith toward an insured who cannot pay the judgment. Alabama Farm Bureau Mut. Cas. Ins. Co. v. Dalrymple, 270 Ala. 119. Southern Fire & Cas. Co. v. Norris, 35 Tenn. App. 657. The Corporation argues that no injury is done to the insured "unless ... [he] pays the excess judgment," and cites Harris, Trustee in Bankruptcy v. Standard Acc. & Ins. Co. 297 F.2d 627 (2d Cir.),[2] in support of its position. That case is distinguishable. It involved the reversal of an excess judgment in favor of an insured who was insolvent prior to judgment. The court, attempting to apply New York law, drew an analogy to the disallowance of damages for medical expenses where the *703 injured person is insolvent. This court, however, awards damages in that situation. Sibley v. Nason, 196 Mass. 125, 131. See Arwshan v. Meshaka, 288 Mass. 31, 34. Despite some conflict in earlier cases,[3] the weight of authority is that it is not necessary for the insured to allege that he has paid or will pay a judgment in excess of the policy limits in an action against the insurer for breach of its duty to act in good faith. Lee v. Nationwide Mut. Ins. Co. 286 F.2d 295 (4th Cir.). Wessing v. American Indem. Co. 127 F. Supp. 775. Alabama Farm Bureau Mut. Cas. Ins. Co. v. Dalrymple, supra. Farmers Ins. Exch. v. Henderson, 82 Ariz. 335. Brown v. Guarantee Ins. Co. 155 Cal. App.2d 679. Henke v. Iowa Home Mut. Cas. Co. 250 Iowa, 1123. Southern Fire & Cas. Co. v. Norris, supra. See Murray v. Mossman, 56 Wash.2d 909.
We are of opinion that each of the counts states substantive facts with sufficient conciseness and certainty to enable the plaintiff to maintain this action. Accordingly the orders sustaining the answer in abatement and the demurrer are reversed and the answer in abatement and the demurrer are to be overruled.
So ordered.
NOTES
[1] It was also alleged that the limit of coverage under the policy was $5,000. REPORTER.
[2] A dissenting opinion was filed by Smith, J.
[3] State Auto. Mut. Ins. Co. v. York, 104 F.2d 730 (4th Cir.). Dumas v. Hartford Acc. & Indem. Co. 92 N.H. 140. Universal Auto. Ins. v. Culberson, 126 Texas, 282. Compare Schwarts v. Norwich Union Indem. Co. 212 Wis. 593. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2044882/ | 64 Ill. App.2d 197 (1965)
212 N.E.2d 272
People of the State of Illinois, Plaintiff-Appellee,
v.
Herman Travis, Defendant-Appellant.
Gen. No. 50,456.
Illinois Appellate Court First District, Second Division.
October 19, 1965.
*198 Castle, Brintlinger, Carey & Filter, of Chicago (Thomas F. Carey, of counsel), for appellant.
Daniel P. Ward, State's Attorney of Cook County, of Chicago (Elmer C. Kissane and E. Roger Horsky, Assistant State's Attorneys, of counsel), for appellee.
MR. PRESIDING JUSTICE BURKE delivered the opinion of the court.
Herman Travis was found guilty by jury on a charge of the murder of James Flemming. He appeals from a judgment and sentence to a term of 16 to 30 years in the penitentiary. At about 5:30 p.m. on December 11, 1960, the defendant, Herman Travis, the deceased, James Flemming, and a group of others were present at a tavern in Chicago known as "The House on 92nd Street." The Harlson brothers, Nelson and Hylton, purchased a half pint of whiskey and invited Flemming to join them for a drink in the back room. As the two Harlson brothers walked to the back room they observed the defendant, Herman Travis, in the rear part of the tavern talking to a young lady named Willie Ann Robinson. Nelson Harlson testified that as they passed the defendant, *199 he heard the defendant say, "There is that no good sonofabitch." Nobody else said anything prior to this time. The witness then heard about 3 slaps, he turned and saw Flemming fall back to the wall. Flemming got up, straightened himself out and said "You're wrong, man, you're wrong." There was nothing in the hands of Flemming, nor did he say anything other than this remark. Witness then heard a shot and saw a little hole in Flemming's chest and saw a gun going back into defendant's pocket.
Hylton Harlson testified that these events took place after the three, Nelson Harlson, Flemming and himself had a drink and were returning to the front part of the tavern. This witness heard mumbling and when he turned around he saw Flemming being slapped and being pushed against the wall by defendant. Flemming straightened up and was fixing his clothes when defendant shot him in the chest, put the pistol back in his pocket and ran out. Hylton said that at no time did Flemming have anything in his hands. Both Nelson and Hylton testified that they did not see Flemming reach into his pockets at any time. Corachel Mitchell testified that defendant called Flemming an s.o.b., that defendant slapped Flemming, pushed him and then shot him. Mitchell said that he was sitting on a stool near the archway and could see the entire incident. Mitchell knew the defendant by the name of "Wyatt Earp." After the shooting of Flemming, the defendant fired shots at the bartender as he attempted to follow defendant out to the street. Willie Ann Robinson, testifying for the defendant, said that the defendant was arguing with the deceased and that all she heard said by defendant was "Don't say it again." She testified that Flemming slapped the defendant; that Flemming reached into his pocket and then defendant reached into his pocket and came out with a gun; that Pearline Ray struggled with the defendant for the gun and that is when the gun went *200 off; that Marilyn McNeil had hold of defendant's left arm; that after the shot defendant ran out and the bartender, Dick Brisco, took a shot at defendant while he was fleeing. Pearline Ray testified that she observed the deceased and the defendant talking when she went into the washroom and arguing when she came out. She didn't see any blows exchanged and walked behind the defendant and went out front again. She did not testify to any struggling with the defendant over the gun. The bartender (Brisco) testified that he did not have a gun or take a shot at the defendant; that when he heard the shot he started to the back, at which time Hylton Harlson told him that defendant had shot the man. The bartender gave Hylton a dime to call the police and then went to the door to look after the defendant who was already out the door. The bartender said that as he looked out the door defendant fired another shot in the direction of the door. Brisco, the bartender, identified the defendant and said that he was known to him as "Wyatt Earp." Mary Jane Meadows and Louise Johnson testified that they were in the front part of the tavern. Mary Jane Meadows said she did not hear the first shot but only the one fired by Brisco. Louise Johnson stated that she heard something like a loud slap, saw her brother, the defendant, come out of the back and saw Brisco fire and hit her brother, the defendant. The defendant continued out the door and Brisco rushed to the door, where, she said she grabbed Brisco and begged him not to shoot her brother. There was testimony that James Flemming came to his death from hemorrhage following bullet wounds of the "chest (lung)."
The defendant testified that he was in the back room talking with Willie Ann Robinson when the Harlson brothers and Flemming came into the back room. He did not say anything to any of them, but Flemming said to him "Leave her alone, you sonofabitch, I'll kill you." *201 He replied "Don't say it no more," then Flemming hit him. When defendant pushed Flemming back against the wall the latter ran his hand in his pocket. Defendant pulled a gun and told Flemming not to move. Pearline Ray came out of the washroom, grabbed defendant's arm and they started wrestling for the gun; Flemming was still coming toward defendant, who told him to get back; that is when the gun went off. He stated that when he got loose from Pearline he (defendant) made it to the front door. He said that at the time he did not know that Flemming was shot. He ran out of the tavern and went home; from there he went to Jamie Lee's house on Dorchester Avenue until that Friday, then he hitch-hiked to Louisiana where he stayed for about 6 months. Defendant was arrested on June 24, 1961, about one week after he returned from Louisiana.
[1] Defendant maintains that reference by the State's Attorney and the State's witnesses to the defendant as "Wyatt Earp" were prejudicial and prevented him from getting a fair trial. The defendant assumes that the name "Wyatt Earp" is synonymous with connotations of quick gun, killer, wild west, deadly and trigger happy and presents an evil or bad image to the jury. The People say that through the medium of television the character "Wyatt Earp" has the popular image of a heroic law enforcement officer. The record shows that when the events about which they were testifying took place the defendant was known to some of the witnesses only as "Wyatt Earp." In response to a direct question the defendant answered that his nickname was "Wyatt Earp." The testimony shows that the defendant was known as "Wyatt Earp." We do not think that reversible error was committed in calling the defendant by the name by which he was known at the time of the commission of the alleged crime.
The second point advanced by the defendant is that the court erred in not allowing defendant to explain his *202 reasons for flight. The defendant was allowed to testify that the reason he left Chicago was that he was scared. After being in Louisiana for 6 months, he returned to Chicago. He was arrested a week after his return. He testified that he was told that "the police were calling him a maniac and going to kill him," so he left town. An objection by the State's Attorney to this statement was sustained but the testimony was not stricken. We are of the opinion that the defendant was permitted to explain the reason for his flight. There was no showing out of the presence of the jury, as to what further testimony by way of an explanation for the flight the defendant would like to introduce.
[2-4] Finally defendant asserts that the final arguments of the State's Attorney prejudiced him. In the argument the State's Attorney said that the police were looking for a man known to them as "Wyatt Earp." This was an inadvertent misstatement of the evidence, based on the testimony of witnesses Brisco, Mitchell and the assumption that the name they knew defendant under was conveyed to the police. The policeman did not testify that he knew the defendant as "Wyatt Earp." The evidence shows that the police were looking for Herman Travis. We do not think that he was harmed by the referral to him as "Wyatt Earp." The defendant points to other statements made by the Assistant State's Attorneys and insists that their argument was so prejudicial as to prevent defendant from receiving a fair and impartial trial. Parts of the argument delivered by the Assistant State's Attorneys in this case transcend the bounds of legitimate argument. Reversal is not warranted unless the improper argument influenced the jury to the substantial prejudice of the accused. The record strongly supports the verdict of the jury. We do not think that the defendant was prejudiced by the argument. See People v. Lopez, 10 Ill.2d 237, 240, 139 NE2d 724; People *203 v. Hampton, 24 Ill.2d 558, 182 NE2d 698, and People v. Heywood, 321 Ill. 380, 152 NE 215.
For these reasons the judgment is affirmed.
Judgment affirmed.
BRYANT and LYONS, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1997912/ | 260 B.R. 404 (2000)
In re GUARDIAN TRUST COMPANY.
United States of America & Commissioner of Internal Revenue, Appellants,
v.
Derek Henderson, Trustee, Appellee.
No. Civ.A. 3:99cv688WS. [Bankruptcy No. 93-01033JEE]. [Adversary No. 98-00152].
United States District Court, S.D. Mississippi, Jackson Division.
September 26, 2000.
*405 David N. Usry, United States Attorney's Office, Jackson, MS, William D.M. Holmes, United States Department of Justice, Washington, DC, for United States.
Derek A. Henderson, Jackson, MS, pro se.
James M. Brown, Laurel, MS, for trustee.
MEMORANDUM OPINION AND ORDER
WINGATE, District Judge.
Before the court is the appeal of the appellants, the United States and the Commissioner of Internal Revenue, seeking to reverse the Judgment of the United States Bankruptcy Court wherein the appellants' motion to withdraw admissions was denied. The United States and the Commissioner of Internal Revenue also seek to overturn the Bankruptcy Court's determination that the Trustee herein is entitled to a refund as a setoff against the Commissioner's claim against the debtor's estate for a deficiency in tax payments *406 plus penalties and interest. According to the United States and the Commissioner of Internal Revenue, the Bankruptcy Court lacked jurisdiction under Title 11 U.S.C. § 505(a)[1] to consider the Trustee's refund claim because neither the debtor nor the Trustee properly filed for a refund in a timely manner as required under Title 26 U.S.C. § 6511.[2] The United States and the Commissioner of Internal Revenue contend that the Trustee must "properly" request a refund in order to provide the foundation for the Bankruptcy Court's jurisdiction over the refund issue. The appellee, Derek Henderson, Trustee for the Guardian Trust Company, disagrees with the stated position of the appellant. As explained below, this court affirms the Bankruptcy Court's finding of jurisdiction under § 505(a), but reverses the Bankruptcy Court's judgment denying the motion of appellants to withdraw admissions.
This court's jurisdiction over this appeal is predicated on the authority to hear such appeals as provided by Title 28 U.S.C. § 158.[3] Appellate procedure is governed by Title 11 U.S.C. Rule 8001(a)[4] and the related statutes. A Bankruptcy Court's findings of fact are reviewed by this court under the clearly erroneous standard, and its conclusions of law are reviewed de novo. Matter of El Paso Refinery, L P, 171 F.3d 249, 253 (5th Cir. 1999), citing Traina v. Whitney National Bank, 109 F.3d 244, 246 (5th Cir.1997).
*407 PERTINENT FACTS
Guardian Trust Company (hereinafter the "debtor") filed a petition in the United States Bankruptcy Court under Chapter 7 of the Bankruptcy Code on March 29, 1993. Prior to filing this petition, the debtor mailed to the Internal Revenue Service on January 12, 1993, a consolidated United States Corporation Income Tax Return (Form 1120) for its taxable year ending December 31, 1991, reporting federal income taxes of $1,140,752.00, of which $1,100,000.00 had been paid on or before January 12, 1993. Prior to the filing of its bankruptcy petition, the Debtor also had mailed to the Internal Revenue Service federal income tax returns and had paid the taxes reported thereon, on or before the date the returns were mailed, as follows:
Year Mailed on Taxes Paid
1988 09/01/1989 $295,766.00
1989 05/10/1990 $325,955.00
1990 08/09/1991 $423,105.00
The Internal Revenue Service audited the Debtor's federal income tax returns for the 1988, 1989 and 1991 years. On November 15, 1993, the Internal Revenue Service mailed a statutory notice of deficiency to the Debtor, determining the following deficiencies, plus penalties:
Year Deficiency Penalties
1988 $ 171,158.00 $ 51,348.00
1989 $ 62,222.00 $ 32,444.00
1991 $4,352,185.00 $869.338.00
The Internal Revenue Service then filed a proof of claim in the debtor's bankruptcy case in the total amount of $6,247,647.23 for the tax liabilities set forth on the statutory notice of deficiency, including penalties and interest.
On March 4, 1997, four years after the debtor had filed its 1991 tax return, Derek Henderson (hereinafter the "Trustee") filed an amended return (Form 1120X) for the debtor, seeking a refund of $1,100,000.00 in previously paid taxes. On the same day the Trustee also filed amended returns for the debtor's 1988, 1989 and 1990 tax years (the "lookback" period), seeking refunds of $295,766.00, $325,955.00 and $423,105.00, respectively. On the 1991 amended return, the Trustee asserted a net operating loss for the 1991 year. Inasmuch as there was no income to report in 1991, the Trustee claimed that the debtor was entitled to a refund in the amount of $1,100,000.00 paid in the 1991 year to be setoff against the tax liability asserted by the Internal Revenue Service in its proof of claim. The Trustee then asserted the excess of the net operating loss over taxes paid in 1991 as a carryback[5] to the 1988, 1989 and 1990 years, resulting in claimed refunds of $295,766.00, $325,955.00 and $423,105.00 respectively paid for those years.
On June 23, 1998, the Trustee commenced the instant adversary proceeding, objecting to the proof of claim filed by the Internal Revenue Service in the total amount of $6,247,647, and seeking a determination from the Bankruptcy Court that he was entitled to receive the refunds *408 claimed on the amended returns mailed to the Internal Revenue Service on March 4, 1997, in the total amount of $2,144,826.00. The Trustee served his Complaint upon the Chief Counsel for the Internal Revenue Service in Washington, D.C., the District Director of the Internal Revenue Service in Jackson, Mississippi, and an Assistant United States Attorney in Jackson, Mississippi. However, according to the appellants, the Trustee did not serve his complaint on the civil process clerk at the Office of the United States Attorney in Jackson, Mississippi, or upon the Attorney General of the United States in Washington, D.C., as required by the Federal Rules of Bankruptcy Procedure 7004(b)(4).[6] Despite this failure of proper service, the defendants timely filed an answer to the Trustee's Complaint on September 25, 1998.[7] On September 30, 1998, the Bankruptcy Court issued a Scheduling Order setting forth, among other things, a discovery deadline of November 30, 1998. The Scheduling Order, however, did not set a trial date for the adversary proceeding.
On October 14, 1998, the Trustee served the appellants with a request for admissions, a set of interrogatories and a request for production of documents. The request for admissions served by the Trustee asked the Internal Revenue Service to admit, among other things, that the Trustee was entitled to receive the refunds claimed on the amended returns mailed to the Internal Revenue Service on March 4, 1997, in the total amount of $2,144,826.00, and that the notice of deficiency mailed by the Internal Revenue Service on November 15, 1993, had been in error. Responses to these discovery requests were due on November 16, 1998. The Bankruptcy Court granted an extension of time for responses to the request for admissions and interrogatories until December 1, 1998. The Bankruptcy Court subsequently entered an Order granting another extension of time for responses to the Trustee's discovery requests until March 1, *409 1999, and extending the discovery deadline until May 1, 1999.
Meanwhile, on November 9, 1998, the United States of America had filed a Motion for Partial Summary Judgment seeking a determination that the Bankruptcy Court lacked jurisdiction to enter a judgment for the refund of taxes paid by the Debtor for the 1988 through 1991 years. This motion included a Stipulation of Facts executed on behalf of the United States and the Trustee. The United States asserted that the Bankruptcy Court did not have jurisdiction because the Debtor had not filed timely claims for refunds with the Internal Revenue Service, pursuant to the requirements of Section 6511(a) of the Internal Revenue Code, which provides that a claim for refund shall be filed within three years from the time a return was filed, or two years from the time the tax was paid, or in case of a carryback resulting from a net operating loss pursuant to Section 6511(d)(2), within three years from the date the return for the year of the net operating loss was due.[8]
The Bankruptcy Court extended the time for the Trustee to file a response to the motion for summary judgment until May 1, 1999. Subsequently, the Trustee filed a response on April 29, 1999, arguing that the Bankruptcy Court had jurisdiction to rule on the refund question pursuant to Section 6512(b)(3)(B)[9] of the Internal Revenue Code. According to the Trustee, the debtor should be deemed to have filed its refund claims for the 1988, 1989 and 1990 years on November 15, 1993, the same date the Internal Revenue mailed its statutory notice of deficiency[10] to the debtor. Consequently, according to the Trustee, the debtor's net operating loss claim for 1991 would be deemed to have been made at the time of the letter of deficiency, and the excess net operating loss then could have been carried back three years from 1991. Additionally, the Trustee argued that the Bankruptcy Court had jurisdiction to order a significant portion of the claimed refunds for all years because, pursuant to Section 6511(d)(1) and (2),[11] a *410 claim for refund based on bad debts or worthless securities could be timely filed within seven years from the due date of the return.
On April 15, 1999, the Trustee filed a motion for summary judgment in the Bankruptcy Court arguing that since the defendants had not responded to the Trustee's request for admissions by March 1, 1999, the admissions were deemed admitted pursuant to Rule 36 of the Federal Rules of Civil Procedure, and Rule 7036 of the Federal Bankruptcy Rules of Procedure.
Upon receipt of the Trustee's motion for summary judgment, the United States on April 23, 1999 filed a motion to withdraw the deemed admissions and for an extension of time to respond to the discovery requests until May 1, 1999. The basis for the motion was that the Tax Division trial attorney handling the case had been acting under the incorrect assumption that the deadline for the responses to the Trustee's discovery requests was May 1, 1999, instead of March 1, 1999. The United States then served its responses to the request for admissions on April 29, 1999, and to the interrogatories on April 30, 1999.
On May 7, 1999, the Trustee filed an opposition to the motion of the United States to withdraw the deemed admissions. According to the United States, the Trustee agreed at a June 11, 1999 hearing that, should the Bankruptcy Court grant the motion to withdraw the deemed admissions, summary judgment could not be granted in favor of the Trustee. On August 12, 1999, the Bankruptcy Court entered the Final Judgment and Order presently on appeal to the court. The Bankruptcy Court refused to allow the withdrawal of the deemed admissions[12], held that it had jurisdiction to order the claimed refunds, and granted summary judgment to the Trustee for refunds totaling $2,144,826.00 of income taxes.
WITHDRAWAL OF ADMISSIONS
Rule 36(b) of the Federal Rules of Civil Procedure provides in relevant part that "[a]ny matter admitted under this rule is conclusively established unless the court on motion permits withdrawal or amendment of the admission. Subject to the provision of Rule 16 governing amendment of a pre-trial order, the court may permit withdrawal or amendment when the presentation of the merits of the action will be subserved thereby and the party who obtained the admission fails to satisfy the court that withdrawal or amendment will prejudice that party in maintaining the action or defense on the merits. . . ." The two-pronged test of Rule 36(b) directs the court to consider the effect upon the litigation and the prejudice to the resisting party, rather than focusing on the moving party's excuses for having made an erroneous admission. FDIC v. Prusia, 18 F.3d 637, 640 (8th Cir.1994).
The first prong of Rule 36(b) "permits withdrawal if it will facilitate the development *411 of the case in reaching the truth, as in those cases where a party's admission are inadvertently made." McClanahan v. Aetna Life Insurance Company, 144 F.R.D. 316, 320 (W.D.Va. 1992), citing 4A Jeremy C. Moore et al., Moore's Federal Practice ¶ 36.08 (2d ed.1992); Reyes v. Vantage S.S. Co., 672 F.2d 556, 557-58 (5th Cir.1982) (withdrawal affirmed where response based on "faulty assumption" of facts); Asea, Inc. v. Southern Pac. Transp. Co., 669 F.2d 1242, 1248 (9th Cir.1981) (withdrawal is proper where admission is made inadvertently); and Howard v. Sterchi, 725 F. Supp. 1572, 1576-77 (N.D.Ga.1989) (withdrawal allowed where responses made without careful consideration of the facts).
The second, or prejudice, prong contemplated by Rule 36(b) "relates to the difficulty a party may face in proving its case" because of the sudden need to obtain evidence in order to prove a matter presumed to have been admitted. FDIC v. Prusia, 18 F.3d 637, 640 (8th Cir.1994), citing Gutting v. Falstaff Brewing Corp., 710 F.2d 1309, 1314 (8th Cir.1983). The necessity of having to convince the trier of fact of the truth of a matter erroneously admitted is not sufficient prejudice. Id., citing Davis v. Noufal, 142 F.R.D. 258, 259 (D.D.C.1992); and Ropfogel v. United States, 138 F.R.D. 579, 583 (D.Kan.1991). Likewise, preparing a summary judgment motion in reliance upon an erroneous admission does not constitute prejudice. Id., citing Davis, 142 F.R.D. at 259.
Therefore, the test for allowing a withdrawal of admissions is dependent upon the prejudice to the requesting party, and any disservice to the presentation of the truth at trial, if the requests are deemed admitted. These same criteria are applicable in determining the allowance of late responses to requests for admissions. See Beatty v. United States, 983 F.2d 908, 909 (8th Cir.1993); Gutting v. Falstaff Brewing Corporation, at 1313; and Smith v. First National Bank of Atlanta, 837 F.2d 1575, 1577 (11th Cir.1988), cert. denied, 488 U.S. 821, 109 S. Ct. 64, 102 L. Ed. 2d 41 (1988). By permitting withdrawals and amendments to admissions, Rule 36 "emphasizes the importance of having the action resolved on the merits, while at the same time assuring each party that justified reliance on an admission in preparation for trial will not operate to his prejudice." See Advisory Committee Notes to Rule 36(b) (1970); and Beatty v. United States, at 909.
In the instant case, this court finds no prejudice related to the withdrawal of the admissions in question. The Trustee has been aware at all times pertinent that the United States would contest any assertion that the notice of deficiency mailed on November 15, 1993, was incorrect and that the Internal Revenue Service also would contest the debtor's entitlement to the refunds previously listed. The Trustee was and is prepared to offer proof that the debtor's net operating losses for the tax years in question would substantially reduce the claims of deficiency of the Internal Revenue Service. Certainly, the truth of this matter will be ascertained if the United States and the Commissioner of Internal Revenue are permitted to withdraw the purported admissions. Therefore, concluding that withdrawal of the admissions would further the presentation of the merits of the Trustee's case, this court hereby reverses the Bankruptcy Court's holding to the contrary.
JURISDICTION TO CONSIDER THE MATTER OF REFUNDS
The United States and the Commissioner of Internal Revenue also contend that the United States Bankruptcy Court lacked subject matter jurisdiction to *412 consider the refunds claimed by the Trustee, except for any claims for refunds based on bad debts or worthless securities, because neither the Trustee nor the debtor "properly" filed for the refunds in question in a timely manner as required under Title 26 U.S.C. § 6511. The United States and the Commissioner of Internal Revenue contend that the word "properly" means that the Trustee is required to file for a refund in accordance with the limitations periods set forth in the Internal Revenue Code. According to the United States, the matter of refunds is now time barred and the amounts claimed by the Trustee cannot be setoff against the deficiency claim of the Internal Revenue Service. So, contends the United States and the Commissioner, the United States Bankruptcy Court erroneously determined a tax liability over which it had no subject matter jurisdiction pursuant to Title 11 U.S.C. § 505(a).
After this matter was briefed and submitted to this court, the parties called this court's attention to a recent decision of the United States Court of Appeals for the Eighth Circuit, considering a case which raised the question of whether a bankruptcy trustee must comply in all circumstances with §§ 6511 and 7422 of the Internal Revenue Code. See United States v. Kearns, 177 F.3d 706 (8th Cir.1999). This case was not considered by the Bankruptcy Court, but it supports the Bankruptcy Court's conclusion on the jurisdictional issue.
In Kearns, the Internal Revenue Service asserted that the debtor had not timely filed for the refund which was claimed as a setoff against the Service's proof of claim for tax deficiency. Thus, argued the Internal Revenue Service, the bankruptcy court lacked subject matter jurisdiction under Title 11 U.S.C. § 505(a)(2) to determine the tax liability, including any offsets. However, the bankruptcy court rejected this argument, finding in favor of the debtor Kearns, and holding that, if a request for a refund arises from an offset or counterclaim, then there is no need for the debtor to file an administrative claim with the taxing authority in order confer jurisdiction on the bankruptcy court under § 505.
The debtor Richard Lee Kearns became trustee of the Lincoln Land Trust in 1975. His wife Carol Kearns was one of four beneficiaries. In 1989 Kearns made three unauthorized disbursements of funds from the trust. First, Kearns withheld $460,000 of the proceeds realized on a February 1989 sale of trust land, using the money to purchase stock in Wen-Neb., Inc., an owner of Wendy's restaurants in Nebraska. In April 1989 Kearns withdrew $24,508 from a trust bank account and used the money to repay a personal loan. Finally, in August of that same year, he withdrew an additional $35,000 in trust moneys to repay a joint obligation owed by his wife and himself. The beneficiaries other than Kearns' wife discovered the misappropriations in early 1990 and threatened legal action. On April 6, 1990, a settlement was reached between Kearns and the trust beneficiaries. Pursuant to the settlement, Wen-Neb., Inc., repurchased the stock from Kearns for $460,000 and Kearns assigned his interest in the proceeds to the beneficiaries other than his wife.
Thereafter, Kearns filed for Chapter 11 bankruptcy. Following an examination of Kearns' 1989 tax return, the IRS filed a proof of claim in the amount of $142,718. The amount of tax owed was based on the unreported 1989 embezzlement income of $519,508. The bankruptcy court conducted a hearing on the issue and found that Kearns had embezzled the funds and that the funds constituted income to him. The court further found, however, that Kearns *413 had made restitution to the victims, thus giving rise to deductions for the years in which the restitution was made. The court, therefore, indicated that it would reconsider the IRS's claim, insofar as deductions may be appropriate.
Kearns moved for reconsideration, alleging that he was entitled to an offset against the IRS's tax claim in an amount equal to the tax savings attributable to deductions taken for the restitution payments. The IRS responded that Kearns' claim for a restitution deduction was inappropriate because Kearns failed to file for the refund in the proper year and was barred by the statute of limitations. See Title 26 U.S.C. § 6511(a). Additionally, the IRS asserted that since Kearns had not timely filed for a refund, the bankruptcy court lacked subject matter jurisdiction under Title 11 U.S.C. § 505(a)(2) to determine tax liability, including any offsets.
Once the bankruptcy court had rejected its statute of limitations and jurisdictional arguments, the United States, on behalf of the IRS, appealed to the Bankruptcy Appellate Panel for the Eighth Circuit (Panel). The Panel agreed that the bankruptcy court lacked jurisdiction over tax years 1990 through 1994, vacated the bankruptcy court's opinion, and remanded the matter with instructions to allow the IRS claim in its entirety.
On appeal to the Eighth Circuit Court of Appeals, the Eighth Circuit concluded that the Panel's decision was incorrect because Congress intended under § 505 to grant jurisdiction to the bankruptcy court to determine Kearns' tax liability. The Eighth Circuit acknowledged the IRS argument that § 505(a)(2) requires the Trustee or debtor to "properly request a refund," and that this language of the statute incorporates provisions from the Internal Revenue Code governing application for income tax refunds. Specifically, said the Eighth Circuit, "a `proper' request is one that, first, meets the filing requirements of I.R.C. § 7422(a)," which provides, in relevant part, that "[n]o suit or proceeding shall be maintained in any court" for a tax refund "until a claim for refund or credit has been duly filed with the Secretary, according to the provisions of law [and regulations] in that regard. Additionally, the I.R.C. establishes that a claim for an income tax refund must be filed within three years from the time the return was filed or two years from the time the tax was paid, whichever expires later. See I.R.C. § 6511(a)." Nevertheless, the Eighth Circuit observed that, "we cannot share an interpretation of the Bankruptcy Code that precludes a debtor from having the benefit of carrying back deductions that are intimately related to the adjudged tax liability."
The Eighth Circuit quoted 4 Collier on Bankruptcy ¶ 505.LH[2][a], at 505-08 (Lawrence P. King ed., 15th rev. ed.1999), stating that, "if the refund results from an offset or counterclaim to a claim or request for payment by the [IRS], or other tax authority, the trustee would not first have to file an administrative claim for refund with the tax authority" (emphasis added). The Eighth Circuit relied also on recent case law applying this same principle. See In re Dunhill Medical, Inc., 1996 WL 354696, at *1 (Bankr.D.N.J. March 27, 1996) (concluding that § 505 permits a debtor to dispense with the IRS's requirement of filing a claim for refund when a refund is sought as an offset or counterclaim to a proof of claim filed by the tax authority); and Michaud v. United States, 206 B.R. 1, 5 (D.N.H.1997) (when an IRS proof of claim and a tax-payer's request for refund regard the same tax liabilities, it would be without purpose and irrational to deny the bankruptcy court jurisdiction to order a refund until the taxpayer makes *414 a formal request for a refund from the IRS).
The Eighth Circuit recognized that the statute of limitations is a jurisdictional requirement in suits against the United States, and that the defense may be raised at any time in the litigation. "However," said the Eighth Circuit, "if, when the claims of the IRS and a debtor involve the same tax liabilities, it is "without purpose and irrational" to deny jurisdiction over refunds absent a formal request by the debtor, Michaud, 206 B.R. at 5, it would be doubly so to apply a statutory bar to the debtor's claim for determination of tax liability." Kearns, 177 F.3d at 711. Thus, said the Eighth Circuit, "debtors do not have to file administrative refund claims nor comply with the statute of limitations prescribed by § 6511(a) if the funds are sought as an offset or counterclaim to a request for payment (pursuant to a proof of claim) by the IRS." Id.
Furthermore, said the Eighth Circuit, "it is important to note that our resolution of this case does not detract from the policies of efficiency and conservation of resources underlying § 505. The requirement of exhausting administrative remedies as a precondition to invocation of the judicial process will continue to vindicate the important interest of affording the IRS an opportunity to consider fully the merits of the refund or credit claim before being required to expend resources in litigation. Cf. McNeil v. United States, 508 U.S. 106, 112, 113 S. Ct. 1980, 124 L. Ed. 2d 21 (1993). Where the IRS has filed a proof of claim, however, it has already committed itself to expending resources to resolve the taxpayer's liability for a particular year. See Michaud, 206 B.R. at 5." Kearns, 177 F.3d. at 711.
In the instant case, the Internal Revenue Service has committed itself to expending resources by filing its proof of claim with the Bankruptcy Court, and has made itself subject to the claims for setoff and refunds requested by the Trustee. Once the IRS has committed itself to expending resources to resolve the taxpayer's liability for the year in question, no additional burden is levied by arming the bankruptcy court with jurisdiction to order a refund should those liability issues be resolved in favor of the taxpayer. Michaud, 206 B.R. at 5. Therefore, this court finds that the Bankruptcy Court properly exercised subject matter jurisdiction over the refund question in the instant case.
CONCLUSION
Based on the foregoing, this court hereby adopts and affirms the Bankruptcy Court's finding that it had jurisdiction under Section 505 to determine the debtor's tax liability, including the matter of the Trustee's claims for refunds. Inasmuch as this court finds that the Bankruptcy Court had jurisdiction under Section 505, the assertion by the Trustee that jurisdiction may be predicated on Title 26 U.S.C. § 6512(b)(3)(B) is not addressed in this Memorandum Opinion. This court reverses the Bankruptcy Court's judgment denying the motion of the United States and the Commissioner of Internal Revenue to withdraw admissions, and said admissions are hereby withdrawn. This case is remanded to the United States Bankruptcy Court for the Southern District of Mississippi for further proceedings as required.
NOTES
[1] Title 11 U.S.C. § 505(a) provides in pertinent part that ". . . the (bankruptcy) court may determine the amount or legality of any tax, any fine or penalty relating to a tax, or any addition to tax, whether or not previously assessed, whether or not paid, and whether or not contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction." Subsection (2) provides that "the (bankruptcy) court may not so determine (B) any right of the estate to a tax refund, before the earlier of (i) 120 days after the trustee properly requests such refund from the governmental unit from which such refund is claimed; or (ii) a determination by such governmental unit of such request."
[2] Under most circumstances, taxpayers who file returns have three years from the time they filed their return or two years from the time they paid their taxes to claim a refund. Taxpayers who have not filed returns, on the other hand, must file a claim for refund within two years of the alleged overpayment. See Title 26 U.S.C. § 6511(a). A refund cause of action must be timely filed under one of the limitations periods in Section 6511(a) for the district court to obtain jurisdiction over the suit. See United States v. Dalm, 494 U.S. 596, 607, 110 S. Ct. 1361, 1368, 108 L. Ed. 2d 548. These two and three-year limitations periods are referred to in tax law parlance as "lookback" periods. The lookback period may be extended to seven years under § 6511 when the net operating loss is due to bad debts or worthless securities (see footnote 11).
[3] Title 28 U.S.C. § 158(a) provides that "[t]he district courts of the United States shall have jurisdiction to hear appeals (1) from final judgments, orders, and decrees; (2) from interlocutory orders and decrees issued under section 1121(d) of title 11 increasing or reducing the time periods referred to in section 1121 of such title; and (3) with leave of the court, from other interlocutory orders and decrees; and, with leave of the court, from interlocutory orders and decrees, of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title. An appeal under this subsection shall be taken only to the district court for the judicial district in which the bankruptcy judge is serving."
[4] Title 11 U.S.C. Rule 8001(a) provides in pertinent part that "[a]n appeal from a final judgment, order or decree of a bankruptcy judge to a district court or bankruptcy appellate panel shall be taken by filing notice of appeal with the clerk within the time allowed by Rule 8002. Failure of an appellant to take any step other than the timely filing of a notice of appeal does not affect the validity of the appeal, but is ground only for such action as the district court or the bankruptcy appellate panel deems appropriate, which may include dismissal of the appeal."
[5] Section 172 of the Internal Revenue Code permits a taxpayer to elect to carry back a net operating loss (NOL) as a credit against taxes paid for the preceding three years. However, the taxpayer instead may carry forward the entire net operating loss to offset the income of subsequent tax years without first carrying the loss back to the preceding three years. Section 172(b)(3)(C) is the vehicle for making such an election; it provides, in pertinent part: [a]ny taxpayer entitled to a carryback period under paragraph (1) may elect to relinquish the entire carryback period with respect to a net operating loss for any taxable year ending after December 31, 1975. See Branum v. Commissioner of Internal Revenue, 17 F.3d 805, 807 (5th Cir.1994). In the instant case, the appellee did not relinquish the carryback period.
[6] Rule 7004(b) of the Federal Rules of Bankruptcy Procedure authorizes service of process upon various classes of defendants within the United States via first class mail. Subdivision (4) provides that service of process may be obtained on the United States, "by mailing a copy of the summons and complaint addressed to the civil process clerk at the office of the United States attorney for the district in which the action is brought and by mailing a copy of the summons and complaint to the Attorney General of the United States at Washington, District of Columbia, and in any action attacking the validity of an order of an officer or an agency of the United States not made a party, by also mailing a copy of the summons and complaint to that officer or agency. . . ." Failure to adhere to Rule 7004(b)(4) in serving process upon the United States is ground for reversal for lack of jurisdiction. In re Hernandez, 173 B.R. 430, 431 (N.D.Ala.1994), citing In re Simms, 33 B.R. 792, 793 (N.D.Ga.1983); and In re Morrell, 69 B.R. 147 (N.D.Cal.1986).
[7] In cases involving the Internal Revenue Service, the real party in interest is the United States of America. In re Laughlin, 210 B.R. 659, 660 (1st Cir. BAP 1997), citing In re Morrell, 69 B.R. 147, 149 (N.D.Cal.1986) (the IRS has no capacity to sue or be sued). See also Blackmar v. Guerre, 342 U.S. 512, 514, 72 S. Ct. 410, 411, 96 L. Ed. 534 (1952). Therefore, where relief against the Internal Revenue Service is sought through adversary proceeding or contested matter, the United States must be properly served. See United States v. Levoy (In re Levoy), 182 B.R. 827, 833-35 (9th Cir. BAP 1995) (discussing service on the United States in a contested matter). Furthermore, Rule 7004(b)(4) of the Federal Bankruptcy Rules of Procedure requires service upon both the United States attorney and the Attorney General, and where the validity of an order of an agency order is attacked, also upon such agency.
In the instant case the United States responded to the Trustee's Adversary Petition and did not contest the Trustee's faulty service of process.
[8] However, the United States agrees that the Bankruptcy Court retained jurisdiction over the case under § 6511(d)'s seven-year limitations provision to award a refund based on any net operating loss which related to bad debts and/or worthless securities (see footnote 11). The United States simply does not agree that the entire amount of refund awarded relates to bad debts and submits that the case should be remanded for the Bankruptcy Court to recalculate what refund, if any, should be credited to the Trustee.
[9] Title 26 U.S.C. § 6512(b)(3) provides that, "[n]o credit or refund shall be allowed or made of any portion of the tax unless the Tax Court determines as part of its decision that such portion was paid
(A) after the mailing of the notice of deficiency,
(B) within the period which would be applicable under section 6511(b)(2), (c), or (d), if on the date of the mailing of the notice of deficiency a claim had been filed (whether or not filed) stating the grounds upon which the Tax Court finds that there is an overpayment," . . .
[10] Under 6512(b)(3)(B), the termination of the period of limitations within which a claim can be filed is tolled by the mailing of the notice of deficiency if a claim for refund could have been filed within section 6511(b)(2), (c), or (d), on the date of the mailing of the notice of deficiency (mailing date). See Wadlow v. Commissioner of Internal Revenue, 112 T.C. 247, 249-50, 1999 WL 292220 (U.S.Tax Ct.1999). According to the Trustee's argument to the Bankruptcy Court, since the deficiency letter was mailed in November of 1993, the claim for 1991 could have been made within the three-year limitations period.
[11] Title 26 U.S.C. § 6511(d)(2) provides that, "[i]f the claim for credit or refund relates to an overpayment attributable to a net operating loss carryback or a capital loss carryback, in lieu of the 3-year period of limitation prescribed in subsection (a), the period shall be that period which ends 3 years after the time prescribed by law for filing the return (including extensions thereof) for the taxable year of the net operating loss or net capital loss which results in such carryback, or the period prescribed in subsection [832](c) in respect of such taxable year, whichever expires later." Section 832(c) provides in pertinent part that, "in lieu of the 3-year period of limitation prescribed in subsection (a), the period shall be 7 years from the date prescribed by law for filing the return for the year with respect to which the claim is made." (Emphasis added)
[12] In a separate judgment, the Bankruptcy Court denied the motion to withdraw admissions. A transcript of the hearing pertaining to this motion and the motion for summary judgment is attached to the record which contains the arguments of the parties. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2842146/ | Opinion issued October 22, 2009
In The
Court of Appeals
For The
First District of Texas
NO. 01–09–00310–CV
WILLARD REAL ESTATE HOLDINGS, INC., Appellant
V.
HARRIS COUNTY APPRAISAL DISTRICT AND HARRIS COUNTY
REVIEW BOARD, Appellees
On Appeal from the 295th District Court
Harris County, Texas
Trial Court Cause No. 2007-55530
MEMORANDUM OPINIONAppellees, Harris County Appraisal District and Harris County Appraisal
Review Board, have filed a motion to dismiss the appeal for want of jurisdiction. We
grant the motion and dismiss the appeal.
On December 1, 2008, the trial court signed the judgment granting, as a matter
of law, appellees’ plea to the jurisdiction and motion to dismiss the case. On
December 17, 2008, appellant filed a request for findings of fact and conclusions of
law. Appellant did not file its notice of appeal until April 2, 2009, 122 days after the
signing of the judgment.
Appellees assert that a request for findings of facts and conclusions of law only
operates to extend the time for filing the notice of appeal from 30 days from the date
of signing the judgment to 90 days, which, in this case would only be to March 1,
2009. We agree. See Tex. R. App. P. 26.1(a)(4) (providing that when a request for
findings of fact and conclusions of law is required by the Rules of Civil Procedure,
or, if not required, could properly be considered by the appellate court, it extends the
time for filing the notice of appeal from 30 days from the signing of the judgment to
90 days). Accordingly, even if appellant’s request met all the criteria of Rule
26.1(a)(4), a matter which appellees dispute, appellant’s notice of appeal would still
be 32 days late. Appellant has not responded to appellees’ motion to dismiss.
We dismiss the appeal for want of jurisdiction. All other pending motions are
denied.
PER CURIAM
Panel consists of Justices Keyes, Alcala, and Hanks. | 01-03-2023 | 09-03-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/112381/ | 494 U.S. 210 (1990)
WASHINGTON ET AL.
v.
HARPER
No. 88-599.
Supreme Court of United States.
Argued October 11, 1989
Decided February 27, 1990
CERTIORARI TO THE SUPREME COURT OF WASHINGTON
*212 William L. Williams, Senior Assistant Attorney General of Washington, argued the cause for petitioners. With him on the briefs were Kenneth O. Eikenberry, Attorney General, and Glenn L. Harvey, Assistant Attorney General.
*213 Paul J. Larkin, Jr., argued the cause for the United States as amicus curiae urging reversal. With him on the brief was William C. Bryson, Acting Solicitor General.
Brian Reed Phillips, by appointment of the Court, 490 U.S. 1002, argued the cause for respondent. With him on the brief was Leonard Rubenstein.[*]
JUSTICE KENNEDY delivered the opinion of the Court.
The central question before us is whether a judicial hearing is required before the State may treat a mentally ill prisoner with antipsychotic drugs against his will. Resolution of the case requires us to discuss the protections afforded the prisoner under the Due Process Clause of the Fourteenth Amendment.
I
Respondent Walter Harper was sentenced to prison in 1976 for robbery. From 1976 to 1980, he was incarcerated at the Washington State Penitentiary. Most of that time, respondent was housed in the prison's mental health unit, where he consented to the administration of antipsychotic drugs. *214 Antipsychotic drugs, sometimes called "neuroleptics" or "psychotropic drugs", are medications commonly used in treating mental disorders such as schizophrenia. Brief for American Psychiatric Association et al. as Amici Curiae 2-3, n. 1. As found by the trial court, the effect of these and similar drugs is to alter the chemical balance in the brain, the desired result being that the medication will assist the patient in organizing his or her thought processes and regaining a rational state of mind. See App. to Pet. for Cert. B-7[1].
Respondent was paroled in 1980 on the condition that he participate in psychiatric treatment. While on parole, he continued to receive treatment at the psychiatric ward at Harborview Medical Center in Seattle, Washington, and was later sent to Western State Hospital pursuant to a civil commitment order. In December 1981, the State revoked respondent's parole after he assaulted two nurses at a hospital in Seattle.
Upon his return to prison, respondent was sent to the Special Offender Center (SOC or Center), a 144-bed correctional institute established by the Washington Department of Corrections to diagnose and treat convicted felons with serious mental disorders. At the Center, psychiatrists first diagnosed respondent as suffering from a manic-depressive disorder.[2] At first, respondent gave voluntary consent to treatment, including the administration of antipsychotic medications. In November 1982, he refused to continue taking the prescribed medications. The treating physician then sought to medicate respondent over his objections, pursuant to SOC Policy 600.30.
*215 Policy 600.30 was developed in partial response to this Court's decision in Vitek v. Jones, 445 U.S. 480 (1980). The Policy has several substantive and procedural components. First, if a psychiatrist determines that an inmate should be treated with antipsychotic drugs but the inmate does not consent, the inmate may be subjected to involuntary treatment with the drugs only if he (1) suffers from a "mental disorder" and (2) is "gravely disabled" or poses a "likelihood of serious harm" to himself, others, or their property.[3] Only a psychiatrist may order or approve the medication. Second, an inmate who refuses to take the medication voluntarily is entitled to a hearing before a special committee consisting of a psychiatrist, a psychologist, and the Associate Superintendent of the Center, none of whom may be, at the time of the hearing, involved in the inmate's treatment or diagnosis. If the committee determines by a majority vote that the inmate suffers from a mental disorder and is gravely disabled or dangerous, *216 the inmate may be medicated against his will, provided the psychiatrist is in the majority.
Third, the inmate has certain procedural rights before, during, and after the hearing. He must be given at least 24 hours' notice of the Center's intent to convene an involuntary medication hearing, during which time he may not be medicated. In addition, he must receive notice of the tentative diagnosis, the factual basis for the diagnosis, and why the staff believes medication is necessary. At the hearing, the inmate has the right to attend; to present evidence, including witnesses; to cross-examine staff witnesses; and to the assistance of a lay adviser who has not been involved in his case and who understands the psychiatric issues involved. Minutes of the hearing must be kept, and a copy provided to the inmate. The inmate has the right to appeal the committee's decision to the Superintendent of the Center within 24 hours, and the Superintendent must decide the appeal within 24 hours after its receipt. See App. to Pet. for Cert. B-3. The inmate may seek judicial review of a committee decision in state court by means of a personal restraint petition or extraordinary writ. See Wash. Rules App. Proc. 16.3 to 16.17; App. to Pet. for Cert. B-8.
Fourth, after the initial hearing, involuntary medication can continue only with periodic review. When respondent first refused medication, a committee, again composed of a nontreating psychiatrist, a psychologist, and the Center's Associate Superintendent, was required to review an inmate's case after the first seven days of treatment. If the committee reapproved the treatment, the treating psychiatrist was required to review the case and prepare a report for the Department of Corrections medical director every 14 days while treatment continued.[4]
*217 In this case, respondent was absent when members of the Center staff met with the committee before the hearing. The committee then conducted the hearing in accordance with the Policy, with respondent being present and assisted by a nurse practitioner from another institution. The committee found that respondent was a danger to others as a result of a mental disease or disorder, and approved the involuntary administration of antipsychotic drugs. On appeal, the Superintendent upheld the committee's findings. Beginning on November 23, 1982, respondent was involuntarily medicated for about one year. Periodic review occurred in accordance with the Policy.
In November 1983, respondent was transferred from the Center to the Washington State Reformatory. While there, he took no medication, and as a result, his condition deteriorated. He was retransferred to the Center after only one month. Respondent was the subject of another committee hearing in accordance with Policy 600.30, and the committee again approved medication against his will. Respondent continued to receive antipsychotic drugs, subject to the required periodic reviews, until he was transferred to the Washington State Penitentiary in June 1986.
In February 1985, respondent filed suit in state court under 42 U.S. C. § 1983 (1982 ed.) against various individual defendants and the State, claiming that the failure to provide a judicial hearing before the involuntary administration of antipsychotic medication violated the Due Process, Equal Protection, and Free Speech Clauses of both the Federal and State Constitutions, as well as state tort law. He sought both damages and declaratory and injunctive relief. After a bench trial in March 1987, the court held that, although respondent had a liberty interest in not being subjected to the involuntary administration of antipsychotic medication, the *218 procedures contained in the Policy met the requirements of due process as stated in Vitek.
On appeal, the Washington Supreme Court reversed and remanded the case to the trial court. 110 Wash. 2d 873, 759 P.2d 358 (1988). Agreeing with the trial court that respondent had a liberty interest in refusing antipsychotic medications, the court concluded that the "highly intrusive nature" of treatment with antipsychotic medications warranted greater procedural protections than those necessary to protect the liberty interests at stake in Vitek. 110 Wash. 2d, at 880-881, 759 P.2d, at 363. It held that, under the Due Process Clause, the State could administer antipsychotic medication to a competent, nonconsenting inmate only if, in a judicial hearing at which the inmate had the full panoply of adversarial procedural protections, the State proved by "clear, cogent, and convincing" evidence that the administration of antipsychotic medication was both necessary and effective for furthering a compelling state interest.[5]Id., at 883-884, 759 P.2d, at 364-365.
We granted certiorari, 489 U.S. 1064 (1989), and we reverse.
II
Respondent contends that because the State has ceased administering antipsychotic drugs to him against his will, the case is moot. We disagree.
Even if we confine our attention to those facts found in the record,[6] a live case or controversy between the parties remains. *219 There is no evidence that respondent has recovered from his mental illness. Since being sentenced to prison in 1976, he has been diagnosed and treated for a serious mental disorder. Even while on parole, respondent continued to receive treatment, at one point under a civil commitment order, at state mental hospitals. At the time of trial, after his transfer from the Center for a second time, respondent was still diagnosed as suffering from schizophrenia.
Respondent continues to serve his sentence in the Washington state prison system, and is subject to transfer to the Center at any time. Given his medical history, and the fact that he has been transferred not once but twice to the Center from other state penal institutions during the period 1982-1986, it is reasonable to conclude that there is a strong likelihood that respondent may again be transferred to the Center. Once there, given his medical history, it is likely that, absent the holding of the Washington Supreme Court, Center officials would seek to administer antipsychotic medications pursuant to Policy 600.30.
On the record before us, the case is not moot. The alleged injury likely would recur but for the decision of the Washington Supreme Court. This sufficiently overcomes the claim of mootness in the circumstances of the case and under our precedents. See Vitek, 445 U. S., at 486-487.
III
The Washington Supreme Court gave its primary attention to the procedural component of the Due Process Clause. It phrased the issue before it as whether "a prisoner [is] entitled to a judicial hearing before antipsychotic drugs can be administered against his will". 110 Wash. 2d, at 874, 759 P.2d, at 360. The court, however, did more than establish judicial *220 procedures for making the factual determinations called for by Policy 600.30. It required that a different set of determinations than those set forth in the Policy be made as a precondition to medication without the inmate's consent. Instead of having to prove, pursuant to the Policy, only that the mentally ill inmate is "gravely disabled" or that he presents a "serious likelihood of harm" to himself or others, the court required the State to prove that it has a compelling interest in administering the medication and that the administration of the drugs is necessary and effective to further that interest. The decisionmaker was required further to consider and make written findings regarding either the inmate's desires or a "substituted judgment" for the inmate analogous to the medical treatment decision for an incompetent person. Id., at 883-884, 759 P.2d, at 365.
The Washington Supreme Court's decision, as a result, has both substantive and procedural aspects. It is axiomatic that procedural protections must be examined in terms of the substantive rights at stake. But identifying the contours of the substantive right remains a task distinct from deciding what procedural protections are necessary to protect that right. "[T]he substantive issue involves a definition of th[e] protected constitutional interest, as well as identification of the conditions under which competing state interests might outweigh it. The procedural issue concerns the minimum procedures required by the Constitution for determining that the individual's liberty interest actually is outweighed in a particular instance". Mills v. Rogers, 457 U.S. 291, 299 (1982) (citations omitted).
Restated in the terms of this case, the substantive issue is what factual circumstances must exist before the State may administer antipsychotic drugs to the prisoner against his will; the procedural issue is whether the State's nonjudicial mechanisms used to determine the facts in a particular case are sufficient. The Washington Supreme Court in effect ruled upon the substance of the inmate's right, as well as the *221 procedural guarantees, and both are encompassed by our grant of certiorari.[7] We address these questions beginning with the substantive one.
As a matter of state law, the Policy itself undoubtedly confers upon respondent a right to be free from the arbitrary administration of antipsychotic medication. In Hewitt v. Helms, 459 U.S. 460 (1983), we held that Pennsylvania had created a protected liberty interest on the part of prison inmates to avoid administrative segregation by enacting regulations that "used language of an unmistakably mandatory character, requiring that certain procedures `shall,' `will,' or `must' be employed, and that administrative segregation will not occur absent specified substantive predicates viz., `the need for control,' or `the threat of a serious disturbance' ". Id., at 471-472 (citations omitted). Policy 600.30 is similarly mandatory in character. By permitting a psychiatrist to treat an inmate with antipsychotic drugs against his wishes only if he is found to be (1) mentally ill and (2) gravely disabled or dangerous, the Policy creates a justifiable expectation on the part of the inmate that the drugs will not be administered unless those conditions exist. See also Vitek, 445 U. S., at 488-491.
We have no doubt that, in addition to the liberty interest created by the State's Policy, respondent possesses a significant liberty interest in avoiding the unwanted administration of antipsychotic drugs under the Due Process Clause of the *222 Fourteenth Amendment. See id., at 491-494; Youngberg v. Romeo, 457 U.S. 307, 316 (1982); Parham v. J. R., 442 U.S. 584, 600-601 (1979). Upon full consideration of the state administrative scheme, however, we find that the Due Process Clause confers upon respondent no greater right than that recognized under state law.
Respondent contends that the State, under the mandate of the Due Process Clause, may not override his choice to refuse antipsychotic drugs unless he has been found to be incompetent, and then only if the factfinder makes a substituted judgment that he, if competent, would consent to drug treatment. We disagree. The extent of a prisoner's right under the Clause to avoid the unwanted administration of antipsychotic drugs must be defined in the context of the inmate's confinement. The Policy under review requires the State to establish, by a medical finding, that a mental disorder exists which is likely to cause harm if not treated. Moreover, the fact that the medication must first be prescribed by a psychiatrist, and then approved by a reviewing psychiatrist, ensures that the treatment in question will be ordered only if it is in the prisoner's medical interests, given the legitimate needs of his institutional confinement.[8] These standards, which recognize *223 both the prisoner's medical interests and the State's interests, meet the demands of the Due Process Clause.
The legitimacy, and the necessity, of considering the State's interests in prison safety and security are well established by our cases. In Turner v. Safley, 482 U.S. 78 (1987), and O'Lone v. Estate of Shabazz, 482 U.S. 342 (1987), we held that the proper standard for determining the validity of a prison regulation claimed to infringe on an inmate's constitutional rights is to ask whether the regulation is "reasonably related to legitimate penological interests". Turner, supra, at 89. This is true even when the constitutional right claimed to have been infringed is fundamental, and the State under other circumstances would have been required to satisfy a more rigorous standard of review. Estate of Shabazz, supra, at 349. The Washington Supreme Court declined to apply this standard of review to the Center's Policy, reasoning that the liberty interest present here was distinguishable from the First Amendment rights at issue in both Turner and Estate of Shabazz. 110 Wash. 2d, at 883, n. 9, 759 P.2d, at 364, n. 9. The court erred in refusing to apply the standard of reasonableness.
Our earlier determination to adopt this standard of review was based upon the need to reconcile our longstanding adherence to the principle that inmates retain at least some constitutional rights despite incarceration with the recognition that prison authorities are best equipped to make difficult *224 decisions regarding prison administration. Turner, supra, at 84-85; Jones v. North Carolina Prisoners' Labor Union, Inc., 433 U.S. 119, 128 (1977). These two principles apply in all cases in which a prisoner asserts that a prison regulation violates the Constitution, not just those in which the prisoner invokes the First Amendment. We made quite clear that the standard of review we adopted in Turner applies to all circumstances in which the needs of prison administration implicate constitutional rights. See Turner, 482 U. S., at 85 ("Our task . . . is to formulate a standard of review for prisoners' constitutional claims that is responsive both to the `policy of judicial restraint regarding prisoner complaints and [to] the need to protect constitutional rights' ") (citation omitted); id., at 89 ("If Pell, Jones, and Bell have not already resolved the question posed in [Procunier v.] Martinez, [416 U.S. 396 (1974),] we resolve it now: when a prison regulation impinges on inmates' constitutional rights, the regulation is valid if it is reasonably related to legitimate penological interests"); Estate of Shabazz, supra, at 349 ("To ensure that courts afford appropriate deference to prison officials, we have determined that prison regulations alleged to infringe constitutional rights are judged under a `reasonableness' test less restrictive than that ordinarily applied to alleged infringements of fundamental constitutional rights"). In Turner itself we applied the reasonableness standard to a prison regulation that imposed severe restrictions on the inmate's right to marry, a right protected by the Due Process Clause. See Turner, supra, at 95-96 (citing Zablocki v. Redhail, 434 U.S. 374 (1978), and Loving v. Virginia, 388 U.S. 1 (1967)). Our precedents require application of the standard here.
In Turner, we considered various factors to determine the reasonableness of a challenged prison regulation. Three are relevant here. "First, there must be a `valid, rational connection' between the prison regulation and the legitimate governmental interest put forward to justify it". 482 U. S., *225 at 89 (quoting Block v. Rutherford, 468 U.S. 576, 586 (1984)). Second, a court must consider "the impact accommodation of the asserted constitutional right will have on guards and other inmates, and on the allocation of prison resources generally." 482 U.S., at 90. Third, "the absence of ready alternatives is evidence of the reasonableness of a prison regulation," but this does not mean that prison officials "have to set up and then shoot down every conceivable alternative method of accommodating the claimant's constitutional complaint". Id., at 90-91; see also Estate of Shabazz, supra, at 350.
Applying these factors to the regulation before us, we conclude that the Policy comports with constitutional requirements. There can be little doubt as to both the legitimacy and the importance of the governmental interest presented here. There are few cases in which the State's interest in combating the danger posed by a person to both himself and others is greater than in a prison environment, which, "by definition," is made up of persons with "a demonstrated proclivity for antisocial criminal, and often violent, conduct". Hudson v. Palmer, 468 U.S. 517, 526 (1984); Jones, supra, at 132; Wolff v. McDonnell, 418 U.S. 539, 561-562 (1974). We confront here the State's obligations, not just its interests. The State has undertaken the obligation to provide prisoners with medical treatment consistent not only with their own medical interests, but also with the needs of the institution. Prison administrators have not only an interest in ensuring the safety of prison staffs and administrative personnel, see Hewitt, 459 U. S., at 473, but also the duty to take reasonable measures for the prisoners' own safety. See Hudson, supra, at 526-527. These concerns have added weight when a penal institution, like the SOC, is restricted to inmates with mental illnesses. Where an inmate's mental disability is the root cause of the threat he poses to the inmate population, the State's interest in decreasing the *226 danger to others necessarily encompasses an interest in providing him with medical treatment for his illness.
SOC Policy 600.30 is a rational means of furthering the State's legitimate objectives. Its exclusive application is to inmates who are mentally ill and who, as a result of their illness, are gravely disabled or represent a significant danger to themselves or others. The drugs may be administered for no purpose other than treatment, and only under the direction of a licensed psychiatrist. There is considerable debate over the potential side effects of antipsychotic medications, but there is little dispute in the psychiatric profession that proper use of the drugs is one of the most effective means of treating and controlling a mental illness likely to cause violent behavior.[9]
The alternative means proffered by respondent for accommodating his interest in rejecting the forced administration of antipsychotic drugs do not demonstrate the invalidity of the State's policy. Respondent's main contention is that, as a precondition to antipsychotic drug treatment, the State must find him incompetent, and then obtain court approval of the treatment using a "substituted judgment" standard. The suggested rule takes no account of the legitimate governmental interest in treating him where medically appropriate for the purpose of reducing the danger he poses. A rule that is in no way responsive to the State's legitimate interests is not a proper accommodation, and can be rejected out of hand. Nor are physical restraints or seclusion "alternative[s] that fully accommodat[e] the prisoner's rights at de minimis cost to valid penological interests". Turner, supra, at 91. Physical restraints are effective only in the short term, and can have serious physical side effects when used on a resisting *227 inmate, see Brief for American Psychiatric Association et al. as Amici Curiae 12, as well as leaving the staff at risk of injury while putting the restraints on or tending to the inmate who is in them. Furthermore, respondent has failed to demonstrate that physical restraints or seclusion are acceptable substitutes for antipsychotic drugs, in terms of either their medical effectiveness or their toll on limited prison resources.[10]
We hold that, given the requirements of the prison environment, the Due Process Clause permits the State to treat a prison inmate who has a serious mental illness with antipsychotic drugs against his will, if the inmate is dangerous to himself or others and the treatment is in the inmate's medical interest. Policy 600.30 comports with these requirements; we therefore reject respondent's contention that its substantive standards are deficient under the Constitution.[11]
*228 IV
Having determined that state law recognizes a liberty interest, also protected by the Due Process Clause, which permits refusal of antipsychotic drugs unless certain preconditions are met, we address next what procedural protections are necessary to ensure that the decision to medicate an inmate against his will is neither arbitrary nor erroneous under the standards we have discussed above. The Washington Supreme Court held that a full judicial hearing, with the inmate being represented by counsel, was required by the Due Process Clause before the State could administer antipsychotic drugs to him against his will. In addition, the court held that the State must justify the authorization of involuntary administration of antipsychotic drugs by "clear, cogent, and convincing" evidence. We hold that the administrative hearing procedures set by the SOC Policy do comport with procedural due process, and conclude that the Washington Supreme Court erred in requiring a judicial hearing as a prerequisite for the involuntary treatment of prison inmates.
A
The primary point of disagreement between the parties is whether due process requires a judicial decisionmaker. As *229 written, the Policy requires that the decision whether to medicate an inmate against his will be made by a hearing committee composed of a psychiatrist, a psychologist, and the Center's Associate Superintendent. None of the committee members may be involved, at the time of the hearing, in the inmate's treatment or diagnosis; members are not disqualified from sitting on the committee, however, if they have treated or diagnosed the inmate in the past. The committee's decision is subject to review by the Superintendent; if the inmate so desires, he may seek judicial review of the decision in a state court. See supra, at 216. Respondent contends that only a court should make the decision to medicate an inmate against his will.
The procedural protections required by the Due Process Clause must be determined with reference to the rights and interests at stake in the particular case. Morrissey v. Brewer, 408 U.S. 471, 481 (1972); Hewitt, 459 U. S., at 472; Greenholtz v. Nebraska Penal Inmates, 442 U.S. 1, 12 (1979). The factors that guide us are well established. "Under Mathews v. Eldridge, 424 U.S. 319, 335 (1976), we consider the private interests at stake in a governmental decision, the governmental interests involved, and the value of procedural requirements in determining what process is due under the Fourteenth Amendment." Hewitt, supra, at 473.
Respondent's interest in avoiding the unwarranted administration of antipsychotic drugs is not insubstantial. The forcible injection of medication into a nonconsenting person's body represents a substantial interference with that person's liberty. Cf. Winston v. Lee, 470 U.S. 753 (1985); Schmerber v. California, 384 U.S. 757, 772 (1966). The purpose of the drugs is to alter the chemical balance in a patient's brain, leading to changes, intended to be beneficial, in his or her cognitive processes. See n. 1, supra. While the therapeutic benefits of antipsychotic drugs are well documented, it is also true that the drugs can have serious, even fatal, side effects. One such side effect identified by the trial court is acute dystonia, a severe involuntary spasm of the upper *230 body, tongue, throat, or eyes. The trial court found that it may be treated and reversed within a few minutes through use of the medication Cogentin. Other side effects include akathesia (motor restlessness, often characterized by an inability to sit still); neuroleptic malignant syndrome (a relatively rare condition which can lead to death from cardiac dysfunction); and tardive dyskinesia, perhaps the most discussed side effect of antipsychotic drugs. See Finding of Fact 9, App. to Pet. for Cert. B-7; Brief for American Psychological Association as Amicus Curiae 6-9. Tardive dyskinesia is a neurological disorder, irreversible in some cases, that is characterized by involuntary, uncontrollable movements of various muscles, especially around the face. See Mills, 457 U. S., at 293, n. 1. The State, respondent, and amici sharply disagree about the frequency with which tardive dyskinesia occurs, its severity, and the medical profession's ability to treat, arrest, or reverse the condition. A fair reading of the evidence, however, suggests that the proportion of patients treated with antipsychotic drugs who exhibit the symptoms of tardive dyskinesia ranges from 10% to 25%. According to the American Psychiatric Association, studies of the condition indicate that 60% of tardive dyskinesia is mild or minimal in effect, and about 10% may be characterized as severe. Brief for American Psychiatric Association et al. as Amici Curiae 14-16, and n. 12; see also Brief for American Psychological Association as Amicus Curiae 8.[12]
*231 Notwithstanding the risks that are involved, we conclude that an inmate's interests are adequately protected, and perhaps better served, by allowing the decision to medicate to be made by medical professionals rather than a judge. The Due Process Clause "has never been thought to require that the neutral and detached trier of fact be law trained or a judicial or administrative officer." Parham, 442 U. S., at 607. Though it cannot be doubted that the decision to medicate has societal and legal implications, the Constitution does not prohibit the State from permitting medical personnel to make the decision under fair procedural mechanisms. See id., at 607-609; cf. Youngberg, 457 U. S., at 322-323. Particularly where the patient is mentally disturbed, his own intentions will be difficult to assess and will be changeable in any event. Schwartz, Vingiano, & Perez, Autonomy and the Right to Refuse Treatment: Patients' Attitudes After Involuntary Medication, 39 Hospital & Community Psychiatry 1049 (1988). Respondent's own history of accepting and then refusing drug treatment illustrates the point. We cannot make the facile assumption that the patient's intentions, or a substituted judgment approximating those intentions, can be determined in a single judicial hearing apart from the realities *232 of frequent and ongoing clinical observation by medical professionals. Our holding in Parham that a judicial hearing was not required prior to the voluntary commitment of a child to a mental hospital was based on similar observations:
". . . [D]ue process is not violated by use of informal, traditional medical investigative techniques. . . . The mode and procedure of medical diagnostic procedures is not the business of judges. . . .
.....
"Although we acknowledge the fallibility of medical and psychiatric diagnosis, see O'Connor v. Donaldson, 422 U.S. 563, 584 (1975) (concurring opinion), we do not accept the notion that the shortcomings of specialists can always be avoided by shifting the decision from a trained specialist using the traditional tools of medical science to an untrained judge or administrative hearing officer after a judicial-type hearing. Even after a hearing, the nonspecialist decisionmaker must make a medical-psychiatric decision. Common human experience and scholarly opinions suggest that the supposed protections of an adversary proceeding to determine the appropriateness of medical decisions for the commitment and treatment of mental and emotional illness may well be more illusory than real." Parham, 442 U. S., at 607-609.
Nor can we ignore the fact that requiring judicial hearings will divert scarce prison resources, both money and the staff's time, from the care and treatment of mentally ill inmates. See id., at 605-606.
Under Policy 600.30, the decisionmaker is asked to review a medical treatment decision made by a medical professional. That review requires two medical inquiries: first, whether the inmate suffers from a "mental disorder"; and second, whether, as a result of that disorder, he is dangerous to himself, others, or their property. Under the Policy, the hearing *233 committee reviews on a regular basis the staff's choice of both the type and dosage of drug to be administered, and can order appropriate changes. 110 Wash. 2d, at 875, 759 P.2d, at 360. The risks associated with antipsychotic drugs are for the most part medical ones, best assessed by medical professionals. A State may conclude with good reason that a judicial hearing will not be as effective, as continuous, or as probing as administrative review using medical decisionmakers. We hold that due process requires no more.
A State's attempt to set a high standard for determining when involuntary medication with antipsychotic drugs is permitted cannot withstand challenge if there are no procedural safeguards to ensure the prisoner's interests are taken into account. Adequate procedures exist here. In particular, independence of the decisionmaker is addressed to our satisfaction by these procedures. None of the hearing committee members may be involved in the inmate's current treatment or diagnosis. The record before us, moreover, is limited to the hearings given to respondent. There is no indication that any institutional biases affected or altered the decision to medicate respondent against his will. The trial court made specific findings that respondent has a history of assaultive behavior which his doctors attribute to his mental disease, and that all of the Policy's requirements were met. See App. to Pet. for Cert. B-4 to B-5, B-8. The court found also that the medical treatment provided to respondent, including the administration of antipsychotic drugs, was at all times consistent "with the degree of care, skill, and learning expected of a reasonably prudent psychiatrist in the State of Washington, acting in the same or similar circumstances." Id., at B-8. In the absence of record evidence to the contrary, we are not willing to presume that members of the staff lack the necessary independence to provide an inmate with a full and fair hearing in accordance with the Policy. In previous cases involving medical decisions implicating similar *234 liberty interests, we have approved use of similar internal decisionmakers. See Vitek, 445 U. S., at 496; Parham, supra, at 613-616.[13] Cf. Wolff, 418 U. S., at 570-571 (prison *235 officials sufficiently impartial to conduct prison disciplinary hearings). As we reasoned in Vitek, it is only by permitting persons connected with the institution to make these decisions that courts are able to avoid "unnecessary intrusion into either medical or correctional judgments". Vitek, supra, at 496; see Turner, 482 U. S., at 84-85, 89.
B
The procedures established by the Center are sufficient to meet the requirements of due process in all other respects, and we reject respondent's arguments to the contrary. The Policy provides for notice, the right to be present at an adversary hearing, and the right to present and cross-examine witnesses. See Vitek, supra, at 494-496. The procedural protections are not vitiated by meetings between the committee members and staff before the hearing. Absent evidence of resulting bias, or evidence that the actual decision is made before the hearing, allowing respondent to contest the staff's position at the hearing satisfies the requirement that the opportunity to be heard "must be granted at a meaningful time and in a meaningful manner." Armstrong v. Manzo, 380 U.S. 545, 552 (1965). We reject also respondent's contention that the hearing must be conducted in accordance with the rules of evidence or that a "clear, cogent, and convincing" standard of proof is necessary. This standard is neither required nor helpful when medical personnel are making the judgment required by the regulations here. See Vitek, supra, at 494-495. Cf. Youngberg, 457 U. S., at 321-323. Finally, we note that under state law an inmate may obtain judicial review of the hearing committee's decision by way of a personal restraint petition or petition for an extraordinary writ, and that the trial court found that the record compiled under the Policy was adequate to allow such review. See App. to Pet. for Cert. B-8.
*236A Respondent contends that the Policy is nonetheless deficient because it does not allow him to be represented by counsel. We disagree. "[I]t is less than crystal clear why lawyers must be available to identify possible errors in medical judgment." Walters v. National Association of Radiation Survivors, 473 U.S. 305, 330 (1985) (emphasis in original). Given the nature of the decision to be made, we conclude that the provision of an independent lay adviser who understands the psychiatric issues involved is sufficient protection. See Vitek, supra, at 499-500 (Powell, J., concurring).
V
In sum, we hold that the regulation before us is permissible under the Constitution. It is an accommodation between an inmate's liberty interest in avoiding the forced administration of antipsychotic drugs and the State's interests in providing appropriate medical treatment to reduce the danger that an inmate suffering from a serious mental disorder represents to himself or others. The Due Process Clause does require certain essential procedural protections, all of which are provided by the regulation before us. The judgment of the Washington Supreme Court is reversed, and the case is remanded for further proceedings not inconsistent with this opinion.
It is so ordered.
*236B JUSTICE BLACKMUN, concurring.
I join the Court's opinion. The difficult and controversial character of this case is illustrated by the simple fact that the American Psychiatric Association and the American Psychological Association, which are respected, knowledgeable, and informed professional organizations, and which are here as amici curiae, pull the Court in opposite directions.
I add a caveat. Much of the difficulty will be lessened if, in any appropriate case, the mentally ill patient is formally committed. This on occasion may seem to be a bother or a nuisance, but it is a move that would be protective for all *237 concerned, the inmate, the institution, its staff, the physician, and the State itself. Cf. Zinermon v. Burch, ante, p. 113. It is a step that should not be avoided or neglected when significant indications of incompetency are present.
JUSTICE STEVENS, with whom JUSTICE BRENNAN and JUSTICE MARSHALL join, concurring in part and dissenting in part.
While I join the Court's explanation of why this case is not moot, I disagree with its evaluation of the merits. The Court has undervalued respondent's liberty interest; has misread the Washington involuntary medication Policy and misapplied our decision in Turner v. Safley, 482 U.S. 78 (1987); and has concluded that a mock trial before an institutionally biased tribunal constitutes "due process of law." Each of these errors merits separate discussion.
I
The Court acknowledges that under the Fourteenth Amendment "respondent possesses a significant liberty interest in avoiding the unwanted administration of antipsychotic drugs," ante, at 221, but then virtually ignores the several dimensions of that liberty. They are both physical and intellectual. Every violation of a person's bodily integrity is an invasion of his or her liberty. The invasion is particularly intrusive if it creates a substantial risk of permanent injury and premature death.[1] Moreover, any such action is degrading if it overrides a competent person's choice to reject a specific form of medical treatment.[2] And when the purpose *238 or effect of forced drugging is to alter the will and the mind of the subject, it constitutes a deprivation of liberty in the most literal and fundamental sense.
"The makers of our Constitution undertook to secure conditions favorable to the pursuit of happiness. They recognized the significance of man's spiritual nature, of his feelings and of his intellect. They knew that only a part of the pain, pleasure and satisfactions of life are to be found in material things. They sought to protect Americans in their beliefs, their thoughts, their emotions and their sensations. They conferred, as against the Government, the right to be let alone the most comprehensive of rights and the right most valued by civilized men." Olmstead v. United States, 277 U.S. 438, 478 (1928) (Brandeis, J., dissenting).
The liberty of citizens to resist the administration of mind altering drugs arises from our Nation's most basic values.[3]
*239 The record of one of Walter Harper's involuntary medication hearings at the Special Offense Center (SOC) notes: "Inmate Harper stated he would rather die th[a]n take medication."[4] That Harper would be so opposed to taking psychotropic drugs is not surprising: as the Court acknowledges, these drugs both "alter the chemical balance in a patient's brain" and can cause irreversible and fatal side effects.[5]*240 The prolixin injections that Harper was receiving at the time of his statement exemplify the intrusiveness of psychotropic drugs on a person's body and mind. Prolixin acts "at all levels of the central nervous system as well as on multiple organ systems."[6] It can induce catatonic-like states, alter electroencephalographic tracings, and cause swelling of the brain. Adverse reactions include drowsiness, excitement, restlessness, bizarre dreams, hypertension, nausea, vomiting, loss of appetite, salivation, dry mouth, perspiration, headache, constipation, blurred vision, impotency, eczema, jaundice, tremors, and muscle spasms. As with all psychotropic drugs, prolixin may cause tardive dyskinesia, an often irreversible syndrome of uncontrollable movements that can prevent a person from exercising basic functions such as driving an automobile, and neuroleptic malignant syndrome, which is 30% fatal for those who suffer from it.[7] The risk of side effects increases over time.[8]
The Washington Supreme Court properly equated the intrusiveness of this mind-altering drug treatment with electroconvulsive therapy or psychosurgery. It agreed with the Supreme Judicial Court of Massachusetts' determination that the drugs have a " `profound effect' " on a person's " `thought *241 processes' " and a " `well-established likelihood of severe and irreversible adverse side effects,' " and that they therefore should be treated " `in the same manner we would treat psychosurgery or electroconvulsive therapy.' " 110 Wash. 2d 873, 878, 759 P.2d 358, 362 (1988) (quoting In re Guardianship of Roe, 383 Mass. 415, 436-437, 421 N.E.2d 40, 53 (1981). There is no doubt, as the State Supreme Court and other courts that have analyzed the issue have concluded, that a competent individual's right to refuse such medication is a fundamental liberty interest deserving the highest order of protection.[9]
II
Arguably, any of three quite different state interests might be advanced to justify a deprivation of this liberty interest. The State might seek to compel Harper to submit to a mind-altering drug treatment program as punishment for the crime he committed in 1976, as a "cure" for his mental illness, or as a mechanism to maintain order in the prison. The Court today recognizes Harper's liberty interest only as against the first justification.
Forced administration of antipsychotic medication may not be used as a form of punishment. This conclusion follows inexorably from our holding in Vitek v. Jones, 445 U.S. 480 (1980), that the Constitution provides a convicted felon the protection of due process against an involuntary transfer from the prison population to a mental hospital for psychiatric treatment. We explained:
*242 "Appellants maintain that the transfer of a prisoner to a mental hospital is within the range of confinement justified by imposition of a prison sentence, at least after certification by a qualified person that a prisoner suffers from a mental disease or defect. We cannot agree. None of our decisions holds that conviction for a crime entitles a State not only to confine the convicted person but also to determine that he has a mental illness and to subject him involuntarily to institutional care in a mental hospital. Such consequences visited on the prisoner are qualitatively different from the punishment characteristically suffered by a person convicted of crime. Our cases recognize as much and reflect an understanding that involuntary commitment to a mental hospital is not within the range of conditions of confinement to which a prison sentence subjects an individual. Baxstrom v. Herold, 383 U.S. 107 (1966); Specht v. Patterson, 386 U.S. 605 (1967); Humphrey v. Cady, 405 U.S. 504 (1972); Jackson v. Indiana, 406 U.S. 715, 724-725 (1972). A criminal conviction and sentence of imprisonment extinguish an individual's right to freedom from confinement for the term of his sentence, but they do not authorize the State to classify him as mentally ill and to subject him to involuntary psychiatric treatment without affording him additional due process protections." Id., at 493-494.
The Court does not suggest that psychotropic drugs, any more than transfer for medical treatment, may be forced on prisoners as a necessary condition of their incarceration or as a disciplinary measure. Rather, it holds:
"[G]iven the requirements of the prison environment, the Due Process Clause permits the State to treat a prison inmate who has a serious mental illness with antipsychotic drugs against his will, if the inmate is dangerous to himself or others and the treatment is in the inmate's medical interest. Policy 600.30 comports with *243 these requirements; we therefore reject respondent's contention that its substantive standards are deficient under the Constitution." Ante, at 227 (emphasis added).
Crucial to the Court's exposition of this substantive due process standard is the condition that these drugs "may be administered for no purpose other than treatment," and that "the treatment in question will be ordered only if it is in the prisoner's medical interests, given the legitimate needs of his institutional confinement." Ante, at 226, 222. Thus, although the Court does not find, as Harper urges, an absolute liberty interest of a competent person to refuse psychotropic drugs, it does recognize that the substantive protections of the Due Process Clause limit the forced administration of psychotropic drugs to all but those inmates whose medical interests would be advanced by such treatment.
Under this standard the Court upholds SOC Policy 600.30, determining that this administrative scheme confers, as a matter of state law, a substantive liberty interest coextensive with that conferred by the Due Process Clause. Ante, at 221-222, 227. Whether or not the State's alleged interest in providing medically beneficial treatment to those in its custody who are mentally ill may alone override the refusal of psychotropic drugs by a presumptively competent person, a plain reading of Policy 600.30 reveals that it does not meet the substantive standard set forth by the Court. Even on the Court's terms, the Policy is constitutionally insufficient.
Policy 600.30 permits forced administration of psychotropic drugs on a mentally ill inmate based purely on the impact that his disorder has on the security of the prison environment. The provisions of the Policy make no reference to any expected benefit to the inmate's medical condition. Policy 600.30 requires:
"In order for involuntary medication to be approved, it must be demonstrated that the inmate suffers from a mental disorder and as a result of that disorder constitutes a likelihood of serious harm to himself or others *244 and/or is gravely disabled." Lodging, Book 9, Policy 600.30, p. 1.
"Likelihood of serious harm," according to the Policy,
"means either (i) A substantial risk that physical harm will be inflicted by an individual upon his own person, as evidenced by threats or attempts to commit suicide or inflict physical harm on one's self, (ii) a substantial risk that physical harm will be inflicted by an individual upon another as evidenced by behavior which has caused such harm or which places another person or persons in reasonable fear of sustaining such harm, or (iii) a substantial risk that physical harm will be inflicted by an individual upon the property of others as evidenced by behavior which has caused substantial loss or damage to the property of others."[10]
Thus, the Policy authorizes long-term involuntary medication not only of any mentally ill inmate who, as a result of a mental disorder, appears to present a future risk to himself, but also of an inmate who presents a future risk to other people or mere property.
Although any application of Policy 600.30 requires a medical judgment as to a prisoner's mental condition and the cause of his behavior, the Policy does not require a determination that forced medication would advance his medical interest.[11] Use of psychotropic drugs, the State readily admits, *245 serves to ease the institutional and administrative burdens of maintaining prison security and provides a means of managing an unruly prison population and preventing property damage.[12] By focusing on the risk that the inmate's mental condition poses to other people and property, the Policy allows the State to exercise either parens patriae authority or police authority to override a prisoner's liberty interest in refusing psychotropic drugs. Thus, most unfortunately, there is simply no basis for the Court's assertion that medication under the Policy must be to advance the prisoner's medical interest.[13]
Policy 600.30 sweepingly sacrifices the inmate's substantive liberty interest to refuse psychotropic drugs, regardless of his medical interests, to institutional and administrative *246 concerns. The State clearly has a legitimate interest in prison security and administrative convenience that encompasses responding to potential risks to persons and property. However, to the extent that the Court recognizes "both the prisoner's medical interests and the State's interests" as potentially independent justifications for involuntary medication of inmates,[14] it seriously misapplies the standard announced in Turner v. Safley, 482 U.S. 78 (1987). In Turner, we held that a prison regulation that impinges on inmates' constitutional rights is valid "if it is reasonably related to legitimate penological interests." Id., at 89. Under this test, we determined that a regulation barring inmate-to-inmate correspondence was adequately supported by the State's institutional security concerns. Id., at 93. We also unanimously concluded that a regulation prohibiting inmate marriage, except with consent of the prison superintendent made upon proof of compelling circumstances, was an "exaggerated response" to the prison's claimed security objectives and was not reasonably related to its articulated rehabilitation goal. Id., at 97-98.
The State advances security concerns as a justification for forced medication in two distinct circumstances. A SOC Policy provision not at issue in this case permits 72 hours of involuntary medication on an emergency basis when "an inmate is suffering from a mental disorder and as a result of that disorder presents an imminent likelihood of serious harm to himself or others." Lodging, Book 9, Policy 600.30, p. 2 (emphasis added). In contrast to the imminent danger of injury that triggers the emergency medication provisions, a general risk of illness-induced injury or property damage evidenced by no more than past behavior allows long-term, involuntary medication of an inmate with psychotropic drugs *247 under Policy 600.30. This ongoing interest in security and management is a penological concern of a constitutionally distinct magnitude from the necessity of responding to emergencies. See Whitley v. Albers, 475 U.S. 312, 321-322 (1986). It is difficult to imagine what, if any, limits would restrain such a general concern of prison administrators who believe that prison environments are, " `by definition,'. . . made up of persons with `a demonstrated proclivity for antisocial criminal, and often violent, conduct.' " Ante, at 225 (quoting Hudson v. Palmer, 468 U.S. 517, 526 (1984)). A rule that allows prison administrators to address potential security risks by forcing psychotropic drugs on mentally ill inmates for prolonged periods is unquestionably an "exaggerated response" to that concern.
In Turner we concluded on the record before us that the marriage "regulation, as written, [was] not reasonably related to . . . penological interests," and that there were "obvious, easy alternatives" that the State failed to rebut by reference to the record. 482 U.S., at 97-98. Today the Court concludes that alternatives to psychotropic drugs would impose more than de minimis costs on the State. However, the record before us does not establish that a more narrowly drawn policy withdrawing psychotropics from only those inmates who actually refuse consent[15] and who do not pose *248 an imminent threat of serious harm[16] would increase the marginal costs of SOC administration. Harper's own record reveals that administrative segregation and standard disciplinary sanctions were frequently imposed on him over and above forced medication and thus would add no new costs. Lodging, Book 1. Similarly, intramuscular injections of psychotropics, such as those frequently forced on Harper, id., Book 7, entail no greater risk than administration of less dangerous drugs such as tranquilizers. [17] Use of psychotropic *249 drugs simply to suppress an inmate's potential violence, rather than to achieve therapeutic results, may also undermine the efficacy of other available treatment programs that would better address his illness.[18]
The Court's careful differentiation in Turner between the State's articulated goals of security and rehabilitation should be emulated in this case. The flaw in Washington's Policy 600.30 and the basic error in the Court's opinion today is the failure to divorce from each other the two justifications for forced medication and to consider the extent to which the Policy is reasonably related to either interest. The State, and arguably the Court, allows the SOC to blend the state interests in responding to emergencies and in convenient prison administration with the individual's interest in receiving beneficial medical treatment. The result is a muddled rationale that allows the "exaggerated response" of forced psychotropic medication on the basis of purely institutional concerns. So serving institutional convenience eviscerates *250 the inmate's substantive liberty interest in the integrity of his body and mind.[19]
III
The procedures of Policy 600.30 are also constitutionally deficient. Whether or not the State ever may order involuntary administration of psychotropic drugs to a mentally ill person who has been committed to its custody but has not been declared incompetent, it is at least clear that any decision approving such drugs must be made by an impartial professional concerned not with institutional interests, but only with the individual's best interests. The critical defect in Policy 600.30 is the failure to have the treatment decision made or reviewed by an impartial person or tribunal. See Vitek, 445 U. S., at 495.[20]
The psychiatrists who diagnose and provide routine care to SOC inmates may prescribe psychotropic drugs and recommend involuntary medication under Policy 600.30. The Policy provides that a nonemergency decision to medicate for up *251 to seven consecutive days must be approved by a special committee after a hearing. The committee consists of the Associate Superintendent of SOC, a psychologist, and a psychiatrist. Neither of the medical professionals may be involved in the current diagnosis or treatment of the inmate. The approval of the psychiatrist and one other committee member is required to sustain a 7-day involuntary medication decision. Lodging, Book 9, Policy 600.30, p. 2, § 3.B. A similarly composed committee is required to authorize "long term" involuntary medication lasting over seven days. Policy 600.30 does not bar current treating professionals or previous committee members from serving on the long-term committee. This committee does not conduct a new hearing, but merely reviews the inmate's file and minutes of the 7-day hearing. Long-term approval, if granted, allows medication to continue indefinitely with a review and report by the treating psychiatrist every 14 days. Id., Book 9, Policy 600.30, p. 2, § 3.C.[21]
These decisionmakers have two disqualifying conflicts of interest. First, the panel members must review the work of treating physicians who are their colleagues and who, in turn, regularly review their decisions. Such an in-house system pits the interests of an inmate who objects to forced medication against the judgment not only of his doctor, but often his doctor's colleagues.[22] Furthermore, the Court's *252 conclusion that "[n]one of the hearing committee members may be involved in the inmate's current treatment or diagnosis," ante, at 233, overlooks the fact that Policy 600.30 allows a treating psychiatrist to participate in all but the initial 7-day medication approval. This revolving door operated in Harper's case. Dr. Petrich treated Harper through 1982 and recommended involuntary medication on October 27, 1982. Lodging, Book 8, Oct. 27, 1982. Dr. Loeken, staff psychologist Giles, and Assistant Superintendent Stark authorized medication for seven days after a 600.30 hearing on November 23, 1982. Dr. Petrich then replaced Dr. Loeken on the committee, and with Giles and Stark approved long-term involuntary medication on December 8, 1982. Solely under this authority, Dr. Petrich prescribed more psychotropic medication for Harper on December 8, 1982, and throughout the following year.[23]
*253 Second, the panel members, as regular staff of the Center, must be concerned not only with the inmate's best medical interests, but also with the most convenient means of controlling the mentally disturbed inmate. The mere fact that a decision is made by a doctor does not make it "certain that professional judgment in fact was exercised." Youngberg v. Romeo, 457 U.S. 307, 321 (1982). The structure of the SOC committee virtually ensures that it will not be. While the initial inquiry into the mental bases for an inmate's behavior is medical, the ultimate medication decision under Policy 600.30 turns on an assessment of the risk that an inmate's condition imposes on the institution. The prescribing physician and each member of the review committee must therefore wear two hats. This hybrid function disables the independent exercise of each decisionmaker's professional judgment.[24] The *254 structure of the review committee further confuses the objective of the inquiry; two of the committee members are not trained or licensed to prescribe psychotropic drugs, and one has no medical expertise at all. The trump by institutional interests is dramatized by the fact that appeals of committee decisions under the Policy are made solely to the SOC Superintendent.[25]
The Court asserts that "[t]here is no indication that any institutional biases affected or altered the decision to medicate respondent against his will" and that there is no evidence that "antipsychotic drugs were prescribed not for medical purposes, but to control or discipline mentally ill patients." Ante, at 233, and 234, n. 13. A finding of bias in an individual case is unnecessary to determine that the structure of Policy 600.30 fails to meet the due process requirements of the Fourteenth Amendment. In addition, Harper's own record illustrates the potential abuse of psychotropics under Policy 600.30 for institutional ends. For example, Dr. Petrich added Taractan, a psychotropic drug, to Harper's medication around October 27, 1982, nothing: "The goal of the increased medication to sedate him at night and relieve the residents and evening [sic] alike of the burden of supervising him as intensely."[26] A 1983 examination by non-SOC physicians *255 also indicated that Harper was prophylactically medicated absent symptoms that would qualify him for involuntary medication.[27]
The institutional bias that is inherent in the identity of the decisionmakers is unchecked by other aspects of Policy 600.30. The committee need not consider whether less intrusive procedures would be effective, or even if the prescribed medication would be beneficial to the prisoner, before approving involuntary medication. Findings regarding the severity or the probability of potential side effects of drugs and dosages are not required. And, although the Policy does not prescribe a standard of proof necessary for any factual determination upon which a medication decision rests, the Court gratuitously advises that the "clear, cogent, and convincing" standard adopted by the State Supreme Court would be unnecessary.[28]
*256 Nor is the 600.30 hearing likely to raise these issues fairly and completely. An inmate recommended for involuntary medication is no more capable of " `speaking effectively for himself' " on these "issues which are `complex or otherwise difficult to develop or present' " than an inmate recommended for transfer to a mental hospital. Vitek, 445 U. S., at 498 (Powell, J., concurring in part). Although single doses of some psychotropic drugs are designed to be effective for a full month, the inmate may not refuse the very medication he is contesting until 24 hours before his hearing.[29] Policy 600.30 also does not allow the inmate to be represented by counsel at hearings, but only to have present an adviser, who is appointed by the SOC. Lodging, Book 9, Policy 600.30, pp. 3-4. These advisers, of questionable loyalties and efficacy, cannot provide the "independent assistance" required for an inmate fairly to understand and participate in the hearing process. 445 U.S., at 498.[30] In addition, although the Policy gives the inmate a "limitable right to present testimony through his own witnesses and to confront and cross-examine witnesses," in the next paragraph it takes that right away for reasons that "include, but are not limited to such *257 things as irrelevance, lack of necessity, redundancy, possible reprisals, or other reasons relating to institutional interests of security, order, and rehabilitation." Lodging, Book 9, Policy 600.30, p. 3. Finally, because Policy 600.30 provides a hearing only for the 7-day committee, and just a paper record for the long-term committee, the inmate has no opportunity at all to present his objections to the more crucial decision to medicate him on a long-term basis.
In sum, it is difficult to imagine how a committee convened under Policy 660.30 could conceivably discover, much less be persuaded to overrule, an erroneous or arbitrary decision to medicate or to maintain a specific dosage or type of drug. See Mathews v. Eldridge, 424 U.S. 319, 335 (1976). Institutional control infects the decisionmakers and the entire procedure. The state courts that have reviewed comparable procedures have uniformly concluded that they do not adequately protect the significant liberty interest implicated by the forced administration of psychotropic drugs.[31] I agree with that conclusion. Although a review procedure administered by impartial, nonjudicial professionals might avoid the constitutional deficiencies in Policy 600.30, I would affirm the decision of the Washington Supreme Court requiring a judicial hearing, with its attendant procedural safeguards, as a remedy in this case.
*258 I continue to believe that "even the inmate retains an unalienable interest in liberty at the very minimum the right to be treated with dignity which the Constitution may never ignore." Meachum v. Fano, 427 U.S. 215, 233 (1976) (dissenting opinion). A competent individual's right to refuse psychotropic medication is an aspect of liberty requiring the highest order of protection under the Fourteenth Amendment.[32] Accordingly, with the exception of Part II, I respectfully dissent from the Court's opinion and judgment.
NOTES
[*] Briefs of amici curiae urging reversal were filed for the State of California by John K. Van de Kamp, Attorney General, Richard B. Iglehart, Chief Assistant Attorney General, Kenneth C. Young, Assistant Attorney General, Kristofer Jorstad, Senior Supervising Deputy Attorney General, and Morris Lenk, Karl S. Mayer, and Bruce M. Slavin, Deputy Attorneys General; and for the American Psychiatric Association et al. by Joel I. Klein and Robert D. Luskin.
Briefs of amici curiae urging affirmance were filed for the Mental Health Legal Advisors Committee of the Massachusetts Supreme Judicial Court et al. by Stan Goldman, Robert D. Fleischner, and Steven J. Schwartz; for the National Association of Protection and Advocacy Systems et al. by Arthur J. Rosenberg; and for the New Jersey Department of the Public Advocate by Linda G. Rosenzweig.
Briefs of amici curiae were filed for the American Psychological Association by Clifford D. Stromberg and John G. Roberts, Jr.; for the Coalition for the Fundamental Rights and Equality of Ex-Patients by Peter Margulies; and for the Washington Community Mental Health Council et al. by Barbara A. Weiner.
[1] The drugs administered to respondent included Trialafon, Haldol, Prolixin. Taractan, Loxitane, Mellaril, and Navane. See App. to Pet. for Cert. B-7. Like the Washington Supreme Court, we limit our holding to the category of antipsychotic drugs. See 110 Wash. 2d 873, 876, n. 3, 759 P.2d 358, 361, n. 3 (1988).
[2] Since that initial diagnosis, respondent has also been thought to have been suffering from schizo-affective disorder, and his current diagnosis is that he is schizophrenic.
[3] The Policy's definitions of the terms "mental disorder," "gravely disabled," and "likelihood of serious harm" are identical to the definitions of the terms as they are used in the state involuntary commitment statute. See App. to Pet. for Cert. B-3. "Mental disorder" means "any organic, mental, or emotional impairment which has substantial adverse effects on an individual's cognitive or volitional functions." Wash. Rev. Code § 71.05.020(2) (1987). "Gravely disabled" means "a condition in which a person, as a result of a mental disorder: (a) [i]s in danger of serious physical harm resulting from a failure to provide for his essential human needs of health or safety, or (b) manifests severe deterioration in routine functioning evidenced by repeated and escalating loss of cognitive or volitional control over his or her actions and is not receiving such care as is essential for his or her health or safety." § 71.05.020(1). "Likelihood of serious harm" means "either: (a) [a] substantial risk that physical harm will be inflicted by an individual upon his own person, as evidenced by threats or attempts to commit suicide or inflict physical harm on one's self, (b) a substantial risk that physical harm will be inflicted by an individual upon another, as evidenced by behavior which has caused such harm or which places another person or persons in reasonable fear of sustaining such harm, or (c) a substantial risk that physical harm will be inflicted by an individual upon the property of others, as evidenced by behavior which has caused substantial loss or damage to the property of others." § 71.05.020(3).
[4] The Policy was later amended to allow treatment for up to 14 days after the first hearing. Further treatment could be authorized only after the same committee conducted a second hearing on the written record. Thereafter, the treating psychiatrist was required to submit biweekly reports to the Department of Corrections medical director. At the end of 180 days, a new hearing was required to consider the need for continued treatment.
[5] Because it decided the case on due process grounds, the court did not address respondent's equal protection or free speech claims, and they are not before us here. The court also concluded that the individual defendants were entitled to qualified immunity, but remanded the case to the lower court for further consideration of respondent's claims for injunctive and declaratory relief under § 1983, as well as of his claims under state law. See 110 Wash. 2d, at 885-886, 759 P.2d, at 366.
[6] In response to our questions at oral argument, counsel for the State informed us that respondent was transferred back to the Center in April 1987 and involuntarily medicated pursuant to the Policy from September 1987 until May 1988. Counsel also informed us that, at the time of oral argument, respondent was at a state mental hospital for a competency determination on an unrelated criminal charge, and that regardless of the outcome of this criminal charge, respondent will return to the state prison system to serve the remainder of his sentence.
[7] The two questions presented by the State in its petition for certiorari mirror the division between the substantive and procedural aspects of this case. In addition to seeking a grant of certiorari on the question whether respondent was entitled to "a judicial hearing and attendant adversarial procedural protections" prior to the involuntary administration of antipsychotic drugs, the State sought certiorari on the question, assuming that respondent "possesses a constitutionally protected liberty interest in refusing medically prescribed antipsychotic medication," whether the State must "prove a compelling state interest . . . or [whether] the `reasonable relation' standard of Turner v. Safley, [482 U.S. 78 (1987),] control[s]." Pet. for Cert. i.
[8] JUSTICE STEVENS contends that the SOC Policy permits respondent's doctors to treat him with antipsychotic medications against his will without reference to whether the treatment is medically appropriate. See post, at 243-245. For various reasons, we disagree. That an inmate is mentally ill and dangerous is a necessary condition to medication, but not a sufficient condition; before the hearing committee determines whether these requirements are met, the inmate's treating physician must first make the decision that medication is appropriate. The SOC is a facility whose purpose is not to warehouse the mentally ill, but to diagnose and treat convicted felons, with the desired goal being that they will recover to the point where they can function in a normal prison environment. App. to Pet. for Cert. B-2. In keeping with this purpose, an SOC psychiatrist must first prescribe the antipsychotic medication for the inmate, and the inmate must refuse it, before the Policy is invoked. Unlike JUSTICE STEVENS, we will not assume that physicians will prescribe these drugs for reasons unrelated to the medical needs of the patients: indeed, the ethics of the medical profession are to the contrary. See Hippocratic Oath; American Psychiatric Association. Principles of Medical Ethics With Annotations Especially Applicable to Psychiatry, in Codes of Professional Responsibility 129-135 (R. Gorlin ed. 1986). This consideration supports our interpretation of the State's Policy as ensuring that antipsychotic medications will be administered only in those cases where appropriate by medical standards. We therefore agree with the State's representations at oral argument that, under the Policy, antipsychotic medications can be administered only for treatment purposes, with the hearing committee reviewing the doctor's decision to ensure that what has been prescribed is appropriate. See Tr. of Oral Arg. 13, 16.
[9] See Brief for American Psychiatric Association et al. as Amici Curiae 10-11 ("Psychotropic medication is widely accepted within the psychiatric community as an extraordinarily effective treatment for both acute and chronic psychoses, particularly schizophrenia"); Brief for American Psychological Association as Amicus Curiae 6.
[10] There is substantial evidence to the contrary. See Brief for American Psychiatric Association et al. as Amici Curiae 11-12; Soloff, Physical Controls: The Use of Seclusion and Restraint in Modern Psychiatric Practice, in Clinical Treatment of the Violent Person 119-137 (L. Roth ed. 1987) (documenting the risks and costs of using physical restraints and seclusion on violent patients).
[11] Perhaps suggesting that the care given to respondent and the Center's utilization of Policy 600.30 may have been suspect, JUSTICE STEVENS uses random citations from exhibits and documents submitted to the state trial court. By using isolated quotations of a few passages from medical and other records running into the hundreds of pages, JUSTICE STEVENS risks presenting a rather one-sided portrait of what they contain. An overview of these extensive materials reveals that respondent has a long history of serious, assaultive behavior, evidenced by at least 20 reported incidents of serious assaults on fellow inmates and staff. Respondent's doctors attributed these incidents to his severe mental illness and believed that his assaultive tendencies increased when he did not receive medication. See App. to Pet. for Cert. B-5. Respondent's opposition to the involuntary administration of antipsychotic drugs was premised at least in part upon his desire to self-medicate with street drugs, especially cocaine. See Lodging filed by Kenneth O. Eikenberry, Attorney General of Washington, Book 3, July 25, 1984, Progress Report. Finally, the records show without doubt that respondent has been the recipient of painstaking medical diagnosis and care while at the SOC. In any event, the trial court did not indicate which portions, if any, of these records, all of which are hearsay, it credited or relied upon in making its findings.
For these reasons, we do not intend to engage in a debate with JUSTICE STEVENS over how respondent's medical and institutional records should be interpreted. We rely upon the findings of the trial court that "at all times relevant to this action, [respondent] suffered from a mental disorder and as a result of that disorder constituted a likelihood of serious harm to others," App. to Pet. for Cert. B-8, and that "the medical treatment provided to [respondent] by defendants, including the administration of anti-psychotic medications, was consistent with the degree of care, skill, and learning expected of a reasonably prudent psychiatrist in the State of Washington, acting in the same or similar circumstances." Ibid. Contrary to JUSTICE STEVENS' cramped reading of this last finding, see post, at 245, n. 13, the breadth of its meaning equals the breadth of its language.
[12] JUSTICE STEVENS is concerned with "discount[ing] the severity of these drugs." See post, at 239, n. 5. As our discussion in the text indicates, we are well aware of the side effects and risks presented by these drugs; we also are well aware of the disagreements in the medical profession over the frequency, severity, and permanence of these side effects. We have set forth a fair assessment of the current state of medical knowledge about these drugs.
What JUSTICE STEVENS "discount[s]" are the benefits of these drugs, and the deference that is owed to medical professionals who have the full time responsibility of caring for mentally ill inmates like respondent and who possess, as courts do not, the requisite knowledge and expertise to determine whether the drugs should be used in an individual case. After admitting that the proper administration of antipsychotic drugs is one of the most effective means of treating certain mental illnesses, JUSTICE STEVENS contends that the drugs are not indicated for "all patients," and then questions the appropriateness of the treatment provided to respondent. See post, at 248, n. 16. All concede that the drugs are not the approved treatment in all cases. As for whether respondent's medical treatment was appropriate, we are not so sanguine as to believe that on the basis of the limited record before us, we have the medical expertise and knowledge necessary to determine whether, on the basis of isolated parts of respondent's medical records, the care given to him is consistent with good medical practice. Again, we must defer to the finding of the trial court, unchallenged by any party in this case, that the medical care provided to respondent was appropriate under medical standards. See n. 11, supra.
[13] In an attempt to prove that internal decisionmakers lack the independence necessary to render impartial decisions, respondent and various amici refer us to other cases in which it is alleged that antipsychotic drugs were prescribed not for medical purposes, but to control or discipline mentally ill patients. See Brief for Respondent 28; Brief for American Psychological Association as Amicus Curiae 14. We rejected a similar claim in Parham, and do so again here, using much the same reasoning. "That such a practice may take place in some institutions in some places affords no basis for a finding as to [Washington's] program," Parham, 442 U. S., at 616, particularly in light of the trial court's finding here that the administration of antipsychotic drugs to respondent was consistent with good medical practice.
Moreover, the practical effect of mandating an outside decisionmaker such as an "independent psychiatrist" or judge in these circumstances may be chimerical. Review of the literature indicates that outside decisionmakers concur with the treating physician's decision to treat a patient involuntarily in most, if not all, cases. See Bloom, Faulkner, Holm, & Rawlinson, An Empirical View of Patients Exercising Their Right to Refuse Treatment, 7 Int'l J. Law & Psychiatry 315, 325 (1984) (independent examining physician used in Oregon psychiatric hospital concurred in decision to involuntarily medicate patients in 95% of cases); Hickman, Resnick, & Olson, Right to Refuse Psychotropic Medication: An Interdisciplinary Proposal, 6 Mental Disability Law Reporter 122, 130 (1982) (independent reviewing psychiatrist used in Ohio affirmed the recommendation of internal reviewer in 100% of cases). Review by judges of decisions to override a patient's objections to medication yields similar results. Appelbaum, The Right to Refuse Treatment With Antipsychotic Medications: Retrospect and Prospect, 145 Am. J. Psychiatry 413, 417-418 (1988). In comparison, other studies reveal that review by internal decisionmakers is hardly as lackluster as JUSTICE STEVENS suggests. See Hickman, Resnick, & Olson, supra, at 130 (internal reviewer approved of involuntary treatment in 75% of cases); Zito, Lentz, Routt, & Olson, The Treatment Review Panel: A Solution to Treatment Refusal?, 12 Bull. American Academy of Psychiatry and Law 349 (1984) (internal review panel used in Minnesota mental hospital approved of involuntary medication in 67% of cases). See generally Appelbaum & Hoge, The Right to Refuse Treatment: What the Research Reveals, 4 Behavioral Sciences and Law 279, 288-290 (1986) (summarizing results of studies on how various institutions review patients' decisions to refuse antipsychotic medications and noting "the infrequency with which refusals are allowed, regardless of the system or the decisionmaker").
[1] Cf., e. g., Winston v. Lee, 470 U.S. 753 (1985) (surgery); Youngberg v. Romeo, 457 U.S. 307 (1982) (use of physical "soft" restraints for the arms and "muffs" for hands).
[2] See Mills v. Rogers, 457 U.S. 291, 294, n. 4, 299, n. 16 (1982) (recognizing common-law battery for unauthorized touchings by a physician and assuming liberty interests are implicated by involuntary administration of psychotropic drugs); United States v. Stanley, 483 U.S. 669, 710 (1987) (O'CONNOR, J., concurring in part and dissenting in part) (the Constitution's promise of due process of law guarantees at least compensation for violations of the principle stated by the Nuremberg Military Tribunals "that the `voluntary consent of the human subject is absolutely essential. . . to satisfy moral, ethical and legal concepts' "); Doe v. Bolton, 410 U.S. 179, 213 (1973) (Douglas, J., concurring) (the Fourteenth Amendment protects the "freedom to care for one's health and person" (emphasis deleted)). Harper was not adjudged insane or incompetent. 110 Wash. 2d 873, 882, 759 P.2d 358, 364 (1988).
[3] See also Stanley v. Georgia, 394 U.S. 557, 565 (1969) ("Our whole constitutional heritage rebels at the thought of giving government the power to control men's minds").
"It is obligatory that Helsinki signatory states not manipulate the minds of their citizens; that they not step between a man and his conscience or his God; and that they not prevent his thoughts from finding expression through peaceful action. We are all painfully aware, furthermore, that governments which systematically disregard the rights of their own people are not likely to respect the rights of other nations and other people." Hearings on Abuse of Psychiatry in the Soviet Union before the Sub-committee on Human Rights and International Organizations of the House Committee on Foreign Affairs, 98th Cong., 1st Sess., 106 (1983) (Remarks by Max Kampelman, Chair of the U. S. Delegation, to the Plenary Session of the Commission on Security and Cooperation in Europe).
[4] Lodging filed by Kenneth O. Eikenberry, Attorney General of Washington (hereinafter Lodging), Book 8, Jan. 5, 1984, Hearing (Harper testified: "Well all you want to do is medicate me and you've been medicating me. . . . Haldol paral[y]zed my right side of my body. . . . [Y]ou are burning me out of my life . . . [Y]ou are burning me out of my freedom").
The Lodging includes "books" of discovery material that the parties stipulated "could be considered by the [Trial] Court as substantive evidence and the [Trial] Court . . . considered those documents." App. to Pet. for Cert. B-1. They are hereinafter referred to by Book number and the date of the entry, where applicable. I use the Lodging not to "engage in a debate" over the assessment of Harper's treatment, ante, at 228, n. 11, but simply to illustrate the boundaries of Policy 600.30 in operation.
[5] Ante, at 229. The Court relies heavily on the Brief for American Psychiatric Association et al. as Amici Curiae (Psychiatrists' Brief), see ante, at 214, 226, and n. 9, 227, and n. 10, 230, to discount the severity of these drugs. However, medical findings discussed in other briefs support the conclusions of the Washington Supreme Court and challenge the reliability of the Psychiatrists' Brief. For example, the Brief for American Psychological Association as Amicus Curiae (Psychologists' Brief) points out that the observation of tardive dyskinesia has been increasing "at an alarming rate" since the 1950-1970 data relied on by the Psychiatrists' Brief 14-16, and that "the chance of suffering this potentially devastating disorder is greater than one in four." Psychologists' Brief 8. See also Brief for Coalition for Fundamental Rights and Equality of Ex-Patients as Amicus Curiae 16-18 (court findings and recent literature on side effects); Brief for National Association of Protection and Advocacy Systems et al. as Amici Curiae 7-16 (same). Psychiatrists also may not be entirely disinterested experts. The psychologists charge: "As a psychiatrist has written, `[l]itigation from patients suffering from TD [tardive dyskinesia] is expected to explode within the next five years. Some psychiatrists and other physicians continue to minimize the seriousness of TD . . . [despite] continual warnings.' " Psychologists' Brief 4 (quoting R. Simon, Clinical Psychiatry and the Law 74 (1987)).
[6] Physician's Desk Reference 1639 (43d ed. 1989).
[7] Id., at 1640; Trial Court Finding 9, App. to Pet. for Cert. B-7 to B-8; Guze & Baxter, Neuroleptic Malignant Syndrome, 313 New England J. Med. 163, 163-164 (1985).
[8] Physician's Desk Reference, supra, at 1639. Harper voluntarily took psychotropic drugs for six years before involuntary medication began in 1982, by which time he had already exhibited dystonia (acute muscle spasms) and akathesia (physical-emotional agitation). E. g., Lodging, Book 2, May 28, 1982, Aug. 4, 1982; see also Trial Court Findings 9-10, App. to Pet. for Cert. B-7 to B-8. Although avoidance of akathesia and the risk of tardive dyskinesia require reduction or discontinuance of psychotropics, ibid., Harper's involuntary medication was continuous from November 1982 to June 1986, except for one month spent at Washington State Reformatory. Lodging, Book 8; Trial Court Findings 4-6, 9, App. to Pet. for Cert. B-4 to B-8.
[9] 110 Wash. 2d, at 878, 759 P.2d, at 362. See, e. g., Large v. Superior Court, 148 Ariz. 229, 714 P.2d 399 (1986) (en banc); Riese v. St. Mary's Hospital and Medical Center, 209 Cal. App. 3d 1303, 243 Cal. Rptr. 241 (1st Dist. 1988), review granted but dism'd, 774 P.2d 698 (1989); People v. Medina, 705 P.2d 961 (Colo. 1985) (en banc); Rogers v. Commissioner of Dept. of Mental Health, 390 Mass. 489, 458 N.E.2d 308 (1983); Rivers v. Katz, 67 N.Y. 2d 485, 495 N.E.2d 337 (1986); In re Mental Health of K. K. B., 609 P.2d 747 (Okla. 1980). Cf. In re Schuoler, 106 Wash. 2d 500, 723 P.2d 1103 (1986) (right to refuse electroconvulsive therapy).
[10] Lodging, Book 9, Policy 600.30, p. 1. Revised Policy 620.200, effective February 18, 1985, retained these substantive definitions. Lodging, Book 9, Policy 620.200, p. 1.
[11] The Court's reliance on the Hippocratic Oath to save the constitutionality of Policy 600.30 is unavailing. Ante, at 223, n. 8. Whether or not the Oath binds treating physicians with a "medical interest" requirement in prescribing medications, it has no bearing on the SOC review committees, which are governed solely by the administrative criteria of Policy 600.30 in authorizing involuntary medication. Nor can the Court possibly believe that any "treatment" is talismanically in a patient's "medical interest." Treatment of a condition with medication facilitates a specific physiological result, which may or may not be in the overall medical interest of the patient. For example, the patient's medical interest in reducing his own violence or in altering his mental condition may be often outweighed by the risk or onset of severe medical side effects. See supra, at 239-241. Finally, the qualitative judgment of what is a patient's best interest cannot be made without reference to his own preferences. The Policy does not account for either a physician's determination of medical interest or the inmate's wishes.
[12] See, e. g., Brief for Petitioners 29 ("Harper's history of assaultive behavior requires that the state exercise its police power to appropriately medicate him for the protection of others"); id., at 17 ("The policy assists prison administrators in meeting their `unquestioned duty to provide reasonable safety for all residents and personnel within the institution' "). See also Brief for United States as Amicus Curiae 17 ("The paramount concerns in running a prison or a prison mental health facility are maintaining institutional security, preserving internal order, and establishing a therapeutic environment. . . . [I]t goes without saying that the interest in preventing violence and maintaining order is significantly amplified when an entire ward consists of mentally ill prisoners, as at the SOC").
[13] The trial court did not attempt to separate the medical and institutional objectives of Policy 600.30. Nor did it construe the Policy's terms to require that an inmate's best medical interests be served by medication. The trial court's findings were limited to Harper's case. Findings 11-12, App. to Pet. for Cert. B-8. They shed no light on whether Harper's doctors did or "a reasonably prudent psychiatrist in the State of Washington, acting in the same or similar circumstances" as a SOC psychiatrist could order medication for any combination of therapeutic or institutional concerns. Finding 12, App. to Pet. for Cert. B-8.
[14] Ante, at 223. The Court further conflates its analysis by suggesting that "[t]he State has undertaken the obligation to provide prisoners with medical treatment consistent not only with their own medical interests, but also with the needs of the institution." Ante, at 225.
[15] There is no evidence that more than a small fraction of inmates would refuse drugs under a voluntary policy. Harper himself voluntarily took psychotropics for six years, and intermittently consented to them after 1982. Lodging, Books 2 and 8. See, e. g., Rogers v. Okin, 478 F. Supp. 1342, 1369 (Mass. 1979) (only 12 of 1,000 institutionalized patients refused psychotropic drugs for prolonged periods during the two years that judicial restraining order was in effect), modified, 634 F.2d 650 (CA1 1980), vacated and remanded sub nom. Mills v. Rogers, 457 U.S. 291 (1982). The efficacy of forced drugging is also marginal; involuntary patients have a poorer prognosis than cooperative patients. See Rogers & Webster, Assessing Treatability in Mentally Disordered Offenders, 13 Law and Human Behavior 19, 20-21 (1989).
[16] As the Court notes, properly used, these drugs are "one of the most effective means of treating and controlling" certain incurable mental illnesses, ante, at 226, but they are not a panacea for long-term care of all patients.
"[T]he maintenance treatment literature . . . shows that many patients (approximately 30%) relapse despite receiving neuroleptic medication, while neuroleptics can be withdrawn from other patients for many months and in some cases for years without relapse. Standard maintenance medication treatment strategies, though they are indisputably effective in group comparisons, may be quite inefficient in addressing the treatment requirements of the individual patient." Lieberman et al., Reply to Ethics of Drug Discontinuation Studies in Schizophrenia, 46 Archives of General Psychiatry 387 (1989) (footnotes omitted).
Indeed, the drugs appear to have produced at most minor "savings" in Harper's case. Dr. Petrich reported that "medications are not satisfactory in containing the worst excesses of his labile and irritable behavior. He is uncooperative when on medication," Lodging, Book 2, Nov. 10, 1982, and a therapy supervisor reported before Harper's involuntary medication began:
"[D]uring the time in which he assaulted the nurse at Cabrini he was on neuroleptic medication yet there is indication that he was psychotic. However, during his stay at SOC he has been off of all neuroleptic medications and at times has shown some preoccupation and appearance of psychosis but has not become assaultive. His problems on medication, such as the paradoxical effect from the neuroleptic medications, may be precipitated by increased doses of neuroleptic medications and may cause an exacerbation of his psychosis. Though Mr. Harper is focused on psychosomatic problems from neuroleptic medications as per the side effects, the real problem may be that the psychosis is exacerbated by neuroleptic medications." Id., Book 3, May 6, 1982, p. 6.
[17] Because most psychotropic drugs do induce lethargy, drowsiness, and fatigue, e. g., Physician's Desk Reference 1126, 1236, 1640, 1755, 1788, 1883 (43d ed. 1989), this form of "medical treatment" may reduce an inmate's dangerousness, not by improving his mental condition, but simply by sedating him with a medication that is grossly excessive for that purpose.
[18] For example, although psychotropic drugs were of mixed value in treating Harper's condition, supra, at 248, n. 16, they became the primary means of dealing with him. E. g., Lodging, Book 8, Nov. 7, 1984, Hearing (Dr. Petrich reports: "The patient is still not able to negotiate with the treatment staff or work collectively with them. We have no idea as to the extent of his psychosis nor do we have any working relationship upon which to build internal and external controls"); id., Book 8, Feb. 26, 1985 (Dr. Loeken reports: "because of his lack of participation in therapy it is recommended that the involuntary medication policy continue in use").
Forcing psychotropics on Harper also provoked counterproductive behavior. E. g., id., Book 8, Dec. 16, 1982 (Report of Dr. Petrich that Harper's assault on a male nurse and damage to a television were "in the context of his complaining about medication side effects. Overall the issue of involuntary medications and side effects is a major issue in his management"); id., Book 8, Oct. 7, 1983 (therapist's report that Harper has indicated "that he is going to destroy unit property until the medications are stopped. He has recently destroyed the inmates['] stereo as an example of this").
[19] Youngberg v. Romeo, 457 U.S. 307 (1982), and Parham v. J. R., 442 U.S. 584 (1979), are inapposite. Neither involved care of a presumptively competent individual; Romeo, a profoundly retarded adult with the mental capacity of an 18-month-old child, had been committed by the court to a state hospital for treatment, 457 U.S., at 309, and J. R. and appellees were children, 442 U.S., at 587. In addition, the deprivations of liberty at issue in both cases use of physical restraints in Youngberg and institutionalization in Parham fall far short of Harper's interest in refusing mind-altering drugs with potentially permanent and fatal side effects. Cf. Bee v. Greaves, 744 F.2d 1387, 1395-1397 (CA 10 1984) (forcible medication with psychotropics is not reasonably related to prison security), cert. denied, 469 U.S. 1214 (1985).
[20] It is not necessary to reach the question whether the decision to force psychotropic drugs on a competent person against his will must be approved by a judge, or by an administrative tribunal of professionals who are not members of the prison staff, in order to conclude that the mechanism of Policy 600.30 violates procedural due process. The choice is not between medical experts on the one hand and judges on the other; the choice is between decisionmakers who are biased and those who are not.
[21] Revised Policy 620.200 authorizes up to 14 consecutive days of involuntary medication before long-term committee approval is required, and adds a committee hearing to review continuing involuntary medication every 180 days thereafter. It also bars current treating personnel from sitting on the long-term committee. Lodging, Book 9, Policy 620.200, pp. 3-4.
[22] As regular SOC staff, 600.30 committee members are
"susceptible to implicit or explicit pressure for cooperation (`If you support my orders, I'll support yours'). It is instructive that month after month, year after year, this `review' panel always voted for more medication despite the scientific literature showing that periodic respites from drugs are advisable and that prolonged use of antipsychotic drugs is proper only when the medical need is clear and compelling." Psychologists' Brief 26-27 (footnote omitted).
Rates of approval by different review bodies are of limited value, of course, because institutions will presumably adjust their medication practices over time to obtain approval under different standards or by different reviewing bodies. However, New Jersey's review of involuntary psychotropic medication in mental institutions is instructive. In 1980 external review by an "independent psychiatrist" who was not otherwise employed by the Department of Human Services resulted in discontinuation or reduction of 59% of dosages. After the Department moved to an internal peer review system, that percentage dropped to 2.5% of cases. Brief for New Jersey Department of Public Advocate as Amicus Curiae 38-54.
[23] All of Harper's prescription entries from November 20, 1982, through December 8, 1982, were made "per Dr. Petrich." Lodging, Book 7, primary encounter reports of Nov. 20, 1982, Dec. 2, 1982, Dec. 8, 1982. After Harper's return to the SOC in December 1983, Dr. Loeken became his primary physician, and committees again approved 7-day, then long-term, involuntary medication. Although Dr. Petrich was not on these committees, he sat on the next three 180-day review committees, voting to authorize forced medication through January 1986. Trial Court Finding 7, App. to Pet. for Cert. B-7.
[24] The Court cites Vitek v. Jones, 445 U.S. 480 (1980), and Parham as "previous cases involving medical decisions implicating similar liberty interests [in which] we have approved use of similar internal decisionmakers." Ante, at 233-234. Aside from the greater liberty interest implicated by forced psychotropic medication, SOC decisionmakers face different demands than their professional counterparts in Vitek and Parham. In Vitek, the Nebraska state transfer policy at issue affected only prisoners determined to be mentally ill who could not "adequately be treated within the penal complex." 445 U.S., at 489. We found that the determination of the necessity of transfer for treatment, "a question that is essentially medical," could be made fairly by professionals after a meaningful hearing. Id., at 495. Similarly, we understood the civil commitment decision at issue in Parham to involve examination of the child, review of medical records, and a diagnosis and determination of "whether the child will likely benefit from institutionalized care," emphasizing that "[w]hat is best for a child is an individual medical decision . . . of what the child requires." 442 U.S., at 614-615, 608. Both of these procedures sought to reach an accurate medical determination of the patient's treatment needs without reference to the institution's separate interests. We concluded that, despite their positions inside the Nebraska prison and Georgia hospital, these medical professionals were capable of exercising the independence of professional judgment required by due process. None of the medical professionals at the SOC, charged with making medication decisions in light of the inmate's impact on the institution and its needs, can claim such independence.
[25] Lodging, Book 9, Policy 600.30, p. 4. The Court notes that an inmate may bring a personal restraint petition or seek an extraordinary writ under Wash. Rules App. Proc. 16.3 to 16.17, ante, at 216, 235. However, a non-emergency involuntary medication decision demands as the existence of a SOC Policy attests meaningful administrative review of this deprivation of liberty, not merely the existence of collateral judicial mechanisms. Cf. Ingraham v. Wright, 430 U.S. 651 (1977).
[26] Lodging, Book 8, Oct. 27, 1982. Indeed, a "psychiatric security attendant," not a doctor, made the first recorded request for involuntary medication after Harper attempted to pull the guard's hand through a food slot. The guard filed a disciplinary "Infraction Report" which concluded: "Suggestion: This inmate is in need of involuntary medication. He is a threat to the safety + security of the institution." Id., Book 1-2, Oct. 22, 1982. Five days later, Dr. Petrich, citing the incident, recommended involuntary medication. Id., Book 8, Oct. 27, 1982.
[27] Harper was transferred on November 16, 1983, to Washington State Reformatory, where a psychiatrist on its Multidisciplinary Advisory Committee found:
"To this date, he has not exhibited behavior in the presence of any committee members or custody staff that would qualify him under involuntary medication policy. He does have a long history of recurrent difficulty and as best as we can tell SOC instituted the involuntary policy and continued it on the basis of past bad faith; however, we do not have any of that data available to us." Id., Book 3, Nov. 30, 1983 (emphasis added).
See also id., Book 8, May 1, 1985, Hearing ("[T]he inmate[']s behavior during the committee hearing did not meet the criteria for gravely disabled or self injurious behavior. Involuntary medication is continued on the basis of potential violent behavior towards others which has been well documented in the inmate's history").
[28] Ante, at 235. In Addington v. Texas, 441 U.S. 418 (1979), we held that the medical conditions for civil commitment must be proved by clear and convincing evidence. The purpose of this standard of proof, to reduce the chances of inappropriate decisions, id., at 427, is no less meaningful when the factfinders are professionals as when they are judges or jurors.
[29] Lodging, Book 9, Policy 600.30, p. 2. Prolixin decanoate, for example, is "a highly potent behavior modifier with a markedly extended duration of effect"; onset is between 24 to 72 hours after injection and effects can last 4-6 weeks. Physician's Desk Reference 1641-1642 (43d ed. 1989).
[30] The prisoner is introduced to, and may consult with, his appointed adviser at the commencement of the hearing. Harper's adviser on November 23, 1982, a nurse practitioner from Washington State Reformatory, asked Harper three questions in the hearing. Lodging, Book 8, Nov. 23, 1982, Hearing. The other five advisers appointed for Harper never spoke in the hearings. All five were apparently staff at the SOC: SOC Psychiatric Social Worker Hyden (who sat for the SOC Assistant Superintendent on the next 180-day committee that reapproved Harper's medication), a prison chaplain, two registered nurses, and a correctional officer. Id., Book 8, Dec. 8, 1982, Dec. 30, 1983, Jan. 5, 1984, Oct. 31, 1984, and Nov. 7, 1984, Hearings.
[31] Many States require a judicial determination of incompetence, other findings, or a substituted judgment when a patient or inmate refuses psychotropic drugs. E. g., Riese v. St. Mary's Hospital and Medical Center, 209 Cal. App. 3d 1303, 243 Cal. Rptr. 241 (1st Dist. 1988), review granted but dism'd, 774 P.2d 698 (1989); People v. Medina, 705 P.2d 961 (Colo. 1985) (en banc); In re Boyd, 403 A.2d 744 (D. C. 1979); In re Mental Commitment of M. P., 510 N.E.2d 645 (Ind. 1987); Rogers v. Commissioner of Dept. of Mental Health, 390 Mass. 489, 458 N.E.2d 308 (1983); Jarvis v. Levine, 418 N.W.2d 139 (Minn. 1988); Opinion of the Justices, 123 N. H. 554, 465 A.2d 484 (1983); Rivers v. Katz, 67 N.Y. 2d 485, 495 N.E.2d 337 (1986); In re Mental Health of K. K. B., 609 P.2d 747 (Okla. 1980); State ex rel. Jones v. Gerhardstein, 141 Wis. 2d 710, 416 N.W.2d 883 (1987).
[32] Only Harper's due process claim is before the Court. Ante, at 218, n. 5. His First Amendment, equal protection, state constitutional, and common-law tort claims have not yet been considered by the Washington state courts. | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/2694944/ | [Cite as Gontarz v. Ohio Univ., 2011-Ohio-6987.]
Court of Claims of Ohio
The Ohio Judicial Center
65 South Front Street, Third Floor
Columbus, OH 43215
614.387.9800 or 1.800.824.8263
www.cco.state.oh.us
SHANE J. GONTARZ
Plaintiff
v.
OHIO UNIVERSITY
Defendant
Case No. 2011-08750-AD
Deputy Clerk Daniel R. Borchert
MEMORANDUM DECISION
FINDINGS OF FACT
{¶1} Plaintiff, Shane Gontarz, a resident student attending defendant, Ohio
University (OU), filed this action contending that defendant should bear responsibility for
the loss of his property that was water damaged when the air conditioner in his
dormitory room leaked water. Plaintiff explained that when he returned to his dormitory
room on the evening of May 6, 2011, he discovered that his property had been
damaged when water leaked from the unit and ruined his computer. Plaintiff related
that his computer was covered by “Black Tie protection * * * which replaces the
computer at a fraction of the cost.” Plaintiff requested monetary damages in the amount
of $581.24, the stated replacement cost of his computer, $20 for travel expenses to
facilitate the purchase, and reimbursement of the filing fee. The $25.00 filing fee was
paid.
{¶2} Defendant filed an investigation report stating that OU does not dispute
the damage claim for replacement of the computer and reimbursement of the filing fee;
however, OU notes that plaintiff failed to document that he spent $20.00 on gasoline
when he purchased a replacement computer.
{¶3} Plaintiff did not file a response.
CONCLUSIONS OF LAW
{¶4} Defendant, by exercising control over the air cooling system in the student
housing facility, was under a duty to maintain the system in good and safe working
order. Mosebach v. Miami University of Ohio (1990), 90-02431-AD; Chetsko v. Miami
University, Ct. of Cl. No. 2007-03960-AD, 2007-Ohio-4395; Smith v. Miami Univ., Ct. of
Cl. No. 2008-10501-AD, 2009-Ohio-2418.
{¶5} Negligence on the part of defendant has been proven in respect to
breaching inspection and maintenance duties. Kurkar v. Bowling Green State
University (1991), 91-04934-AD; Schlemmer v. Bowling Green State University (1997),
97-05479-AD; Philip v. Miami University (2000), 99-15056-AD; Stout v. Miami Univ., Ct.
of Cl. No. 2007-03510-AD, 2007-Ohio-4873.
{¶6} Defendant is liable to plaintiff in the amount of $536.24, plus the $25.00
filing fee which may be reimbursed as compensable costs pursuant to R.C. 2335.19.
See Bailey v. Ohio Department of Rehabilitation and Correction (1990), 62 Ohio Misc.
2d 19, 587 N.E. 2d 990.
Court of Claims of Ohio
The Ohio Judicial Center
65 South Front Street, Third Floor
Columbus, OH 43215
614.387.9800 or 1.800.824.8263
www.cco.state.oh.us
SHANE J. GONTARZ
Plaintiff
v.
OHIO UNIVERSITY
Defendant
Case No. 2011-08750-AD
Deputy Clerk Daniel R. Borchert
ENTRY OF ADMINISTRATIVE DETERMINATION
Having considered all the evidence in the claim file and, for the reasons set forth
in the memorandum decision filed concurrently herewith, judgment is rendered in favor
of plaintiff in the amount of $561.24, which includes the filing fee. Court costs are
assessed against defendant.
DANIEL R. BORCHERT
Deputy Clerk
Entry cc:
Shane J. Gontarz George T. Wendt, Risk Manager
37420 Fawn Path Drive Ohio University
Solon, Ohio 44139 University Service Center 136
1 Ohio University
Athens, Ohio 45701-2979
9/23
Filed 9/29/11
Sent to S.C. reporter 2/6/12 | 01-03-2023 | 08-02-2014 |
https://www.courtlistener.com/api/rest/v3/opinions/108846/ | 413 U.S. 300 (1973)
UNITED STATES
v.
ASH.
No. 71-1255.
Supreme Court of the United States.
Argued January 10, 1973.
Decided June 21, 1973.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
Edward R. Korman argued the cause for the United States. With him on the brief were Solicitor General Griswold, Assistant Attorney General Petersen, and Jerome M. Feit.
Sherman L. Cohn, by appointment of the Court, 408 U.S. 942, argued the cause and filed a brief for respondent.
MR. JUSTICE BLACKMUN delivered the opinion of the Court.
In this case the Court is called upon to decide whether *301 the Sixth Amendment[1] grants an accused the right to have counsel present whenever the Government conducts a post-indictment photographic display, containing a picture of the accused, for the purpose of allowing a witness to attempt an identification of the offender. The United States Court of Appeals for the District of Columbia Circuit, sitting en banc, held, by a 5-to-4 vote, that the accused possesses this right to counsel. 149 U. S. App. D. C. 1, 461 F.2d 92 (1972). The court's holding is inconsistent with decisions of the courts of appeals of nine other circuits.[2] We granted certiorari *302 to resolve the conflict and to decide this important constitutional question. 407 U.S. 909 (1972). We reverse and remand.
I
On the morning of August 26, 1965, a man with a stocking mask entered a bank in Washington, D. C., and began waving a pistol. He ordered an employee to hang up the telephone and instructed all others present not to move. Seconds later a second man, also wearing a stocking mask, entered the bank, scooped up money from tellers' drawers into a bag, and left. The gunman followed, and both men escaped through an alley. The robbery lasted three or four minutes.
A Government informer, Clarence McFarland, told authorities that he had discussed the robbery with Charles J. Ash, Jr., the respondent here. Acting on this information, an FBI agent, in February 1966, showed five black-and-white mug shots of Negro males of generally the same age, height, and weight, one of which was of Ash, to four witnesses. All four made uncertain identifications of Ash's picture. At this time Ash was not in custody and had not been charged. On April 1, 1966, an indictment was returned charging Ash and a codefendant, John L. Bailey, in five counts related to this *303 bank robbery, in violation of D. C. Code Ann. § 22-2901 and 18 U.S. C. § 2113 (a).
Trial was finally set for May 1968, almost three years after the crime. In preparing for trial, the prosecutor decided to use a photographic display to determine whether the witnesses he planned to call would be able to make in-court identifications. Shortly before the trial, an FBI agent and the prosecutor showed five color photographs to the four witnesses who previously had tentatively identified the black-and-white photograph of Ash. Three of the witnesses selected the picture of Ash, but one was unable to make any selection. None of the witnesses selected the picture of Bailey which was in the group. This post-indictment[3] identification provides the basis for respondent Ash's claim that he was denied the right to counsel at a "critical stage" of the prosecution.
No motion for severance was made, and Ash and Bailey were tried jointly. The trial judge held a hearing on the suggestive nature of the pretrial photographic displays.[4] The judge did not make a clear ruling on suggestive nature, but held that the Government had demonstrated by "clear and convincing" evidence that in-court identifications would be "based on observation of *304 the suspect other than the intervening observation." App. 63-64.
At trial, the three witnesses who had been inside the bank identified Ash as the gunman, but they were unwilling to state that they were certain of their identifications. None of these made an in-court identification of Bailey. The fourth witness, who had been in a car outside the bank and who had seen the fleeing robbers after they had removed their masks, made positive in-court identifications of both Ash and Bailey. Bailey's counsel then sought to impeach this in-court identification by calling the FBI agent who had shown the color photographs to the witnesses immediately before trial. Bailey's counsel demonstrated that the witness who had identified Bailey in court had failed to identify a color photograph of Bailey. During the course of the examination, Bailey's counsel also, before the jury, brought out the fact that this witness had selected another man as one of the robbers. At this point the prosecutor became concerned that the jury might believe that the witness had selected a third person when, in fact, the witness had selected a photograph of Ash. After a conference at the bench, the trial judge ruled that all five color photographs would be admitted into evidence. The Court of Appeals held that this constituted the introduction of a post-indictment identification at the prosecutor's request and over the objection of defense counsel.[5]
*305 McFarland testified as a Government witness. He said he had discussed plans for the robbery with Ash before the event and, later, had discussed the results of the robbery with Ash in the presence of Bailey. McFarland was shown to possess an extensive criminal record and a history as an informer.
The jury convicted Ash on all counts. It was unable to reach a verdict on the charges against Bailey, and his motion for acquittal was granted. Ash received concurrent sentences on the several counts, the two longest being 80 months to 12 years.
The five-member majority of the Court of Appeals held that Ash's right to counsel, guaranteed by the Sixth Amendment, was violated when his attorney was not given the opportunity to be present at the photographic displays conducted in May 1968 before the trial. The majority relied on this Court's lineup cases, United States v. Wade, 388 U.S. 218 (1967), and Gilbert v. California, 388 U.S. 263 (1967), and on Stovall v. Denno, 388 U.S. 293 (1967).
The majority did not reach the issue of suggestiveness; their opinion implies, however, that they would order a remand for additional findings by the District Court. 149 U. S. App. D. C., at 7, 461 F.2d, at 98. The majority refrained from deciding whether the in-court identifications could have independent bases, id., at 14-15 and nn. 20, 21, 461 F.2d, at 105-106 and nn. 20, 21, but expressed doubt that the identifications at the trial had independent origins.
Dissenting opinions, joined by four judges, disagreed with the decision of the majority that the photographic identification was a "critical stage" requiring counsel, and criticized the majority's suggestion that the in-court identifications were tainted by defects in the photographic identifications. Id., at 14-43, 461 F.2d, at 106-134.
*306 II
The Court of Appeals relied exclusively on that portion of the Sixth Amendment providing, "In all criminal prosecutions, the accused shall enjoy the right . . . to have the Assistance of Counsel for his defence." The right to counsel in Anglo-American law has a rich historical heritage, and this Court has regularly drawn on that history in construing the counsel guarantee of the Sixth Amendment. We re-examine that history in an effort to determine the relationship between the purposes of the Sixth Amendment guarantee and the risks of a photographic identification.
In Powell v. Alabama, 287 U.S. 45, 60-66 (1932), the Court discussed the English common-law rule that severely limited the right of a person accused of a felony to consult with counsel at trial. The Court examined colonial constitutions and statutes and noted that "in at least twelve of the thirteen colonies the rule of the English common law, in the respect now under consideration, had been definitely rejected and the right to counsel fully recognized in all criminal prosecutions, save that in one or two instances the right was limited to capital offenses or to the more serious crimes." Id., at 64-65. The Sixth Amendment counsel guarantee, thus, was derived from colonial statutes and constitutional provisions designed to reject the English common-law rule.
Apparently several concerns contributed to this rejection at the very time when countless other aspects of the common law were being imported. One consideration was the inherent irrationality of the English limitation. Since the rule was limited to felony proceedings, the result, absurd and illogical, was that an accused misdemeanant could rely fully on counsel, but *307 the accused felon, in theory at least,[6] could consult counsel only on legal questions that the accused proposed to the court. See Powell v. Alabama, 287 U. S., at 60. English writers were appropriately critical of this inconsistency. See, for example, 4 W. Blackstone, Commentaries *355.
A concern of more lasting importance was the recognition and awareness that an unaided layman had little skill in arguing the law or in coping with an intricate procedural system. The function of counsel as a guide through complex legal technicalities long has been recognized by this Court. Mr. Justice Sutherland's well-known observations in Powell bear repeating here:
"Even the intelligent and educated layman has small and sometimes no skill in the science of law. If charged with crime, he is incapable, generally, of determining for himself whether the indictment is good or bad. He is unfamiliar with the rules of evidence. Left without the aid of counsel he may be put on trial without a proper charge, and convicted upon incompetent evidence, or evidence irrelevant to the issue or otherwise inadmissible. He lacks both the skill and knowledge adequately to prepare his defense, even though he have a perfect one. He requires the guiding hand of counsel at every step in the proceedings against him. Without it, though he be not guilty, he faces the danger of conviction because he does not know how to establish his innocence." 287 U.S., at 69.
The Court frequently has interpreted the Sixth Amendment *308 to assure that the "guiding hand of counsel" is available to those in need of its assistance. See, for example, Gideon v. Wainwright, 372 U.S. 335, 344-345 (1963), and Argersinger v. Hamlin, 407 U.S. 25, 31 (1972).
Another factor contributing to the colonial recognition of the accused's right to counsel was the adoption of the institution of the public prosecutor from the Continental inquisitorial system. One commentator has explained the effect of this development:
"[E]arly in the eighteenth century the American system of judicial administration adopted an institution which was (and to some extent still is) unknown in England: while rejecting the fundamental juristic concepts upon which continental Europe's inquisitorial system of criminal procedure is predicated, the colonies borrowed one of its institutions, the public prosecutor, and grafted it upon the body of English (accusatorial) procedure embodied in the common law. Presumably, this innovation was brought about by the lack of lawyers, particularly in the newly settled regions, and by the increasing distances between the colonial capitals on the eastern seaboard and the ever-receding western frontier. Its result was that, at a time when virtually all but treason trials in England were still in the nature of suits between private parties, the accused in the colonies faced a government official whose specific function it was to prosecute, and who was incomparably more familiar than the accused with the problems of procedure, the idiosyncrasies of juries, and, last but not least, the personnel of the court." F. Heller, The Sixth Amendment 20-21 (1951) (footnote omitted).
*309 Thus, an additional motivation for the American rule was a desire to minimize the imbalance in the adversary system that otherwise resulted with the creation of a professional prosecuting official. Mr. Justice Black, writing for the Court in Johnson v. Zerbst, 304 U.S. 458, 462-463 (1938), spoke of this equalizing effect of the Sixth Amendment's counsel guarantee:
"It embodies a realistic recognition of the obvious truth that the average defendant does not have the professional legal skill to protect himself when brought before a tribunal with power to take his life or liberty, wherein the prosecution is presented by experienced and learned counsel."
This historical background suggests that the core purpose of the counsel guarantee was to assure "Assistance" at trial, when the accused was confronted with both the intricacies of the law and the advocacy of the public prosecutor.[7] Later developments have led this Court *310 to recognize that "Assistance" would be less than meaningful if it were limited to the formal trial itself.
This extension of the right to counsel to events before trial has resulted from changing patterns of criminal procedure and investigation that have tended to generate pretrial events that might appropriately be considered to be parts of the trial itself. At these newly emerging and significant events, the accused was confronted, just as at trial, by the procedural system, or by his expert adversary, or by both. In Wade, the Court explained the process of expanding the counsel guarantee to these confrontations:
"When the Bill of Rights was adopted, there were no organized police forces as we know them today. The accused confronted the prosecutor and the witnesses against him, and the evidence was marshalled, largely at the trial itself. In contrast, today's law enforcement machinery involves critical confrontations of the accused by the prosecution at pretrial proceedings where the results might well settle the accused's fate and reduce the trial itself to a mere formality. In recognition of these realities of modern criminal prosecution, our cases have construed the Sixth Amendment guarantee to apply to `critical' *311 stages of the proceedings." 388 U.S., at 224 (footnote omitted).
The Court consistently has applied a historical interpretation of the guarantee, and has expanded the constitutional right to counsel only when new contexts appear presenting the same dangers that gave birth initially to the right itself.
Recent cases demonstrate the historical method of this expansion. In Hamilton v. Alabama, 368 U.S. 52 (1961), and in White v. Maryland, 373 U.S. 59 (1963), the accused was confronted with the procedural system and was required, with definite consequences, to enter a plea. In Massiah v. United States, 377 U.S. 201 (1964), the accused was confronted by prosecuting authorities who obtained, by ruse and in the absence of defense counsel, incriminating statements. In Coleman v. Alabama, 399 U.S. 1 (1970), the accused was confronted by his adversary at a "critical stage" preliminary hearing at which the uncounseled accused could not hope to obtain so much benefit as could his skilled adversary.
The analogy between the unrepresented accused at the pretrial confrontation and the unrepresented defendant at trial, implicit in the cases mentioned above, was explicitly drawn in Wade:
"The trial which might determine the accused's fate may well not be that in the courtroom but that at the pretrial confrontation, with the State aligned against the accused, the witness the sole jury, and the accused unprotected against the overreaching, intentional or unintentional, and with little or no effective appeal from the judgment there rendered by the witness`that's the man.'" 388 U.S., at 235-236.
*312 Throughout this expansion of the counsel guarantee to trial-like confrontations, the function of the lawyer has remained essentially the same as his function at trial. In all cases considered by the Court, counsel has continued to act as a spokesman for, or advisor to, the accused. The accused's right to the "Assistance of Counsel" has meant just that, namely, the right of the accused to have counsel acting as his assistant. In Hamilton and White, for example, the Court envisioned the lawyer as advising the accused on available defenses in order to allow him to plead intelligently. 368 U.S., at 54-55; 373 U. S., at 60. In Massiah counsel could have advised his client on the benefits of the Fifth Amendment and could have sheltered him from the overreaching of the prosecution. 377 U.S., at 205. Cf. Miranda v. Arizona, 384 U.S. 436, 466 (1966). In Coleman the skill of the lawyer in examining witnesses, probing for evidence, and making legal arguments was relied upon by the Court to demonstrate that, in the light of the purpose of the preliminary hearing under Alabama law, the accused required "Assistance" at that hearing. 399 U.S., at 9.
The function of counsel in rendering "Assistance" continued at the lineup under consideration in Wade and its companion cases. Although the accused was not confronted there with legal questions, the lineup offered opportunities for prosecuting authorities to take advantage of the accused. Counsel was seen by the Court as being more sensitive to, and aware of, suggestive influences than the accused himself, and as better able to reconstruct the events at trial. Counsel present at lineup would be able to remove disabilities of the accused in precisely the same fashion that counsel compensated for the disabilities of the layman at trial. Thus, the Court mentioned that the accused's memory might be dimmed by "emotional tension," that the accused's credibility at *313 trial would be diminished by his status as defendant, and that the accused might be unable to present his version effectively without giving up his privilege against compulsory self-incrimination. United States v. Wade, 388 U. S., at 230-231. It was in order to compensate for these deficiencies that the Court found the need for the assistance of counsel.
This review of the history and expansion of the Sixth Amendment counsel guarantee demonstrates that the test utilized by the Court has called for examination of the event in order to determine whether the accused required aid in coping with legal problems or assistance in meeting his adversary. Against the background of this traditional test, we now consider the opinion of the Court of Appeals.
III
Although the Court of Appeals' majority recognized the argument that "a major purpose behind the right to counsel is to protect the defendant from errors that he himself might make if he appeared in court alone," the court concluded that "other forms of prejudice," mentioned and recognized in Wade, could also give rise to a right to counsel. 149 U. S. App. D. C., at 10, 461 F.2d, at 101. These forms of prejudice were felt by the court to flow from the possibilities for mistaken identification inherent in the photographic display.[8]
*314 We conclude that the dangers of mistaken identification, mentioned in Wade, were removed from context by the Court of Appeals and were incorrectly utilized as a sufficient basis for requiring counsel. Although Wade did discuss possibilities for suggestion and the difficulty for reconstructing suggestivity, this discussion occurred only after the Court had concluded that the lineup constituted a trial-like confrontation, requiring the "Assistance of Counsel" to preserve the adversary process by compensating for advantages of the prosecuting authorities.
The above discussion of Wade has shown that the traditional Sixth Amendment test easily allowed extension of counsel to a lineup. The similarity to trial was apparent, and counsel was needed to render "Assistance" in counterbalancing any "overreaching" by the prosecution.
After the Court in Wade held that a lineup constituted a trial-like confrontation requiring counsel, a more difficult issue remained in the case for consideration. The same changes in law enforcement that led to lineups and pretrial hearings also generated other events at which the accused was confronted by the prosecution. The Government had argued in Wade that if counsel was required at a lineup, the same forceful considerations would mandate counsel at other preparatory steps in the "gathering of the prosecution's evidence," such as, for *315 particular example, the taking of fingerprints or blood samples. 388 U.S., at 227.
The Court concluded that there were differences. Rather than distinguishing these situations from the lineup in terms of the need for counsel to assure an equal confrontation at the time, the Court recognized that there were times when the subsequent trial would cure a one-sided confrontation between prosecuting authorities and the uncounseled defendant. In other words, such stages were not "critical." Referring to fingerprints, hair, clothing, and other blood samples, the Court explained:
"Knowledge of the techniques of science and technology is sufficiently available, and the variables in techniques few enough, that the accused has the opportunity for a meaningful confrontation of the Government's case at trial through the ordinary processes of cross-examination of the Government's expert witnesses and the presentation of the evidence of his own experts." 388 U.S., at 227-228.
The structure of Wade, viewed in light of the careful limitation of the Court's language to "confrontations,"[9]*316 makes it clear that lack of scientific precision and inability to reconstruct an event are not the tests for requiring counsel in the first instance. These are, instead, the tests to determine whether confrontation with counsel at trial can serve as a substitute for counsel at the pretrial confrontation. If accurate reconstruction is possible, the risks inherent in any confrontation still remain, but the opportunity to cure defects at trial causes the confrontation to cease to be "critical." The opinion of the Court even indicated that changes in procedure might cause a lineup to cease to be a "critical" confrontation:
"Legislative or other regulations, such as those of local police departments, which eliminate the risks of abuse and unintentional suggestion at lineup proceedings and the impediments to meaningful confrontation at trial may also remove the basis for regarding the stage as `critical.'" 388 U.S., at 239 (footnote omitted).
See, however, id., at 262 n. (opinion of Fortas, J.).
The Court of Appeals considered its analysis complete after it decided that a photographic display lacks scientific precision and ease of accurate reconstruction at trial. That analysis, under Wade, however, merely carries one to the point where one must establish that the trial itself can provide no substitute for counsel if a pretrial confrontation is conducted in the absence of counsel. Judge Friendly, writing for the Second Circuit in United States v. Bennett, 409 F.2d 888 (1969), recognized that the "criticality" test of Wade, if applied outside the confrontation context, would result in drastic expansion of the right to counsel:
"None of the classical analyses of the assistance to be given by counsel, Justice Sutherland's in Powell v. Alabama . . . and Justice Black's in Johnson v. *317 Zerbst . . . and Gideon v. Wainwright . . . suggests that counsel must be present when the prosecution is interrogating witnesses in the defendant's absence even when, as here, the defendant is under arrest; counsel is rather to be provided to prevent the defendant himself from falling into traps devised by a lawyer on the other side and to see to it that all available defenses are proffered. Many other aspects of the prosecution's interviews with a victim or a witness to a crime afford just as much opportunity for undue suggestion as the display of photographs; so, too, do the defense's interviews, notably with alibi witnesses." Id., at 899-900.
We now undertake the threshhold analysis that must be addressed.
IV
A substantial departure from the historical test would be necessary if the Sixth Amendment were interpreted to give Ash a right to counsel at the photographic identification in this case. Since the accused himself is not present at the time of the photographic display, and asserts no right to be present, Brief for Respondent 40, no possibility arises that the accused might be misled by his lack of familiarity with the law or overpowered by his professional adversary. Similarly, the counsel guarantee would not be used to produce equality in a trial-like adversary confrontation. Rather, the guarantee was used by the Court of Appeals to produce confrontation at an event that previously was not analogous to an adversary trial.
Even if we were willing to view the counsel guarantee in broad terms as a generalized protection of the adversary process, we would be unwilling to go so far as to extend the right to a portion of the prosecutor's trial-preparation interviews with witnesses. Although photography *318 is relatively new, the interviewing of witnesses before trial is a procedure that predates the Sixth Amendment. In England in the 16th and 17th centuries counsel regularly interviewed witnesses before trial. 9 W. Holdsworth, History of English Law 226-228 (1926). The traditional counterbalance in the American adversary system for these interviews arises from the equal ability of defense counsel to seek and interview witnesses himself.
That adversary mechanism remains as effective for a photographic display as for other parts of pretrial interviews.[10] No greater limitations are placed on defense counsel in constructing displays, seeking witnesses, and conducting photographic identifications than those applicable to the prosecution.[11] Selection of the picture of a person other than the accused, or the inability of a witness to make any selection, will be useful to the defense in precisely the same manner that the selection of *319 a picture of the defendant would be useful to the prosecution.[12] In this very case, for example, the initial tender of the photographic display was by Bailey's counsel, who sought to demonstrate that the witness had failed to make a photographic identification. Although we do not suggest that equality of access to photographs removes all potential for abuse,[13] it does remove any inequality in the adversary process itself and thereby fully satisfies the historical spirit of the Sixth Amendment's counsel guarantee.
The argument has been advanced that requiring counsel might compel the police to observe more scientific procedures or might encourage them to utilize corporeal rather than photographic displays.[14] This Court has *320 recognized that improved procedures can minimize the dangers of suggestion. Simmons v. United States, 390 U.S. 377, 386 n. 6 (1968). Commentators have also proposed more accurate techniques.[15]
Pretrial photographic identifications, however, are hardly unique in offering possibilities for the actions of the prosecutor unfairly to prejudice the accused. Evidence favorable to the accused may be withheld; testimony of witnesses may be manipulated; the results of laboratory tests may be contrived. In many ways the prosecutor, by accident or by design, may improperly subvert the trial. The primary safeguard against abuses of this kind is the ethical responsibility of the prosecutor,[16] who, as so often has been said, may "strike hard blows" but not "foul ones." Berger v. United States, 295 U.S. 78, 88 (1935); Brady v. Maryland, 373 U.S. 83, 87-88 (1963). If that safeguard fails, review remains available under due process standards. See Giglio v. United States, 405 U.S. 150 (1972); Mooney v. Holohan, 294 U.S. 103, 112 (1935); Miller v. Pate, 386 U.S. 1 (1967); Chambers v. Mississippi, 410 U.S. 284 (1973). These same safeguards apply to misuse of photographs. See Simmons v. United States, 390 U. S., at 384.
*321 We are not persuaded that the risks inherent in the use of photographic displays are so pernicious that an extraordinary system of safeguards is required.
We hold, then, that the Sixth Amendment does not grant the right to counsel at photographic displays conducted by the Government for the purpose of allowing a witness to attempt an identification of the offender. This holding requires reversal of the judgment of the Court of Appeals. Although respondent Ash has urged us to examine this photographic display under the due process standard enunciated in Simmons v. United States, 390 U. S., at 384, the Court of Appeals, expressing the view that additional findings would be necessary, refused to decide the issue. 149 U. S. App. D. C., at 7, 461 F.2d, at 98. We decline to consider this question on this record in the first instance. It remains open, of course, on the Court of Appeals' remand to the District Court.
Reversed and remanded.
MR. JUSTICE STEWART, concurring in the judgment.
The issue in the present case is whether, under the Sixth Amendment, a person who has been indicted is entitled to have a lawyer present when prosecution witnesses are shown the person's photograph and asked if they can identify him.
The Sixth Amendment guarantees that "[i]n all criminal prosecutions, the accused shall enjoy the right . . . to have the Assistance of Counsel for his defence." This Court's decisions make it clear that a defendant is entitled to the assistance of counsel not only at the trial itself, but at all "critical stages" of his "prosecution." See Coleman v. Alabama, 399 U.S. 1; United States v. Wade, 388 U.S. 218; Gilbert v. California, 388 U.S. 263; Hamilton v. Alabama, 368 U.S. 52. The requirement *322 that there be a "prosecution," means that this constitutional "right to counsel attaches only at or after the time that adversary judicial proceedings have been initiated against [an accused] . . . ." "It is this point . . . that marks the commencement of the `criminal prosecutions' to which alone the explicit guarantees of the Sixth Amendment are applicable." Kirby v. Illinois, 406 U.S. 682, 688, 690 (plurality opinion). Since the photographic identification in the present case occurred after the accused had been indicted, and thus clearly after adversary judicial proceedings had been initiated, the only question is whether that procedure was such a "critical stage" that the Constitution required the presence of counsel.
In United States v. Wade, supra, the Court determined that a pretrial proceeding is a "critical stage" if "the presence of . . . counsel is necessary to preserve the defendant's. . . right meaningfully to cross-examine the witnesses against him and to have effective assistance of counsel at the trial itself." 388 U.S., at 227. Pretrial proceedings are "critical," then, if the presence of counsel is essential "to protect the fairness of the trial itself." Schneckloth v. Bustamonte, 412 U.S. 218, 239; cf. Coleman v. Alabama, 399 U.S. 1, 27-28 (STEWART, J., dissenting).
The Court held in Wade that a post-indictment, pretrial lineup at which the accused was exhibited to identifying witnesses was such a critical stage, because of the substantial possibility that the accused's right to a fair trial would otherwise be irretrievably lost. The hazard of unfair suggestive influence at a lineup, which, because of the nature of the proceeding, could seldom be reconstructed at trial, left little doubt, the Court thought, "that for Wade the post-indictment lineup was a critical stage of the prosecution at which he was `as much entitled to such aid [of counsel] . . . as at the trial itself.'" 388 U.S., at 237.
*323 The Court stressed in Wade that the danger of mistaken identification at trial was appreciably heightened by the "degree of suggestion inherent in the manner in which the prosecution presents the suspect to witnesses for pretrial identification." Id., at 228. There are numerous and subtle possibilities for such improper suggestion in the dynamic context of a lineup. Judge Wilkey, dissenting in the present case, accurately described a lineup as:
"a little drama, stretching over an appreciable span of time. The accused is there in the flesh, three-dimensional and always full-length. Further, he isn't merely there, he acts. He walks on stage, he blinks in the glare of lights, he turns and twists, often muttering asides to those sharing the spotlight. He can be required to utter significant words, to turn a profile or back, to walk back and forth, to doff one costume and don another. All the while the potentially identifying witness is watching, a prosecuting attorney and a police detective at his elbow, ready to record the witness' every word and reaction." 149 U. S. App. D. C. 1, 17, 461 F.2d 92, 108.
With no attorney for the accused present at this "little drama," defense counsel at trial could seldom convincingly discredit a witness' courtroom identification by showing it to be based on an impermissibly suggestive lineup. In addition to the problems posed by the fluid nature of a lineup, the Court in Wade pointed out that neither the witnesses nor the lineup participants were likely to be alert for suggestive influences or schooled in their detection. "In short, the accused's inability effectively to reconstruct at trial any unfairness that occurred at the lineup may deprive him of his only opportunity meaningfully to attack the credibility of the witness' court-room identification." 388 U.S., at 231-232.
*324 The Court held, therefore, that counsel was required at a lineup, primarily as an observer, to ensure that defense counsel could effectively confront the prosecution's evidence at trial. Attuned to the possibilities of suggestive influences, a lawyer could see any unfairness at a lineup, question the witnesses about it at trial, and effectively reconstruct what had gone on for the benefit of the jury or trial judge.[*]
A photographic identification is quite different from a lineup, for there are substantially fewer possibilities of impermissible suggestion when photographs are used, and those unfair influences can be readily reconstructed at trial. It is true that the defendant's photograph may be markedly different from the others displayed, but this unfairness can be demonstrated at trial from an actual comparison of the photographs used or from the witness' description of the display. Similarly, it is possible that the photographs could be arranged in a suggestive manner, or that by comment or gesture the prosecuting authorities might single out the defendant's picture. But these are the kinds of overt influence that a witness can easily recount and that would serve to impeach the identification testimony. In short, there are few possibilities for unfair suggestivenessand those rather blatant and easily reconstructed. Accordingly, an accused would not be foreclosed from an effective cross-examination of an identification witness simply because his counsel was *325 not present at the photographic display. For this reason, a photographic display cannot fairly be considered a "critical stage" of the prosecution. As the Court of Appeals for the Third Circuit aptly concluded:
"If . . . the identification is not in a live lineup at which defendant may be forced to act, speak or dress in a suggestive way, where the possibilities for suggestion are multiplied, where the ability to reconstruct the events is minimized, and where the effect of a positive identification is likely to be permanent, but at a viewing of immobile photographs easily reconstructible, far less subject to subtle suggestion, and far less indelible in its effect when the witness is later brought face to face with the accused, there is even less reason to denominate the procedure a critical stage at which counsel must be present." United States ex rel. Reed v. Anderson, 461 F.2d 739, 745.
Preparing witnesses for trial by checking their identification testimony against a photographic display is little different, in my view, from the prosecutor's other interviews with the victim or other witnesses before trial. See United States v. Bennett, 409 F.2d 888, 900. While these procedures can be improperly conducted, the possibility of irretrievable prejudice is remote, since any unfairness that does occur can usually be flushed out at trial through cross-examination of the prosecution witnesses. The presence of defense counsel at such pretrial preparatory sessions is neither appropriate nor necessary under our adversary system of justice "to preserve the defendant's basic right to a fair trial as affected by his right meaningfully to cross-examine the witnesses against him and to have effective assistance of counsel at the trial itself." United States v. Wade, supra, at 227.
*326 MR. JUSTICE BRENNAN, with whom MR. JUSTICE DOUGLAS and MR. JUSTICE MARSHALL join, dissenting.
The Court holds today that a pretrial display of photographs to the witnesses of a crime for the purpose of identifying the accused, unlike a lineup, does not constitute a "critical stage" of the prosecution at which the accused is constitutionally entitled to the presence of counsel. In my view, today's decision is wholly unsupportable in terms of such considerations as logic, consistency, and, indeed, fairness. As a result, I must reluctantly conclude that today's decision marks simply another[1] step towards the complete evisceration of the fundamental constitutional principles established by this Court, only six years ago, in United States v. Wade, 388 U.S. 218 (1967); Gilbert v. California, 388 U.S. 263 (1967); and Stovall v. Denno, 388 U.S. 293 (1967). I dissent.
I
On the morning of August 26, 1965, two men wearing stocking masks robbed the American Security and Trust Co. in Washington, D. C. The robbery lasted only about three or four minutes and, on the day of the crime, none of the four witnesses was able to give the police a description of the robbers' facial characteristics. Some five months later, on February 3, 1966, an FBI agent showed each of the four witnesses a group of black and white mug shots of the faces of five black males, including respondent, all of generally the same age, height, and weight. Respondent's photograph was included because of information received from a Government informant charged with other crimes.[2] None of the witnesses *327 was able to make a "positive" identification of respondent.[3]
On April 1, 1966, an indictment was returned charging respondent and a codefendant in five counts relating to the robbery of the American Security and Trust Co. Trial was finally set for May 8, 1968, almost three years after the crime and more than two years after the return of the indictment. During the entire two-year period between indictment and trial, although one of the witnesses expressly sought an opportunity to see respondent in person, the Government never attempted to arrange a corporeal lineup for the purposes of identification. Rather, less than 24 hours before trial, the FBI agent, accompanied by the prosecutor, showed five color photographs to the witnesses, three of whom identified the picture of respondent.
At trial, all four witnesses made in-court identifications of respondent, but only one of these witnesses was "positive" of her identification. The fact that three of the witnesses had previously identified respondent from the color photographs, and the photographs themselves, were also admitted into evidence. The only other evidence *328 implicating respondent in the crime was the testimony of the Government informant.[4] On the basis of this evidence, respondent was convicted on all counts of the indictment.
On appeal, the United States Court of Appeals for the District of Columbia Circuit, sitting en banc, reversed respondent's conviction. 149 U. S. App. D. C. 1, 461 F.2d 92 (1972). Noting that "the dangers of mistaken identification from uncounseled lineup identifications . . . are applicable in large measure to photographic as well as corporeal identifications,"[5] the Court of Appeals reasoned that this Court's decisions in Wade, Gilbert, and Stovall, compelled the conclusion that a pretrial photographic identification, like a lineup, is a "critical" stage of the prosecution at which the accused is constitutionally entitled to the attendance of counsel. Accordingly, the Court of Appeals held that respondent was denied his Sixth Amendment right to "the Assistance of Counsel for his defence" when his attorney was not given an opportunity to attend the display of the color photographs on the very eve of trial.[6] In my view, both the reasoning and conclusion of the Court of Appeals were unimpeachably correct, and I would therefore affirm.
II
In June 1967, this Court decided a trilogy of "lineup" cases which brought into sharp focus the problems of *329 pretrial identification. See United States v. Wade, supra; Gilbert v. California, supra; Stovall v. Denno, supra. In essence, those decisions held (1) that a pretrial lineup is a "critical stage" in the criminal process at which the accused is constitutionally entitled to the presence of counsel; (2) that evidence of an identification of the accused at such an uncounseled lineup is per se inadmissible; and (3) that evidence of a subsequent in-court identification of the accused is likewise inadmissible unless the Government can demonstrate by clear and convincing evidence that the in-court identification was based upon observations of the accused independent of the prior uncounseled lineup identification. The considerations relied upon by the Court in reaching these conclusions are clearly applicable to photographic as well as corporeal identifications. Those considerations bear repeating here in some detail, for they touch upon the very heart of our criminal justice systemthe right of an accused to a fair trial, including the effective "Assistance of Counsel for his defence."
At the outset, the Court noted that "identification evidence is peculiarly riddled with innumerable dangers and variable factors which might seriously, even crucially, derogate from a fair trial." United States v. Wade, supra, at 228. Indeed, "[t]he vagaries of eyewitness identification are well-known; the annals of criminal law are rife with instances of mistaken identification." Ibid. Apart from "the dangers inherent in eyewitness identification," id., at 235, such as unreliable memory or perception, the Court pointed out that "[a] major factor contributing to the high incidence of miscarriage of justice from mistaken identification has been the degree of suggestion inherent in the manner in which the prosecution presents the suspect to witnesses for pretrial identification." Id., at 228. The Court recognized that the dangers of suggestion are not necessarily due to "police *330 procedures intentionally designed to prejudice an accused." Id., at 235. On the contrary, "[s]uggestion can be created intentionally or unintentionally in many subtle ways." Id., at 229. And the "`fact that the police themselves have, in a given case, little or no doubt that the man put up for identification has committed the offense . . . involves a danger that this persuasion may communicate itself even in a doubtful case to the witness in some way . . . .'" Id., at 235, quoting Williams & Hammelmann, Identification Parades-I, [1963] Crim. L. Rev. 479, 483.
The Court also expressed concern over the possibility that a mistaken identification at a pretrial lineup might itself be conclusive on the question of identity, thereby resulting in the conviction of an innocent man. The Court observed that "`once a witness has picked out the accused at the line-up, he is not likely to go back on his word later on, so that in practice the issue of identity may (in the absence of other relevant evidence) for all practical purposes be determined there and then, before the trial.'" United States v. Wade, supra, at 229, quoting Williams & Hammelmann, supra, at 482.
Moreover, "the defense can seldom reconstruct the manner and mode of lineup identification for judge or jury at trial." United States v. Wade, supra, at 230. For "as is the case with secret interrogations, there is serious difficulty in depicting what transpires at lineups . . . ." Ibid. Although the accused is present at such corporeal identifications, he is hardly in a position to detect many of the more subtle "improper influences" that might infect the identification.[7] In addition, the Court emphasized *331 that "neither witnesses nor lineup participants are apt to be alert for conditions prejudicial to the suspect. And, if they were, it would likely be of scant benefit to the suspect since neither witnesses nor lineup participants are likely to be schooled in the detection of suggestive influences." Ibid. As a result, "even though cross-examination is a precious safeguard to a fair trial, it cannot [in this context] be viewed as an absolute assurance of accuracy and reliability." Id., at 235.
With these considerations in mind, the Court reasoned that "the accused's inability effectively to reconstruct at trial any unfairness that occurred at the lineup may deprive him of his only opportunity meaningfully to attack the credibility of the witness' courtroom identification." Id., at 231-232. And "[i]nsofar as the accused's conviction may rest on a courtroom identification in fact the fruit of a suspect pretrial identification which the accused is helpless to subject to effective scrutiny at trial, the accused is deprived of that right of cross-examination which is an essential safeguard to his right to confront the witnesses against him." Id., at 235. Thus, noting that "presence of counsel [at the lineup] can often avert prejudice and assure a meaningful confrontation at trial," the Court concluded that a pretrial corporeal identification is "a critical stage of the prosecution at which [the accused is] `as much entitled to such aid [of counsel] . . . as at the trial itself.'" Id., at 236, 237, quoting Powell v. Alabama, 287 U.S. 45, 57 (1932).
*332 III
As the Court of Appeals recognized, "the dangers of mistaken identification . . . set forth in Wade are applicable in large measure to photographic as well as corporeal identifications." 149 U. S. App. D. C., at 9, 461 F.2d, at 100. To the extent that misidentification may be attributable to a witness' faulty memory or perception, or inadequate opportunity for detailed observation during the crime, the risks are obviously as great at a photographic display as at a lineup.[8] But "[b]ecause of the inherent limitations of photography, which presents its subject in two dimensions rather than the three dimensions of reality, . . . a photographic identification, even when properly obtained, is clearly inferior to a properly obtained corporeal identification." P. Wall, Eye-Witness Identification in Criminal Cases 70 (1965). Indeed, noting "the hazards of initial identification by photograph," we have expressly recognized that "a corporeal identification. . . is normally more accurate" than a photographic identification. Simmons v. United States, 390 U.S. 377, 384, 386 n. 6 (1968).[9] Thus, in this sense at *333 least, the dangers of misidentification are even greater at a photographic display than at a lineup.
Moreover, as in the lineup situation, the possibilities for impermissible suggestion in the context of a photographic display are manifold. See id., at 383. Such suggestion, intentional or unintentional, may derive from three possible sources. First, the photographs themselves might tend to suggest which of the pictures is that of the suspect. For example, differences in age, pose, or other physical characteristics of the persons represented, and variations in the mounting, background, lighting, or markings of the photographs all might have the effect of singling out the accused.[10]
Second, impermissible suggestion may inhere in the manner in which the photographs are displayed to the witness. The danger of misidentification is, of course, "increased if the police display to the witness . . . the pictures of several persons among which the photograph of a single such individual recurs or is in some way emphasized." Ibid. And, if the photographs are arranged in an asymmetrical pattern, or if they are displayed in a time sequence that tends to emphasize a particular photograph, "any identification of the photograph which stands out from the rest is no more reliable than an identification of a single photograph, exhibited alone." P. Wall, supra, at 81.
Third, gestures or comments of the prosecutor at the time of the display may lead an otherwise uncertain *334 witness to select the "correct" photograph. For example, the prosecutor might "indicate to the witness that [he has] other evidence that one of the persons pictured committed the crime,"[11] and might even point to a particular photograph and ask whether the person pictured "looks familiar." More subtly, the prosecutor's inflection, facial expressions, physical motions, and myriad other almost imperceptible means of communication might tend, intentionally or unintentionally, to compromise the witness' objectivity. Thus, as is the case with lineups, "[i]mproper photographic identification procedures,. . . by exerting a suggestive influence upon the witnesses, can often lead to an erroneous identification. . . ." P. Wall, supra, at 89.[12] And "[r]egardless of how the initial misidentification comes about, the witness *335 thereafter is apt to retain in his memory the image of the photograph rather than of the person actually seen . . . ." Simmons v. United States, supra, at 383-384.[13] As a result, "`the issue of identity may (in the absence of other relevant evidence) for all practical purposes be determined there and then, before the trial.'" United States v. Wade, supra, at 229, quoting Williams & Hammelmann, supra, at 482.
Moreover, as with lineups, the defense can "seldom reconstruct" at trial the mode and manner of photographic identification. It is true, of course, that the photographs used at the pretrial display might be preserved for examination at trial. But "it may also be said that a photograph can preserve the record of a lineup; yet this does not justify a lineup without counsel." 149 U. S. App. D. C., at 9-10, 461 F.2d, at 100-101. Cf. United States v. Wade, supra, at 239 and n. 30. Indeed, in reality, preservation of the photographs affords little protection to the unrepresented accused. For, although retention of the photographs may mitigate the dangers of misidentification due to the suggestiveness of the photographs themselves, it cannot in any sense reveal to defense counsel the more subtle, and therefore more dangerous, suggestiveness that might derive from the manner in which the photographs were displayed or any accompanying comments or gestures. Moreover, the accused cannot rely upon the witnesses themselves to expose these latter sources of suggestion, for the witnesses are not "apt to be alert for conditions prejudicial to the suspect. And if they were, it would likely be of scant benefit to the suspect" since the witnesses are hardly "likely to be schooled in the detection of suggestive influences." Id., at 230.
*336 Finally, and unlike the lineup situation, the accused himself is not even present at the photographic identification, thereby reducing the likelihood that irregularities in the procedures will ever come to light. Indeed, in Wade, the Government itself observed:[14]
"When the defendant is presentas he is during a lineuphe may personally observe the circumstances, report them to his attorney, and (if he chooses to take the stand) testify about them at trial. . . . [I]n the absence of an accused, on the other hand, there is no one present to verify the fairness of the interview or to report any irregularities. If the prosecution were tempted to engage in `sloppy or biased or fraudulent' conduct . . ., it would be far more likely to do so when the accused is absent than when he himself is being `used.'"
Thus, the difficulties of reconstructing at trial an uncounseled photographic display are at least equal to, and possibly greater than, those involved in reconstructing an uncounseled lineup.[15] And, as the Government argued *337 in Wade, in terms of the need for counsel, "[t]here is no meaningful difference between a witness' pretrial identification from photographs and a similar identification made at a lineup."[16] For, in both situations "the accused's inability effectively to reconstruct at trial any unfairness that occurred at the [pretrial identification] may deprive him of his only opportunity meaningfully to attack the credibility of the witness' courtroom identification." United States v. Wade, supra, at 231-232. As *338 a result, both photographic and corporeal identifications create grave dangers that an innocent defendant might be convicted simply because of his inability to expose a tainted identification. This being so, considerations of logic, consistency, and, indeed, fairness compel the conclusion that a pretrial photographic identification, like a pretrial corporeal identification, is a "critical stage of the prosecution at which [the accused is] `as much entitled to such aid [of counsel] . . . as at the trial itself.'" Id., at 237, quoting Powell v. Alabama, 287 U. S., at 57.
IV
Ironically, the Court does not seriously challenge the proposition that presence of counsel at a pretrial photographic display is essential to preserve the accused's right to a fair trial on the issue of identification. Rather, in what I can only characterize a triumph of form over substance, the Court seeks to justify its result by engrafting a wholly unprecedentedand wholly unsupportablelimitation on the Sixth Amendment right of "the accused . . . to have the Assistance of Counsel for his defence." Although apparently conceding that the right to counsel attaches, not only at the trial itself, but at all "critical stages" of the prosecution, see ante, at 309-311, the Court holds today that, in order to be deemed "critical," the particular "stage of the prosecution" under consideration must, at the very least, involve the physical "presence of the accused," at a "trial-like confrontation" with the Government, at which the accused requires the "guiding hand of counsel." According to the Court a pretrial photographic identification does not, of course, meet these criteria.
In support of this rather crabbed view of the Sixth Amendment, the Court cites our decisions in Coleman v. Alabama, 399 U.S. 1 (1970), Massiah v. United States, 377 U.S. 201 (1964), White v. Maryland, 373 U.S. 59 *339 (1963), and Hamilton v. Alabama, 368 U.S. 52 (1961). Admittedly, each of these decisions guaranteed the assistance of counsel in pretrial proceedings at least arguably involving the physical "presence of the accused," at a "trial-like confrontation" with the Government, at which the accused required the "guiding hand of counsel."[17] Moreover, as the Court points out, these decisions are consistent with the view that the Sixth Amendment "embodies a realistic recognition of the obvious truth that the average defendant does not have the professional legal skill to protect himself when brought before a tribunal with power to take his life or liberty, wherein the prosecution is presented by experienced and learned counsel." Johnson v. Zerbst, 304 U.S. 458, 462-463 (1938). But, contrary to the Court's assumption, this is merely one facet of the Sixth Amendment guarantee, and the decisions relied upon by the Court represent, not the boundaries of the right to counsel, but mere applications of a far broader and more reasoned understanding of the Sixth Amendment than that espoused today.
The fundamental premise underlying all of this Court's decisions holding the right to counsel applicable at "critical" pretrial proceedings, is that a "stage" of the prosecution must be deemed "critical" for the purposes of the Sixth Amendment if it is one at which the presence of counsel is necessary "to protect the fairness of the trial itself." Schneckloth v. Bustamonte, 412 U. S., 218, 239 (1973) (emphasis added). Thus, in Hamilton v. Alabama, *340 supra, for example, we made clear that an arraignment under Alabama law is a "critical stage" of the prosecution, not only because the accused at such an arraignment requires "the guiding hand of counsel," but, more broadly, because "[w]hat happens there may affect the whole trial." Id., at 54. Indeed, to exclude counsel from a pretrial proceeding at which his presence might be necessary to assure the fairness of the subsequent trial would, in practical effect, render the Sixth Amendment guarantee virtually meaningless, for it would "deny a defendant `effective representation by counsel at the only stage when legal aid and advice would help him.'" Massiah v. United States, supra, at 204, quoting Spano v. New York, 360 U.S. 315, 326 (1959) (DOUGLAS, J., concurring); see Escobedo v. Illinois, 378 U.S. 478, 484-485 (1964).
This established conception of the Sixth Amendment guarantee is, of course, in no sense dependent upon the physical "presence of the accused," at a "trial-like confrontation" with the Government, at which the accused requires the "guiding hand of counsel." On the contrary, in Powell v. Alabama, 287 U.S. 45 (1932), the seminal decision in this area, we explicitly held the right to counsel applicable at a stage of the pretrial proceedings involving none of the three criteria set forth by the Court today. In Powell, the defendants in a state felony prosecution were not appointed counsel until the very eve of trial. This Court held, in no uncertain terms, that such an appointment could not satisfy the demands of the Sixth Amendment, for "`[i]t is vain . . . to guarantee [the accused] counsel without giving the latter any opportunity to acquaint himself with the facts or law of the case.'" Id., at 59. In other words, Powell made clear that, in order to preserve the accused's right to a fair trial and to "effective and substantial"[18] assistance *341 of counsel at that trial, the Sixth Amendment guarantee necessarily encompasses a reasonable period of time before trial during which counsel might prepare the defense. Yet it can hardly be said that this preparatory period of research and investigation involves the physical "presence of the accused," at a "trial-like confrontation" with the Government, at which the accused requires the "guiding hand of counsel."
Moreover, despite the Court's efforts to rewrite Wade so as to suggest a precedential basis for its own analysis,[19] the rationale of Wade lends no support whatever to today's decision. In Wade, after concluding that compelled participation in a lineup does not violate the accused's right against self-incrimination,[20] the Court addressed the argument "that the assistance of counsel at the lineup was indispensable to protect Wade's most basic right as a criminal defendanthis right to a fair trial at which the witnesses against him might be meaningfully cross-examined." 388 U.S., at 223-224. The Court then surveyed the history of the Sixth Amendment, and specifically concluded that that Amendment guarantees "counsel's assistance whenever necessary to assure a meaningful `defence.'" Id., at 225 (emphasis added). *342 Then, after examining this Court's prior decisions concerning the applicability of the counsel guarantee,[21] the Court stressed once again that a pretrial proceeding is a "critical stage" of the prosecution if "the presence of his counsel is necessary to preserve the defendant's basic right to a fair trial as affected by his right meaningfully to cross-examine the witnesses against him and to have effective assistance of counsel at the trial itself." Id., at 227.
The Court next addressed the Government's contention that a lineup is "a mere preparatory step in the gathering of the prosecution's evidence, not differentfor Sixth Amendment purposesfrom various other preparatory steps, such as systematized or scientific analyzing of the accused's fingerprints, blood sample, clothing, hair, and the like." Id., at 227. If the Court in Wade had even the remotest intention of embracing the wooden interpretation of the Sixth Amendment ascribed to it today, it could have rejected the Government's contention simply by pointing out the obvious fact that such "systematized or scientific analyzing" does not in any sense involve the physical "presence of the accused," at a "trial-like confrontation" with the Government, at which the accused requires the "guiding hand of counsel." But the Court offered not even the slightest hint of such *343 an approach. Instead, the Court reasoned that, in light of the scientific nature of such analyses,
"the accused has the opportunity for a meaningful confrontation of the Government's case at trial through the ordinary processes of cross-examination of the Government's expert witnesses and the presentation of the evidence of his own experts. The denial of a right to have his counsel present at such analyses does not therefore violate the Sixth Amendment; they are not critical stages since there is minimal risk that his counsel's absence at such stages might derogate from his right to a fair trial." Id., at 227-228 (emphasis added).
Finally, after discussing the dangers of misidentification arising out of lineup procedures and the difficulty of reconstructing the lineup at trial, the Court noted that "[i]nsofar as the accused's conviction may rest on a court-room identification in fact the fruit of a suspect pretrial identification which the accused is helpless to subject to effective scrutiny at trial, the accused is deprived of that right of cross-examination which is an essential safeguard to his right to confront the witnesses against him." Id., at 235. The Court therefore concluded that "[s]ince it appears that there is grave potential for prejudice, intentional or not, in the pretrial lineup, which may not be capable of reconstruction at trial, and since presence of counsel itself can often avert prejudice and assure a meaningful confrontation at trial, there can be little doubt that for Wade the post-indictment lineup was a critical stage of the prosecution at which he was `as much entitled to such aid [of counsel] . . . as at the trial itself.'" Id., at 236-237.
Thus, contrary to the suggestion of the Court, the conclusion in Wade that a pretrial lineup is a "critical stage" of the prosecution did not in any sense turn on *344 the fact that a lineup involves the physical "presence of the accused" at a "trial-like confrontation" with the Government. And that conclusion most certainly did not turn on the notion that presence of counsel was necessary so that counsel could offer legal advice or "guidance" to the accused at the lineup. On the contrary, Wade envisioned counsel's function at the lineup to be primarily that of a trained observer, able to detect the existence of any suggestive influences and capable of understanding the legal implications of the events that transpire. Having witnessed the proceedings, counsel would then be in a position effectively to reconstruct at trial any unfairness that occurred at the lineup, thereby preserving the accused's fundamental right to a fair trial on the issue of identification.
There is something ironic about the Court's conclusion today that a pretrial lineup identification is a "critical stage" of the prosecution because counsel's presence can help to compensate for the accused's deficiencies as an observer, but that a pretrial photographic identification is not a "critical stage" of the prosecution because the accused is not able to observe at all. In my view, there simply is no meaningful difference, in terms of the need for attendance of counsel, between corporeal and photographic identifications. And applying established and well-reasoned Sixth Amendment principles, I can only conclude that a pretrial photographic display, like a pretrial lineup, is a "critical stage" of the prosecution at which the accused is constitutionally entitled to the presence of counsel.
NOTES
[1] "In all criminal prosecutions, the accused shall enjoy the right . . . to have the Assistance of Counsel for his defence."
[2] United States v. Bennett, 409 F.2d 888, 898-900 (CA2), cert. denied sub nom. Haywood v. United States, 396 U.S. 852 (1969); United States ex rel. Reed v. Anderson, 461 F.2d 739 (CA3 1972) (en bane); United States v. Collins, 416 F.2d 696 (CA4 1969), cert. denied, 396 U.S. 1025 (1970); United States v. Ballard, 423 F.2d 127 (CA5 1970); United States v. Serio, 440 F.2d 827, 829-830 (CA6 1971); United States v. Robinson, 406 F.2d 64, 67 (CA7), cert. denied, 395 U.S. 926 (1969); United States v. Long, 449 F.2d 288, 301-302 (CA8 1971), cert. denied, 405 U.S. 974 (1972); Allen v. Rhay, 431 F.2d 1160, 1166-1167 (CA9 1970); McGee v. United States, 402 F.2d 434, 436 (CA10 1968), cert. denied, 394 U.S. 908 (1969). The en banc decision of the Third Circuit in Anderson overruled in part a panel decision in United States v. Zeiler, 427 F.2d 1305 (CA3 1970).
The question has also produced conflicting decisions in state courts. The majority view, as in the courts of appeals, rejects the claimed right, to counsel. See, e. g., McGhee v. State, 48 Ala. App. 330, 264 So. 2d 560 (Ala. Crim. App. 1972); State v. Yehling, 108 Ariz. 323, 498 P.2d 145 (1972); People v. Lawrence, 4 Cal. 3d 273, 481 P.2d 212 (1971), cert. denied, 407 U.S. 909 (1972); Reed v. State, ___ Del. ___, 281 A.2d 142 (1971); People v. Holiday, 47 Ill. 2d 300, 265 N.E.2d 634 (1970); Baldwin v. State, 5 Md. App. 22, 245 A.2d 98 (1968) (dicta); Commonwealth v. Ross, ___ Mass. ___, 282 N.E.2d 70 (1972), vacated on other grounds and remanded, 410 U.S. 901 (1973); Stevenson v. State, 244 So. 2d 30 (Miss. 1971); State v. Brookins, 468 S.W.2d 42 (Mo. 1971) (dicta); People v. Coles, 34 A.D. 2d 1051, 312 N. Y. S. 2d 621 (1970) (dicta); State v. Moss, 187 Neb. 391, 191 N.W.2d 543 (1971); Drewry v. Commonwealth, 213 Va. 186, 191 S.E.2d 178 (1972); State v. Nettles, 81 Wash. 2d 205, 500 P.2d 752 (1972); Kain v. State, 48 Wis. 2d 212, 179 N.W.2d 777 (1970). Cf. State v. Accor, 277 N. C. 65, 175 S.E.2d 583 (1970). Several state courts, however, have granted a right to counsel at photographic identifications. See, e. g., Cox v. State, 219 So. 2d 762 (Fla. App. 1969) (video tapes); People v. Anderson, 389 Mich. 155, 205 N.W.2d 461 (1973); Thompson v. State, 85 Nev. 134, 451 P.2d 704, cert. denied, 396 U.S. 893 (1969); Commonwealth v. Whiting, 439 Pa. 205, 266 A.2d 738, cert. denied, 400 U.S. 919 (1970).
[3] Respondent Ash does not assert a right to counsel at the black-and-white photographic display in February 1966 because he recognizes that Kirby v. Illinois, 406 U.S. 682 (1972), forecloses application of the Sixth Amendment to events before the initiation of adversary criminal proceedings. Tr. of Oral Arg. 21-22; Brief for Respondent 32 n. 21.
[4] At this hearing both the black-and-white and color photographs were introduced as exhibits. App. 44. The FBI agents who conducted the pretrial displays were called as witnesses and were cross-examined fully. App. 10, 28. Two of the four witnesses who were expected to make in-court identifications also testified and were cross-examined concerning the photographic identifications. App. 55, 65.
[5] The majority of the Court of Appeals concluded that Ash's counsel properly had preserved his objection to introduction of the photographs. 149 U. S. App. D. C., at 6 n. 6, 461 F.2d, at 97 n. 6. Although the contrary view of the dissenting judges has been noted here by the Government, the majority's ruling on this issue is not asserted by the Government as a basis for reversal. Pet. for Cert. 4 n. 5; Brief for United States 6 n. 6. Under these circumstances, we are not inclined to disturb the ruling of the Court of Appeals on this close procedural question. App. 104, 126-131.
[6] Although the English limitation was not expressly rejected until 1836, the rule appears to have been relaxed in practice. 9 W. Holdsworth, History of English Law 235 (1926); 4 W. Blackstone, Commentaries *355-356.
[7] Similar concerns eventually led to abandonment of the common-law rule in England. That rule originated at a time when counsel was said to be "hardly necessary" because expert knowledge of the law was not required at trial and systematic examination of witnesses had not yet developed. T. Plucknett, A Concise History of the Common Law 410 (4th ed. 1948).
Confrontation with legal technicalities became common at English trials when complex rules developed for attacking the indictment. Ibid. The English response was not an unlimited right to counsel, however, but was rather a right for counsel to argue only legal questions. See Powell v. Alabama, 287 U.S. 45, 60 (1932). A plea in abatement directed at insufficiency of the indictment, for example, allowed a prisoner to "pray counsel to be assigned to him to manage his exceptions and take more." 2 M. Hale, Pleas of the Crown 236 (1736).
Confrontation with a professional prosecutor arose in English treason trials before it appeared in ordinary criminal trials. See 1 J. Stephen, History of the Criminal Law of England 348-350 (1883). In 1695 this imbalance in the adversary process was corrected by a statute granting prisoners the right to counsel at treason trials. 7 Win. 3, c. 3 (1695). Hawkins explained that the professional ability of king's counsel motivated this reform because it had "been found by experience that prisoners have been often under great disadvantages from the want of counsel, in prosecutions of high treason against the king's person, which are generally managed for the crown with greater skill and zeal than ordinary prosecutions. . . ." 2 W. Hawkins, Pleas of the Crown 566 (Leach ed. 1787). The 1695 statute weakened the English rule and, after a century of narrowing practical application, see n. 6, supra, the rule was finally abrogated by statute in 1836. The Trials for Felony Act, 6 & 7 Wm. 4, c. 114 (1836).
[8] "[T]he dangers of mistaken identification from uncounseled lineup identifications set forth in Wade are applicable in large measure to photographic as well as corporeal identifications. These include, notably, the possibilities of suggestive influence or mistakeparticularly where witnesses had little or no opportunity for detailed observation during the crime; the difficulty of reconstructing suggestivityeven greater when the defendant is not even present; the tendency of a witness's identification, once given under these circumstances, to be frozen. While these difficulties may be somewhat mitigated by preserving the photograph shown, it may also be said that a photograph can preserve the record of a lineup; yet this does not justify a lineup without counsel. The same may be said of the opportunity to examine the participants as to what went on in the course of the identification, whether at lineup or on photograph. Sometimes this may suffice to bring out all pertinent facts, even at a lineup, but this would not suffice under Wade to offset the constitutional infringement wrought by proceeding without counsel. The presence of counsel avoids possibilities of suggestiveness in the manner of presentation that are otherwise ineradicable." 149 U. S. App. D. C., at 9-10, 461 F.2d, at 100-101.
[9] The Court rather narrowly defined the issues under consideration:
"The pretrial confrontation for purpose of identification may take the form of a lineup, also known as an `identification parade' or `showup,' as in the present case, or presentation of the suspect alone to the witness, as in Stovall v. Denno, supra. It is obvious that risks of suggestion attend either form of confrontation . . . . But as is the case with secret interrogations, there is serious difficulty in depicting what transpires at lineups and other forms of identification confrontations." United States v. Wade, 388 U.S. 218, 229-230 (1967) (emphasis added).
The photographic identification could hardly have been overlooked by inadvertence since the Government stressed the similarity between lineups and photographic identifications. Brief for United States in Wade, No. 334, O. T. 1966, pp. 7, 14, 19, 24.
[10] Duplication by defense counsel is a safeguard that normally is not available when a formal confrontation occurs. Defense counsel has no statutory authority to conduct a preliminary hearing, for example, and defense counsel will generally be prevented by practical considerations from conducting his own lineup. Even in some confrontations, however, the possibility of duplication may be important. The Court noted this in holding that the taking of handwriting exemplars did not constitute a "critical stage":
"If, for some reason, an unrepresentative exemplar is taken, this can be brought out and corrected through the adversary process at trial since the accused can make an unlimited number of additional exemplars for analysis and comparison by government and defense handwriting experts." Gilbert v. California, 388 U.S. 263, 267 (1967).
[11] We do not suggest, of course, that defense counsel has any greater freedom than the prosecution to abuse the photographic identification. Evidence of photographic identifications conducted by the defense may be excluded as unreliable under the same standards that would be applied to unreliable identifications conducted by the Government.
[12] The Court of Appeals deemed it significant that a photographic identification is admissible as substantive evidence, whereas other parts of interviews may be introduced only for impeachment. 149 U. S. App. D. C., at 10, 461 F.2d, at 101. In this case defense counsel for Bailey introduced the inability to identify, and that was received into evidence. Thus defense counsel still received benefits equivalent to those available to the prosecution. Although defense counsel may be concerned that repeated photographic displays containing the accused's picture as the only common characteristic will tend to promote identification of the accused, the defense has other balancing devices available to it, such as the use of a sufficiently large number of photographs to counteract this possibility.
[13] Although the reliability of in-court identifications and the effectiveness of impeachment may be improved by equality of access, we do not suggest that the prosecution's photographic identification would be more easily reconstructed at trial simply because defense counsel could conduct his own photographic display. But, as we have explained, supra, at 315-316, the possibility of perfect reconstruction is relevant to the evaluation of substitutes for counsel, not to the initial designation of an event as a "critical stage."
[14] Sobel, Assailing the Impermissible Suggestion: Evolving Limitations on the Abuse of Pre-Trial Criminal Identification Methods, 38 Brooklyn L. Rev. 261, 299 (1971); Comment, 43 N. Y. U. L. Rev. 1019, 1022 (1968); Note, 2 Rutgers Camden L. J. 347, 359 (1970); Note, 21 Syracuse L. Rev. 1235, 1241-1242 (1970). A variant of this argument is that photographic identifications may be used to circumvent the need for counsel at lineups. Brief for Respondent 44-45.
[15] E. g., P. Wall, Eye-Witness Identification in Criminal Cases 77-85 (1965); Sobel, supra, n. 14, at 309-310; Comment, 56 Iowa L. Rev. 408, 420-421 (1970).
[16] Throughout a criminal prosecution the prosecutor's ethical responsibility extends, of course, to supervision of any continuing investigation of the case. By prescribing procedures to be used by his agents and by screening the evidence before trial with a view to eliminating unreliable identifications, the prosecutor is able to minimize abuse in photographic displays even if they are conducted in his absence.
[*] I do not read Wade as requiring counsel because a lineup is a "trial-type" situation, nor do I understand that the Court required the presence of an attorney because of the advice or assistance he could give to his client at the lineup itself. Rather, I had thought the reasoning of Wade was that the right to counsel is essentially a protection for the defendant at trial, and that counsel is necessary at a lineup in order to ensure a meaningful confrontation and the effective assistance of counsel at trial.
[1] See Kirby v. Illinois, 406 U.S. 682 (1972).
[2] At the time of respondent's trial, the informant, one Clarence McFarland, was serving a sentence for bank robbery. According to the Court of Appeals, "McFarland had been before the grand jury with regard to five separate offenses, in addition to his bank robbery, and had not been indicted on any of them, including one in which he had confessed guilt. The Assistant United States Attorney had arranged to have McFarland transferred from the D. C. Jail to a local jail in Rockville, Maryland, and in addition had helped McFarland's wife move from Southeast Washington to an apartment near the parochial school that McFarland's children were due to attend. 149 U. S. App. D. C. 1, 6 n. 7, 461 F.2d 92, 97 n. 7 (1972). The Assistant United States Attorney also testified that he "had indicated he would testify before the parole board in McFarland's behalf." Id., at 6, 461 F.2d, at 97.
[3] Respondent does not contend that he was denied his Sixth Amendment right to counsel at the pre-indictment display of the black and white photographs. Tr. of Oral Arg. 21-22; Brief for Respondent 32 n. 21.
[4] As the Court of Appeals noted, this testimony was of at least questionable credibility. See n. 2, supra.
[5] 149 U. S. App. D. C., at 9, 461 F.2d, at 100.
[6] The Court of Appeals also noted "that there are at the very least strong elements of suggestiveness in this color photo confrontation," and that "it is hard to see how the Government can be held to have shown, by clear and convincing evidence, that these color photographs did not affect the in-court identification made one day later." Id., at 7, 14 n. 20, 461 F.2d, at 98, 105 n. 20.
[7] The Court pointed out that "[i]mproper influences may go undetected by a suspect, guilty or not, who experiences the emotional tension which we might expect in one being confronted with potential accusers. Even when he does observe abuse, if he has a criminal record he may be reluctant to take the stand and open up the admission of prior convictions. Moreover, any protestations by the suspect of the fairness of the lineup made at trial are likely to be in vain; the jury's choice is between the accused's unsupported version and that of the police officers present." United States v. Wade, 388 U.S. 218, 230-231 (1967).
[8] Thus, "[a] witness may have obtained only a brief glimpse of a criminal, or may have seen him under poor conditions. Even if the police subsequently follow the most correct photographic identification procedures . . . there is some danger that the witness may make an incorrect identification." Simmons v. United States, 390 U.S. 377, 383 (1968).
[9] See also Sobel, Assailing the Impermissible Suggestion: Evolving Limitations on the Abuse of Pre-Trial Criminal Identification Methods, 38 Brooklyn L. Rev. 261, 264, 296 (1971); Williams, Identification Parades, [1955] Crim. L. Rev. 525, 531; Comment, Photographic Identification: The Hidden Persuader, 56 Iowa L. Rev. 408, 419 (1970); Note, Pretrial Photographic IdentificationA "Critical Stage" of Criminal Proceedings?, 21 Syracuse L. Rev. 1235, 1241 (1970). Indeed, recognizing the superiority of corporeal to photographic identifications, English courts have long held that once the accused is in custody, pre-lineup photographic identification is "indefensible" and grounds for quashing the conviction. Rex v. Haslam, 19 Crim. App. Rep. 59, 60 (1925); Rex v. Goss, 17 Crim. App. Rep. 196, 197 (1923). See also P. Wall, Eye-Witness Identification in Criminal Cases 71 (1965).
[10] See, e. g., Comment, supra, n. 9, at 410-411; Note, Criminal ProcedurePhoto-IdentificationStovall Prospectivity Rule Invoked to Avoid Extension of Right to Counsel, 43 N. Y. U. L. Rev. 1019, 1021 (1968).
[11] Simmons v. United States, supra, at 383.
[12] The Court maintains that "the ethical responsibility of the prosecutor" is in itself a sufficient "safeguard" against impermissible suggestion at a photographic display. See ante, at 320. The same argument might, of course, be made with respect to lineups. Moreover, it is clear that the "prosecutor" is not always present at such pretrial displays. Indeed, in this very case, one of the four eyewitnesses was shown the color photographs on the morning of trial by an agent of the FBI, not in the presence of the "prosecutor." See 149 U. S. App. D. C., at 5, 461 F.2d, at 96. And even though "the ethical responsibility of the prosecutor" might be an adequate "safeguard" against intentional suggestion, it can hardly be doubted that a "prosecutor" is, after all, only human. His behavior may be fraught with wholly unintentional and indeed unconscious nuances that might effectively suggest the "proper" response. See P. Wall, supra, n. 9, at 26-65; Napley, Problems of Effecting the Presentation of the Case for a Defendant, 66 Colo. L. Rev. 94, 98-99 (1966); Williams & Hammelmann, Identification Parades-I, [1963] Crim. L. Rev. 479, 483. See also United States v. Wade, supra, at 229, 235, 236. And, of course, as Wade itself makes clear, unlike other forms of unintentional prosecutorial "manipulation," even unintentional suggestiveness at an identification procedure involves serious risks of "freezing" the witness' mistaken identification and creates almost insurmountable obstacles to reconstruction at trial.
[13] See also P. Wall, supra, n. 9, at 68; Napley, supra, n. 12, at 98-99; Williams & Hammelmann, supra, n. 12, at 484; Comment, supra, n. 9, at 411-413; Note, supra, n. 10, at 1023.
[14] Brief for United States 24-25 in United States v. Wade, No. 334, O. T. 1966.
[15] The Court's assertion, ante, at 317-319 and n. 10, that these difficulties of reconstruction are somehow minimized because the defense can "duplicate" a photographic identification reflects a complete misunderstanding of the issues in this case. Aside from the fact that lineups can also be "duplicated," the Court's assertion is wholly inconsistent with the underlying premises of both Wade and Gilbert. For, unlike the Court today, the Court in both of those decisions recognized a critical difference between "systematized or scientific analyzing of the accused's fingerprints, blood sample, clothing, hair, and the like," on the one hand, and eyewitness identification, on the other. United States v. Wade, supra, at 227; Gilbert v. California, 388 U.S. 263, 267 (1967). In essence, the Court noted in Wade and Gilbert that, in the former situations, the accused can preserve his right to a fair trial simply by "duplicating" the tests of the Government, thereby enabling him to expose any errors in the Government's analysis. Such "duplication" is possible, however, only because the accused's tests can be made independently of those of the Governmentthat is, any errors in the Government's analyses cannot affect the reliability of the accused's tests. That simply is not the case, however, with respect to eyewitness identifications, whether corporeal or photographic. Due to the "freezing effect" recognized in Wade, once suggestion has tainted the identification, its mark is virtually indelible. For once a witness has made a mistaken identification, "`he is not likely to go back on his word later on.'" United States v. Wade, supra, at 229. As a result, any effort of the accused to "duplicate" the initial photographic display will almost necessarily lead to a reaffirmation of the initial misidentification.
The Court's related assertion, that "equality of access" to the results of a Government-conducted photographic display "remove[s] any inequality in the adversary process," ante, at 319, is similarly flawed. For due to the possibilities for suggestion, intentional or unintentional, the so-called "equality of access" is, in reality, skewed sharply in favor of the prosecution.
[16] Brief for United States 7, in United States v. Wade, supra. The Court seems to suggest that, under no circumstances, would it be willing "to go so far as to extend the right [to counsel] to a portion of the prosecutor's trial-preparation interviews with witnesses." Ante, at 317. This suggestion illustrates once again the Court's readiness in this area to ignore "real-world" considerations for the sake of "mere formalism." Kirby v. Illinois, 406 U. S., at 699 (BRENNAN, J., dissenting). Moreover, this suggestion demonstrates the Court's failure to appreciate the essential differences, outlined persuasively by the Court of Appeals, between "the prosecutor's trial-preparation interviews with witnesses" and pretrial identification procedures. See 149 U. S. App. D. C., at 10, 461 F.2d, at 101.
[17] Coleman, White, and Hamilton, guaranteed the assistance of counsel at preliminary hearings and arraignments. Massiah held that incriminating statements of a defendant should have been excluded from evidence when it appeared that they were overheard by federal agents who, without notice to the defendant's lawyer, arranged a meeting between the defendant and an accomplice turned informant. Thus, it is at least questionable whether Massiah involved a "trial-like confrontation" with the Government.
[18] 287 U.S., at 53.
[19] See ante, at 313-316. In an effort to justify its contention that Wade itself in some way supports the Court's wooden analysis of the counsel guarantee, the Court points to the so-called "careful limitation of the Court's language [in Wade] to `confrontations.'" Ante, at 315. But Wade involved a lineup which is, of course, a "confrontation." Thus, it is neither surprising, nor significant, that the Court interchangeably used such terms as "lineup," "confrontation" and "pretrial identification" as descriptive of the facts. Indeed, the Wade dissenters recognized that Wade logically applies, not only to lineups, but "to any other techniques employed to produce an identification. . . ." United States v. Wade, supra, at 251 (WHITE, J., concurring and dissenting).
[20] See United States v. Wade, supra, at 221-223.
[21] See id., at 225-227. The Court's quotation of Escobedo v. Illinois, 378 U.S. 478 (1964), is particularly instructive:
"`The rule sought by the State here, however, would make the trial no more than an appeal from the interrogation; and the "right to use counsel at the formal trial [would be] a very hollow thing [if], for all practical purposes, the conviction is already assured by pretrial examination" . . . . "One can imagine a cynical prosecutor saying: `Let them have the most illustrious counsel, now. They can't escape the noose. There is nothing that counsel can do for them at the trial.'"'" United States v. Wade, supra, at 226, quoting Escobedo v. Illinois, supra, at 487-488. | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/103095/ | 305 U.S. 160 (1938)
HARRIS ET AL.
v.
AVERY BRUNDAGE CO. ET AL.
No. 53.
Supreme Court of United States.
Argued November 8, 1938.
Decided November 21, 1938.
CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SEVENTH CIRCUIT.
Messrs. Benjamin F.J. Odell and Kenart M. Rahn for petitioners.
Mr. Sigmund W. David for respondents.
MR. JUSTICE BLACK delivered the opinion of the Court.
Did the bankruptcy court in this involuntary proceeding have jurisdiction to order the disposition of property in the possession of persons found by the court to be holding as agents of the alleged bankrupt?
*161 Respondents engaged the Tax Service Association of Illinois to seek exemption for respondents from an Illinois tax. The contract entitled the Association to $1,500 cash, and an additional $20,000 should the Supreme Court of Illinois find respondents exempt. The contract authorized the Association to retain petitioner Odell as attorney to prosecute the claimed exemption without cost to respondents for his services. Odell endorsed the contract between respondents and the Association with the statement: "I hereby consent to retention under the terms of this agreement." Under the contract respondents made payments corresponding to their possible tax liabilities into an Escrow Fund. Petitioners Odell and Harris, employed by the Association, and one Craig, deposited these payments pursuant to a letter[1] to the Bank which declared that the funds deposited were not the property of either Odell, Harris or Craig, but were in their custody.
The Supreme Court of Illinois decided respondents were liable for the tax,[2] and thereafter an involuntary petition in bankruptcy was filed against the Association. Craig was willing but Odell and Harris refused to comply with respondents' request for the return of the payments *162 they had made into the Fund, and respondents filed a petition for their recovery in the bankruptcy court. Petitioners consented and agreed in open court to an order of the bankruptcy court which required them to pay seventy-five per cent of the Fund ($242,000) to the State of Illinois in discharge of respondents' tax liability, and which also provided that "the balance in said . .. Fund . . . shall remain and be held . . . subject to the further order" of the bankruptcy court. It recited that petitioners "agreed that [the bankruptcy court] had jurisdiction to enter this order."
Respondents then filed a second petition to recover an additional $48,580.40 from the Fund, with $20,000 to remain "subject to the further order of" the court. In answer to respondents' claim, the Bank and Craig disclaimed any interest in the Fund. The sole claim adverse to respondents was asserted by the receiver of the Association, for $20,000. Neither Odell nor Harris claimed any interest in the Fund. In response to the court's requests to answer, petitioners alleged that the court had no jurisdiction to determine rights relating to the Fund. After a hearing, the court found that it had jurisdiction and ordered petitioners to pay $48,580.40 from the Fund to respondents, the balance to remain "subject to the further order of [the] . . . Court . . ." The following day the court ordered that petitioners' pleadings which challenged its jurisdiction over the $20,000 balance in the Fund be struck, and that petitioners answer within twenty days to the merits on respondents' claim to this balance.
Petitioners did not answer, but appealed from both orders. The Circuit Court of Appeals affirmed.[3]
A court of bankruptcy has jurisdiction to "bring in and substitute additional persons or parties in proceedings in *163 bankruptcy when necessary for the complete determination of a matter in controversy; [and to] cause the estates of bankrupts to be collected, reduced to money and distributed, and determine controversies in relation thereto," with exceptions not here material.[4] This jurisdiction of the bankruptcy court extends to the determination of controversies relating to all property in the debtor's physical possession or in the hands of the debtor's agent at the time of the filing of a petition in bankruptcy.[5] In every case the bankruptcy court has power, in the first instance, to determine whether it has that actual or constructive possession which is essential to its jurisdiction to proceed.[6]
Here, both courts below found that Harris and Odell were agents of the debtor (the Association) and had custody of the Escrow Fund as such agents at the time the petition in bankruptcy was filed and thereafter. We accept this finding,[7] and proceed to a consideration of the jurisdictional question.[8]
Petitioners controlled and had custody of this Fund as agents of the Association and did not assert any adverse interest in themselves. In the absence of a substantial adverse claim, the bankruptcy court acquired jurisdiction when the petition in bankruptcy was filed to determine *164 controversies relating to the Fund,[9] and had power by summary proceedings to compel its surrender.[10] Furthermore, petitioners consented and agreed in open court and respondents assented to the court's disposition of the Fund in a summary proceeding. Jurisdiction to try the issues was vested in the District Court sitting as a court of bankruptcy. Since the parties had only a procedural right to have these issues tried in a plenary suit, they were at liberty to waive this right.[11] Petitioners approved the first order which disposed of part of the Fund, and specifically provided that the balance remain "subject to the further orders of" the District Court.
All persons who created or had any possible interest in that portion of the Fund ordered distributed were parties and present in the bankruptcy court. No one of them including petitioners asserted or in any way indicated to the bankruptcy court that there could be any interest in the money distributed adverse to respondents. The sole claim adverse to respondents was that of the receiver of the Association, for $20,000. This amount was not distributed and the court retained jurisdiction to determine controversies relating to it.
Petitioners having consented that the Fund be subject to the orders of the bankruptcy court, and that court having determined that petitioners held the Fund as agents of the Association, there was jurisdiction to enter the orders in question.
Affirmed.
NOTES
[1] "National Builders Bank of Chicago.
"Gentlemen:
"There has been opened with you a certain account entitled Sales Tax Escrow Fund. There will be delivered to you from time to time hereafter for deposit to the credit of said account certain checks for various amounts issued by sundry contractors.
"You are hereby instructed that the funds from time to time on deposit in said account are not the funds of the undersigned, but are under the custody and control of the undersigned pending the outcome of proposed negotiations with the Department of Finance of the State of Illinois. Withdrawals from the account are to be made only on written order of the undersigned, three of whom must act together as indicated. Each check must bear the signature of either: Benjamin F.J. Odell or Ruth V. Willner; and R.G. Harris or P.N. Weaver, together with E.M. Craig or R.D. Steel." (Italics supplied.)
[2] Blome Co. v. Ames, 365 Ill. 456; 6 N.E.2d 841.
[3] 95 F.2d 373.
[4] Bankruptcy Act, c. 2, 11 U.S.C., § 11 (6, 7). As to exceptions, see Bryan v. Bernheimer, 181 U.S. 188, 194.
[5] Mueller v. Nugent, 184 U.S. 1; see Whitney v. Wenman, 198 U.S. 539, 552; Taubel-Scott-Kitzmiller Co. v. Fox, 264 U.S. 426, 432, 433 and notes; May v. Henderson, 268 U.S. 111, 115.
[6] Taubel-Scott-Kitzmiller Co. v. Fox, supra, 433; May v. Henderson, supra, 116. See, Harrison v. Chamberlain, 271 U.S. 191, 194.
[7] "In this case, however, respondent [petitioners] asserted no right or title to the property before the referee, and the circumstances under which he [they] held possession must be accepted as found by the referee and the District Court." Mueller v. Nugent, supra, 15.
[8] Cf. Page v. Arkansas Gas Corp., 286 U.S. 269, 271.
[9] Taubel-Scott-Kitzmiller Co. v. Fox, supra, 433; see Note 5, supra.
[10] Cf. Mueller v. Nugent, supra, 14.
[11] MacDonald v. Plymouth Trust Co., 286 U.S. 263; Bryan v. Bernheimer, supra, 197; see Taubel-Scott-Kitzmiller Co. v. Fox, supra, 437; Page v. Arkansas Gas Corp., supra, 271; cf. Schumacher v. Beeler, 293 U.S. 367, 369. | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/4290712/ | IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
WAGIH HANNA and
BOTHINA HANNA,
Plaintiffs,
. FOREIGN JUDGMENT
v. : SlZJ-03-058
DIETER A. BAIER,
Defendant.
ORDER
Upon Defendant’s Motion for Reargurnent. Denied.
Date Submitted: June 28, 2018
Date Decided: July 2, 2018
Andres Gutierrez de Cos, Esq., Andres de Cos LLC, 5211 Windmill Drive, Suite 36,
Wilmington, DE 19808, Attorney for Plaintiffs
Daniel A. Griffith, Esq., Whiteford Taylor & Preston LLP, 405 North King Street, Suite
500, Wilmington, DE 19801, Attorney for Defendant
I. INTRODUCTION
On June 25, 2018, Defendant Dieter A. Baier (“Defendant”) timely filed his Motion for
Reargument concerning the Court’s June 19, 2018 Order granting Plaintifi’s Motion for Relief
from Order. Defendant contends that the Court erred by failing to follow the previous decision
rendered in this case on December 19, 2017, Which held that the Court of Chancery had exclusive
jurisdiction over the execution of charging orders. In Defendant’s vieW, by ruling that the Court
of Chancery and the Superior Court have concurrent jurisdiction, this Court improperly interpreted
6 Del. C. § 18-703 and rendered the statute meaningless. Additionally, Defendant cited various
portions of the June 19th Order Which he believes contain factual errors. On June 28, 2018,
Plaintiffs Waigh Hanna and Bothina Hanna (“Plaintiffs”) filed their response to Defendant’s
Motion, which in large part pointed out that Defendant “has not shown that the Court overlooked
or misapprehended any law or facts in this case to warrant reconsideration, reargument or
reversal. . .”l
II. STANDARD OF REVIEW
The standard of review for a motion for reargument under Superior Court Rule of Civil
Procedure 59(e) is well settled law. Such a motion “will be denied unless the Court has overlooked
a controlling precedent or legal principles, or the Court has misapprehended the law or facts such
as would have changed the outcome of the underlying decision.”2 Furthermore, a motion for
reargument is not intended to raise new arguments which could have been raised at an earlier point
in the proceedings.3
III. DISCUSSION
Defendant has not shown that the Court overlooked controlling precedent On the contrary,
the Court carefully considered the applicable cases and found that the Bridev One opinion was the
better reasoned position.4 The idea that the June 19th Order rendered the statute at issue moot is
not persuasive. Additionally, Defendant has cited no legal precedent, other than the December 19,
2018 opinion, to convince the Court that the June 19th Order was in error. He argues that the
Court’s decision was unprecedented In light of the Court’s analysis of Bria’ev One, it finds this
1 Pls.’ Resp. Def.’s Mot. Reargument 3.
2 Board of Managers of the Delaware Criminal Justice Information System v. Gannett Co., 2003 WL 1579170, at *1
(Del. Super. Ct Jan. 17, 2003)(intemal citations omitted).
3 Id.; Plummer v. Sherman, 2004 WL 63414, at *2 (Del. Super. Ct. Jan. 14, 2004)(intemal citations omitted).
4 While the cases considered by the Court may have had a stronger focus on the issuance of a charging order rather
than the execution of one, they are still informative on the issue at hand.
argument unpersuasive as well. Furthermore, the June 19th Order did not contain any factual
errors that would have changed the outcome of the decision.
IV. CONCLUSION
Considering the foregoing, the Court finds that no controlling precedent or legal principle
has been overlooked and that there has been no misapprehension of the law or facts of this case.
Therefore, Defendant’s Motion for Reargument is DENIED.
IT IS SO ORDERED.
cc: Prothonotary | 01-03-2023 | 07-02-2018 |
https://www.courtlistener.com/api/rest/v3/opinions/112883/ | 508 U.S. 602 (1993)
CONCRETE PIPE & PRODUCTS OF CALIFORNIA, INC.
v.
CONSTRUCTION LABORERS PENSION TRUST FOR SOUTHERN CALIFORNIA
No. 91-904.
United States Supreme Court.
Argued December 1, 1992.
Decided June 14, 1993.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
*603 *604 Souter, J., delivered the opinion of the Court, which was unanimous except insofar as O'Connor, J., did not join the statement to which n. 28 is attached, Scalia, J., did not join Part IIIB-1b, and Thomas, J., did not join Part IIIB-1. O'Connor, J., filed a concurring opinion, post, p. 647. Thomas, J., filed an opinion concurring in part and concurring in the judgment, post, p. 649.
Dennis R. Murphy argued the cause for petitioner. With him on the briefs was James M. Nelson.
John S. Miller, Jr., argued the cause and filed a brief for respondent.
Carol Connor Flowe argued the cause for the Pension Benefit Guaranty Corporation as amicus curiae urging affirmance. With her on the brief were Jeffrey B. Cohen and Israel Goldowitz.[*]
*605 Justice Souter delivered the opinion of the Court.[1]
Respondent Construction Laborers Pension Trust for Southern California (Plan) is a multiemployer pension trust fund established under a Trust Agreement executed in 1962. Petitioner Concrete Pipe and Products of California, Inc. (Concrete Pipe), is an employer and former contributor to the Plan that withdrew from it and was assessed "withdrawal liability" under provisions of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U. S. C. §§ 1301-1461 (1988 ed. and Supp. III), added by the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), Pub. L. 96-364, 94 Stat. 1208. Concrete Pipe contends that the MPPAA's assessment and arbitration provisions worked to deny it procedural due process. And, although we have upheld the MPPAA against constitutional challenge under the substantive component of the Due Process Clause and the Takings Clause, Pension Benefit Guaranty Corporation v. R. A. Gray & Co., 467 U. S. 717 (1984); Connolly v. Pension Benefit Guaranty Corporation, 475 U. S. 211 (1986), Concrete Pipe contends that, as applied to it, the MPPAA violates these provisions as well. We see merit in none of Concrete Pipe's contentions.
I
A pension plan like the one in issue, to which more than one employer contributes, is characteristically maintained to fulfill the terms of collective-bargaining agreements. The contributions made by employers participating in such a multiemployer plan are pooled in a general fund available to pay any benefit obligation of the plan. To receive benefits, an *606 employee participating in such a plan need not work for one employer for any particular continuous period. Because service credit is portable, employees of an employer participating in the plan may receive such credit for any work done for any participating employer. An employee obtains a vested right to secure benefits upon retirement after accruing a certain length of service for participating employers; benefits vest under the Plan in this case when an employee accumulates 10 essentially continuous years of credit. See Brief for Petitioner 28.
Multiemployer plans like the one before us have features that are beneficial in industries where
"there [is] little if any likelihood that individual employers would or could establish single-employer plans for their employees . . . [,] where there are hundreds and perhaps thousands of small employers, with countless numbers of employers going in and out of business each year, [and where] the nexus of employment has focused on the relationship of the workers to the union to which they belong, and/or the industry in which they are employed, rather than to any particular employer." Multiemployer Pension Plan Termination Insurance Program: Hearings before the Subcommittee on Oversight of the House Committee on Ways and Means, 96th Cong., 1st Sess., 50 (1979) (statement of Robert A. Georgine, Chairman, National Coordinating Committee for Multiemployer Plans).
Multiemployer plans provide the participating employers with such labor market benefits as the opportunity to offer a pension program (a significant part of the covered employees' compensation package) with cost and risk-sharing mechanisms advantageous to the employer. The plans, in consequence, help ensure that each participating employer will have access to a trained labor force whose members are able to move from one employer and one job to another without *607 losing service credit toward pension benefits. See 29 CFR § 2530.210(c)(1) (1991); accord, Washington Star Co. v. International Typographical Union Negotiated Pension Plan, 582 F. Supp. 301, 304 (DC 1983).
Since the enactment of ERISA in 1974, the Plan has been subject to the provisions of the statute as a "defined benefit plan." Such a plan is one that does not qualify as an "`individual account plan' or `defined contribution plan,'" which provide, among other things, for an individual account for each covered employee and for benefits based solely upon the amount contributed to the covered employee's account. See 29 U. S. C. §§ 1002(35), 1002(34), 1002(7). Concrete Pipe has not challenged the determination that the Plan falls within the statutory definition of defined benefit plan, and no issue as to that is before the Court.
A
We have canvassed the history of ERISA and the MPPAA before. See Pension Benefit Guaranty Corporation v. R. A. Gray & Co., supra; Connolly v. Pension Benefit Guaranty Corporation, supra. ERISA was designed "to ensure that employees and their beneficiaries would not be deprived of anticipated retirement benefits by the termination of pension plans before sufficient funds have been accumulated in [them]. . . . Congress wanted to guarantee that if a worker has been promised a defined pension benefit upon retirementand if he has fulfilled whatever conditions are required to obtain a vested benefithe will actually receive it." Id., at 214 (citations and internal quotation marks omitted). As enacted in 1974, ERISA created the Pension Benefit Guarantee Corporation (PBGC) to administer and enforce a pension plan termination insurance program, to which contributors to both single-member and multiemployer plans were required to pay insurance premiums. 29 U. S. C. §§ 1302(a), 1306 (1988 ed. and Supp. III). Under the terms of the statute as originally enacted, the guarantee of basic *608 benefits by multiemployer plans that terminated was not to be mandatory until 1978, and for terminations prior to that time, any guarantee of benefits upon plan termination was discretionary with PBGC. 29 U. S. C. §§ 1381(c)(2)(4) (1976 ed.). If PBGC did choose to extend a guarantee when a multiemployer plan terminated with insufficient assets to pay promised benefits, an employer that had contributed to the plan in the five preceding years was liable to PBGC for the shortfall in proportion to its share of contributions during that 5-year period, up to 30 percent of the employer's net worth. 29 U. S. C. §§ 1362(b), 1364 (1976 ed.). "In other words, any employer withdrawing from a multiemployer plan was subject to a contingent liability that was dependent upon the plan's termination in the next five years and the PBGC's decision to exercise its discretion and pay guaranteed benefits." Gray, 467 U. S., at 721.
"As the date for mandatory coverage of multiemployer plans approached, Congress became concerned that a significant number of plans were experiencing extreme financial hardship." Ibid. Indeed, the possibility of liability upon termination of a plan created an incentive for employers to withdraw from weak multiemployer plans. Connolly, 475 U. S., at 215. The consequent risk to the insurance system was unacceptable to Congress, which in 1978 postponed the mandatory guarantee pending preparation by the PBGC of a report "analyzing the problems of multiemployer plans and recommending possible solutions." Ibid. PBGC issued that report on July 1, 1978. Pension Benefit Guaranty Corporation, Multiemployer Study Required by P. L. 95-214 (1978). "To alleviate the problem of employer withdrawals, the PBGC suggested new rules under which a withdrawing employer would be required to pay whatever share of the plan's unfunded liabilities was attributable to that employer's participation." Connolly, 475 U. S., at 216 (citation and internal quotation marks omitted).
*609 Congress ultimately agreed, see id., at 217, and passed the MPPAA, which was signed into law by the President on September 26, 1980. Under certain provisions of the MPPAA (which when enacted had an effective date of April 29, 1980, 29 U. S. C. § 1461(e)(2)(A) (1976 ed., Supp. V)), if an employer withdraws from a multiemployer plan, it incurs "withdrawal liability" in the form of "a fixed and certain debt to the pension plan." Gray, supra, at 725. An employer's withdrawal liability is its "proportionate share of the plan's `unfunded vested benefits,'" that is, "the difference between the present value of vested benefits" (benefits that are currently being paid to retirees and that will be paid in the future to covered employees who have already completed some specified period of service, 29 U. S. C. § 1053) "and the current value of the plan's assets. 29 U. S. C. §§ 1381, 1391." Gray, supra, at 725.[2]
B
The MPPAA provides the procedure for calculating and assessing withdrawal liability. The plan's actuary, who is subject to regulatory and professional standards, 29 U. S. C. §§ 1241, 1242; 26 U. S. C. § 7701(a)(35), must determine the present value of the plan's liability for vested benefits.[3] In the absence of regulations promulgated by the PBGC, the actuary must employ "actuarial assumptions and methods which, in the aggregate, are reasonable (taking into account the experience of the plan and reasonable expectations) and which, in combination, offer the actuary's best estimate of anticipated experience under the plan." 29 U. S. C. *610 § 1393(a)(1).[4] The assumptions must cover such matters as mortality of covered employees, likelihood of benefits vesting, and, importantly, future interest rates. After settling the present value of vested benefits, the actuary calculates the unfunded portion by deducting the value of the plan's assets. § 1393(c).
In order to determine a particular employer's withdrawal liability, the unfunded vested liability is allocated under one of several methods provided by law. § 1391. In this case, the Plan used the presumptive method of § 1391(b), which bases withdrawal liability on the proportion of total employer contributions to the plan made by the withdrawing employer during certain 5-year periods. See §§ 1391(b)(2) (E)(ii), (b)(3)(B), (b)(4)(D)(ii). In essence, the withdrawal liability imposes on the withdrawing employer a share of the unfunded vested liability proportional to the employer's share of contributions to the plan during the years of its participation.
Withdrawal liability is assessed in a notification by the "plan sponsor" (here the trustees, see § 1301(a)(10)(A)) and a demand for payment. § 1399(b). The statute requires notification and demand to be made "[a]s soon as practicable after an employer's complete or partial withdrawal." § 1399(b)(1). A "complete withdrawal"
"occurs when an employer
"(1) Permanently ceases to have an obligation to contribute under the plan, or
"(2) permanently ceases all covered operations under the plan." § 1383(a).[5]
*611 "[T]he date of a complete withdrawal is the date of the cessation of the obligation to contribute or the cessation of covered operations." § 1383(e).
The statute provides that if an employer objects after notice and demand for withdrawal liability, and the parties cannot resolve the dispute, § 1399(b)(2), it shall be referred to arbitration. See § 1401(a)(1). Two presumptions may attend the arbitration. First, "any determination made by a plan sponsor under [29 U. S. C. §§ 1381-1399 and 1405 (1988 ed. and Supp. III)] is presumed correct unless the party contesting the determination shows by a preponderance of the evidence that the determination was unreasonable or clearly erroneous." 29 U. S. C. § 1401(a)(3)(A). Second, the sponsor's calculation of a plan's unfunded vested benefits
"is presumed correct unless a party contesting the determination shows by a preponderance of evidence that
"(i) the actuarial assumptions and methods used in the determination were, in the aggregate, unreasonable (taking into account the experience of the plan and reasonable expectations), or
"(ii) the plan's actuary made a significant error in applying the actuarial assumptions or methods." § 1401(a) (3)(B).
The statute provides for judicial review of the arbitrator's decision by an action in the district court to enforce, vacate, or modify the award. See § 1401(b)(2). In any such action "there shall be a presumption, rebuttable only by a clear preponderance of the evidence, that the findings of fact made by the arbitrator were correct." § 1401(c).
II
The parties to the Trust Agreement creating the Plan in 1962 are the Southern California District Council of Laborers (Laborers) and three associations of contractors, the *612 Building Industry of California, Inc., the Engineering Contractors Association, and the Southern California Contractors Association, Inc. App. 75, ¶ 6 (stipulation of facts filed in the District Court). Under § 302(c)(5)(B) of the Labor Management Relations Act, 1947 (LMRA), 29 U. S. C. § 186(c)(5)(B), when a union participates in management of a plan permitted by the LMRA, the plan must be administered jointly by representatives of labor and management. Accordingly, half of the Plan's trustees are selected by the Laborers, and half by these contractors' associations. Concrete Pipe has never been a member of any of the contractors' associations that are parties to the Trust Agreement.
In 1976, Concrete Pipe, which is a wholly owned subsidiary of Concrete Pipe and Products Co., Inc., purchased certain assets of another company, Cen-Vi-Ro, including a concrete pipe manufacturing plant near Shafter, California, which Concrete Pipe continued to operate much as Cen-Vi-Ro had done. Cen-Vi-Ro had collective-bargaining agreements with several unions including the Laborers, and Concrete Pipe abided by the agreement with the latter by contributing to the Plan at a specified rate for each hour worked by a covered employee.[6] In 1978, Concrete Pipe negotiated a new 3-year contract with the Laborers that called for continuing contributions to be made to the Plan based on hours worked by covered employees in the collective-bargaining unit.[7] The collective-bargaining agreement specified that it would remain in effect until June 30, 1981, and thereafter from year to year unless either Concrete Pipe or the Laborers gave notice of a desire to renegotiate or terminate it. "`Such written notice [was to] be given at least sixty (60) *613 days prior to June 30 . . . [and if] no agreement [was] reached by June 30 . . . the Employer or the [Laborers might] thereafter give written notice to the other that on a specified date [at least] fifteen (15) days [thereafter] the Agreement [should] be considered terminated.'" App. 76.
In August 1979, Concrete Pipe stopped production at the Shafter facility. Although the details do not matter here, by October 1979, work by employees covered by the agreement with the Laborers had virtually ceased, and Concrete Pipe eventually stopped making contributions to the Plan. In the spring of 1981, Concrete Pipe and the Laborers each sent the other a timely notice of a desire to renegotiate the collective-bargaining agreement. Concrete Pipe subsequently bargained to an impasse and, on November 30, 1981, sent the Laborers a letter withdrawing recognition of that union as an employee representative, and giving notice of intent to terminate the 1978 collective-bargaining agreement. At about the same time, however, in November 1981, Concrete Pipe reopened the Shafter plant to produce 7,000 tons of concrete pipe needed to fill two orders for which it had successfully bid. It hired employees in classifications covered by its prior agreement with the Laborers, but did not contribute to the Plan for their work.
In January 1982, the Plan notified Concrete Pipe of withdrawal liability claimed to amount to $268,168.81. See id., at 89-94. Although the demand letter did not specify the date on which the Plan contended that "complete withdrawal" from it had taken place, it referred to the failure of Concrete Pipe to make contributions to the Plan since February 1981, and stated that "[w]e are further advised that you have not signed a renewal of a collective bargaining agreement obligating you to continue contributions to the Plan on behalf of the Construction laborers currently in your employ." Id., at 90.
The Plan filed suit seeking the assessed withdrawal liability. Concrete Pipe countersued to bar collection, contending *614 that "complete withdrawal" had occurred when operations at the Shafter plant ceased in August 1979, a date prior to the effective date of the MPPAA, and challenging the MPPAA on constitutional grounds. These cases were consolidated in the United States District Court for the Central District of California, which sua sponte ordered the parties to arbitrate the issue of whether withdrawal occurred prior to the effective date of the MPPAA.[8]
The arbitration took place in two phases. In the first, the arbitrator determined that Concrete Pipe had not withdrawn from the Plan prior to the effective date of the MPPAA. App. 216. In the second phase, explicitly applying the presumption of 29 U. S. C. § 1401(a)(3)(B), the arbitrator found that Concrete Pipe had failed to meet its burden of showing the actuarial assumptions and methods to be unreasonable in the aggregate. App. 400. For reasons not at issue here, the arbitrator did rule partially in Concrete Pipe's favor, and reduced the withdrawal liability from $268,168.81 to $190,465.57.
Concrete Pipe then filed a third action in the District Court, to set aside or modify the arbitrator's decision, and again raised its constitutional challenge. Id., at 406. The District Court treated Concrete Pipe's subsequent motion for summary judgment as a petition to vacate the arbitrator's award, which it denied, and granted a motion by the Plan to confirm the award. Construction Laborers Pension Trust for Southern California v. Cen-Vi-Ro Concrete Pipe *615 and Products, CV-82-5184HLH (CD Cal., July 5, 1989), App. 416-425.[9] On Concrete Pipe's appeal, the judgment of the District Court was affirmed. Board of Trustees of Construction Laborers Pension Trust for Southern California v. Concrete Pipe and Products of California, Inc., No. 89-55854 (CA9, June 27, 1991), App. 431-432, judgt. order reported at 936 F. 2d 576. We granted certiorari limited to two questions presented, which are set out in the margin. 504 U. S. 940 (1992).[10]
III
Concrete Pipe challenges the assessment of withdrawal liability on several grounds, the first being that by placing determination of withdrawal liability in the trustees, subject to the presumptions provided by § 1401, the MPPAA is unconstitutional because it denies Concrete Pipe an impartial adjudicator. This is not the first time this legal question has been before the Court. See Pension Benefit Guaranty Corporation v. Yahn & McDonnell, Inc., 481 U. S. 735 (1987), aff'g by an equally divided Court United Retail & Wholesale Employees Teamsters Union Local No. 115 Pension Plan v. Yahn & McDonnell, Inc., 787 F. 2d 128 (CA3 1986).
*616 A
1
Concrete Pipe and its amici point to several potential sources of trustee bias toward imposing the greatest possible withdrawal liability. The one they emphasize most strongly has roots in the fact that "all of the trustees, including those selected by employers, are fiduciaries of the fund, 29 U. S. C. § 1002(21)([A]), and thus owe an exclusive duty to the fund." Id., at 139 (emphasis omitted). As we said in another case discussing employee benefit pension plans permitted under LMRA:
"Under principles of equity, a trustee bears an unwavering duty of complete loyalty to the beneficiary of the trust, to the exclusion of the interests of all other parties. To deter the trustee from all temptation and to prevent any possible injury to the beneficiary, the rule against a trustee dividing his loyalties must be enforced with `uncompromising rigidity.'
. . . . .
"In sum, the duty of the management-appointed trustee of an employee benefit fund under § 302(c)(5) is directly antithetical to that of an agent of the appointing party. . . . ERISA essentially codified the strict fiduciary standards that a § 302(c)(5) trustee must meet. [Title 29 U. S. C. § 1104(a)(1)] requires a trustee to `discharge his duties . . . solely in the interest of the participants [i. e., covered employees] and beneficiaries.'" NLRB v. Amax Coal Co., 453 U. S. 322, 329-332 (1981) (citations and footnote omitted).
The resulting tug away from the interest of the employer is fueled by the threat of personal liability for any breach of the trustees' fiduciary responsibilities, obligations, or duties, 29 U. S. C. § 1109, which may be enforced by civil actions brought by the Secretary of Labor or any covered employee or beneficiary of the plan, § 1132(a)(2).
*617 The trustees could act in a biased fashion for several reasons. The most obvious would be in attempting to maximize assets available for the beneficiaries of the trust by making findings to enhance withdrawal liability. The next would not be so selfless, for if existing underfunding was the consequence of prior decisions of the trustees, those decisions could, if not offset, leave the trustees open to personal liability. See Brief for American Trucking Associations, Inc., as Amicus Curiae 9. A risk of bias may also inhere in the mere fact that, fiduciary obligations aside, the trustees are appointed by the unions and by employers. Union trustees may be thought to have incentives, unrelated to the question of withdrawal, to impose greater rather than lesser withdrawal liability. Employer trustees may be responsive to concerns of those employers who continue to contribute, whose future burdens may be reduced by high withdrawal liability, and whose competitive position may be enhanced to boot. See Brief for Midwest Motor Express, Inc., et al. as Amici Curiae 8, citing Note, Trading Fairness for Efficiency: Constitutionality of the Dispute Resolution Procedures of the Multiemployer Pension Plan Amendments Act of 1980, 71 Geo. L. J. 161, 168 (1982).
As against these supposed threats to the trustees' neutrality, due process requires a "neutral and detached judge in the first instance," Ward v. Village of Monroeville, 409 U. S. 57, 61-62 (1972), and the command is no different when a legislature delegates adjudicative functions to a private party, see Schweiker v. McClure, 456 U. S. 188, 195 (1982). "That officers acting in a judicial or quasi-judicial capacity are disqualified by their interest in the controversy to be decided is, of course, the general rule." Tumey v. Ohio, 273 U. S. 510, 522 (1927). Before one may be deprived of a protected interest, whether in a criminal or civil setting, see Marshall v. Jerrico, Inc., 446 U. S. 238, 242, and n. 2 (1980), one is entitled as a matter of due process of law to an adjudicator who is not in a situation "`which would offer a possible *618 temptation to the average man as a judge . . . which might lead him not to hold the balance nice, clear and true . . . ." Ward, supra, at 60 (quoting Tumey, supra, at 532). Even appeal and a trial de novo will not cure a failure to provide a neutral and detached adjudicator. 409 U. S., at 61.
"[J]ustice," indeed, "must satisfy the appearance of justice, and this stringent rule may sometimes bar trial [even] by judges who have no actual bias and who would do their very best to weigh the scales of justice equally between contending parties." Marshall v. Jerrico, Inc., supra, at 243 (citations and internal quotation marks omitted). This, too, is no less true where a private party is given statutory authority to adjudicate a dispute, and we will assume that the possibility of bias, if only that stemming from the trustees' statutory role and fiduciary obligation, would suffice to bar the trustees from serving as adjudicators of Concrete Pipe's withdrawal liability.
2
The assumption does not win the case for Concrete Pipe, however, for a further strand of governing law has to be applied. Not all determinations affecting liability are adjudicative, and the "`rigid requirements' . . . designed for officials performing judicial or quasi-judicial functions, are not applicable to those acting in a prosecutorial or plaintiff-like capacity." 446 U. S., at 248. Where an initial determination is made by a party acting in an enforcement capacity, due process may be satisfied by providing for a neutral adjudicator to "conduct a de novo review of all factual and legal issues." Cf. id., at 245; see also id., at 247-248, and n. 9; cf. Withrow v. Larkin, 421 U. S. 35, 58 (1975) ("Clearly, if the initial view of the facts based on the evidence derived from nonadversarial processes as a practical or legal matter foreclosed fair and effective consideration at a subsequent adversary hearing leading to ultimate decision, a substantial due process question would be raised").
*619 The distinction between adjudication and enforcement disposes of the claim that the assumed bias or appearance of bias in the trustees' initial determination of withdrawal liability alone violates the Due Process Clause, much as it did the similar claim in Marshall v. Jerrico. Although we were faced there with a federal agency administrator who determined violations of a child labor law and assessed penalties under the statute, we concluded that the administrator could not be held to the high standards required of those "whose duty it is to make the final decision and whose impartiality serves as the ultimate guarantee of a fair and meaningful proceeding in our constitutional regime." 446 U. S., at 250. Of the administrator there we said, "He is not a judge. He performs no judicial or quasi-judicial functions. He hears no witnesses and rules on no disputed factual or legal questions. The function of assessing a violation is akin to that of a prosecutor or civil plaintiff." Id., at 247.
This analysis applies with equal force to the trustees, who, we find, act only in an enforcement capacity. The statute requires the plan sponsor, here the trustees, to notify the employer of the amount of withdrawal liability and to demand payment, 29 U. S. C. § 1399(b)(1), actions that bear the hallmarks of an assessment, not an adjudication. The trustees are not required to hold a hearing, to examine witnesses, or to adjudicate the disputes of contending parties on matters of fact or law.[11] In Marshall, we observed that an employer "except[ing] to a penalty . . . is entitled to a de novo hearing before an administrative law judge," 446 U. S., at 247, and we concluded that this latter proceeding was the *620 "initial adjudication," id., at 247, n. 9. Likewise here, we conclude that the first adjudication is the proceeding that occurs before the arbitrator, not the trustees' initial determination of liability.[12]
B
This does not end our enquiry, however, for Concrete Pipe goes on to argue that the statutory presumptions preserve the trustees' bias by limiting the arbitrator's autonomy to determine withdrawal liability, and thereby work to deny the employer a fair adjudication.
1
Under the first provision at issue here, "any determination made by the plan sponsor under [29 U. S. C. §§ 1381-1399 and 1405] is presumed correct unless the party contesting the determination shows by a preponderance of the evidence that the determination was unreasonable or clearly erroneous." 29 U. S. C. § 1401(a)(3)(A). Concrete Pipe argues that this presumption denied it an impartial adjudicator on the issue of its withdrawal date, thus raising a constitutional question on which the Courts of Appeals have divided.[13]
*621 The parties apparently agree that this presumption applies only to factual determinations, see Reply Brief for Petitioner 17; Brief for Respondent 24 (deferring to brief for the PBGC as amicus curiae ); Brief for Pension Benefit Guaranty Corporation as Amicus Curiae 10, and n. 11, and this position is consistent with a PBGC regulation requiring the arbitrator "[i]n reaching his decision [to] follow applicable law, as embodied in statutes, regulations, court decisions, interpretations of the agencies charged with the enforcement of the Act, and other pertinent authorities," 29 CFR § 2641.4(a)(1) (1992). We will assume for purposes of this case that the regulation reflects a sound reading of the statute.[14]
a
It is clear that the presumption favoring determinations of the plan sponsor shifts a burden of proof or persuasion to the employer. The hard question is what the employer must show under the statute to rebut the plan sponsor's factual determinations, that is, how and to what degree of probability the employer must persuade the arbitrator that the sponsor was wrong. The question is hard because the statutory text refers to three different concepts in identifying this burden: "preponderance," "clearly erroneous," and "unreasonable."
*622 The burden of showing something by a "preponderance of the evidence," the most common standard in the civil law, "simply requires the trier of fact `to believe that the existence of a fact is more probable than its nonexistence before [he] may find in favor of the party who has the burden to persuade the [judge] of the fact's existence.'" In re Winship, 397 U. S. 358, 371-372 (1970) (Harlan, J., concurring) (brackets in original) (citation omitted). "A finding is `clearly erroneous' when although there is evidence to support it, the reviewing [body] on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U. S. 364, 395 (1948). A showing of "unreasonableness" would require even greater certainty of error on the part of a reviewing body. See, e. g., Anderson v. Liberty Lobby, Inc., 477 U. S. 242, 252 (1986).
In creating the presumption at issue, these terms are combined in a very strange way. As our descriptions indicate, the first, "preponderance," is customarily used to prescribe one possible burden or standard of proof before a trier of fact in the first instance, as when the proponent of a proposition loses unless he proves a contested proposition by a preponderance of the evidence. The term thus belongs in the same category with "clear and convincing" and "beyond a reasonable doubt," which are also used to prescribe standards of proof (but when greater degrees of certainty are thought necessary). Before any such burden can be satisfied in the first instance, the factfinder must evaluate the raw evidence, finding it to be sufficiently reliable and sufficiently probative to demonstrate the truth of the asserted proposition with the requisite degree of certainty.
The second and third terms differ from the first in an important way. They are customarily used to describe, not a degree of certainty that some fact has been proven in the first instance, but a degree of certainty that a factfinder in the first instance made a mistake in concluding that a fact *623 had been proven under the applicable standard of proof. They are, in other words, standards of review, and they are normally applied by reviewing courts to determinations of fact made at trial by courts that have made those determinations in an adjudicatory capacity (unlike the trustees here). See, e. g., Fed. Rule Civ. Proc. 52(a). As the terms readily indicate, a reviewing body characteristically examines prior findings in such a way as to give the original factfinder's conclusions of fact some degree of deference. This makes sense because in many circumstances the costs of providing for duplicative proceedings are thought to outweigh the benefits (the second would render the first ultimately useless), and because, in the usual case, the factfinder is in a better position to make judgments about the reliability of some forms of evidence than a reviewing body acting solely on the basis of a written record of that evidence. Evaluation of the credibility of a live witness is the most obvious example.
Thus, review under the "clearly erroneous" standard is significantly deferential, requiring a "definite and firm conviction that a mistake has been committed." And application of a reasonableness standard is even more deferential than that, requiring the reviewer to sustain a finding of fact unless it is so unlikely that no reasonable person would find it to be true, to whatever the required degree of proof.
The strangeness in the statutory language creating the first presumption arises from the combination of terms from the first category (burdens of proof) with those from the second (standards of review). It is true, of course, that this apparent confusion of categories may have resulted from the hybrid nature of the arbitrator's proceeding in which it is supposed to be applied. The arbitrator here does not function simply as a reviewing body in the classic sense, for he is not only obliged to enquire into the soundness of the sponsor's determinations when they are challenged, but may receive new evidence in the course of his review and adopt his own conclusions of fact. He may conduct proceedings in the *624 same manner and with the same powers as an arbitrator may do under Title 9 of the United State Code, see 29 U. S. C. § 1401(b)(3), being authorized, for example, to hear (indeed to subpoena) witnesses and to take evidence. See 9 U. S. C. § 7; 29 U. S. C. § 1401(b)(3) (making specific reference to subpoena power). He is, then, a reviewing body (as is clear from his obligation, absent a contrary showing, to deem certain determinations by the plan sponsor correct), but a reviewing body invested with the further powers of a finder of fact (as is clear from his power to take evidence in the course of his review and from the presumption of correctness that a district court is bound to give his "findings of fact," § 1401(c)). The arbitrator may thus provide a dual sort of trial and review, ultimately empowered to draw his own conclusions, and it would make sense to describe his different functions respectively by the language of trial and the language of review.
It does not, however, make sense to use the language of trial and the language of review as the statute does, for the statute does not refer to different arbitrator's functions in language appropriate to each; it refers, rather, to one single conclusion that must be drawn about a determination previously made by a plan sponsor. By its terms the statute purports to provide a standard for reviewing the sponsor's findings, and it defines the nature of the conclusion the arbitrator must draw by using a combination of terms that are categorically ill-matched. They are also inconsistent with each other on any reading. As used here, as distinct from its more usual context, the statutory phrase authorizing the arbitrator to reject a factual conclusion upon proof by a "preponderance" implies review of the sponsor's determination on the basis of the record, supplemented by any new evidence, for simple error. If this statutory phrase were given effect, and the arbitrator concluded from a review of the record and of new evidence that a finding of fact was more probably wrong than not, it would be rejected, and a different *625 finding might be substituted. On the other hand, requiring a showing that the sponsor's determination was "clearly erroneous" or "unreasonable" would grant the plan sponsor's factual findings a great deal of deference. But to say in this context that one must demonstrate that something is more probably clearly erroneous than not or more probably than not unreasonable is meaningless. One might as intelligibly say, in a trial court, that a criminal prosecutor is bound to prove each element probably true beyond a reasonable doubt. The statute is thus incoherent with respect to the degree of probability of error required of the employer to overcome a factual conclusion made by the plan sponsor.[15]
The proper response to this incomprehensibility is obviously important in deciding this case. If it permitted an employer to rebut the plan sponsor's factual conclusions by a *626 preponderance, merely placing a burden of persuasion on the employer, and permitting adjudication of the facts by the arbitrator without affording deference to the plan sponsor's determinations, the provision would be constitutionally unremarkable. For although we have observed that "[w]here the burden of proof lies on a given issue is, of course, rarely without consequence and frequently may be dispositive to the outcome of the litigation or application, . . . [o]utside the criminal law area, where special concerns attend, the locus of the burden of persuasion is normally not an issue of federal constitutional moment." Lavine v. Milne, 424 U. S. 577, 585 (1976) (footnote omitted). Concrete Pipe points to no special interest that would distinguish this from the normal case. It is indeed entirely sensible to burden the party more likely to have information relevant to the facts about its withdrawal from the Plan with the obligation to demonstrate that facts treated by the Plan as amounting to a withdrawal did not occur as alleged. Such was the rule at common law. W. Bailey, Onus Probandi 1 (1886) (citing Powell on Evidence 167-171) ("In every case the onus probandi lies on the party who wishes to support his case by a particular fact which lies more peculiarly within his knowledge, or of which he is supposed to be cognizant").
On the other hand, if the employer were required to show the trustees' findings to be either "unreasonable or clearly erroneous," there would be a substantial question of procedural fairness under the Due Process Clause. In essence, the arbitrator provided for by the statute would be required to accept the plan sponsor's findings, even if they were probably incorrect, absent a showing at least sufficient to instill a definite or firm conviction that a mistake had been made. Cf. Withrow v. Larkin, 421 U. S., at 58. In light of our assumption of possible bias, the employer would seem to be deprived thereby of the impartial adjudication in the first instance to which it is entitled under the Due Process Clause. See supra, at 617-618.
*627 b
Having found the statutory language itself incoherent, we turn, as we would in the usual case of textual ambiguity, to the legislative purpose as revealed by the history of the statute, for such light as it may shed.[16] Unsurprisingly, we have found no direct discussion in the legislative history of the degree of certainty on the part of the arbitrator required for the employer to overcome the sponsor's factual conclusions. The Report of the House Committee on Education and Labor on the bill that became the MPPAA describes the presumption as applying to "a determination of withdrawal liability by a plan," and lumps it together with the statutory presumption, discussed below, that applies to the choice of actuarial assumptions and methods. See H. R. Rep. No. 96-869, pt. 1, p. 86 (1980); 29 U. S. C. § 1401(a)(3)(B).[17] The Report states that
*628 "[t]hese rules are necessary in order to ensure the enforceability of employer liability. In the absence of these presumptions, employers could effectively nullify their obligation by refusing to pay and forcing the plan sponsor to prove every element involved in making an actuarial determination. The committee believes it is extremely important that a withdrawn employer begin making the annual payments even though the period of years for which payments must continue will be based on the actual liability allocated to the employer." H. R. Rep. 96-869, pt. 1, supra, at 86.
The only other comment that we have found in the legislative history occurs in a Report prepared by the Senate Committee on Labor and Human Resources, which first purports to speak about both statutory presumptions, but directs its brief discussion to problems unique to "technical actuarial matters." See S. 1076: The Multiemployer Pension Plan Amendments Act of 1980: Summary and Analysis of Consideration, 96th Cong., 2d Sess., 20-21 (Comm. Print 1980) (hereinafter Committee Print); see also infra, at 635, and n. 20.
The legislative history thus sheds little light on the odd language chosen to describe the employer's burden. All it tells us is that the provision's purpose is to prevent the employer from "forcing the plan sponsor to prove every element involved in making an actuarial determination." Since this purpose would be served simply by placing the burden of proof as to historical fact on the employer, however light or heavy that burden may be, the legislative history does nothing to make sense of the drafter's failure to choose among the standards included in the text. c The only way out of the muddle is by a different rule of construction. It is a hoary one that, in a case of statutory ambiguity, "where an otherwise acceptable construction of *629 a statute would raise serious constitutional problems, the Court will construe the statute to avoid such problems unless such construction is plainly contrary to the intent of Congress." Edward J. DeBartolo Corp. v. Florida Gulf Coast Building & Construction Trades Council, 485 U. S. 568, 575 (1988). "Federal statutes are to be so construed as to avoid serious doubt of their constitutionality. `When the validity of an act of Congress is drawn in question, and even if a serious doubt of constitutionality israised, it is a cardinal principle that this Court will first ascertain whether a construction of the statute is fairly possible by which the question may be avoided.' Crowell v. Benson, 285 U. S. 22, 62 [(1932)]." Machinists v. Street, 367 U. S. 740, 749-750 (1961). Cf. Parsons v. Bedford, 3 Pet. 433, 448-449 (1830) (Story, J.) (a construction that would render a statute unconstitutional should be avoided); Murray v. Schooner Charming Betsy, 2 Cranch 64, 118 (1804) (Marshall, C. J.).
Although we are faced here not with ambiguity within the usual degree, but with incoherence, we have a common obligation in each situation to resolve the uncertainty in favor of definite meaning, and the canon for resolving ambiguity applies with equal force when terminology renders a statute incoherent. In applying that canon here, we must give effect to the one conclusion clearly supported by the statutory language, that Congress intended to shift the burden of persuasion to the employer in a dispute over a sponsor's factual determination. This objective can be realized without raising serious constitutional concerns simply by construing the presumption to place the burden on the employer to disprove a challenged factual determination by a preponderance. In so construing the statute we make no pretense to have read the congressional mind to perfection. We would not, indeed, even have this problem if an argument could not obviously be made that Congress intended greater deference than the preponderance standard extends. But one could hardly call the intent clear after wondering why the preponderance *630 standard was also included. In these circumstances it is enough that the choice to attain coherence by obviating constitutional problems is not "plainly contrary to the intent of Congress." DeBartolo, supra, at 575.
Because the statute as we construe it does not foreclose any factual issue from independent consideration by the arbitrator (the presumption is, again, assumed by all to be inapplicable to issues of law), there is no constitutional infirmity in it. For the same reason, that an employer may avail itself of independent review by the concededly neutral arbitrator, we find no derivative constitutional defect infecting the further presumption that a district court must afford to an arbitrator's findings of fact. See 29 U. S. C. § 1401(c).
d
Before applying the presumption to this case, one must recognize that in spite of Concrete Pipe's contention to the contrary, determining the date of "complete withdrawal" presents not a mere question of fact on which the arbitrator was required in the first instance to apply the § 1401(a)(3)(A) presumption, but a mixed question of fact and law. The relevant facts are about the closure of the Shafter plant (such as the intent of Concrete Pipe with respect to the plant, its expression of that intent, its activities while the plant was not operating, and the circumstances of the plant's reopening), while the question whether these facts amount to a "complete withdrawal" is one of law.
As to the truly factual issues, the arbitrator's decision fails to reveal the force with which factual conclusions by the trustees here were presumed correct, and in such a case we would ordinarily reverse the judgment below for consideration of the extent to which the arbitrator's application of the presumption was contrary to the construction we adopt today. But two reasons (urged upon us by neither party) persuade us not to take this course: the Plan's letter to Concrete Pipe contains no statement of facts justifying the trustees' *631 demand, and the parties entered into a factual stipulation in the District Court prior to commencing the arbitration. Because of these two circumstances, there were virtually no contested factual determinations to which the arbitrator might have deferred. And, on the one question of fact that may have been disputed, the arbitrator found, apparently in the first instance, that Concrete Pipe's intent in closing the Shafter plant had been to cease operations permanently. App. 213-214.[18]
While we express no opinion on whether the facts in this case constitute a "complete withdrawal" within the meaning of the statute, a question not before us today, the approach taken by the arbitrator and the courts below is not inconsistent with our interpretation of the first presumption. The determination of the date of withdrawal by the arbitrator did not involve a misapplication of the statutory presumption, and it did not deprive Concrete Pipe of its right to procedural due process.
2
The second presumption at issue attends the calculation of the amount of withdrawal liability. The statute provides that in the absence of more particular PBGC regulations, the plan is required to use "actuarial assumptions and methods which, in the aggregate, are reasonable (taking into account the experience of the plan and reasonable expectations) and which, in combination, offer the actuary's best estimate of anticipated experience under the plan." 29 U. S. C. § 1393(a)(1). The presumption in question arises under § 1401(a)(3)(B), which provides that
*632 "the determination of a plan's unfunded vested benefits for a plan year, [is] presumed correct unless a party contesting the determination shows by a preponderance of evidence that
"(i) the actuarial assumptions and methods used in the determination were, in the aggregate, unreasonable (taking into account the experience of the plan and reasonable expectations), or
"(ii) the plan's actuary made a significant error in applying the actuarial assumptions or methods."
Concrete Pipe's concern is with the presumptive force of the actuarial assumptions and methods covered by subsection (i).
While this provision is like its counterpart creating the presumption as to factual determinations in placing the burden of proof on the employer, the issues implicated in applying it to the actuary's work are not the same. As the text plainly indicates, the assumptions and methods used in calculating withdrawal liability are selected in the first instance not by the trustees, but by the plan actuary. For a variety of reasons, this actuary is not, like the trustees, vulnerable to suggestions of bias or its appearance. Although plan sponsors employ them, actuaries are trained professionals subject to regulatory standards. See 29 U. S. C. §§ 1241, 1242; 26 U. S. C. § 7701(a)(35). The technical nature of an actuary's assumptions and methods, and the necessity for applying the same assumptions and methods in more than one context, as a practical matter limit the opportunity an actuary might otherwise have to act unfairly toward the withdrawing employer. The statutory requirement (of "actuarial assumptions and methodswhich, in the aggregate, are reasonable . . . ") is not unique to the withdrawal liability context, for the statute employs identical language in 29 U. S. C. § 1082(c)(3) to describe the actuarial assumptions and methods to be used in determining whether a plan has satisfied the minimum funding requirements contained in the statute. The use of the same language to describe the actuarial *633 assumptions and methods to be used in these different contexts tends to check the actuary's discretion in each of them.
"Using different assumptions [for different purposes] could very well be attacked as presumptively unreasonable both in arbitration and on judicial review.
"[This] view that the trustees are required to act in a reasonably consistent manner greatly limits their discretion, because the use of assumptions overly favorable to the fund in one context will tend to have offsetting unfavorable consequences in other contexts. For example, the use of assumptions (such as low interest rates) that would tend to increase the fund's unfunded vested liability for withdrawal liability purposes would also make it more difficult for the plan to meet the minimum funding requirements of § 1082." United Retail & Wholesale Employees Teamsters Union Local No. 115 Pension Plan v. Yahn & McDonnell, Inc., 787 F. 2d, at 146-147 (Seitz, J., dissenting in part).
This point is not significantly blunted by the fact that the assumptions used by the Plan in its other calculations may be "supplemented by several actuarial assumptions unique to withdrawal liability." Brief for Respondent 26. Concrete Pipe has not shown that any method or assumption unique to the calculation of withdrawal liability is so manipulable as to create a significant opportunity for bias to operate, and arguably the most important assumption (in fact, the only actuarial assumption or method that Concrete Pipe attacks in terms, see Reply Brief for Petitioner 18-20) is the critical interest rate assumption that must be used for other purposes as well.[19]
*634 The second major difference attending the two presumptions lies in the sense of reasonableness that must be disproven by an employer attacking the actuary's methods and assumptions, as against the reasonableness of the trustees' determinations of historical fact. Following the usual presumption of statutory interpretation, that the same term carries the same meaning whenever it appears in the same Act, see Atlantic Cleaners & Dyers, Inc. v. United States, 286 U. S. 427, 433 (1932), we might expect "reasonable" in § 1401(a)(3)(B) to function here just as it did in § 1401(a) (3)(A), to denote a certain range of probability that a factual determination is correct. For several reasons, however, we think it clear that this second presumption of reasonableness functions quite differently.
First, of course, the statute does not speak in terms of disproving the reasonableness of the calculation of the employer's share of the unfunded liability, which would be the finding of future fact most obviously analogous to the findings of historical fact to which the § 1401(a)(3)(A) presumption applies. Section 1401(a)(3)(B) speaks instead of the aggregate reasonableness of the assumptions and methods employed by the actuary in calculating the dollar liability figure. Because a "method" is not "accurate" or probably "true" within some range, "reasonable" must be understood here to refer to some different kind of judgment, one that it would make sense to apply to a review of methodology as *635 well as of assumptions. Since the methodology is a subject of technical judgment within a recognized professional discipline, it would make sense to judge the reasonableness of a method by reference to what the actuarial profession considers to be within the scope of professional acceptability in making an unfunded liability calculation. Accordingly, an employer's burden to overcome the presumption in question (by proof by a preponderance that the actuarial assumptions and methods were in the aggregate unreasonable) is simply a burden to show that the combination of methods and assumptions employed in the calculation would not have been acceptable to a reasonable actuary. In practical terms it is a burden to show something about standard actuarial practice, not about the accuracy of a predictive calculation, even though consonance with professional standards in making the calculation might justify confidence that its results are sound.
As thus understood, the presumption in question supports no due process objection. The employer merely has a burden to show that an apparently unbiased professional, whose obligations tend to moderate any claimed inclination to come down hard on withdrawing employers, has based a calculation on a combination of methods and assumptions that falls outside the range of reasonable actuarial practice. To be sure, the burden may not be so "mere" when one considers that actuarial practice has been described as more in the nature of an "actuarial art" than a science, Keith Fulton & Sons v. New England Teamsters, 762 F. 2d 1137, 1143 (CA1 1985) (en banc) (internal quotation marks omitted), and that the employer's burden covers "technical actuarial matters with respect to which there are often several equally `correct' approaches," Committee Print 20-21.[20] But since imprecision *636 inheres in the choice of actuarial methods and assumptions, the resulting difficulty is simply in the nature of the beast. Because it must fall on whichever party bears the burden of persuasion on such an issue, at least where the interests at stake are no more substantial than Concrete Pipe's are here, its allocation to one party or another does not raise an issue of due process. See supra, at 625-626.
IV
Concrete Pipe argues next that, as applied, the MPPAA violates substantive due process and takes Concrete Pipe's property without just compensation, both in violation of the Fifth Amendment. As to these issues, our decisions in Gray and Connolly provide the principal guidance.
A
In Gray we upheld the MPPAA against substantive due process challenge. Unlike the employer in Gray, Concrete Pipe here has no complaint that the MPPAA has been retroactively applied by predicating liability on a withdrawal decision made before passage of the statute. To be sure, since there would be no withdrawal liability without prewithdrawal contributions to the Plan, some of which were made before the statutory enactment, some of the conduct upon which Concrete Pipe's liability rests antedates the statute. But this fact presents a far weaker premise for claiming a substantive due process violation even than the Gray employer raised, and rejection of Concrete Pipe's contention is compelled by our decisions not only in Gray, but in Usery v. Turner Elkhorn Mining Co., 428 U. S. 1 (1976), upon which the Gray Court relied.
*637 "`It is by now well established that legislative Acts adjusting the burdens and benefits of economic life come to the Court with a presumption of constitutionality, and that the burden is on one complaining of a due process violation to establish that the legislature has acted in an arbitrary and irrational way. See, e. g., Ferguson v. Skrupa, 372 U. S. 726 (1963); Williamson v. Lee Optical Co., 348 U. S. 483, 487-488 (1955).
. . . . .
"`[I]t may be that the liability imposed by the Act . . . was not anticipated at the time of actual employment. But our cases are clear that legislation readjusting rights and burdens is not unlawful solely because it upsets otherwise settled expectations. See Fleming v. Rhodes, 331 U. S. 100 (1947); Carpenter v. Wabash R. Co., 309 U. S. 23 (1940); Norman v. Baltimore & Ohio R. Co., 294 U. S. 240 (1935); Home Bldg. & Loan Assn. v. Blaisdell, 290 U. S. 398 (1934); Louisville & Nashville R. Co. v. Mottley, 219 U. S. 467 (1911). This is true even though the effect of the legislation is to impose a new duty or liability based on past acts. See Lichter v. United States, 334 U. S. 742 (1948); Welch v. Henry, 305 U. S. 134 (1938); Funkhouser v. Preston Co., 290 U. S. 163 (1933).' " Gray, 467 U. S., at 729-730, quoting Turner Elkhorn, supra, at 15-16 (footnotes omitted).
To avoid this reasoning, Concrete Pipe relies not merely on a claim of retroactivity, but on one of irrationality. Since the company contributed to the plan for only 3 12 years, it argues, none of its employees had earned vested benefits through employment by Concrete Pipe at the time of its withdrawal. See Brief for Petitioner 28. Concrete Pipe argues that, consequently, no rational relationship exists between its payment of past contributions and the imposition of liability for a share of the unfunded vested benefits.
But this argument simply ignores the nature of multiemployer plans, which, as we have said above, operate by *638 pooling contributions and liabilities. An employer's contributions are not solely for the benefit of its employees or employees who have worked for it alone. Thus, Concrete Pipe's presupposition that none of its employees had vested benefits at the time of its withdrawal may be wrong. An employee whose benefits had vested before coming to work for Concrete Pipe may have earned additional vested benefits by the subsequent covered service. Another may have had sufficient prior service credit to obtain vesting of benefits during employment at Concrete Pipe. A third may have attained vesting while working for other employers but based in part on service credits earned at Concrete Pipe.
But even if Concrete Pipe is correct and none of its employees had earned enough service credits for entitlement to vested benefits by the time of Concrete Pipe's withdrawal, as a Concrete Pipe employee each had earned service credits that could be built upon in future employment with any other participating employer. In determining whether the imposition of withdrawal liability is rational, then, the relevant question is not whether a withdrawing employer's employees have vested benefits, but whether an employer has contributed to the plan's probable liability by providing employees with service credits. When the withdrawing employer's liability to the plan is based on the proportion of the plan's contributions (and coincident service credits) provided by the employer during the employer's participation in the plan, the imposition of withdrawal liability is clearly rational.
It is true that, depending on the future employment of Concrete Pipe's former employees, the withdrawal liability assessed against Concrete Pipe may amount to more (or less) than the share of the Plan's liability strictly attributable to employment of covered workers at Concrete Pipe. But this possibility was exactly what Concrete Pipe accepted when it joined the Plan. A multi employer plan has features of an insurance scheme in which employers spread the risk that their employees will meet the plan's vesting requirements *639 and obtain an entitlement to benefits. A rational employer hopes that its employees will vest at a rate above the average for all employees of contributing employers, and that, in this way, it will pay less than it would have by creating a single-employer plan. But the rational employer also appreciates the foreseeable risk that circumstances may produce the opposite result.[21] Since the MPPAA spreads the unfunded vested liability among employers in approximately the same manner that the cost would have been spread if all of the employers participating at the time of withdrawal had seen the venture through, the withdrawal liability is consistent with the risks assumed on joining a plan (however inconsistent that liability may be with the employer's hopes). In any event, under the deferential standard of review applied in substantive due process challenges to economic legislation there is no need for mathematical precision in the fit between justification and means. See Turner Elkhorn, 428 U. S., at 19.
Concrete Pipe's substantive due process claim is not enhanced by its argument that the MPPAA imposes obligations upon it contrary to limitations on liability variously contained in the 1962 Trust Agreement,[22] in a collectivebargaining *640 agreement between the Laborers and multiemployer associations (the "1977-1980 Laborer's Craft Master Labor Agreement")[23] and in an appendix to the "Southern California Master Labor Agreements in 1977-1980."[24] Even assuming that all these provisions apply to Concrete Pipe,[25] its argument runs against the holding in Gray that federal economic legislation, which is not subject to constraints *641 coextensive with those imposed upon the States by the Contract Clause of Art. I, § 10, of the Federal Constitution, Gray, 467 U. S., at 733; United States Trust Co. of N. Y. v. New Jersey, 431 U. S. 1, 17, n. 13 (1977), is subject to due process review only for rationality, which, as we have said, is satisfied in the application of the MPPAA to Concrete Pipe.
Nor does the possibility that trustee decisions made "before [Concrete Pipe] entered [the Plan]" may have led to the unfunded liability alter the constitutional calculus. See Brief for Petitioner 31. Concrete Pipe's decision to enter the Plan after any such decisions were made was voluntary, and Concrete Pipe could at that time have assessed any implications for the Plan's future liability. Similarly, Concrete Pipe cannot rely on any argument based on the fact that, because it was not a member of any of the contractors' associations represented among the Plan's trustees, it had no control over decisions of the trustees after it entered the Plan that may have increased the unfunded liability. Again, Concrete Pipe could have assessed the implications for future liability of the identity of the trustees of the Plan before it decided to enter.[26] The imposition of withdrawal liability here is rationally related to the terms of Concrete Pipe's participation in the Plan it joined and that suffices for substantive due process scrutiny of this economic legislation.
B
Given that Concrete Pipe's due process arguments are unavailing, "it would be surprising indeed to discover" the challenged statute nonetheless violating the Takings Clause. Connolly, 475 U. S., at 223. Nor is there any violation. Following the analysis in Connolly, we begin with the contractual provisions relied upon from the Trust Agreement and *642 the collective-bargaining agreements, which we find no more helpful to Concrete Pipe than those adduced in the facial challenge brought in Connolly, as described in that opinion:
"By the express terms of the Trust Agreement and the Plan, the employer's sole obligation to the Pension Trust is to pay the contributions required by the collectivebargaining agreement. The Trust Agreement clearly states that the employer's obligation for pension benefits to the employee is ended when the employer pays the appropriate contribution to the Pension Trust. This is true even though the contributions agreed upon are insufficient to pay the benefits under the Plan." Id., at 218 (citations and footnotes omitted).
Indeed, one provision of the Trust Agreement on which Concrete Pipe primarily relies is substantially identical to the one at issue in Connolly Compare n. 22, supra, with Connolly, supra, at 218, n. 2.
We said in Connolly that "[a]ppellants' claim of an illegal taking gains nothing from the fact that the employer in the present litigation was protected by the terms of its contract from any liability beyond the specified contributions to which it had agreed. `Contracts, however express, cannot fetter the constitutional authority of Congress. Contracts may create rights of property, but when contracts deal with a subject matter which lies within the control of Congress, they have a congenital infirmity. Parties cannot remove their transactions from the reach of dominant constitutional power by making contracts about them.'
"If the regulatory statute is otherwise within the powers of Congress, therefore, its application may not be defeated by private contractual provisions." 475 U. S., at 223-224 (citations omitted). *643 Nothing has changed since these words were first written.[27]
Following Connolly, the next step in our analysis is to subject the operative facts, including the facts of the contractual relationship, to the standards derived from our prior Takings Clause cases. See id., at 224-225. They have identified three factors with particular significance for assessing the results of the required "ad hoc, factual inquir[y] into the circumstances of each particular case." Id., at 224. The first is the nature of the governmental action. Again, our analysis in Connolly applies with equal force to the facts before us today.
"[T]he Government does not physically invade or permanently appropriate any of the employer's assets for its own use. Instead, the Act safeguards the participants in multi employer pension plans by requiring a withdrawing employer to fund its share of the plan obligations incurred during its association with the plan. This interference with the property rights of an employer arises from a public program that adjusts the benefits and burdens of economic life to promote the common good and, under our cases, does not constitute a taking requiring Government compensation." Id., at 225.
We reject Concrete Pipe's contention that the appropriate analytical framework is the one employed in our cases dealing with permanent physical occupation or destruction of economically beneficial use of real property. See Lucas v. South Carolina Coastal Council, 505 U. S. 1003, 1015 (1992). While Concrete Pipe tries to shoehorn its claim into this analysis by asserting that "[t]he property of [Concrete Pipe] which is taken, is taken in its entirety," Brief for Petitioner *644 37, we rejected this analysis years ago in Penn Central Transp. Co. v. New York City, 438 U. S. 104, 130-131 (1978), where we held that a claimant's parcel of property could not first be divided into what was taken and what was left for the purpose of demonstrating the taking of the former to be complete and hence compensable. To the extent that any portion of property is taken, that portion is always taken in its entirety; the relevant question, however, is whether the property taken is all, or only a portion of, the parcel in question. Accord, Keystone Bituminous Coal Assn. v. DeBenedictis, 480 U. S. 470, 497 (1987) ("[O]ur test for regulatory taking requires us to compare the value that has been taken from the property with the value that remains in the property, [and] one of the critical questions is determining how to define the unit of property `whose value is to furnish the denominator of the fraction' ") (citation omitted).
There is no more merit in Concrete Pipe's contention that its property is impermissibly taken "for the sole purpose of protecting the PBGC [a government body] from being forced to honor its pension insurance." Brief for Petitioner 38; see also Brief for Midwest Motor Express, Inc., et al. as Amici Curiae 12. That the solvency of a pension trust fund may ultimately redound to the benefit of the PBGC, which was set up in part to guarantee benefits in the event of plan failure, is merely incidental to the primary congressional objective of protecting covered employees and beneficiaries of pension trusts like the Plan. "[H]ere, the United States has taken nothing for its own use, and only has nullified a contractual provision limiting liability by imposing an additional obligation that is otherwise within the power of Congress to impose." Connolly, supra, at 224.
Nor is Concrete Pipe's argument about the character of the governmental action strengthened by the fact that Concrete Pipe lacked control over investment and benefit decisions that may have increased the size of the unfunded vested liability. The response to the same argument raised *645 under the substantive Due Process Clause is appropriate here: although Concrete Pipe is not itself a member of any of the management associations that are represented among the trustees of the fund, Concrete Pipe voluntarily chose to participate in the Plan, notwithstanding this fact. See supra, at 641, and n. 26.
As to the second factor bearing on the taking determination, the severity of the economic impact of the Plan, Concrete Pipe has not shown its withdrawal liability here to be "out of proportion to its experience with the plan," 475 U. S., at 226, notwithstanding the claim that it will be required to pay out 46% of shareholder equity. As a threshold matter, the Plan contests this figure, arguing that Concrete Pipe, a wholly owned subsidiary of Concrete Pipe & Products Co., Inc., was simply "formed to facilitate the purchase . . . of certain assets of Cen-Vi-Ro," Brief for Respondent 2, and that the relevant issue turns on the diminution of net worth of the parent company, not Concrete Pipe. See Tr. of Oral Arg. 29. But this dispute need not be resolved, for even assuming that Concrete Pipe has used the appropriate measure in determining the portion of net worth required to be paid out, our cases have long established that mere diminution in the value of property, however serious, is insufficient to demonstrate a taking. See, e. g., Village of Euclid v. Ambler Realty Co., 272 U. S. 365, 384 (1926) (approximately 75% diminution in value); Hadacheck v. Sebastian, 239 U. S. 394, 405 (1915) (92.5% diminution).
The final factor is the degree of interference with Concrete Pipe's "reasonable investment-backed expectations." 475 U. S., at 226. Again, Connolly controls. At the time Concrete Pipe purchased Cen-Vi-Ro and began its contributions to the Plan, pension plans had long been subject to federal regulation, and "`[t]hose who do business in the regulated field cannot object if the legislative scheme is buttressed by subsequent amendments to achieve the legislative end.' FHA v. The Darlington, Inc., 358 U. S. 84, 91 (1958). See *646 also Usery v. Turner Elkhorn Mining Co., 428 U. S., at 15-16 and cases cited therein." Id., at 227. Indeed, at that time the Plan was already subject to ERISA, and a withdrawing employer faced contingent liability up to 30% of its net worth. See 29 U. S. C. § 1364 (1976 ed.); see also 29 U. S. C. § 1362(b) (1976 ed.); Connolly, supra, at 226-227; Gray, 467 U. S., at 721. Thus while Concrete Pipe argues that requiring it to pay a share of promised benefits "ignores express and bargained-for conditions on [its contractual] promises," Connolly, 475 U. S., at 235 (O'Connor, J., concurring), it could have had no reasonable expectation that it would not be faced with liability for promised benefits. Id., at 227 (opinion of the Court). Because "legislation readjusting rights and burdens is not unlawful solely because it upsets otherwise settled expectations . . . even though the effect of the legislation is to impose a new duty or liability based on past acts," Turner Elkhorn, 428 U. S., at 16, Concrete Pipe's reliance on ERISA's original limitation of contingent liability to 30% of net worth is misplaced,[28] there being no reasonable basis to expect that the legislative ceiling would never be lifted.[29]
"The employe[r] in the present litigation voluntarily negotiated and maintained a pension plan which was determined to be within the strictures of ERISA." Connolly, supra, at 227. In light of the relationship between Concrete Pipe and the Plan, we find no basis to conclude that Concrete Pipe is *647 being forced to bear a burden "which, in all fairness and justice, should be borne by the public as a whole." Armstrong v. United States, 364 U. S. 40, 49 (1960).
V
Having concluded that the statutory presumptions work no deprivation of procedural due process, and that the statute, as applied to Concrete Pipe, violates no substantive constraint of the Fifth Amendment, we affirm the judgment of the Court of Appeals.
It is so ordered.
Justice O'Connor, concurring.
I join all of the Court's opinion, except for the statement that petitioner cannot "rel[y] on ERISA's original limitation of contingent liability to 30% of net worth." Ante, at 646. The Court's reasoning is generally consistent with my own views about retroactive withdrawal liability, which I explained in Connolly v. Pension Benefit Guaranty Corporation, 475 U. S. 211, 228-236 (1986) (concurring opinion), and which I need not restate at length here. In essence, my position is that the "imposition of this type of retroactive liability on employers, to be constitutional, must rest on some basis in the employer's conduct that would make it rational to treat the employees' expectations of benefits under the plan as the employer's responsibility." Id., at 229.
The Court does not hold otherwise. Rather, it reasons that, although "the withdrawal liability assessed against Concrete Pipe may amount to more . . . than the share of the Plan's liability strictly attributable to employment of covered workers at Concrete Pipe," this possibility "was exactly what Concrete Pipe accepted when it joined the Plan." Ante, at 638. I agree that a withdrawing employer can be held responsible for its statutory "share" of unfunded vested benefits if the employer should have anticipated the prospect of withdrawal liability when it joined the plan. In such a *648 case, the "basis in the employer's conduct that would make it rational to treat the employees' expectations of benefits under the plan as the employer's responsibility" would be the very act of joining the plan.
I am not sure that petitioner did in fact "accept" the prospect of withdrawal liability when it joined the Construction Laborers Pension Trust (Plan) in 1976. As of that date, Congress had not yet promulgated the Multi employer Pension Plan Amendments Act of 1980 (MPPAA); the kind of "withdrawal liability" imposed on petitioner did not yet exist. Although the Employee Retirement Income Security Act of 1974 (ERISA) was in effect, and did create a contingent liability for the employer that withdrew from a multiemployer defined benefit plan, such liability was limited to 30% of the employer's net worth. See 29 U. S. C. §§ 1364, 1362(b)(2) (1976 ed.). Petitioner's withdrawal liability under the MPPAA amounts to 46% of its net worth. See ante, at 646, n. 28. In addition, the Plan apparently is a hybrid "Taft-Hartley" plan, which provides for fixed employee benefits and fixed employer contributions. It remains an open question whether hybrid Taft-Hartley plans are indeed "defined benefit" rather than "defined contribution" plans, and therefore subject to withdrawal liability. See Connolly, supra, at 230, 232-235 (O'Connor, J., concurring). We do not decide that question today. See ante, at 607, 643, n. 27.
But petitioner has not argued that its withdrawal liability, even if otherwise permissible, cannot exceed the 30% cap that was in effect in 1976. Nor has petitioner claimed that the Plan is a defined contribution plan. In short, petitioner has failed to adduce the two features of this case that might have demonstrated why it did not "accept" the prospect of full withdrawal liability when it joined the Plan. I therefore agree with the Court's result as well as most of its reasoning.
I cannot, however, agree that petitioner is precluded from "rely[ing] on ERISA's original limitation of contingent liability to 30% of net worth." Ante, at 646. The Court seizes *649 upon a passing reference in petitioner's brief, see ante, at 646, n. 28, to justify issuing this unnecessary statement about a difficult issue that the parties essentially have ignored. I would not decide without adversary briefing and argument whether ERISA's 30% cap might prevent retroactive withdrawal liability above 30% of the employer's net worth for an employer that joined a multi employer plan after the passage of ERISA but before the passage of the MPPAA. I also note that the Court's opinion should not be read to imply that employers may be subjected to retroactive withdrawal liability simply because "pension plans [have] long been subject to federal regulation." Ante, at 645. Surely the employer that joined a multi employer plan before ERISA had been promulgatedbefore Congress had made employers liable for unfunded benefitsmight have a strong constitutional challenge to retroactive withdrawal liability. The issue is not presented hereagain, petitioner joined the Plan after the passage of ERISAand the Court does not address it. It remains to be resolved in a future case.
Justice Thomas, concurring in part and concurring in the judgment.
I join all of the Court's opinion except Part III-B-1the portion of the opinion in which the Court grapples with the trustee presumption in 29 U. S. C. § 1401(a)(3)(A). The Court finds the presumption "incoherent with respect to the degree of probability of error required of the employer to overcome a factual conclusion made by the plan sponsor." Ante, at 625. And because, in the Court's view, "there would be a substantial question of procedural fairness under the Due Process Clause" if employers had to show that sponsors' findings were unreasonable or clearly erroneous, ante, at 626, the Court proceeds to interpret the statute as if it required an unconstrained evidentiary hearing into "any factual issue" concerning the employer's withdrawal liability, ante, at 630.
*650 Until today, § 1401(a)(3)(A) provided:
"For purposes of any [arbitration] proceeding under this section, any determination made by a plan sponsor under sections 1381 through 1399 of this title and section 1405 of this title is presumed correct unless the party contesting the determination shows by a preponderance of the evidence that the determination was unreason- able or clearly erroneous. " (Emphasis added.)
Now the statute provides, in effect, that "any factual determination made by a plan sponsor shall be rejected by the arbitrator if the party contesting the determination shows by a preponderance of the evidence that the determination was erroneous." There is no meaningful presumption of correctness and no examination for reasonableness or clear error. I decline to participate in this redrafting of a federal law.
As I see it, there are three missteps in the analysis. First, the Court believes the statutory text is "incomprehensib[le]," ante, at 625, because it refers to three different, and mutually inconsistent, "degree[s] of certainty," ante, at 622, or of "probability," ante, at 625. This is incorrectin large part because the Court overlooks the grammatical structure of the statute. Section 1401(a)(3)(A) sets up no parallelism between the phrase "by a preponderance of the evidence," which establishes the standard of proof for the arbitration proceeding, and the critical terms "unreasonable" and "clearly erroneous." "[B]y a preponderance of the evidence" (emphasis added) is an adverbial phrase that modifies the "show[ing]" required of the employer. "Unreasonable" and "clearly erroneous," on the other hand, are predicate adjectives used to describe what it is the employer must show.
The incoherence identified by the Court follows from the assumption that Congress has "confus[ed]" burdens of proof with standards of review. Ante, at 623. The Court believes that the terms "clearly erroneous" and "unreasonable" must signify standards of review. Ante, at 622-623. Standards of proof and standards of review are entirely unrelated *651 concepts (as the Court intimates, see ante, at 622-625). The Court's reading leads to the conclusion that § 1401(a)(3)(A) is "meaningless," ante, at 625, because the statute (as so interpreted) "defines the nature of the conclusion the arbitrator must draw by using a combination of terms that are categorically ill-matched," ante, at 624.[*]
The Court's preoccupation with standards of review is understandable, at least with respect to "clearly erroneous," a term with an established legal usage. See Anderson v. Bessemer City, 470 U. S. 564, 573-575 (1985); Fed. Rule Civ. Proc. 52(a). But such a reading is not compelled. As used in this statutory provision, "unreasonable" and "clearly erroneous" cannot signify standards applicable to the review of prior findings, since the arbitrator himself is undeniably a factfinder, not an appellate tribunal. See § 1401(c) (establishing a presumption of correctness for "the findings of fact made by the arbitrator"). That the arbitrator is to undertake his examination "by a preponderance of the evidence" explicitly establishes his role as factfinder; appellate review *652 does not occur "by" a taking of "evidence." The Court sees the arbitrator as a "hybrid," who acts as both a trier of fact and a reviewer of facts found. Ante, at 623-624. But the presumption of correctness that applies to the plan sponsor's determinations does not make the arbitrator a "reviewing body," ante, at 624, any more than the presumption of innocence in a criminal trial renders the jury a reviewer, rather than a trier, of fact.
The way out of the conundrum is apparent. The terms "unreasonable" and "clearly erroneous" must refer to what are, in effect, elements of the employer's claim in the arbitration proceeding. To prevail in its action before the arbitrator, in other words, the employer must show by a preponderance of the evidence, first, that the plan sponsor has made a determination under one of the relevant provisions and, second, that that determination was either unreasonable or clearly erroneous. This construction requires us to put aside the technical definition of "clearly erroneous" and focus on the literal meaning of the phrase. "Clear" error can simply mean an obvious, plain, gross, significant, or manifest error or miscalculation. See Black's Law Dictionary 250 (6th ed. 1990). That may not be the most natural reading (for a court, that is) of this legal term of art, but if we do not drop the assumption that "clearly erroneous" must be a reference to the Bessemer City standard of review, we cannot avoid the incoherence that has trapped the majority. The term "unreasonable," of course, is even more readily construed to refer to something other than a standard of review, since it can hardly be thought to have a sharply defined meaning that is limited to the context of appellate review. There is, for example, nothing unusual about requiring a party to show as an element of a substantive claim that somethingan interstate carrier's filed rate, for example, see Reiter v. Cooper, 507 U. S. 258 (1993)is "unreasonable." Section 1401(a)(3)(A) is thus susceptible of a reading that gives it a coherent meaning.
*653 This interpretation also conforms neatly with the very similar language and structure of the actuarial presumption in § 1401(a)(3)(B), which the Court today finds unproblematic. See ante, at 631-636. That presumption provides that the actuary's determination of unfunded vested benefits will be presumed correct unless the employer shows "by a preponderance of the evidence" that the actuarial assumptions and methods were "unreasonable" or that the actuary made a "significant error." The Court offers no persuasive explanation as to why this presumption does not suffer from the same incoherence. In addition, my reading of the term "clearly erroneous" in § 1401(a)(3)(A) renders it virtually indistinguishable from the term "significant error" in § 1401(a)(3)(B).
The second false step in the Court's analysis is the use of the rule of construction applied in Edward J. DeBartolo Corp. v. Florida Gulf Coast Building & Constr. Trades Council, 485 U. S. 568, 575 (1988). Ante, at 628-630. This rule, which requires a court to adopt a reasonable alternative interpretation of a statute when necessary to avoid serious constitutional problems, does not provide authority to construe the statute in a way that "is plainly contrary to the intent of Congress." DeBartolo, supra, at 575. The rule "cannot be stretched beyond the point at which [the alternative] construction remains `fairly possible.' " Public Citizen v. Department of Justice, 491 U. S. 440, 481 (1989) (Kennedy, J., concurring in judgment) (emphasis in original) (quoting Crowell v. Benson, 285 U. S. 22, 62 (1932)). "And it should not be given too broad a scope lest a whole new range of Government action be proscribed by interpretive shadows cast by constitutional provisions that might or might not invalidate it." Public Citizen, supra, at 481. Here it is plain, in my view, that Congress intended to shield the plan sponsor's factual determinations behind a presumption of correctness and intended that withdrawing employers would have to show something more than simple error. The *654 Court's construction is plainly contrary to this intent and is not "fairly possible" under the terms of the statute. Rather than a reasonable alternative reading, therefore, the interpretation adopted by the Court today is effectively a declaration that the statute as written is unconstitutional.
Which leads to my final, and perhaps most fundamental, disagreement with the Court. Before a court can appropriately invoke the Crowell /DeBartolo rule of construction, it must have a significantly higher degree of confidence that the statutory provision would be unconstitutional should the problematic interpretation be adopted. The potential due process problem troubling the Court is the supposed lack of a neutral or "impartial" arbitration hearing. Ante, at 626. This potential is based on an "assumption" about a "risk" or "possibility" of trustee bias, ante, at 617, 618bias that, if it existed, might be "preserve[d]" during the arbitration proceeding by the presumption of correctness. Ante, at 620. Petitioner has not established that the trustees were biased in fact. And whatever structural bias may flow from the trustees' fiduciary obligations or from the fact that the trustees are appointed by interested parties, see ante, at 616-617, will likely be nullified by the elaborately detailed criteria that channel and cabin their exercise of discretion. See 29 U. S. C. §§ 1381-1399 (1988 ed. and Supp. III). Such bias may be checked, in particular, by the requirement of consistency that governs the trustees' choice of a method for calculating liability. See Keith Fulton & Sons, Inc. v. New England Teamsters & Trucking Industry Pension Fund, Inc., 762 F. 2d 1137, 1142 (CA1 1985) (en banc). And the very fiduciary duty the trustees owe to the fund should simultaneously prevent them from imposing excessive withdrawal liability that will discourage other employers from joining the fund in the future. Id., at 1142-1143. The Court does not consider these countervailing forces.
But even if there is a real risk that structural bias may distort the trustees' factual determinations, I am inclined *655 to believe that the arbitration proceedingpresumption and allprovides adequate process for the employer. Cf. Mathews v. Eldridge, 424 U. S. 319, 334-335 (1976) (adequacy of specific procedures involves consideration of private and public interests and risk of erroneous deprivation). This conclusion rests principally on the nature of the particular statutory determinations to which the presumption applies (those described in §§ 1381-1399 and 1405). Many of these determinations, such as the mathematical computations the trustees must perform under §§ 1386, 1388, and 1391, involve little or no discretion. As a result, the employer will have correspondingly little difficulty proving the existence of any significant error made by the trustees (either inadvertently or because of bias). The same can be said of withdrawaldate determinations under §§ 1381 and 1383, especially where all the information relevant to the determination is better known to the employer than to the trustees.
To me, the public interest is plain on the face of the statute: Congress did not want withdrawing employers to avoid their obligations by engaging in a lengthy arbitration over relatively insignificant errors. At the same time, the employer's interest in correcting miscalculations that are significant is adequately protected by the opportunity for arbitration afforded by § 1401.
For these reasons, I concur only in the Court's judgment that the application of § 1401(a)(3)(A) "did not deprive Concrete Pipe of its right to procedural due process." Ante, at 631.
NOTES
[11] Briefs of amici curiae urging reversal were filed for the American Trucking Associations, Inc., by Daniel R. Barney, Laurie T. Baulig, and William H. Ewing; and for Midwest Motor Express, Inc., et al. by Alan J. Thiemann, Charles T. Carroll, Jr., and Thomas D. Wilcox.
Briefs of amici curiae urging affirmance were filed for the American Academy of Actuaries by Lauren M. Bloom; for the American Federation of Labor and Congress of Industrial Organizations by Robert M. Weinberg and Laurence Gold; for the Central States, Southeast and Southwest Areas Pension Fund by Thomas C. Nyhan and Terence G. Craig; for the National Coordinating Committee for Multiemployer Plans by Gerald M. Feder and David R. Levin; and for the Teamsters Pension Trust Fund of Philadelphia & Vicinity et al. by James D. Crawford, James J. Leyden, Thomas W. Jennings, and Kent Cprek.
[12] Justice Scalia does not join Part IIIB-1b of this opinion.
[13] In various places the statute uses the terms "participant" and "beneficiary," and these terms are defined at 29 U. S. C. §§ 1002(7), 1002(8).For simplicity, we will use the term "covered employee" to refer depending on context both to those earning service credits and to those entitled to benefits.
[14] Even if no employer withdraws, ERISA requires an assessment of the plan's liability at least annually. See 29 U. S. C. § 1082(c)(9)(1988 ed., Supp. III).
[15] While the PBGC is also authorized to promulgate regulations governing such assumptions under 29 U. S. C. § 1393(a), it has not done so. See Brief for Pension Benefit Guaranty Corp. as Amicus Curiae 7, n. 7.
[16] There is an exception to this definition that applies to the building and construction industry, see § 1383(b), but neither party argues that it pertains in this case.
[17] The average rate for covered employees at which Concrete Pipe contributed to the Plan in 1977 was $1.14 per hour, and Concrete Pipe's contributions for 1977 totaled $29,337.71.
[18] The collective-bargaining agreement provided for contributions for each laborer at a rate of $1.20 per hour. In 1978 Concrete Pipe's total contribution to the Plan was $49,913.04, and in 1979 it was $20,826.60.
[19] The District Court concluded that the effective date of the withdrawal liability provisions of the MPPAA was September 26, 1980, in reliance on the Ninth Circuit's decision in Shelter Framing Corp. v. Pension Benefit Guaranty Corporation, 705 F. 2d 1502 (1983), which held the retroactivity provision of the MPPAA unconstitutional. App. 198. The decision in Shelter Framing was reversed by this Court in Pension Benefit Guaranty Corporation v. R. A. Gray & Co., 467 U. S. 717 (1984). Subsequent to this Court's decision in Gray, Congress amended the effective date of the MPPAA's withdrawal liability provisions. See 29 U. S. C. § 1461(e)(2)(a).
[20] In its motion to confirm the award, the Plan also asked that it be modified. The District Court treated this as a motion to vacate the arbitration award and denied it as well. See App. 416. The Plan did not appeal.
[21] Our grant of certiorari was limited to the questions: "Do the presumptions in 29 U. S. C. § 1401 favoring multiemployer plans like Construction Laborers Pension Trust for Southern California . . . violate the due process rights of Concrete Pipe and Products by denying access to an impartial decision-maker?" and "Do the provisions of the MultiEmployer Pension Plan Amendments Act . . . violate the Fifth Amendment rights of Concrete Pipe and Products, as applied, by retroactively imposing withdrawal liability on an employer who never had employees vested in the pension plan and whose collective bargaining agreements specifically limited liability to contributions made?" Pet. for Cert. i.
[22] While the employer "may ask the plan sponsor to review any specific matter relating to the determination of the employer's liability and the schedule of payments," 29 U. S. C. § 1399(b)(2), and while the plan sponsor must then respond, ibid., this hardly amounts to "adjudication." The statute does not require the employer to exhaust the avenue of making a request of the plan sponsor prior to initiating arbitration proceedings. See § 1401(a)(1).
[23] "[W]e need not say with precision what limits there may be on a financial or personal interest of one who performs a prosecutorial function," Marshall, 446 U. S., at 250 (footnote omitted), as that issue is not within the scope of the questions on which we granted certiorari in this case.
[24] The Courts of Appeals for the First, Second, Fourth, Ninth, and District of Columbia Circuits have found the provision at issue constitutional, while the Court of Appeals for the Third Circuit has struck it down. Compare Keith Fulton & Sons, Inc. v. New England Teamsters and Trucking Indus. Pension Fund, Inc., 762 F. 2d 1137, 1140-1143 (CA1 1985) (en banc); Board of Trustees of Western Conference of Teamsters Pension Trust Fund v. Thompson Bldg. Materials, Inc., 749 F. 2d 1396, 1403-1404 (CA9 1984), cert. denied, 471 U. S. 1054 (1985); Washington Star Co. v. International Typographical Union Negotiated Pension Plan, 235 U. S.App. D. C. 1, 10, 729 F. 2d 1502, 1511 (1984); Textile Workers Pension Fund v. Standard Dye & Finishing Co., 725 F. 2d 843, 855 (CA2), cert. denied sub nom. Sibley, Lindsay & Curr Co. v. Bakery, Confectionery & Tobacco Workers, 467 U. S. 1259 (1984); and Republic Indus., Inc. v. Teamsters Joint Council No. 83 of Virginia Pension Fund, 718 F. 2d 628, 639-641 (CA4 1983), cert. denied, 467 U. S. 1259 (1984), with United Retail & Wholesale Employees Teamsters Union Local No. 115 Pension Plan v. Yahn & McDonnell, Inc., 787 F. 2d 128, 138-142 (CA3 1986), aff'd by an equally divided Court sub nom. Pension Benefit Guaranty Corporation v. Yahn & McDonnell, Inc., 481 U. S. 735 (1987).
[25] There is no utility in attempting to construe § 1401(a)(3)(A) finely to apply the "unreasonable" standard to certain determinations possible under §§ 1381-1399 and 1405, and the "clearly erroneous" formulation to others. These distinctions are not relevant in light of the relationship in this context ofboth of these terms to the statutory phrase requiring a showing "by a preponderance," which we explain below.
[26] Justice Thomas reads the statute not to be about the standard of review of the plan sponsor's findings of fact at all. On his reading, "clearly erroneous" is not a term of art, but an attempt at independent literal description. Under his reading, if the arbitrator concludes a factual determination of a plan sponsor is probably wrong, it will nonetheless be permitted to stand, unless the error is "obvious, plain, gross, significant, or manifest." See post, at 652 (citation omitted). Justice Thomas does not adequately explain what purpose would be served by a statute that let some erroneous (and presumably material) factual determinations stand even when they were "clearly erroneous" in the legal sense or "unreasonable," merely because of the degree to which they happened to deviate from the true facts, even when the latter are supported by overwhelming evidence. He does refer to a possible congressional desire to avoid disputes over "insignificant errors," post, at 655, but under his reading a factual error could be significant, in the sense that it was both material and undeniably incorrect, and yet still stand because it was not that far different from the truth.
Justice Thomas cites the presumption of innocence for the proposition that the presumption at issue here does not imply a standard of review. See post, at 652. But just because some presumptions do not imply standards of review does not mean that this one does not. Here, by its terms, the statutory presumption says that factual findings of the plan sponsor will stand unless some showing is made, necessarily implying a standard of review of those findings.
[27] The textual incomprehensibility concerns a very narrow matter, and we find nothing in the structure of the statutory scheme that provides elucidation.
[28] The presumption at issue here was included in a new § 4221 added by the MPPAA to ERISA. In the text of the version of the bill to which the House Report refers the presumption was contained in § 4203, and the provision began: "For purposes of this part, a determination made with respect to a plan under section 4201 [relating to employer withdrawals] is presumed correct unless the party contesting the determination shows . . . ." See H. R. Rep. No. 96-869, pt. 1, p. 17 (1980). As enacted, this text was replaced with "For purposes of any proceeding under this section, any determination made by a plan sponsor under sections 4201 through 4219 and section 4225 is presumed correct unless the party contesting the determination shows . . . ." Pub. L. 93-406, title IV, § 4221, as added, Pub. L. 96-364, title I, § 104(2), Sept. 26, 1980, 94 Stat. 1239, 29 U. S. C. § 1401(a)(3)(A). The text of what was called § 4201 differs somewhat from the text of the sections to which the enacted bill refers, which are now codified at 29 U. S. C. §§ 1381-1399 and 1405. Our concern with legislative history here goes only to the question of what degree of certainty of error Congress intended to require in this situation. While the change in referent that took place might have some implications for this question, we do not think anything relevant in the legislative history turns on the different scope of the earlier version of the bill.
[29] Despite this favorable finding, Concrete Pipe still lost, of course.The arbitrator treated subjective intent as irrelevant. See App. 213-215. While the District Court and the Court of Appeals, which relied on the District Court's reasoning, did not go so far, see id., at 419-420, any factual deference in their decisions would be to the arbitrator's finding, itself untainted by the force of any presumption. See 29 U. S. C. § 1401(c); Fed. Rule Civ. Proc. 52(a).
[*] Itmay be that the trustees could, in theory, replace the actuary's assumptions with their own, but that would involve a different case from this, and while we are aware of at least one case in which a plan sponsor exercised decisive influence over an actuary whose initial assumptions it disliked, see Huber v. Casablanca Industries, Inc., 916 F. 2d 85, 93 (CA3 1990), we know of none in which a plan sponsor was found to have replaced an actuary's actuarial methods or assumptions with different ones of its own. Although we express no view on the question whether a plan sponsor must adopt the assumptions used by the actuary, we note that the legislative history of § 1082, which was enacted as part of ERISA in 1974, suggests that the actuarial assumptions must be "independently determined by an actuary," and that it is "inappropriate for an employer to substitute his judgment . . . for that of a qualified actuary" with respect to these assumptions. S. Rep. No. 93-383, p. 70 (1973); see also H. R. Rep. No. 93-807, p. 95 (1974).
[] Indeed, our view of the problem of imprecision in reviewing actuarial methods and assumptions seems to have been the very reason for including the presumption in the statute. The Senate Committee Report states that "[t]he [Senate] Committee [on Labor and Human Resources] includes the presumption to reduce the likelihood of dispute and delay over technical actuarial matters with respect to which there are often several equally `correct' approaches. Without such a presumption, a plan would be helpless to resist dilatory tactics by a withdrawing employertactics that could, and could be intended to, result in prohibitive collection costs to the plan." Committee Print 20-21.
[] An employer's calculation whether to join a plan will include these factors as well as a determination of the other benefits it can hope to receive from its participation in the plan. See supra, at 606-607.
[] The 1962 Trust Agreement states:
"`Section 4.07. Neither the Association or (sic) any officer, agent, employee or (sic) committee member of the Associations shall be liable to make Contributions to the Fund or with respect to the Pension Plan, except to the extent that he or it may be an Individual Employer required to make Contributions to the Fund with respect to his or its own individual or joint venture operations, or to the extent he may incur liability as a Trustee as hereinafter provided. The liability of any Individual Employer to the Fund, or with respect to the Pension Plan, shall be limited to the payments required by the Collective Bargaining Agreements with respect to his or its individual or joint venture operations, and in no event shall he or it be liable or responsible for any portion of the Contributions due from other Individual Employers with respect to the operations of such Individual Employers. The Individual Employers shall not be required to make any further payments or Contributions to the cost of operation of the Fund or of the Pension Plan, except as may be hereafter provided in the Collective Bargaining Agreements.
"`Section 4.08. Neither the Associations, any Individual Employer, the Union, any Local Union, nor any Employee shall be liable or responsible for any debts, liabilities or obligations of the Fund or the Trustees.' " App. 80-81, ¶ 32.
[] Article X, § E(4) of the 1977-1980 Laborers' Craft Master Labor Agreement provides:
"`The parties recognize and agree that the Pension Trust and Plan was created, negotiated, and is intended to continue to be if permitted by law under ERISA, a defined contribution plan and trust and that the individual Contractors' liability with regard to the pension has been and remains limited exclusively to payment of the contributions specified from time to time in collective bargaining agreements.' " Id., at 82, ¶ 34.
[] Appendix K to the Southern California Master Labor Agreements in 1977-1980 states:
"`IMPORTANT. PENSION BENEFITS ARE NOT AND HAVE NEVER BEEN GUARANTEED. THEY ARE PAYABLE ONLY TO THE EXTENT THAT THE FUND HAS ASSETS TO PAY BENEFITS. NEITHER YOUR EMPLOYER NOR YOUR UNION HAS ASSUMED ANY LIABILITY, DIRECTLY OR INDIRECTLY, TO PROVIDE MONTHLY PENSION BENEFITS. YOUR EMPLOYER'S SOLE OBLIGATION IS TO MAKE THE CONTRIBUTIONS CALLED FOR IN ITS COLLECTIVE BARGAINING AGREEMENT. THE PENSION PLAN HAS ALSO BEEN CONSIDERED BY THE EMPLOYERS, THE UNION AND THE TRUSTEES TO BE A DEFINED CONTRIBUTION PLAN.' " Id., at 81-82, ¶ 33.
[] The Plan contends that the record does not reflect that the appendix mentioned in the text was incorporated by reference into Concrete Pipe's own collective-bargaining agreement. See Brief for Respondent 10, n. 7.
[] Even if Concrete Pipe were represented, its representative, like all the trustees, would be bound to act consistently with the fiduciary duty owed by trustees to covered employees and beneficiaries of the plan. See 29 U. S. C. § 1104(a)(1).
[] To the extent that Concrete Pipe's argument could be characterized as a challenge to the determination that, notwithstanding the contractual language, it is a "defined benefits plan" under the statute, this is a question on which Concrete Pipe did not seek review. See supra, at 607.
[] See Brief for Petitioner 36-37 ("The ERISA contingent liabilities were substantially different in scope from the liabilities of MPPAA so that [Concrete Pipe] had no reasonable notice that 46% of its net worth would be seized").
Justice O'Connor does not join the statement to which this footnote is attached.
[] Nor do the contractual provisions on which Concrete Pipe would rely provide the support it seeks. Indeed, one such provision, Article X, § E(4) of the 1977-1980 Laborers' Craft Master Labor Agreement, provides that liability will be limited to contributions specified in collective-bargaining agreements "if permitted by law under ERISA." App. 82, ¶ 34.
[] Regrettably, the Court compounds and further muddles the textual difficulty by suggesting that in some sense, "preponderance of the evidence," "unreasonable," and "clearly erroneous" are comparablethat they all refer to relative "degree[s] of certainty." Ante, at 622. There is, in fact, no basis for comparing any particular standard of proof with any particular standard of review. An appellate tribunal could be required to determine whether it was "clearly erroneous" to find a disputed fact "by a preponderance of the evidence," or it could ask whether any "reasonable" factfinder could have found "probable cause" to believe, or "clear and convincing evidence" supporting, the fact in question. See, e. g., Anderson v. Liberty Lobby, Inc., 477 U. S. 242, 252 (1986) ("If the defendant in a . . . civil case moves for summary judgment or for a directed verdict . . . , [the inquiry is] whether reasonable jurors could find by a preponderance of the evidence that the plaintiff is entitled to a verdict") (emphasis added); Jackson v. Virginia, 443 U. S. 307, 318-319 (1979) ("[T]he critical inquiry on review of the sufficiency of the evidence to support a criminal conviction . . . is whether [a] rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt ") (emphasis added). Any combination of evidentiary and review standards is possible. | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/112792/ | 506 U.S. 9 (1992)
CHURCH OF SCIENTOLOGY OF CALIFORNIA
v.
UNITED STATES et al.
No. 91-946.
United States Supreme Court.
Argued October 6, 1992.
Decided November 16, 1992.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
*10 Stevens, J., delivered the opinion for a unanimous Court.
Eric M. Lieberman argued the cause for petitioner. With him on the briefs were David B. Goldstein, Hillary Richard, and Michael Lee Hertzberg.
Deputy Solicitor General Wallace argued the cause for the respondents. With him on the brief were Solicitor General Starr, Acting Assistant Attorney General Griffin, Kent L. Jones, Charles E. Brookhart, and John A. Dudeck, Jr.
Justice Stevens, delivered the opinion of the Court.
Two tapes recording conversations between officials of the Church of Scientology (Church) and their attorneys in July 1980 have been the principal bone of contention in this, and two earlier, legal proceedings.
In an action filed in the Los Angeles County Superior Court,[1] the Church contended that the defendant had unlawfully acquired possession of the tapes. Pending resolution of that action, the state court ordered its Clerk to take custody of the tapes and certain other documents.
In 1984, in connection with an investigation of the tax returns of L. Ron Hubbard, founder of the Church of Scientology, the Internal Revenue Service (IRS) sought access to the Church documents in the state-court Clerk's possession.[2]*11 After the Clerk was served with an IRS summons, he permitted IRS agents to examine and make copies of the tapes. Thereafter, in a federal action initiated by the Church in the Central District of California, the District Court entered a temporary restraining order directing the IRS to file its copies of the tapes, and all related notes, with the federal court.[3] Those copies were subsequently returned to the Clerk of the state court.
On January 18, 1985, the IRS commenced this proceeding by filing a petition to enforce the summons that had previously been served on the state-court Clerk.[4] The Church intervened and opposed production of the tapes on the ground that they were protected by the attorney-client privilege. After protracted proceedings, including review in this Court, see United States v. Zolin, 491 U. S. 554 (1989), on April 15, 1991, the District Court entered an order enforcing compliance with the summons. The Church filed a timely notice of appeal and unsuccessfully sought a stay of that order. While the appeal was pending, copies of the tapes were delivered to the IRS. Thereafter, the Court of Appeals ordered the Church to show cause why it sappeal *12 should not be dismissed as moot. After briefing on the mootness issue, the court dismissed the appeal. It explained:
"Because it is undisputed that the tapes have been turned over to the IRS in compliance with the summons enforcement order, no controversy exists presently and this appeal is moot." United States v. Zolin, No. 91 55506 (CA9, Sept. 10, 1991).
We granted the Church's petition for certiorari to consider the narrow question whether the appeal was properly dismissed as moot. 503 U. S. 905 (1992).
I
It has long been settled that a federal court has no authority "to give opinions upon moot questions or abstract propositions, or to declare principles or rules of law which cannot affect the matter in issue in the case before it." Mills v. Green, 159 U. S. 651, 653 (1895). See also Preiser v. Newkirk, 422 U. S. 395, 401 (1975); North Carolina v. Rice, 404 U. S. 244, 246 (1971). For that reason, if an event occurs while a case is pending on appeal that makes it impossible for the court to grant "any effectual relief whatever" to a prevailing party, the appeal must be dismissed. Mills, 159 U. S., at 653. In this case, after the Church took its appeal from the April 15 order, in compliance with that order copies of the tapes were delivered to the IRS. The Government contends that it was thereafter impossible for the Court of Appeals to grant the Church any effectual relief. We disagree.
While a court may not be able to return the parties to the status quo ante there is nothing a court can do to withdraw all knowledge or information that IRS agents may have acquired by examination of the tapesa court can fashion some form of meaningful relief in circumstances such as *13 these. Taxpayers have an obvious possessory interest in their records. When the Government has obtained such materials as a result of an unlawful summons, that interest is violated and a court can effectuate relief by ordering the Government to return the records. Moreover, even if the Government retains only copies of the disputed materials, a taxpayer still suffers injury by the Government's continued possession of those materials, namely, the affront to the taxpayer's privacy. A person's interest in maintaining the privacy of his "papers and effects" is of sufficient importance to merit constitutional protection.[5] Indeed, that the Church considers the information contained on the disputed tapes important is demonstrated by the long, contentious history of this litigation. Even though it is now too late to prevent, or to provide a fully satisfactory remedy for, the invasion of privacy that occurred when the IRS obtained the information on the tapes, a court does have power to effectuate a partial remedy by ordering the Government to destroy or return any and all copies it may have in its possession. The availability of this possible remedy is sufficient to prevent this case from being moot.[6]
*14 The Government argues, however, that these basic principles are inapplicable in IRS summons enforcement proceedings because of the particular nature of the statute governing such proceedings. Reasoning from the premise that federal courts are empowered to consider only those matters within their jurisdiction, the Government argues that in IRS summons enforcement proceedings the subject-matter jurisdiction of the district court is limited to determining only whether the court should "compel . . . production of" the information requested by the summons. 26 U. S. C. §§ 7402(b), 7604(a). See n. 4, supra. Once the court has answered that question and compliance has occurred, there is nothing more for the district court to decide and the jurisdiction of the district court evaporates.
We think the Government misconceives the inquiry in this case. The Government may or may not be right that under §§ 7402(b) and 7604(a) the jurisdiction of the district court is limited to those matters directly related to whether or not the summons should be enforced. Indeed, the scope of the district court's jurisdiction under those provisions was the issue over which this Court deadlocked in United States v. Zolin, 491 U. S. 554 (1989).[7] The question presented in the *15 current incarnation of this case is whether there was jurisdiction in the appellate court to review the allegedly unlawful summons enforcement order. On that question, the Government's elaborate statutory argument is largely irrelevant. There is nothing in the statute to suggest that Congress sought to preclude appellate review of district court enforcement orders. To the contrary, we have expressly held that IRS summons enforcement orders are subject to appellate review. See Reisman v. Caplin, 375 U. S. 440, 449 (1964). Thus, whether or not there is jurisdiction in the appellate court to review the District Court's order turns not on the subject matter of Congress' jurisdictional grant to the district courts, but on traditional principles of justiciability, namely, whether an intervening event has rendered the controversy moot. And, as we have already explained, this case is not moot because if the summons were improperly issued or enforced a court could order that the IRS' copies of the tapes be either returned or destroyed.
II
We recognize that several Courts of Appeals have accepted the Government's argument in IRS enforcement proceedings,[8] but the force of that line of authority is matched *16 by a similar array of decisions reaching a contrary conclusion in proceedings enforcing Federal Trade Commission (FTC) discovery requests.[9] There is no significant difference between the governing statutes that can explain the divergent interpretations.[10] Nor is there any reason to conclude that *17 production of records relevant to a tax investigation should have mootness consequences that production of other business records does not have. Moreover, in construing these provisions of the Internal Revenue Code, the Court has considered it appropriate to rely on its earlier cases involving other statutes, including the Federal Trade Commission Act. See United States v. Powell, 379 U. S. 48, 57 (1964) (citing United States v. Morton Salt Co., 338 U. S. 632, 642-643 (1950)).
We therefore conclude that the appeal was improperly dismissed as moot. In so concluding we express no opinion on the merits of the Church's argument that the Government did not establish an adequate evidentiary basis to support the District Court's determination that the tapes fell within the crime-fraud exception to the attorney-client privilege. Nor do we express any opinion about the res judicata contention advanced in the Government's brief in opposition to the petition for certiorari. Brief for United States in Opposition *18 13-14. We simply hold that compliance with the summons enforcement order did not moot the Church's appeal.[11]
The judgment of the Court of Appeals is vacated, and the case is remanded for further proceedings consistent with this opinion.
It is so ordered.
NOTES
[1] Church of Scientology of California v. Armstrong, No. C420 153.
[2] The Commissioner of Internal Revenue, as the delegate of the Secretary of the Treasury, has broad authority to examine the accuracy of federal tax returns. See generallyDonaldson v. United States, 400 U. S. 517, 523-525 (1971). Section 7602(a) of the Internal Revenue Code authorizes the Secretary to summon any person to provide documents relevant to such an examination:
"For the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee or fiduciary of any person in respect of any internal revenue tax, or collecting any such liability, the Secretary is authorized
"(1)To examine any books, papers, records, or other data which may be relevant or material to such inquiry." 26 U. S. C. § 7602(a).
[3] Church of Scientology v. Armstrong, No. CV 84-9003HLH (CD Cal., Nov. 27, 1984).
[4] Sections 7402(b) and 7604(a) confer jurisdiction on the federal district courts to enforce a summons issued by the IRS. Title 26 U. S. C. § 7402(b) provides:
"If any person is summoned under the internal revenue laws to appear, to testify, or to produce books, papers, or other data, the district court of the United States for the district in which such person resides or may be found shall have jurisdiction by appropriate process to compel such attendance, testimony, or production of books, papers, or other data."
Section 7604(a) is virtually identical to § 7402(b) except that the word "records" appears in § 7604(a).
[5] The Fourth Amendment provides:
"The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized."
[6] Petitioner also argues that a court can effectuate further relief by ordering the IRS to refrain from any future use of the information that it has derived from the tapes. Such an order would obviously go further towards returning the parties to the status quo ante than merely requiring the IRS to return the tapes and all copies thereof. However, as there is no guarantee that the IRS will in fact use the information gleaned from the tapes, it could be argued that such an order would be an impermissible advisory opinion. Cf. G. M. Leasing Corp. v. United States, 429 U. S. 338, 359 (1977) (suppression of fruits of illegal IRS search "premature" as issue can be considered "if and when proceedings arise in which the Government seeks to use the documents or information obtained from them"). But see FTC v. Gibson Products of San Antonio, Inc., 569 F. 2d 900, 903 (CA5 1978) (court can effectuate relief, despite compliance with FTC subpoena, by requiring FTC to return subpoenaed documents and forbidding FTC to use materials in adjudicatory hearing). Because we are concerned only with the question whether any relief can be ordered, we leave the "future use" question for another day. For now, we need only hold that this case is not moot because a court has power to order the IRS to return or destroy any copies of the tapes that it may have in its possession.
[7] In Zolin, the District Court enforced the IRS summons, but placed restrictions on the IRS' ability to disclose the summoned materials to any other government agency. The Ninth Circuit affirmed, United States v. Zolin, 809 F. 2d 1411, 1416-1417 (1987), and we granted certiorari in part to consider whether the District Court, in conditioning its enforcement of the IRS summons, exceeded its jurisdiction under §§ 7402(b) and 7604(a). Zolin, 491 U. S., at 556. We were evenly divided on that question and therefore affirmed the Ninth Circuit. Id., at 561. The issue still divides the lower courts. Compare United States v. Zolin, 809 F. 2d, at 1416 1417, and United States v. Author Services, Inc., 804 F. 2d 1520, 1525-1526 (CA9 1986) (district court has "considerable" discretion to set terms of enforcement order), opinion amended, 811 F. 2d 1264 (1987), with United States v. Barrett, 837 F. 2d 1341 (CA5 1988) (en banc) (district court lacks authority to "conditionally enforce" IRS summons; inquiry limited to single question of whether summons should be enforced), cert. denied, 492 U. S. 926 (1989).
[8] United States v. Kersting, 891 F. 2d 1407, 1410, n. 8 (CA9 1989), cert. denied, 498 U. S. 812 (1990); Hintze v.IRS, 879 F. 2d 121, 124-125 (CA4 1989); United States v. Church of World Peace, 878 F. 2d 1281 (CA10 1989); United States v. Sherlock, 756 F. 2d 1145, 1146-1147 (CA5 1985); United States v. First Family Mortgage Corp., 739 F. 2d 1275, 1278-1279 (CA7 1984); United States v. Kis, 658 F. 2d 526, 533 (CA7 1981), cert. denied, 455 U. S. 1018 (1982); United States v. Equity Farmers Elevator, 652 F. 2d 752 (CA8 1981); United States v. Silva & Silva Accountancy Corp., 641 F. 2d 710, 711 (CA9 1981); United States v. Deak-Perera Int'l Banking Corp., 610 F. 2d 89 (CA2 1979); Kurshan v. Riley, 484 F. 2d 952 (CA4 1973); United States v. Lyons, 442 F. 2d 1144, 1145 (CA1 1971). But see Gluck v. United States, 771 F. 2d 750 (CA3 1985).
[9] See FTC v. Gibson Products of San Antonio, Inc., 569 F. 2d, at 903 (compliance with district court order enforcing FTC subpoena does not moot appeal; court can effectuate relief by requiring FTC to return subpoenaed documents and forbidding FTC from using materials in adjudicatory hearing); FTC v. Ernstthal, 197 U. S. App. D. C. 174, 175, 607 F. 2d 488, 489 (1979) (compliance with FTC subpoena does not moot appeal where court can order FTC to return subpoenaed documents); Atlantic Richfield Co. v. FTC, 546 F. 2d 646, 650 (CA5 1977) (same); FTC v. Browning, 140 U. S. App. D. C. 292, 293-294, n. 1, 435 F. 2d 96, 97-98, n. 1 (1970) (same). Cf. FTC v. Invention Submission Corp., 296 U. S. App. D. C. 124, 127, n. 1, 965 F. 2d 1086, 1089, n. 1 (1992) (compliance with district court order enforcing FTC civil investigative demand pursuant to 15 U. S. C. § 57b1(e) does not moot appeal as court could order FTC "to return responsive materials and to destroy any records derived from them"); Casey v. FTC, 578 F. 2d 793 (CA9 1978) (action seeking to enjoin FTC investigation presents live controversy despite parties' compliance with FTC subpoena as appellate court can order FTC to return wrongfully subpoenaed records). See also Government of Territory of Guam v. Sea-Land Service, Inc., 294 U. S. App. D. C. 292, 295, 958 F. 2d 1150, 1153 (1992) (compliance with district court order enforcing Federal Maritime Commission discovery order does not moot appeal where party seeks return of discovered materials).
There is no merit to the Government's contention that the FTC cases are distinguishable in that they involve adjudicative, as opposed to investigative, subpoenas. While Gibson Products involved an adjudicative subpoena, Invention Submission, Casey, and Atlantic Richfield all involved investigative subpoenas.
[10] In fact, the summons enforcement provisions of the Internal Revenue Code "closely paralle[l]" the corresponding provisions of the Federal Trade Commission Act. See Handler, Recent Antitrust Developments 1964, 63 Mich. L. Rev. 59, 90 (1964). Section 9 of the FTC Act provides, in pertinent part:
"Any of the district courts of the United States . . . may, in case of contumacy or refusal to obey a subpoena issued to any person, partnership, or corporation issue an order requiring such person, partnership, or corporation . . . to produce documentary evidence if so ordered . . . ." 38 Stat. 722, as amended, 15 U. S. C. § 49.
In the words of Professor Handler:
"Section 7602 of the Internal Revenue Code authorizes the Secretary of the Treasury or his delegate to summon taxpayers or other witnesses to testify and to produce relevant and material documents. Section 9 of the FTC Act grants the same power to the Commission. Should a recipient of a summons or subpoena refuse to comply, both statutes afford the same enforcement procedures. In neither case is the administrative subpoena self-executing: obedience can be obtained only by court order. In addition, both statutes, which are in pari materia, make it a criminal offense to `neglect' to appear or to produce subpoenaed documents." 63 Mich. L. Rev., at 91 (footnotes omitted).
[11] In reaching this conclusion, we reject petitioner's "fall back" argument that even if compliance with a summons enforcement order by the subject of the IRS investigation moots an appeal, compliance by a disinterested third partyhere, the Clerk of the Los Angeles Superior Courtdoes not. Brief for Petitioner 25-34; Reply Brief for Petitioner 16-18. We agree with the Government that a "difference in the method of compliance does not create a distinction for the purpose of the constitutional case or controversy requirement." Brief for United States 30. This case presents a justiciable controversy not because a third party complied with the summons enforcement order, but because petitioner has a stake in the outcome of the proceeding and a federal court can effectuate relief should petitioner prevail on the merits.
There is a distinction in the law between the enforcement of discovery orders directed at parties and the enforcement of discovery orders directed at disinterested third parties, but that distinction derives from concerns regarding finality, not mootness. As a general rule, a district court's order enforcing a discovery request is not a "final order" subject to appellate review. A party that seeks to present an objection to a discovery order immediately to a court of appeals must refuse compliance, be held in contempt, and then appeal the contempt order. See United States v. Ryan, 402 U. S. 530 (1971). However, under the so-called Perlman doctrine, see Perlman v. United States, 247 U. S. 7 (1918), a discovery order directed at a disinterested third party is treated as an immediately appealable final order because the third party presumably lacks a sufficient stake in the proceeding to risk contempt by refusing compliance. Ibid. See generally 15B C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure § 3914.23, pp. 156-167 (2d ed. 1992). This distinction has no bearing on this case because a district court order enforcing an IRS summons is an appealable final order. See Reisman v. Caplin, 375 U. S. 440 (1964). There is no "third-party exception" because there is no general rule barring immediate appeal of IRS summons enforcement orders. | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/118460/ | 533 U.S. 656 (2001)
TYLER
v.
CAIN, WARDEN
No. 00-5961.
United States Supreme Court.
Argued April 16, 2001.
Decided June 28, 2001.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT
*657 Thomas, J., delivered the opinion of the Court, in which Rehnquist, C. J., and O'Connor, Scalia, and Kennedy, JJ., joined. O'Connor, J., filed a concurring opinion, post, p. 668. Breyer, J., filed a dissenting opinion, in which Stevens, Souter, and Ginsburg, JJ., joined, post, p. 670.
*658 Herbert V. Larson, Jr., argued the cause for petitioner. With him on the briefs was Scott L. Nelson.
Charles E. F. Heuer argued the cause for respondent. With him on the brief were Harry F. Connick and Val M. Solino.
James A. Feldman argued the cause for the United States as amicus curiae urging affirmance. With him on the brief were Acting Solicitor General Underwood, Acting Assistant Attorney General Keeney, Deputy Solicitor General Dreeben, and Nina Goodman.[*]
Justice Thomas, delivered the opinion of the Court.
Under Cage v. Louisiana, 498 U. S. 39 (1990) (per curiam), a jury instruction is unconstitutional if there is a reasonable likelihood that the jury understood the instruction to allow conviction without proof beyond a reasonable doubt.[1] In *659 this case, we must decide whether this rule was "made retroactive to cases on collateral review by the Supreme Court." 28 U. S. C. § 2244(b)(2)(A) (1994 ed., Supp. V). We hold that it was not.
I
During a fight with his estranged girlfriend in March 1975, petitioner Melvin Tyler shot and killed their 20-day-old daughter. A jury found Tyler guilty of second-degree murder, and his conviction was affirmed on appeal. After sentencing, Tyler assiduously sought postconviction relief. By 1986, he had filed five state petitions, all of which were denied. See State ex rel. Tyler v. Blackburn, 494 So. 2d 1171 (La. 1986); State v. Tyler, 446 So. 2d 1226 (La. 1984); State ex rel. Tyler v. State, 437 So. 2d 1142 (La. 1983); State v. Tyler, 430 So. 2d 92 (La. 1983); State ex rel. Tyler v. Maggio, 428 So. 2d 483 (La. 1982). He next filed a federal habeas petition, which was unsuccessful as well. Tyler v. Butler, No. 88cv4929 (ED La.), aff'd, Tyler v. Whitley, 920 F. 2d 929 (CA5 1990). After this Court's decision in Cage, Tyler continued his efforts. Because the jury instruction defining reasonable doubt at Tyler's trial was substantively identical to the instruction condemned in Cage, Tyler filed a sixth state postconviction petition, this time raising a Cage claim. The State District Court denied relief, and the Louisiana Supreme Court affirmed. State ex rel. Tyler v. Cain, 684 So. 2d 950 (1996).
In early 1997, Tyler returned to federal court. Seeking to pursue his Cage claim, Tyler moved the United States *660 Court of Appeals for the Fifth Circuit for permission to file a second habeas corpus application, as required by the Antiterrorism and Effective Death Penalty Act of 1996 (AEDPA), 110 Stat. 1214.[2] The Court of Appeals recognized that it could not grant the motion unless Tyler made "a prima facie showing," § 2244(b)(3)(C), that his "claim relies on a new rule of constitutional law, made retroactive to cases on collateral review by the Supreme Court, that was previously unavailable," § 2244(b)(2)(A). Finding that Tyler had made the requisite prima facie showing, the Court of Appeals granted the motion, thereby allowing Tyler to file a habeas petition in District Court.
The District Court proceeded to the merits of Tyler's claim and held that, although Cage should apply retroactively, App. 5-7 (citing Humphrey v. Cain, 138 F. 3d 552 (CA5 1998) (en banc)), Tyler was not entitled to collateral relief. Under AEDPA, a state prisoner can prevail only if the state court's decision "was contrary to, or involved an unreasonable application of, clearly established Federal law, as determined by the Supreme Court of the United States." § 2254(d)(1). Concluding that Tyler could not overcome this barrier, the District Court denied his petition.
The Court of Appeals affirmed. Judgt. order reported at 218 F. 3d 744 (CA5 2000). It stated, however, that the District Court erred by failing first to determine whether Tyler "satisfied AEDPA's successive habeas standard." App. 15. AEDPA requires a district court to dismiss a claim in a second or successive application unless, as relevant here, the applicant "shows" that the "claim relies on a new rule of constitutional law, made retroactive to cases on collateral review by the Supreme Court, that was previously unavailable," *661 [3] § 2244(b)(2)(A) (emphasis added); § 2244(b)(4). Relying on Circuit precedent, see Brown v. Lensing, 171 F. 3d 1031 (CA5 1999); In re Smith, 142 F. 3d 832 (CA5 1998), the Court of Appeals concluded that Tyler did not meet this standard because he "could not show that any Supreme Court decision renders the Cage decision retroactively applicable to cases on collateral review." App. 15.
The Courts of Appeals are divided on the question whether Cage was "made retroactive to cases on collateral review by the Supreme Court," as required by 28 U. S. C. § 2244(b)(2)(A). Compare Rodriguez v. Superintendent, 139 F. 3d 270 (CA1 1998) (holding that Cage has not been made retroactive by the Supreme Court); Brown, supra (same); In re Hill, 113 F. 3d 181 (CA11 1997) (same), with West v. Vaughn, 204 F. 3d 53 (CA3 2000) (holding that Cage has been made retroactive to cases on collateral review). To resolve this conflict, we granted certiorari. 531 U. S. 1051 (2000).
II
AEDPA greatly restricts the power of federal courts to award relief to state prisoners who file second or successive habeas corpus applications. If the prisoner asserts a claim that he has already presented in a previous federal habeas petition, the claim must be dismissed in all cases. § 2244(b)(1). And if the prisoner asserts a claim that was not presented in a previous petition, the claim must be dismissed unless it falls within one of two narrow exceptions. One of these exceptions is for claims predicated on newly *662 discovered facts that call into question the accuracy of a guilty verdict. § 2244(b)(2)(B). The other is for certain claims relying on new rules of constitutional law. § 2244(b)(2)(A).
It is the latter exception that concerns us today. Specifically, § 2244(b)(2)(A) covers claims that "rel[y] on a new rule of constitutional law, made retroactive to cases on collateral review by the Supreme Court, that was previously unavailable." This provision establishes three prerequisites to obtaining relief in a second or successive petition: First, the rule on which the claim relies must be a "new rule" of constitutional law; second, the rule must have been "made retroactive to cases on collateral review by the Supreme Court"; and third, the claim must have been "previously unavailable." In this case, the parties ask us to interpret only the second requirement; respondent does not dispute that Cage created a "new rule" that was "previously unavailable." Based on the plain meaning of the text read as a whole, we conclude that "made" means "held" and, thus, the requirement is satisfied only if this Court has held that the new rule is retroactively applicable to cases on collateral review.
A
As commonly defined, "made" has several alternative meanings, none of which is entirely free from ambiguity. See, e. g., Webster's Ninth New Collegiate Dictionary 718 719 (1991) (defining "to make" as "to cause to happen," "to cause to exist, occur or appear," "to lay out and construct," and "to cause to act in a certain way"). Out of context, it may thus be unclear which meaning should apply in § 2244(b)(2)(A), and how the term should be understood. We do not, however, construe the meaning of statutory terms in a vacuum. Rather, we interpret the words "in their context and with a view to their place in the overall statutory scheme." Davis v. Michigan Dept. of Treasury, 489 U. S. 803, 809 (1989). In § 2244(b)(2)(A), the word "made" falls within a clause that reads as follows: "[A] new rule of constitutional *663 law, made retroactive to cases on collateral review by the Supreme Court. " (Emphasis added.) Quite significantly, under this provision, the Supreme Court is the only entity that can "ma[k]e" a new rule retroactive. The new rule becomes retroactive, not by the decisions of the lower court or by the combined action of the Supreme Court and the lower courts, but simply by the action of the Supreme Court.
The only way the Supreme Court can, by itself, "lay out and construct" a rule's retroactive effect, or "cause" that effect "to exist, occur, or appear," is through a holding. The Supreme Court does not "ma[k]e" a rule retroactive when it merely establishes principles of retroactivity and leaves the application of those principles to lower courts. In such an event, any legal conclusion that is derived from the principles is developed by the lower court (or perhaps by a combination of courts), not by the Supreme Court.[4] We thus conclude that a new rule is not "made retroactive to cases on collateral review" unless the Supreme Court holds it to be retroactive.[5]
*664 To be sure, the statute uses the word "made," not "held." But we have already stated, in a decision interpreting another provision of AEDPA, that Congress need not use the word "held" to require as much. In Williams v. Taylor, 529 U. S. 362 (2000), we concluded that the phrase "clearly established Federal law, as determined by the Supreme Court of the United States," § 2254(d)(1) (emphasis added), "refers to the holdings, as opposed to the dicta, of this Court's decisions," id., at 412. The provision did not use the word "held," but the effect was the same. Congress, needless to say, is permitted to use synonyms in a statute. And just as "determined" and "held" are synonyms in the context of § 2254(d)(1), "made" and "held" are synonyms in the context of § 2244(b)(2)(A).
We further note that our interpretation is necessary for the proper implementation of the collateral review structure created by AEDPA. Under the statute, before a state prisoner may file a second or successive habeas application, he "shall move in the appropriate court of appeals for an order authorizing the district court to consider the application." § 2244(b)(3)(A). The court of appeals must make a decision on the application within 30 days. § 2244(b)(3)(D). In this limited time, the court of appeals must determine whether the application "makes a prima facie showing that [it] satisfies the [second habeas standard]." § 2244(b)(3)(C). It is unlikely that a court of appeals could make such a determination in the allotted time if it had to do more than simply rely on Supreme Court holdings on retroactivity. The stringent time limit thus suggests that the courts of appeals do not have to engage in the difficult legal analysis that can be required to determine questions of retroactivity in the first instance.
B
Because "made" means "held" for purposes of § 2244(b)(2)(A), it is clear that the Cage rule has not been "made retroactive to cases on collateral review by the Supreme Court." Cage itself does not hold that it is retroactive. *665 The only holding in Cage is that the particular jury instruction violated the Due Process Clause.
Tyler argues, however, that a subsequent case, Sullivan v. Louisiana, 508 U. S. 275 (1993), made the Cage rule retroactive. But Sullivan held only that a Cage error is structurali. e., it is not amenable to harmless-error analysis and "will always invalidate the conviction." 508 U. S., at 279. Conceding that the holding in Sullivan does not render Cage retroactive to cases on collateral review, Tyler contends that the reasoning in Sullivan makes clear that retroactive application is warranted by the principles of Teague v. Lane, 489 U. S. 288 (1989). Under Teague, a new rule can be retroactive to cases on collateral review if, and only if, it falls within one of two narrow exceptions to the general rule of nonretroactivity. Id., at 311-313 (plurality opinion). See also O'Dell v. Netherland, 521 U. S. 151, 156-157 (1997). The exception relevant here is for "watershed rules of criminal procedure implicating the fundamental fairness and accuracy of the criminal proceeding." Graham v. Collins, 506 U. S. 461, 478 (1993). To fall within this exception, a new rule must meet two requirements: Infringement of the rule must "seriously diminish the likelihood of obtaining an accurate conviction," and the rule must "` "alter our understanding of the bedrock procedural elements "` essential to the fairness of a proceeding." Sawyer v. Smith, 497 U. S. 227, 242 (1990) (quoting Teague, supra, at 311 (plurality opinion), in turn quoting Mackey v. United States, 401 U. S. 667, 693 (1971) (Harlan, J., concurring in judgments in part and dissenting in part)).
According to Tyler, the reasoning of Sullivan demonstrates that the Cage rule satisfies both prongs of this Teague exception. First, Tyler notes, Sullivan repeatedly emphasized that a Cage error fundamentally undermines the reliability of a trial's outcome. And second, Tyler contends, the central point of Sullivan is that a Cage error deprives a defendant of a bedrock element of procedural fairness: the right to have the jury make the determination of guilt beyond a reasonable doubt. Tyler's arguments fail to persuade, however. *666 The most he can claim is that, based on the principles outlined in Teague, this Court should make Cage retroactive to cases on collateral review. What is clear, however, is that we have not "made" Cage retroactive to cases on collateral review.[6]
Justice Breyer observes that this Court can make a rule retroactive over the course of two cases. See post, at 672 673 (dissenting opinion). We do not disagree that, with the right combination of holdings, the Court could do this. But even so, the Court has not made Cage retroactive. Multiple cases can render a new rule retroactive only if the holdings in those cases necessarily dictate retroactivity of the new rule. The only holding in Sullivan is that a Cage error is structural error. There is no second case that held that all structural-error rules apply retroactively or that all structural-error rules fit within the second Teague exception. The standard for determining whether an error is structural, see generally Arizona v. Fulminante, 499 U. S. 279 (1991), is not coextensive with the second Teague exception,[7] and a *667 holding that a particular error is structural does not logically dictate the conclusion that the second Teague exception has been met.
III
Finally, Tyler suggests that, if Cage has not been made retroactive to cases on collateral review, we should make it retroactive today. We disagree. Because Tyler's habeas application was his second, the District Court was required to dismiss it unless Tyler showed that this Court already had made Cage retroactive. § 2244(b)(4) ("A district court shall dismiss any claim presented in a second or successive application that the court of appeals has authorized to be filed unless the applicant shows that the claim satisfies the requirements of this section"); § 2244(b)(2)(A) ("A claim presented in a second or successive habeas corpus application under section 2254 that was not presented in a prior application shall be dismissed unless . . . the applicant shows that *668 the claim relies on a new rule of constitutional law, made retroactive to cases on collateral review by the Supreme Court, that was previously unavailable"). We cannot decide today whether Cage is retroactive to cases on collateral review, because that decision would not help Tyler in this case. Any statement on Cage `s retroactivity would be dictum, so we decline to comment further on the issue.
* * *
The judgment of the Court of Appeals is affirmed.
It is so ordered.
Justice O'Connor, concurring.
I join the Court's opinion and write separately to explain more fully the circumstances in which a new rule is "made retroactive to cases on collateral review by the Supreme Court." 28 U. S. C. § 2244(b)(2)(A) (1994 ed., Supp. V).
It is only through the holdings of this Court, as opposed to this Court's dicta and as opposed to the decisions of any other court, that a new rule is "made retroactive . . . by the Supreme Court" within the meaning of § 2244(b)(2)(A). See ante, at 663; cf. Williams v. Taylor, 529 U. S. 362, 412 (2000). The clearest instance, of course, in which we can be said to have "made" a new rule retroactive is where we expressly have held the new rule to be retroactive in a case on collateral review and applied the rule to that case. But, as the Court recognizes, a single case that expressly holds a rule to be retroactive is not a sine qua non for the satisfaction of this statutory provision. Ante, at 666. This Court instead may "ma[k]e" a new rule retroactive through multiple holdings that logically dictate the retroactivity of the new rule. Ibid. To apply the syllogistic relationship described by Justice Breyer, post, at 672-673 (dissenting opinion), if we hold in Case One that a particular type of rule applies retroactively to cases on collateral review and hold in Case Two *669 that a given rule is of that particular type, then it necessarily follows that the given rule applies retroactively to cases on collateral review. In such circumstances, we can be said to have "made" the given rule retroactive to cases on collateral review.
The relationship between the conclusion that a new rule is retroactive and the holdings that "ma[k]e" this rule retroactive, however, must be strictly logicali. e., the holdings must dictate the conclusion and not merely provide principles from which one may conclude that the rule applies retroactively. As the Court observes, "[t]he Supreme Court does not `ma[k]e' a rule retroactive when it merely establishes principles of retroactivity and leaves the application of those principles to lower courts." Ante, at 663. The Court instead can be said to have "made" a rule retroactive within the meaning of § 2244(b)(2)(A) only where the Court's holdings logically permit no other conclusion than that the rule is retroactive.
It is relatively easy to demonstrate the required logical relationship with respect to the first exception articulated in Teague v. Lane, 489 U. S. 288 (1989). Under this exception, "a new rule should be applied retroactively if it places `certain kinds of primary, private individual conduct beyond the power of the criminal law-making authority to proscribe.' " Id., at 307 (plurality opinion) (quoting Mackey v. United States, 401 U. S. 667, 692 (1971) (Harlan, J., concurring in judgments in part and dissenting in part)). When the Court holds as a new rule in a subsequent case that a particular species of primary, private individual conduct is beyond the power of the criminal lawmaking authority to proscribe, it necessarily follows that this Court has "made" that new rule retroactive to cases on collateral review. The Court has done so through its holdings alone, without resort to dicta and without any application of principles by lower courts.
The matter is less straightforward with respect to the second Teague exception, which is reserved for "watershed *670 rules of criminal procedure," 489 U. S., at 311 (plurality opinion). A case announcing a new rule could conceivably hold that infringement of the rule "seriously diminish[es] the likelihood of obtaining an accurate conviction," id., at 315, and that the rule "`alter[s] our understanding of the bedrock procedural elements essential to the fairness of a proceeding,' " id., at 311 (plurality opinion) (quoting Mackey, supra, at 693 (Harlan, J., concurring in judgments in part and dissenting in part)); see also Sawyer v. Smith, 497 U. S. 227, 242 (1990), without holding in so many words that the rule "applies retroactively" and without actually applying that rule retroactively to a case on collateral review. The "precise contours" of this Teague exception, of course, "may be difficult to discern," Saffle v. Parks, 494 U. S. 484, 495 (1990), and the judgment involved in our "ma[king]" a new rule retroactive under this exception is likely to be more subjective and selfconscious than is the case with Teague `s first exception. But the relevant inquiry is not whether the new rule comes within the Teague exception at all, but the more narrow and manageable inquiry of whether this Court's holdings, by strict logical necessity, "ma[k]e" the new rule retroactive within the meaning of § 2244(b)(2)(A). While such logical necessity does not obtain in this particular case, ante, at 665 667, this Court could "ma[k]e" a new rule retroactive under Teague `s second exception in this manner.
Justice Breyer, with whom Justice Stevens, Justice Souter, and Justice Ginsburg join, dissenting.
In Cage v. Louisiana, 498 U. S. 39 (1990) (per curiam), this Court held that a certain jury instruction violated the Constitution because it inaccurately defined "reasonable doubt," thereby permitting a jury to convict "based on a degree of proof below that required by the Due Process Clause." Id., at 41. Here we must decide whether this Court has "made" Cage "retroactive to cases on collateral *671 review." 28 U. S. C. § 2244(b)(2)(A) (1994 ed., Supp. V). I believe that it has.
The Court made Cage retroactive in two cases taken together. Case One is Teague v. Lane, 489 U. S. 288 (1989). That case, as the majority says, held (among other things) that a new rule is applicable retroactively to cases on collateral review if (1) infringement of the new rule will "seriously diminish the likelihood of obtaining an accurate conviction," id., at 315 (plurality opinion), and (2) the new rule "`alter[s] our understanding of the bedrock procedural elements that must be found to vitiate the fairness of a particular conviction,' " id., at 311 (plurality opinion) (quoting Mackey v. United States, 401 U. S. 667, 693 (1971) (Harlan, J., concurring in judgments in part and dissenting in part)) (emphasis deleted).
Case Two is Sullivan v. Louisiana, 508 U. S. 275 (1993). This Court decided Sullivan after several lower courts had held that Cage `s rule did not fall within the Teague "watershed" exception I have just mentioned. See, e. g., Adams v. Aiken, 965 F. 2d 1306, 1312 (CA4 1992), vacated, 511 U. S. 1001 (1994); Skelton v. Whitley, 950 F. 2d 1037, 1045 (CA5), cert. denied, 506 U. S. 833 (1992). The question in Sullivan was whether a violation of the Cage rule could ever count as harmless error. The Court answered that question in the negative. In so concluding, the Court reasoned that an instruction that violated Cage by misdescribing the concept of reasonable doubt "vitiates all the jury's findings," and deprives a criminal defendant of a "basic protection . . . without which a criminal trial cannot reliably serve its function." Sullivan, supra, at 281 (emphasis in original; internal quotation marks omitted). It renders the situation as if "there has been no jury verdict within the meaning of the Sixth Amendment." 508 U. S., at 280.
To reason as the Court reasoned in Sullivan is to hold (in Teague `s language) (1) that infringement of the Cage rule "seriously diminish[es] the likelihood of obtaining an accurate *672 conviction," Teague, supra, at 315 (plurality opinion), and (2) that Cage "alter[s] our understanding of the bedrock procedural elements" that are essential to the fairness of a criminal trial, 489 U. S., at 311 (plurality opinion) (internal quotation marks omitted; emphasis deleted). That is because an instruction that makes "all the jury's findings" untrustworthy, Sullivan, supra, at 281, must "diminish the likelihood of obtaining an accurate conviction," Teague, supra, at 315 (plurality opinion). It is because a deprivation of a "basic protection" needed for a trial to "serve its function," Sullivan, supra, at 281 (internal quotation marks omitted), is a deprivation of a "bedrock procedural elemen[t]," Teague, supra, at 311 (plurality opinion) (internal quotation marks omitted). And it is because Cage significantly "alter[ed]" pre-existing law. 489 U. S., at 311. That is what every Court of Appeals to have considered the matter has concluded. See Tillman v. Cook, 215 F. 3d 1116, 1122 (CA10), cert. denied, 531 U. S. 1055 (2000); West v. Vaughn, 204 F. 3d 53, 61, and n. 9 (CA3 2000); Gaines v. Kelly, 202 F. 3d 598, 604-605 (CA2 2000); Humphrey v. Cain, 138 F. 3d 552, 553 (CA5) (en banc), cert. denied, 525 U. S. 935 (1998); Adams v. Aiken, 41 F. 3d 175, 178-179 (CA4 1994), cert. denied, 515 U. S. 1124 (1995); Nutter v. White, 39 F. 3d 1154, 1158 (CA11 1994). But cf. In re Smith, 142 F. 3d 832, 835-836 (CA5 1998) (concluding that explicit Supreme Court statement is necessary to make Cage retroactive for second or successive habeas purposes); Rodriguez v. Superintendent, Bay State Correctional Ctr., 139 F. 3d 270, 275-276 (CA1 1998) (same); In re Hill, 113 F. 3d 181, 184 (CA11 1997) (same). And I do not see how the majority can deny that this is so.
Consequently, Sullivan, in holding that a Cage violation can never be harmless because it leaves the defendant with no jury verdict known to the Sixth Amendment, also holds that Cage falls within Teague `s "watershed" exception. The matter is one of logic. If Case One holds that all men are *673 mortal and Case Two holds that Socrates is a man, we do not need Case Three to hold that Socrates is mortal. It is also a matter of law. If Case One holds that a party's expectation measures damages for breach of contract and Case Two holds that Circumstances X, Y, and Z create a binding contract, we do not need Case Three to hold that in those same circumstances expectation damages are awarded for breach. Ordinarily, in law, to hold that a set of circumstances falls within a particular legal category is simultaneously to hold that, other things being equal, the normal legal characteristics of members of that category apply to those circumstances.
The majority says that Sullivan `s only "holding" is that Cage error is structural, and that this "holding" does not dictate the "watershed" nature of the Cage rule. See ante, at 665-666. But the majority fails to identify a meaningful difference between the definition of a watershed rule under Teague and the standard that we have articulated in the handful of instances in which we have held errors structural, namely, that structural errors deprive a defendant of a "`basic protectio[n]' " without which a "`trial cannot reliably serve its function as a vehicle for determination of guilt or innocence' " to the point where "`no criminal punishment may be regarded as fundamentally fair.' " Arizona v. Fulminante, 499 U. S. 279, 310 (1991) (quoting Rose v. Clark, 478 U. S. 570, 577-578 (1986)); see also Neder v. United States, 527 U. S. 1, 8 (1999) (identifying the six kinds of error, including Cage error, that have been held structural). In principle Teague also adds an element that "structural error" alone need not encompass, namely, the requirement that a violation of the rule must undermine accuracy. But that additional accuracy requirement poses no problem here, for our language in Sullivan could not have made clearer that Cage error seriously undermines the accuracy and reliability of a guilty verdict.
Of course, as the majority points out, identifying an error as structural need not "alter our understanding of th[e] fundamental *674 procedural elements" that are essential to a fair trial. See ante, at 666, n. 7. But this "altering" requirement is not a problem here. No one denies that Cage `s rule was a new one. "Whether a trial court's unconstitutional misdescription of the burden of proof in a criminal case violates the Due Process Clause was certainly an open question before Cage. " Adams, 41 F. 3d, at 178; see also Gaines, supra, at 606-607 (noting that Cage led to reversals of numerous convictions that had been based on similar reasonable-doubt instruction); State v. Humphrey, 544 So. 2d 1188, 1192 (La. App.) (citing multiple decisions by Louisiana Supreme Court which had upheld reasonable-doubt instructions like that invalidated in Cage ), cert. denied, 550 So. 2d 627 (1989). And our holding that such a misdescription of the burden of proof means that "there has been no jury verdict within the meaning of the Sixth Amendment," Sullivan, 508 U. S., at 280, certainly altered the understanding of the significance of such an error.
Insofar as the majority means to suggest that a rule may be sufficiently "new" that it does not apply retroactively but not "new enough" to qualify for the watershed exception, I note only that the cases establishing this exception suggest no such requirement. Rather than focus on the "degree of newness" of a new rule, these decisions emphasize that watershed rules are those that form part of the fundamental requirements of due process. See Teague, 489 U. S., at 311-312 (plurality opinion); Mackey, 401 U. S., at 693-694 (Harlan, J., concurring in judgments in part and dissenting in part); cf. O'Dell v. Netherland, 521 U. S. 151, 167 (1997) (holding that "narrow right of rebuttal" established by Simmons v. South Carolina, 512 U. S. 154 (1994), "has hardly alter[ed] our understanding of the bedrock procedural elements essential to the fairness of a proceeding" (internal quotation marks omitted; emphasis in original)); Caspari v. Bohlen, 510 U. S. 383, 396 (1994) (holding that application of double jeopardy bar to successive noncapital sentencing would not be unfair and would enhance rather than hinder *675 accuracy); Sawyer v. Smith, 497 U. S. 227, 242-244 (1990) (holding that rule which "provid[ed] an additional measure of protection" to existing prohibition on prosecutorial remarks that render a proceeding "fundamentally unfair" was not "an `absolute prerequisite to fundamental fairness' " that would fall within the second Teague exception) (quoting Teague, supra, at 314 (plurality opinion)).
Nor does the majority explain why the reasoning that was necessary to our holding in Sullivan (and is therefore binding upon all courts) lacks enough legal force to "make" the Cage rule retroactive. Cf. Seminole Tribe of Fla. v. Florida, 517 U. S. 44, 67 (1996) ("We adhere . . . not to mere obiter dicta, but rather to the well-established rationale upon which the Court based the results of its earlier decisions. When an opinion issues for the Court, it is not only the result but also those portions of the opinion necessary to that result by which we are bound"); Burnham v. Superior Court of Cal., County of Marin, 495 U. S. 604, 613, n. 2 (1990) (plurality opinion) (exclusive basis for judgment is not dicta). In any event, technical issues about what constitutes a "holding" are beside the point. The statutory provision before us does not use the words "holding" or "held." But cf. ante, at 664 (majority opinion) (stating without explanation that "made" means "held"). It uses the word "made." It refers to instances in which the Supreme Court has "made" a rule of law "retroactive to cases on collateral review." 28 U. S. C. § 2244(b)(2)(A) (1994 ed., Supp. V) (emphasis added). And that is just what the Supreme Court, through Teague and Sullivan, has done with respect to the rule of Cage.
I agree with Justice O'Connoras does a majority of the Courtwhen (in describing a different Teague exception) she says that "[w]hen the Court holds as a new rule in a subsequent case that a particular species of primary, private individual conduct is beyond the power of the criminal lawmaking authority to proscribe, it necessarily follows that this Court has `made' that new rule retroactive to cases on collateral review." Ante, at 669 (concurring opinion). But I do *676 not understand why a decision by this Court which makes it apparent that a rule is retroactive under Teague `s second exception will necessarily be "more subjective and selfconscious." Ante, at 670 (concurring opinion). Of course, it will sometimes be difficult to decide whether an earlier Supreme Court case has satisfied the watershed rule's requirements. But that is not so here. In Sullivan, this Court used language that unmistakably stated that a defective reasonable-doubt instruction undermines the accuracy of a trial and deprives the defendant of a bedrock element that is essential to the fairness of a criminal proceeding. That is sufficient to make Teague `s watershed exception applicable.
I would add two further points. First, nothing in the statute's purpose favors, let alone requires, the majority's conclusion. That purpose, as far as I can surmise, is to bar successive petitions when lower courts, but not the Supreme Court, have held a rule not to be "new" under Teague because dictated by their own precedent, cf. Dyer v. Calderon, 151 F. 3d 970, 993-995 (CA9) (en banc) (O'Scannlain, J., dissenting) (rejecting proposition that lower court decisions can establish rule for Teague purposes), cert. denied, 525 U. S. 1033 (1998); Clemmons v. Delo, 124 F. 3d 944, 955, n. 11 (CA8 1997) (assuming, without deciding, that only Supreme Court precedent may dictate rule so that it is not new for Teague purposes), cert. denied, 523 U. S. 1088 (1998), or when lower courts have themselves adopted new rules and then determined that the Teague retroactivity factors apply, see Smith v. Groose, 205 F. 3d 1045, 1054 (CA8) (holding that Circuit rule that prosecution's use of contradictory theories violates due process would fall within Teague `s "watershed" exception), cert. denied sub nom. Gammon v. Smith, 531 U. S. 985 (2000); Sanders v. Sullivan, 900 F. 2d 601, 606-607 (CA2 1990) (same, with respect to Circuit rule that prosecution's unknowing use of material, perjured testimony violates Constitution). Here, consistent with such a purpose, the Supreme Court has previously spoken.
*677 Second, the most likely consequence of the majority's holding is further procedural complexity. After today's opinion, the only way in which this Court can make a rule such as Cage `s retroactive is to repeat itsSullivan reasoning in a case triggered by a prisoner's filing a first habeas petition (a "second or successive" petition itself being barred by the provision here at issue) or in some other case that presents the issue in a posture that allows such language to have the status of a "holding." Then, after the Court takes the case and says that it meant what it previously said, prisoners could file "second or successive" petitions to take advantage of the now-clearly-made-applicable new rule. We will be required to restate the obvious, case by case, even when we have explicitly said, but not "held," that a new rule is retroactive. See, e. g., Penry v. Lynaugh, 492 U. S. 302, 330 (1989) (stating that, if Court were to hold that Eighth Amendment prohibits execution of persons with mental retardation, this rule would be retroactively applicable on collateral review).
Even this complex route will remain open only if the relevant statute of limitations is interpreted to permit its 1-year filing period to run from the time that this Court has "made" a new rule retroactive, not from the time it initially recognized that new right. See 28 U. S. C. § 2244(d)(1)(C) (1994 ed., Supp. V) (limitations period runs from "the date on which the constitutional right asserted was initially recognized by the Supreme Court, if the right has been newly recognized by the Supreme Court and made retroactively applicable to cases on collateral review"). Otherwise, the Court's approach will generate not only complexity, along with its attendant risk of confusion, but also serious additional unfairness.
I do not understand the basis for the Court's approach. I fear its consequences. For these reasons, with respect, I dissent.
NOTES
[*] Briefs of amici curiae urging affirmance were filed for the State of California et al. by Bill Lockyer, Attorney General of California, David P. Druliner, Chief Assistant Attorney General, Carol Wendelin Pollack, Senior Assistant Attorney General, and Donald E. de Nicola and James William Bilderback II, Deputy Attorneys General, and by the Attorneys General for their respective States as follows: Bill Pryor of Alabama, Bruce M. Botelho of Alaska, Ken Salazar of Colorado, M. Jane Brady of Delaware, Robert A. Butterworth of Florida, James E. Ryan of Illinois, Thomas J. Miller of Iowa, Carla J. Stovall of Kansas, Jeremiah W. (Jay) Nixon of Missouri, Mike McGrath of Montana, Don Stenberg of Nebraska, Frankie Sue Del Papa of Nevada, Patricia A. Madrid of New Mexico, Eliot Spitzer of New York, Wayne Stenehjem of North Dakota, Betty D. Montgomery of Ohio, W. A. Drew Edmondson of Oklahoma, Hardy Myers of Oregon, D. Michael Fisher of Pennsylvania, Charles M. Condon of South Carolina, Mark Barnett of South Dakota, Paul G. Summers of Tennessee, Mark L. Shurtleff of Utah, William H. Sorrell of Vermont, and Mark L. Early of Virginia; and for the Criminal Justice Legal Foundation by Kent S. Scheidegger.
[1] In Cage, this Court observed that a reasonable juror "could have" interpreted the instruction at issue to permit a finding of guilt without the requisite proof. 498 U. S., at 41. In Estelle v. McGuire, 502 U. S. 62, 72, and n. 4 (1991), however, this Court made clear that the proper inquiry is not whether the instruction "could have" been applied unconstitutionally, but whether there is a reasonable likelihood that the jury did so apply it. See also Victor v. Nebraska, 511 U. S. 1, 6 (1994) ("The constitutional question in the present cases . . . is whether there is a reasonable likelihood that the jury understood the instructions to allow conviction based on proof insufficient to meet the [constitutional] standard").
[2] AEDPA requires that, "[b]efore a second or successive application . . . is filed in the district court, the applicant shall move in the appropriate court of appeals for an order authorizing the district court to consider the application." 28 U. S. C. § 2244(b)(3)(A) (1994 ed., Supp. V).
[3] This requirement differs from the one that applicants must satisfy in order to obtain permission from a court of appeals to file a second or successive petition. As noted above, a court of appeals may authorize such a filing only if it determines that the applicant makes a "prima facie showing" that the application satisfies the statutory standard. § 2244(b)(3)(C). But to survive dismissal in district court, the applicant must actually "sho[w]" that the claim satisfies the standard.
[4] Similarly, the Supreme Court does not make a rule retroactive through dictum, which is not binding. Cf. Seminole Tribe of Fla. v. Florida, 517 U. S. 44, 67 (1996) (contrasting dictum with holdings, which include the final disposition of a case as well as the preceding determinations "necessary to that result" (emphasis added)).
[5] Tyler argues that defining "made" to mean "held" would create an anomaly: When it is obvious that a rule should be retroactive, the courts of appeals will not be in conflict, and this Court will never decide to hear the case and will never make the rule retroactive. Thus, Tyler concludes, we should construe § 2244(b)(2)(A) to allow for retroactive application whenever the "principles" of our decisions, as interpreted by the courts of appeals, indicate that retroactivity is appropriate. This argument is flawed, however. First, even if we disagreed with the legislative decision to establish stringent procedural requirements for retroactive application of new rules, we do not have license to question the decision on policy grounds. See Connecticut Nat. Bank v. Germain, 503 U. S. 249, 253-254 (1992). Second, the "anomalous" result that Tyler predicts is speculative at best, because AEDPA does not limit our discretion to grant certiorari to cases in which the courts of appeals have reached divergent results.
[6] We also reject Tyler's attempt to find support in our disposition in Adams v. Evatt, 511 U. S. 1001 (1994). In Adams, we vacated an opinion of the Court of Appeals for the Fourth Circuit, which had held that Cage was not retroactive, and remanded for further consideration in light of Sullivan. Our order, however, was not a "final determination on the merits." Henry v. Rock Hill, 376 U. S. 776, 777 (1964) (per curiam). It simply indicated that, in light of "intervening developments," there was a "reasonable probability" that the Court of Appeals would reject a legal premise on which it relied and which may affect the outcome of the litigation. Lawrence v. Chater, 516 U. S. 163, 167 (1996) (per curiam).
[7] As explained above, the second Teague exception is available only if the new rule "` "alter[s] our understanding of the bedrock procedural elements"` essential to the fairness of a proceeding." Sawyer v. Smith, 497 U. S. 227, 242 (1990) (quoting Teague v. Lane, 489 U. S. 288, 311 (1989) (plurality opinion), in turn quoting Mackey v. United States, 401 U. S. 667, 693 (1971) (Harlan, J., concurring in judgments in part and dissenting in part) (emphasis added)). Classifying an error as structural does not necessarily alter our understanding of these bedrock procedural elements. Nor can it be said that all new rules relating to due process (or even the "fundamental requirements of due process," see post, at 674 (dissenting opinion)) alter such understanding. See, e. g., Sawyer, supra, at 244 (holding that the rule in Caldwell v. Mississippi, 472 U. S. 320 (1985), did not fit within the second Teague exception even though it "added to an existing guarantee of due process protection against fundamental unfairness"); O'Dell v. Netherland, 521 U. S. 151, 167 (1997) (holding that the rule in Simmons v. South Carolina, 512 U. S. 154 (1994), which has been described as serving "one of the hallmarks of due process," id., at 175 (O'Connor, J., concurring in judgment), did not fit within the second Teague exception). On the contrary, the second Teague exception is reserved only for truly "watershed" rules. See O'Dell, supra, at 167; see also Caspari v. Bohlen, 510 U. S. 383, 396 (1994) (describing such rules as "groundbreaking"); Graham v. Collins, 506 U. S. 461, 478 (1993) (explaining that the exception is limited to "a small core of rules," which not only seriously enhance accuracy but also "requir[e] `observance of those procedures that . . . are implicit in the concept of ordered liberty' ") (quoting Teague, supra, at 311 (internal quotation marks omitted)); Saffle v. Parks, 494 U. S. 484, 495 (1990) (focusing on "primacy and centrality" of the rule). As we have recognized, it is unlikely that any of these watershed rules "ha[s] yet to emerge." Sawyer, supra, at 243 (quoting Teague, supra, at 313 (plurality opinion)); see also Graham, supra, at 478. | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/118117/ | 520 U.S. 751 (1997)
UNITED STATES
v.
LaBONTE et al.
No. 95-1726.
United States Supreme Court.
Argued January 7, 1997.
Decided May 27, 1997.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT
*753 Thomas, J., delivered the opinion of the Court, in which Rehnquist, C. J., and O'Connor, Scalia, Kennedy, and Souter, JJ., joined. Breyer, J., filed a dissenting opinion, in which Stevens and Ginsburg, JJ., joined, post, p. 762.
Deputy Solicitor General Dreeben argued the cause for the United States. With him on the briefs were Acting Solicitor General Dellinger, Acting Assistant Attorney General Keeney, Malcolm L. Stewart, and J. Douglas Wilson.
David N. Yellen argued the cause for respondents. With him on the brief were John A. Ciraldo, by appointment of the Court, 518 U. S. 1037, Peter Goldberger, by appointment of the Court, 518 U. S. 1037, and Michael C. Bourbeau, by appointment of the Court, 518 U. S. 1037.[*]
Justice Thomas, delivered the opinion of the Court.
In 28 U. S. C. § 994(h), Congress directed the United States Sentencing Commission (Commission) to "assure" that the Sentencing Guidelines specify a prison sentence "at or near the maximum term authorized for categories of" adult offenders who commit their third felony drug offense or violent crime. We are asked to decide whether, by "maximum term authorized," Congress meant (1) the maximum term available for the offense of conviction including any applicable *753 statutory sentencing enhancements, as the United States argues, or (2) the maximum term available without such enhancements, as the Commission has determined. We conclude that the Commission's interpretation is inconsistent with § 994(h)'s plain language, and therefore hold that "maximum term authorized" must be read to include all applicable statutory sentencing enhancements.
I
A
In 1984, Congress created the Commission and charged it with "establish[ing] sentencing policies and practices for the Federal criminal justice system." 28 U. S. C. § 991; see Mistretta v. United States, 488 U. S. 361, 367-370 (1989). The Commission, however, was not granted unbounded discretion. Instead, Congress articulated general goals for federal sentencing and imposed upon the Commission a variety of specific requirements. See §§ 994(b)(n). Among those requirements, Congress directed that the Commission
"shall assure that the guidelines specify a sentence to a term of imprisonment at or near the maximum term authorized for categories of defendants in which the defendant is eighteen years old or older and
"(1) has been convicted of a felony that is
"(A) a crime of violence; or
"(B) an offense described in section 401 of the Controlled Substances Act (21 U. S. C. 841) . . . ; and
"(2) has previously been convicted of two or more prior [such] felonies . . . ." 28 U. S. C. § 994(h).
The Commission sought to implement this directive by promulgating the "Career Offender Guideline," which created a table of enhanced total offense levels to be used in calculating sentences for "career offenders." United States Sentencing Commission, Guidelines Manual § 4B1.1 (Nov. 1987) *754 (USSG). Pursuant to that Guideline, each defendant who qualifies for career offender status is automatically placed in criminal history "Category VI," the highest available under the Guidelines. The table then assigns the appropriate offense level based on the so-called "offense statutory maximum."
When the Commission coined the phrase "offense statutory maximum," it defined it, unhelpfully, as "the maximum term of imprisonment authorized for the offense of conviction." USSG App. C, amdt. 267 (Nov. 1989) (adding § 4B1.1, comment., n. 2). Neither the Career Offender Guideline itself, however, nor the accompanying commentary designated which "maximum term" was to be used when federal law established a basic statutory maximum for persons convicted of a particular offense, but also provided an enhanced maximum penalty for career offenders convicted of that same offense.[1] The Courts of Appeals, required to choose between sentencing "at or near the maximum" of the base sentence, or of the base sentence plus the relevant statutory enhancements, uniformly concluded that the "offense statutory maximum" for a defendant with prior convictions was the enhanced maximum term.[2]
The Commission subsequently amended the Career Offender Guideline's commentary to preclude consideration of statutory enhancements in calculating the "offense statutory maximum." Rejecting the approach prevailing in the *755 Courts of Appeals, the Commission defined the phrase "offense statutory maximum" as:
"the maximum term of imprisonment authorized for the offense of conviction that is a crime of violence or controlled substance offense, not including any increase in that maximum term under a sentencing enhancement provision that applies because of the defendant's prior criminal record .. . ." USSG App. C, amdt. 506 (Nov. 1994) (amending USSG § 4B1.1, comment., n. 2).
Pursuant to its authority under 28 U. S. C. § 994(u), the Commission opted to give Amendment 506 retroactive effect, providing sentencing courts with discretion to reduce sentences imposed before the amendment's November 1, 1994, effective date. See USSG § 1B1.10(c) (Nov. 1996).
B
Prior to the adoption of Amendment 506, respondents George LaBonte, Alfred Lawrence Hunnewell, and Stephen Dyer were convicted of various federal controlled substance offenses in the United States District Court for the District of Maine. Each respondent qualified as a career offender under USSG § 4B1.1 (Nov. 1987), had received the required notice that an enhanced penalty would be sought, and was sentenced under the Career Offender Guideline using the enhancement. The First Circuit affirmed each respondent's conviction and sentence. Following the adoption of Amendment 506, however, each respondent sought a reduction in his sentence. In the cases of respondents Dyer and Hunnewell, the District Court found that the amendment was contrary to 21 U. S. C. § 841(b)(1)(C) and 28 U. S. C. § 994(h), and refused to reduce the sentences. In respondent LaBonte's case, however, a different judge of the same District Court upheld the amendment and reduced LaBonte's sentence. The First Circuit consolidated the ensuing appeals and a divided panel, applying the approach set forth in Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., *756 467 U. S. 837 (1984), upheld Amendment 506 as an appropriate exercise of the Commission's discretion. 70 F. 3d 1396, 1403-1409 (1995). The First Circuit looked to the statutory language and "f[ou]nd no clear congressional directive regarding the meaning of the term `maximum' as that term is used in section 994(h)." Id., at 1406. In the court's view, the meaning of the word "maximum" was influenced by its presence in the phrase "`maximum term authorized for [certain] categories of defendants.' " Id., at 1404 (bracketed term in original). While acknowledging that the phrase could apply exclusively to that category of repeat offenders for whom the Government filed a notice to seek sentence enhancement, the court also observed that the word "categories" could plausibly be defined "to include all offenders (or all repeat offenders) charged with transgressing the same criminal statute, regardless of whether the prosecution chooses to invoke the sentence-enhancing mechanism against a particular defendant." Id., at 1404-1405 (emphasis added). Under the latter view, the court reasoned, the word "maximum" would necessarily refer to the unenhanced statutory maximum "since this represents the highest possible sentence applicable to all defendants in the category." Id., at 1405.
Based on that perceived ambiguity, the court explained that the "Career Offender Guideline, read through the prism of Amendment 506, adopts an entirely plausible version of the categorical approach that the statute suggests." Id., at 1407. The court thus held that the Career Offender Guideline, as construed under Amendment 506, was a reasonable implementation of § 994(h)'s command to designate sentences at or near the authorized maximum term. Id., at 1409.
In validating Amendment 506, the First Circuit here reached the same conclusion as the Ninth Circuit later did in United States v. Dunn, 80 F. 3d 402, 404 (1996). Five other Courts of Appeals, however, have reached the opposite conclusion, finding Amendment 506 at odds with the plain language *757 of § 994(h).[3] We granted certiorari to resolve this conflict, 518 U. S. 1016 (1996), and now reverse.
II
Congress has delegated to the Commission "significant discretion in formulating guidelines" for sentencing convicted federal offenders. Mistretta, 488 U. S., at 377. Broad as that discretion may be, however, it must bow to the specific directives of Congress. In determining whether Amendment 506 accurately reflects Congress' intent, we turn, as we must, to the statutory language. If the Commission's revised commentary is at odds with § 994(h)'s plain language, it must give way. Cf. Stinson v. United States, 508 U. S. 36, 38 (1993) (explaining that the Guidelines commentary "is authoritative unless it violates the Constitution or a federal statute").
In § 994(h), Congress directed the Commission to "assure" that for adult offenders who commit their third felony drug offense or crime of violence, the Guidelines prescribe a sentence of imprisonment "at or near the maximum term authorized." 28 U. S. C. § 994(h). We do not start from the premise that this language is imprecise. Instead, we assume that in drafting this legislation, Congress said what it meant. Giving the words used their "ordinary meaning," Moskal v. United States, 498 U. S. 103, 108 (1990), we find that the word "maximum" most naturally connotes the "greatest quantity or value attainable in a given case." Webster's New International Dictionary 1396 (2d ed. 1958); Black's Law Dictionary 979 (6th ed. 1990) ("The highest or greatest amount, quality, value, or degree"). We similarly *758 conclude, and the parties do not dispute, that the phrase "term authorized" refers not to the period of incarceration specified by the Guidelines, but to that permitted by the applicable sentencing statutes.[4] Accordingly, the phrase "maximum term authorized" should be construed as requiring the "highest" or "greatest" sentence allowed by statute.
Respondents, however, argue that "maximum term authorized" refers only to the highest penalty authorized by the offense of conviction, excluding any statutory sentencing enhancements. We find little merit in that contention. In calculating the "highest" term prescribed for a specific offense, it is not sufficient merely to identify the basic penalty associated with that offense. Congress has expressly provided enhanced maximum penalties for certain categories of repeat offenders in an effort to treat them more harshly than other offenders. Section 994(h) explicitly refers, for example, to 21 U. S. C. § 841, which establishes a base "term of imprisonment of not more than 20 years" for certain drug traffickers, but then adds that "[i]f any person commits such a violation after a prior conviction for a felony drug offense has become final, such person shall be sentenced to a term *759 of imprisonment of not more than 30 years." § 841(b)(1)(C). Where Congress has enacted a base penalty for first-time offenders or nonqualifying repeat offenders, and an enhanced penalty for qualifying repeat offenders, the "maximum term authorized" for the qualifying repeat offenders is the enhanced, not the base, term. As a consequence, the "maximum term authorized" for repeat offenders convicted under § 841(b)(1)(C) is 30 yearsthe enhanced statutory maximumnot the unenhanced maximum of 20 years.
Respondents' assertion that § 994(h) is ambiguous is based, at least in part, on a strained construction of the phrase "categories of defendants." They claim that the word "categories" can be defined broadly to encompass all repeat offenders charged with violating the same criminal statute including those for whom the Government did not file a notice under § 851(a)(1) and who are therefore ineligible for the penalty enhancement. See n. 1, supra. If "categories of defendants" is defined in this way, respondents argue, a sentence "at or near the maximum term authorized" for this broader "category" of repeat offenders would necessarily permit only the unenhanced maximum because this is the highest possible sentence that could apply to all of the defendants within that category.
We see at least two serious flaws in this reasoning. First, respondents' construction of the word "categories" is over inclusive because it subsumes within a single category both defendants who have received notice under § 851(a)(1) and those who have not. The statutory scheme, however, obviously contemplates two distinct categories of repeat offenders for each possible crime. The Commission is no more free to ignore this distinction than it is to ignore the distinction made between those defendants who distributed certain controlled substances and those whose distribution also directly resulted in the death of a user. See, e. g., 21 U. S. C. § 841(b)(1)(C). Thus, for defendants who have received the *760 notice under § 851(a)(1), as respondents did here, the "maximum term authorized" is the enhanced term. For defendants who did not receive the notice, the unenhanced maximum applies.
Second, to read the phrase "categories of defendants" as respondents suggest would largely eviscerate the penalty enhancements Congress enacted in statutes such as § 841. We are unwilling to read § 994(h) as essentially rendering meaningless entire provisions of other statutes to which it expressly refers. Under respondents' novel construction, a repeat drug or violent felon could only receive a sentence at or near the maximum allowed for defendants who had no such prior qualifying convictions or who had never received the notice under § 851(a)(1). Indeed, if this interpretation of the term "categories" were adopted, a sentencing court could be forbidden to impose the enhanced maximum penalty. Congress surely did not establish enhanced penalties for repeat offenders only to have the Commission render them a virtual nullity.
Respondents further seek to circumvent § 994(h)'s plain meaning by claiming that Amendment 506 satisfies Congress' mandate to sentence repeat offenders "at or near" the maximum sentence authorized. The flexibility afforded by the phrase "at or near," respondents contend, justifies the Commission's decision to rely on the unenhanced maximum. This statutory phrase unquestionably permits a certain degree of flexibility for upward and downward departures and adjustments. The pertinent issue, however, "is not how close the sentence must be to the statutory maximum, but to which statutory maximum it must be close." United States v. Fountain, 83 F. 3d 946, 952 (CA8 1996), cert. pending, No. 96-6001. Whatever latitude § 994(h) affords the Commission in deciding how close a sentence must come to the maximum to be "near" it, the statute does not license the Commission to select as the relevant "maximum term" a sentence *761 that is different from the congressionally authorized maximum term.[5]
Finally, respondents rely heavily on the Commission's stated justifications for choosing the unenhanced maximum. We are unmoved. First, the Commission asserted that, by precluding the use of the statutory enhancements, Amendment 506 "avoids unwarranted double counting" of the defendant's prior offenses. 59 Fed. Reg. 23608, 23609 (1994). That argument is entirely beside the point. Congress has instructed the Commission to assure that the sentences of repeat offenders closely track the statutory maximum. The number of steps the Commission employs to achieve that requirement is unimportant, provided the Commission's mechanism results in sentences "at or near" the "maximum term authorized."
Second, respondents invoke the Commission's assertion that its amended commentary eliminates "unwarranted disparity associated with variations in the exercise of prosecutional discretion in seeking enhanced penalties based on prior convictions." Ibid. As we understand it, this argument posits that if the Government provides notice under § 851(a)(1) to one defendant, but not to another, the resulting *762 difference in the maximum possible term is an "unwarranted disparity." Insofar as prosecutors, as a practical matter, may be able to determine whether a particular defendant will be subject to the enhanced statutory maximum, any such discretion would be similar to the discretion a prosecutor exercises when he decides what, if any, charges to bring against a criminal suspect. Such discretion is an integral feature of the criminal justice system, and is appropriate, so long as it is not based upon improper factors. See United States v. Armstrong, 517 U. S. 456, 464-465 (1996); Wayte v. United States, 470 U. S. 598, 607 (1985). Any disparity in the maximum statutory penalties between defendants who do and those who do not receive the notice is a foreseeable but hardly improperconsequence of the statutory notice requirement.[6]
III
In sum, we hold that the phrase "at or near the maximum term authorized" is unambiguous and requires a court to sentence a career offender "at or near" the "maximum" prison term available once all relevant statutory sentencing enhancements are taken into account. Accordingly, we reverse the judgment below and remand the case for further proceedings consistent with this opinion.
It is so ordered.
Justice Breyer, with whom Justice Stevens and Justice Ginsburg join, dissenting.
The United States Sentencing Commission has interpreted three statutory wordsthe words "maximum term authorized"to mean "maximum term of imprisonment authorized for the offense of conviction . . . not including . . . sentencing enhancement provision[s]" for recidivists. 28 U. S. C. *763 § 994(h); United States Sentencing Commission, Guidelines Manual § 4B1.1, comment., n. 2 (Nov. 1995) (USSG). The majority finds this interpretation unlawful. It believes that the three statutory words are unambiguous; that they are not susceptible to the Commission's interpretation; and that the only possible interpretation is one that does not except recidivist enhancement provisions.
In my view, however, the words "maximum term authorized" are ambiguous. They demand an answer to the question "authorized by what? " The statute itself does not tell us "what." Nor does the statute otherwise "directly [speak] to the precise [Guideline] question at issue." Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, 842 (1984); see Smiley v. Citibank (South Dakota), N. A., 517 U. S. 735 (1996). In light of the statutory ambiguity, we should defer to the Commission's views about what Guideline the statute permits it to write; and we should uphold the Guideline the Commission has written because it "is based on a permissible construction of the statute." Chevron, supra, at 843.
I
A
To understand the legal issue before us, one must keep in mind both what the Guidelines are and how they work. The Guidelines themselves are a set of legal rules written by the United States Sentencing Commission acting under authority delegated to it by a congressional statute, the Sentencing Reform Act of 1984 (Sentencing Act), Pub. L. 98-473, § 217, 98 Stat. 2017 2026, as amended, 28 U. S. C. §§ 991-998. See generally Mistretta v. United States, 488 U. S. 361 (1989). Congress established the United States Sentencing Commission both to create a more honest sentencing system (through the elimination of parole, see Pub. L. 98-473, § 218(a)(5), 98 Stat. 2027) and to create a fairer system by reducing the "unjustifiably wide range of sentences [previously *764 imposed upon] offenders with similar histories, convicted of similar crimes, committed under similar circumstances," under the pre-existing indeterminate system of sentencing. S. Rep. No. 98-225, p. 38 (1983). See also Mistretta, supra, at 366.
At the same time, Congress said that the Commission, when reducing disparity, should not "sacrific[e] proportionality"the principle that criminal conduct of greater severity should be punished more harshly than less serious conduct. United States Sentencing Commission, Supplementary Report on the Initial Sentencing Guidelines and Policy Statements 13 (June 1987) (Supplementary Report). See also 18 U. S. C. § 3553(a)(2)(A) (sentences should "reflect the seriousness of the offense" and "provide just punishment"); 28 U. S. C. §§ 994(a)(2) and (g). This effort to achieve proportionality required the Commission to identify those factors that make criminal conduct more or less serious and provide a way for those factors to be taken into account in the Guidelines. Yet because the list of relevant sentencing factors is long, and their interaction impossibly complex, the Commission had to strike a compromise between the need for proportionality on the one hand and the need for Guidelines that were simple enough to be administered. USSG ch. 1, pt. A3, p. s. The upshot is a Guidelines system that balances various, sometimes conflicting, general goals, including reduction of disparity, proportionality, and administrability.
The Guidelines divide sentencing factors into two basic categories: "offense" characteristics and "offender" characteristics. See generally USSG § 1B1.1. The Guidelines first look to the characteristics of the "offense." The Guidelines tell a sentencing judge to consider the behavior in which an offender engaged when he committed the crime of which he was convicted. They assign a numbercalled a "Base Offense Level"to the behavior that constituted the crime itself. (For example, they assign the Base Offense Level 20 to robbery. Id., § 2B3.1(a).) They next tell the *765 judge to look to the way in which the offender committed the crime; and they provide specific upward adjustments in light of certain aggravating features of the criminal behavioradjustments they call "Specific Offense Characteristics." (For example, if the robber used a gun, the judge adds six levels. Id., § 2B3.1(b)(2)(B).)
The Guidelines then tell the judge to turn to the relevant characteristics of the defendant, see 28 U. S. C. § 994(d)features not of the crime, but of the criminal. In particular, they tell the judge to assign a number of "points" determined by what the Commission has determined to be the single most important offender characteristic, namely, the offender's prior criminal behavior. These points in turn correspond to one of six Criminal History Categories. (For example, if the robber had one serious prior criminal conviction, that is, one that led to a sentence of imprisonment of more than 13 months, the judge will assign three points, which places the offender in Criminal History Category II. USSG § 4A1.1(a), and id., ch. 5, pt. A (table).)
After determining the "offense level" and Criminal History Category applicable to the offender, the sentencing judge (after making various other possible adjustments) will consult a table, the rows of which consist of "levels" and the columns of which consist of "Categories." The intersection of the appropriate row and column will normally indicate a narrow range of months of imprisonment. (For example, at the intersection of level 26 and Category II lies a sentencing range of 70-87 months' imprisonment. Id., ch. 5, pt. A (table).) In an ordinary case, the judge will sentence within that indicated range.
I say "in an ordinary case" because almost all Guideline rules are meant to govern typical cases. See 18 U. S. C. § 3553(b); 28 U. S. C. §§ 991(b)(1)(B), 994(b)(2) (requiring strict limits upon judge's sentencing discretion in ordinary cases). At the same time, the sentencing judge is free to depart from the Guidelines sentence in an atypical caseone *766 outside the "heartland" of cases embodying the conduct that individual Guidelines describe. 18 U. S. C. § 3553(b); USSG ch. 1, pt. A4(b); Koon v. United States, 518 U. S. 81, 92-96 (1996). This "departure authority" is important because no set of Guidelines can anticipate every situation. Where "there exists an aggravating or mitigating circumstance of a kind, or to a degree, not adequately taken into consideration by the Sentencing Commission in formulating the guidelines," a judge has the authority to impose an appropriate sentence, so long as that sentence is within the range authorized by the statute under which the defendant was convicted. See 18 U. S. C. § 3553(b); see also 28 U. S. C. § 991(b)(1)(B).
As the Commission has pointed out, this system reflects the Sentencing Act's "detailed instructions . . . the most important of which directs the Commission to create categories of offense behavior and offender characteristics. " USSG ch. 1, pt. A2 (emphasis added). See also 28 U. S. C. §§ 994(c) and (d). Twenty-five statutory subsections, §§ 994(a)(y), contain these and other "detailed instructions"instructions that both "delegat[e] broad authority to the Commission to. . . rationalize the federal sentencing process," USSG ch. 1, pt. A2, and also describe, at least in rough outline, how the Commission should go about exercising that authority. The case before us concerns 1 of those 25 subsections, 28 U. S. C. § 994(h), which I shall call the "career offender" subsection.
B
The "career offender" subsection provides more specific directions than most other subsections. It says that the Commission
"shall assure that the guidelines specify a sentence to a term of imprisonment at or near the maximum term authorized for categories of defendants in which the defendant is eighteen years old or older and
"(1) has been convicted of a felony that is
"(A) a crime of violence; or
*767 "(B) an offense described in section 401 of the Controlled Substances Act (21 U. S. C. 841) . . . ; and
"(2) has previously been convicted of two or more [similar] prior felonies . . . ." § 994(h) (emphasis added).
This provision, for present purposes, is not quite as complicated as it appears, for the words that follow the italicized words "maximum term authorized" do not modify or explain those italicized words. Rather, they describe the kind of person whom the Commission must make certain is sentenced to a term "at or near the maximum term authorized." It is as if the statute said to the Commission: Focus upon "categories" of individuals who have previously committed two serious crimes (involving drugs or violence) and make certain that the Guidelines specify, for those "categories" of individuals, "a sentence to a term of imprisonment at or near the maximum term authorized."
The Commission has recently rewritten the Guideline so that it now imposes sentences based upon
"the maximum term of imprisonment authorized for the offense of conviction . . . not including any increase in that maximum term under a sentencing enhancement provision that applies because of the defendant's prior criminal record." USSG § 4B1.1, comment., n. 2.
To understand how the new Guideline works, consider an example: The basic drug distribution statute, 21 U. S. C. § 841, has two relevant subsections, (a) and (b). Subsection (a) makes it a crime to "possess" a "controlled substance," such as cocaine, with "intent to distribute" it. Subsection (b) sets forth penaltiesboth minimum and maximum penaltiesfor violating subsection (a). Those penalties depend primarily upon the amount of drugs at issue, but also upon recidivism. One part of subsection (b), namely, subsection (b)(1)(B), for example, specifies a minimum penalty of 5 years and a maximum penalty of 40 years where the amount of cocaine ranges from 500 grams to 5 kilograms. A later portion *768 of that part increases the minimum penalty to 10 years and the maximum penalty to life if the offender has a previous drug felony conviction. The Commission's Career Offender Guideline treats the statutory term "authorized" as if it referred to the "maximums" that § 841 provides, except for this last-mentioned part.
II
We must decide whether the career offender statute permits the Commission to write this Career Offender Guidelinea Guideline that looks to the maximum sentences that individual criminal statutes authorize for the behavior that constitutes the offense. That Guideline does not look to the maximum sentence that an individual criminal statute authorizes for recidivismperhaps the most important offender characteristic. In a sense, it says that the career offender statute, which tells the Commission to transform statutory maximums into approximate Guideline minimums, is Congress' basic recidivism provision. That is to say, the Commission's Guideline essentially reads the career offender statute as permitting an implementing Guideline that substitutes for, rather than supplements, other statutory recidivism-based maximum-sentence enhancements.
The question that divides this Court is not about the wisdom of this implementing interpretation. It is whether the "career offender" statute's words "maximum term authorized" are open to the Commission's interpretation or whether they unambiguously forbid it. In my view, the words, whether read by themselves, read within the context of sentencing law, or read against the historic background of sentencing reform, do not unambiguously forbid the Guideline. Rather, their ambiguity indicates that Congress simply has not "addressed the precise question." Chevron, 467 U. S., at 843.
First, the language itselfthe words "maximum term authorized"is ambiguous. As I previously pointed out, *769 supra, at 767, the immediately subsequent words (about categories of offenders) do not explain the words "maximum term authorized," for they do not modify those words. Hence the question remains, "authorized by what?" All parties agree that the relevant maximum is the maximum set by sentencing statutes and not, for example, the top of the otherwise applicable Guideline range. But still, to which sentencing statutes does the phrase refer? The answer to this question is not written upon the statute's face.
The phrase could not possibly refer to every sentencing statute, nor to every statute that controls the length of the maximum legally possible sentence for a particular offender or kind of offender. It seems most unlikely that the phrase was intended to include, for example, 18 U. S. C. § 3565(a)(2)a statute that authorizes a sentence for a probation violator up to the maximum initially available for the underlying crime. I have never heard anyone claim that an offender who commits his third drug crime while on probation for, say, a minor part in a counterfeiting offense, see § 471; USSG § 2B5.1, should receive a sentence that approximates the statutory maximum for the drug offense plus the 15-year counterfeiting statutory maximum added in addition. But see ante, at 757-758.
Nor, to take another example, could the phrase mean to include the federal statute that governs "[m]ultiple sentences of imprisonment," 18 U. S. C. § 3584a statute that grants sentencing judges broad authority to "run" multiple sentences either "concurrently or consecutively." That statute would permit a judge to impose, say, a 20-year maximum sentence for each count of a six-count indictment and run those sentences consecutively, producing a total sentence of 120 years. Yet judges would not impose a sentence of 120 years upon an offender who engaged in a single related set of six 10-gram cocaine sales, even if each sale were the subject of a separate count in a prosecutor's indictment. (The Guidelines would not permit this 120-year imaginary sentence. *770 See USSG §§ 3D1.2(d), 3D1.3(b).) No one thinks that Congress intended the Commission to write its "career offender" Guideline with an eye toward the maximum sentences that this kind of statute (the "multiple sentences" statute) theoretically would authorize.
The majority, in providing a set of arguments for the correct conclusion that the phrase "maximum term authorized" does not include the statute just mentioned, effectively concedes this point. The majority cannot say that the terms of imprisonment authorized by this statute do not even potentially fall within the scope of the phrase "maximum term authorized," for the majority's interpretation of this statuteintended to avoid its applicationis itself neither obvious nor even necessarily correct. (Compare the majority's use of the words "term of imprisonment," for example, see ante, at 758, n. 4, with the numerous instances in which sentencing law, including a portion of the "multiple sentence" statute itself, 18 U. S. C. § 3584(c), uses those words to refer to the actual time to be served as the result of a sentence imposed on a defendant. E. g., §§ 3582, 3585, 3621, 3624.) And once one understands the need to engage in rather complex exercises in statutory interpretation to separate out, from the set of all potentially applicable sentencing statutes, those to which the word "authorized" refers, one understands that the referent of that word "authorized" is not obvious and that is the main point here at issue.
Nor can one resolve the linguistic ambiguity by claiming (as the drafters of the relevant statutory language seem to have claimed, see infra, at 775) that Congress simply meant to refer to the maximum statutory penalties for the "offenses" of which offenders are convicted. That is because the word "offense" is a technical term in the criminal law, referring to a crime made up of statutorily defined "elements." See Staples v. United States, 511 U. S. 600, 604 (1994); Liparota v. United States, 471 U. S. 419, 424 (1985). Although some criminal statutes consider recidivism an element *771 of the offense, e. g., 18 U. S. C. § 922(g) (felon in possession of a firearm), many other important criminal statutes do not. Under the drug possession statute, for example, recidivism is not an element of the offense, but, rather, a sentencing-related circumstance that the prosecution need not charge or prove at trial. Compare 21 U. S. C. § 841(a) (defining the offense) with § 841(b) (setting penalties). Thus, one might read the statute as referring to the maximum sentences imposed for "offenses" technically defined (a reading that would leave out most statutory recidivism enhancements) or one might not. The language of the statute, even if read as referring to offenses, does not say.
Second, background sentencing law does not provide an unambiguous answer to the "authorized by what" question. That background law includes a fundamental distinction between "offense characteristics" and "offender characteristics." This distinction underlies the Guidelines' basic structure, see supra, at 764-766; it is embodied in the Commission's authorizing statute, 28 U. S. C. §§ 994(c) and (d); and it grows out of pre-Guideline sentencing law, see, e. g., Woodson v. North Carolina, 428 U. S. 280, 304 (1976) (plurality opinion); Pennsylvania ex rel. Sullivan v. Ashe, 302 U. S. 51, 55 (1937). Thus, it is not surprising that the Commission should write a Career Offender Guideline that itself reflects that distinction; nor can one consider the distinction arbitrary, as if, for example, the Commission were to have picked and chosen among different offense characteristics. Cf. ante, at 759. To the contrary, this aspect of background sentencing law makes plausible a reading that sees this directive to create a generally applicable Career Offender Guideline as, in a sense, a substitute for other, more specific recidivism-based sentence enhancements already scattered throughout the Federal Criminal Code. Of course, one could also read the statute as a supplement to those provisions. But the statute itself does not tell us which reading is correct.
*772 One further background circumstance helps to explain why the Commission's reading of the statute is not arbitrary, i. e., why it is not unreasonable for the Guideline to treat recidivist enhancements differently from enhancements based on conduct. The career offender subsection was enacted in the context of a sweeping overhaul of the federal system of criminal sentencing brought about by the Sentencing Act. One objective of the Act was honesty in sentencing, the idea that an offender actually should serve approximately the time stated in the sentence that the judge imposed. S. Rep. No. 98-225, at 56. Congress achieved this objective by abolishing parole. It thereby transformed the sentence the judge pronounced from an enormous overstatement (given the fact that the offender would have spent perhaps one-third to one-half or even more of that time on parole), into real-time years almost all of which the offender would actually spend in prison. In other words, given parole, a 30-year sentence might mean 10 to 20 years; a 15-year sentence might mean 5. See generally id., at 46-49; Supplementary Report, App. C.
When it abolished parole, however, Congress did not expect the Commission to write Guidelines that automatically transformed into "real time" the parole-inflated 20- or 30year terms that judges had previously imposed upon, say, bank robbers or drug offenders. Rather Congress expected the Commission to adjust the length of the sentence the judge pronounced downward to reflect the fact that henceforth there would be no parole and the offender would really serve close to the entire term. See 28 U. S. C. § 994(m). That is what the Commission did. Supplementary Report 21.
This contextual circumstance helps to explain why Congress might indeed have expected that the Commission would read the career offender subsection to refer to statutory offenses plus conduct-based enhancements alone (without recidivism-based sentence enhancements). Congress realized that the pre-Guideline sentencing system would have *773 translated the words "20 years maximum" in, say, a drug statute into maximum sentences that approximated, say, 12 real-time years. Congress similarly realized that the preGuideline sentencing system would have translated the words "30 years maximum" in, say, a drug statute's recidivism provision, into maximum sentences that approximated, say, 20 real-time years. That is to say, Congress realized that, pre-Guidelines (because of parole), even the most serious class of recidivist offenders (in the absence of other aggravating conduct ) would have likely been imprisoned for no more than 20 real-time years. Under these circumstances, a legislator could reasonably have taken the career offender statute's basic objective as one of assuring that all three-time recidivists serve the, say, 20 real-time years that only the worst of them would previously have served. That is to say, by mandating sentences at or near the (newly enacted) 20 year non recidivist maximum (for large quantities of cocaine), the career offender subsection would ensure that all career offenders serve terms at or near the real-time maximum that only the most serious offenders would have served under a pre-Guidelines (parole-based) system. And in this way as well, the career-offender provision would significantly increase the likely real-time sentences served by most threetime offenders.
To understand the impact of real-time sentencing thus helps explain why recidivist maximums are different from maximums associated with offense characteristics; it shows how the Commission's reading is consistent with Congress' obvious intent to increase recidivist sentences significantly; it shows how a general recidivist Guideline has an effect of a different kind than the statutory recidivist enhancements contained in prior law and hence might have been thought of as operating without reference to those enhancements; and it explains how legislators might reasonably have sought the goals implicit in the Commission's reading of the statute. Of course, it may also be the case that no legislator actually *774 considered the problem before us. Or Congress instead might have had quite different goals in mind. As the majority says, Congress might have intended the Commission to insist that all three-time career offenders serve a real-time sentence significantly longer that the worst of them would likely have served before the Guidelines. The important point for present purposes is that the statute itself does not tell us which of these alternative goals Congress sought to achieve. The basic objectives of the career offender subsectionensuring increased penalties for recidivist offenders who have committed crimes involving drugs or violence and of sentencing reform are consistent with either basic purpose and thus do not resolve the ambiguity.
Third, the statute's legislative history, insofar as it is relevant, helps to explain why any search for a clear expression of congressional intent is pointless. When first enacted into law, the career offender subsection did not leave the word "authorized" hanging in midair. Rather, it said "maximum term authorized by section 3581(b) of title 18, United States Code. " Pub. L. 98-473, 98 Stat. 2021 (emphasis added). The subsection to which the word "authorized" referreda subsection that classified crimes by letterread as follows:
"Authorized Terms.The authorized terms of imprisonment are
"(1) for a Class A felony, the duration of the defendant's life or any period of time;
"(2) for a Class B felony, not more than twenty-five years;
"(3) for a Class C felony, not more than twelve years;
"(4) for a Class D felony, not more than six years;
"(5) for a Class E felony, not more than three years;
"(6) for a Class A misdemeanor, not more than one year;
"(7) for a Class B misdemeanor, not more than six months;
*775 "(8) for a Class C misdemeanor, not more than thirty days; and
"(9) for an infraction, not more than five days." 18 U. S. C. § 3581(b).
A cross-reference to this classifying subsection does not help, however, for that subsection serves almost no significant purpose in the Federal Criminal Code. In fact, Congress later enacted a technical amendment that eliminated the cross-reference (leaving the word "authorized" without an explicit reference), Pub. L. 99-646, 100 Stat. 3592, because the cross-reference was "misleading" and "incorrect" in that "[t]o date, no Federal offense" uses the classification system in the section to which it referred. H. R. Rep. No. 99-797, p. 18 (1986). The drafters of the technical amendment thought that the "maximum term of an offense is that term prescribed by the provision of law defining the offense." Ibid. But, as we have seen, this view of the matter is not conclusive. See supra, at 770-771.
One can find a possible historical explanation for what occurred. The classifying subsection, like the sentencing law itself, originated in a congressional effort to rewrite the entire Federal Criminal Code. See, e. g., S. 1, 94th Cong., 1st Sess. (1975); S. 1437, 95th Cong., 2d Sess. (1978); S. 1630, 97th Cong., 2d Sess. (1981). That rewrite attached a classifying letter to each substantive crime. The classifying subsection attached a maximum penalty to each letter; and the penalty was a real-time penalty, for the rewrite contained the later enacted new sentencing law, which abolished parole and created real-time sentences. For example, the rewrite characterized its only drug recidivism provisionan enhanced penalty for a recidivist opiate crimeas a Class B felony; to which the classifying subsection attached a 25-year maximum sentence. See, e. g., S. Rep. No. 95-605, pt. 1, pp. 798, 801 (1977). The rewrite did not become law. Congress, instead, enacted into law its sentencing provisions, which included a career offender statute that initially contained a *776 cross-reference to the classifying subsection that no longer served any significant purpose.
This history may help to explain why Congress did not directly provide a clear cross-reference in the career offender subsection. But it does not itself provide such a reference. A reader still might see in that subsection a predominating congressional focus upon increasing all career offenders' real-time terms to a typical real-time maximum term (in which case it is natural to read the subsection as omitting statutory recidivism provisions) or one might see in it a predominating congressional insistence upon further major increases in the real-time maximum terms themselves (in which case it is natural to read the subsection's crossreference as picking up statutory recidivism provisions). The subsection's language, whether read by itself, read in a broader context of sentencing law, or read against the provision's history, is consistent with either interpretation.
Finally, the majority is wrong when it argues that the Career Offender Guideline "eviscerate[s] the penalty enhancements Congress enacted in statutes such as § 841." Ante, at 760. Section 841 increases maximum penalties for recidivists, for example, for crimes involving less than 500 grams of cocaine, from 20 years to 30 years. The Commission's career offender penalties for these offenses yield sentences "at or near" the "non-recidivist" maximum. This increased statutory maximum increases what would otherwise be a statutory cap on any sentence imposed, thereby permitting the sentencing judge to sentence a recidivist to more than the statute's first offender maximum (20 years for 30 grams). Consequently, the statutory increase authorizes a higher sentence when the relevant Guideline range reaches beyond that first offender maximum (as it does in the case of some of the ranges prescribed by the Career Offender Guideline). See, e. g., USSG § 4B1.1 (table); id., ch. 5, pt. A (table). It authorizes a higher sentence when the sentencing judge faces an atypical case warranting a departure upward. See 18 *777 U. S. C. § 3553(b). And, most important, it authorizes a higher sentence should the Commission decide to write other Guidelines with specific offense characteristics that tell a judge to sentence certain especially dangerous recidivists (say, violent drug offenders) to more than the first offender maximums. See, e. g., USSG § 2D1.1(a)(1).
The upshot is that the majority cannot find here, or anywhere else in sentencing law, a clear indication of what Congress must have meant by its open-ended term "authorized." The term is ambiguous.
III
Although the Court does not "decide whether the Commission is owed deference under Chevron, " ante, at 762, n. 6, I believe that it is. Chevron directs courts to defer to "an agency's construction of the statute which it administers," 467 U. S., at 842, when Congress, because it has not clearly addressed an issue in the statute itself, likely intends that the consequent
"ambiguity would be resolved, first and foremost, by the agency, and desired the agency (rather than the courts) to possess whatever degree of discretion the ambiguity allows. See Chevron, supra, at 843-844." Smiley v. Citibank (South Dakota), N. A., 517 U. S., at 741.
This kind of inference makes sense in this case. Although the Commission is in the "judicial branch" of Government, 28 U. S. C. § 991(a); Mistretta, 488 U. S., at 384-397, Congress intended it to carry out a task similar to rulemaking tasks that Congress has often delegated to administrative agencies. The Commission's overall congressional mandate is sweeping. See 28 U. S. C. § 994(f) ("providing certainty and fairness in sentencing and reducing unwarranted sentence disparities"); § 991(b). Without broad delegated authority, it would not be possible to reconcile Congress' general objectivesof uniformity, proportionality, and administrability nor to reconcile those general objectives with a host of more *778 specific statutory instructions. § 994. Thus the very nature of the task, along with the structure of the Sentencing Act, indicates a congressional intent to delegate primarily to the Commission the job of interpreting, and harmonizing, the authorizing Act's specific statutory instructionssubject, of course, to the kind of judicial supervision and review that courts would undertake were the Commission a typical administrative agency. This Court has previously implied that this is so. See Stinson v. United States, 508 U. S. 36, 44-45 (1993); cf. Mistretta, supra, at 393-394.
Were the Commission a typical administrative agency, we would ask whether its "policy" choice is "reasonable," hence "permissible," given the statute. Chevron, supra, at 843 844, 866. And we would give the Commission considerable interpretive leeway in light of the fact that the choice here at issue lies at the very heart of the Commission's policyrelated "expertise." Pension Benefit Guaranty Corporation v. LTV Corp., 496 U. S. 633, 651-652 (1990) ("[P]ractical agency expertise is one of the principal justifications behind Chevron deference"); Commodity Futures Trading Comm'n v. Schor, 478 U. S. 833, 845 (1986). The Commission's exercise of that expertise hereits Career Offender Guideline meets this legal requirement.
As a matter of policy, the Commission could take account of the fact that the Guideline that the majority believes the statute requires would significantly interfere with one of the Sentencing Act's basic objectivesgreater uniformity in sentencing. 28 U. S. C. §§ 991(b)(1)(B), 994(f). That is because at least one important set of statutory recidivist enhancementsthe drug crime enhancements contained in 21 U. S. C. § 841(b)may be imposed only when the prosecutor files a specific document requesting it. § 851(a). Consequently, the majority's interpretation of 28 U. S. C. § 994(h) places significant power in the hands of the prosecutor to determine the length of the offender's sentence; and different prosecutors at different times may exercise that power in *779 different ways. The Commission concluded that its interpretation avoids "unwarranted disparity associated with variations in the exercise of prosecut[orial] discretion," 59 Fed. Reg. 23608, 23609 (1994), in furtherance of the overriding congressional objective. 28 U. S. C. § 991(b)(1)(B).
The majority counters that "any such discretion would be similar to the discretion a prosecutor exercises when he decides what, if any, charges to bring against a criminal suspect." Ante, at 762. But this reply overlooks the fact that the Guidelines themselves, by basing punishments primarily upon the actual behavior that underlies an offense, are written to diminish the impact of such prosecutorial discretion. See USSG § 1B1.3. The Commission recognized that the problem is one of diminishing, rather than aggravating, sentencing disparity among similarly situated defendants. And the Commission's interpretation finds support in that basic objective.
As a matter of policy, the Commission was free to consider the practical impact of the competing interpretationsin terms both of their comparative effectiveness in furthering the basic goals of punishment (deterrence, incapacitation, just deserts, rehabilitation), 18 U. S. C. § 3553(a); 28 U. S. C. § 994(a)(2); USSG ch. 1, pt. A3, and their comparative costs in terms of real resources, 28 U. S. C. § 994(g). And it might have thought that its present interpretation better balanced these objectives.
Consider an example: The ordinary (non-Career Offender) Guideline sentence, applicable to a three-time offender, for possession with intent to distribute a single dose of cocaine is 18 months; for possession with intent to distribute 400 grams it is 6 years. The statutory first-offender maximum is 20 years. The recidivist maximum is 30 years. As a matter of policy, the Commission might have thought that an increase from 18 months (or 6 years) to 20 real-time years adequately served basic punishment objectives (as well as Congress' specific instruction to assure "substantial prison *780 terms" for repeat drug offenders, S. Rep. No. 98-225, at 175). And, at the same time, it might have thought an increase to 30 real-time years would have added significantly to costs, without significantly advancing any other punitive purpose. See generally Supplementary Report 71, 73 (predicting an 8%10% increase in federal prison populations from 1987 to 2002 due solely to the effects of the career offender subsection).
Finally, as a matter of policy, the Commission might have believed the Guidelines would create a more coherent sentencing system if its Career Offender Guideline basically recreated recidivist real-time maximums, rather than increasing those maximums by folding in the additional time that previously had represented parole. Supra, at 772-774.
This discussion of policy may help to make clear one reason why I find the majority's decision regrettable. The decision interferes with a legitimate exercise of the Commission's authority to write Guidelines that reconcile the various, sometimes competing, goals that Congress set forth. The United States Criminal Code contains a highly complicated group of statutes. Congress wrote many of them long before it thought of creating sentencing Guidelines. Congress continues to write other statutes that the Commission, when revising its Guidelines, may, or may not, find easy to reconcile with what has gone before. Congress understood that the Commission's task is complex. Congress understood the importance of the statute's general goalsa fairer and more rational sentencing system. I believe that courts, when interpreting the authorizing Act, should recall Congress' overriding objectives and Congress' understood need to grant to this arm of the "judicial branch of the United States," 28 U. S. C. § 991(a), the discretionary authority necessary to achieve them. I would allow the Commission to interpret the ambiguous words of the statute before us with these general congressional objectives in mind.
I would affirm the judgment of the Court of Appeals.
NOTES
[*] David Duncan, Lisa B. Kemler, and David M. Zlotnick filed a brief for the National Association of Criminal Defense Lawyers et al. as amici curiae urging affirmance.
[1] We note that imposition of an enhanced penalty is not automatic. Such a penalty may not be imposed unless the Government files an information notifying the defendant in advance of trial (or prior to the acceptance of a plea) that it will rely on that defendant's prior convictions to seek a penalty enhancement. 21 U. S. C. § 851(a)(1). If the Government does not file such notice, however, the lower sentencing range will be applied even though the defendant may otherwise be eligible for the increased penalty.
[2] See United States v. Smith, 984 F. 2d 1084, 1087 (CA10), cert. denied, 510 U. S. 873 (1993); United States v. Garrett, 959 F. 2d 1005, 1009-1011 (CADC 1992); United States v. Amis, 926 F. 2d 328, 329-330 (CA3 1991); United States v. Sanchez-Lopez, 879 F. 2d 541, 558-560 (CA9 1989).
[3] See United States v. McQuilkin, 97 F. 3d 723, 731-733 (CA3 1996), cert. pending, No. 96-6810; United States v. Branham, 97 F. 3d 835, 845-846 (CA6 1996); United States v. Hernandez, 79 F. 3d 584, 595-601 (CA7 1996), cert. pending, Nos. 95-8469, 95-9335; United States v. Fountain, 83 F. 3d 946, 950-953 (CA8 1996), cert. pending, No. 96-6001; United States v. Novey, 78 F. 3d 1483, 1486-1488 (CA10 1996), cert. pending, No. 95-8791.
[4] Indeed, the Commission has explicitly recognized that "the phrase `maximum term authorized' should be construed as the maximum term authorized by statute. " USSG § 4B1.1, comment., backg'd (Nov. 1987) (emphasis added). And, in our view, the phrase refers to all applicable statutes that would affect the district court's calculation of the prison term. Contrary to the dissent's suggestion, however, 18 U. S. C. § 3584 does not affect the maximum term authorized. Section 3584 merely instructs a sentencing court whether to run "multiple terms of imprisonment" consecutively or concurrently; it says nothing about how the individual term is to be calculated. § 3584 (emphasis added). Of course, § 3584(c), which the dissent highlights, post, at 770, directs that "[m]ultiple terms of imprisonment . . . shall be treated for administrative purposes as a single, aggregate term of imprisonment." 18 U. S. C. § 3584(c) (emphasis added). Each of the sections cited by the dissent falls within this "administrative purposes" carve-out, which in no way undercuts, and in fact plainly bolsters, our point.
[5] Respondents' reliance on United States v. R. L. C., 503 U. S. 291 (1992), is inapposite. There, we construed 18 U. S. C. § 5037(c),which provides that the sentence ordered by a court for a juvenile delinquent may not extend beyond "the maximum term of imprisonment that would be authorized if the juvenile had been tried and convicted as an adult." We held that the applicable "maximum" term authorized was the upper limit of the Guidelines range that would apply to a similarly situated adult offender. 503 U. S., at 306-307. R. L. C. involved a directive to a sentencing court, however, whereas 28 U. S. C. § 994(h) is a directive to the Commission. Because § 994(h) is designed to cabin the Commission's discretion in the promulgation of guidelines for career offenders, it would be entirely circular to suggest that the Commission had complied with § 994(h) merely by specifying sentences "at or near" the top of the Guidelines range. The Commission itself recognizes that the "maximum term authorized" within the meaning of § 994(h) is the statutory maximum, not the otherwise applicable Guidelines maximum. See n. 4, supra .
[6] Inasmuch as we find the statute at issue here unambiguous, we need not decide whether the Commission is owed deference under Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984). | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/106569/ | 372 U.S. 658 (1963)
ARROW TRANSPORTATION CO. ET AL.
v.
SOUTHERN RAILWAY CO. ET AL.
No. 430.
Supreme Court of United States.
Argued January 10, 1963.
Decided April 15, 1963.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT.
*659 John C. Lovett argued the cause for petitioners. With him on the briefs was Donald Macleay.
Dean Acheson argued the cause for respondent Southern Railway Co. With him on the brief was Francis M. Shea.
Ralph S. Spritzer, by special leave of Court, argued the cause for the United States, as amicus curiae, urging reversal. With him on the brief were Solicitor General Cox, Assistant Attorney General Loevinger and Lionel Kestenbaum.
Briefs of amici curiae, urging affirmance, were filed by Whiteford S. Blakeney for Statesville Flour Mills; by John W. Vardaman for Walley Milling Company; by Eugene Cook, Attorney General of Georgia, Paul Rodgers, Assistant Attorney General, and Walter R. McDonald for the Southern Governors' Conference et al.; and by Austin L. Roberts, Jr. and R. Everette Kreeger for the National Association of Railroad and Utilities Commissioners.
MR. JUSTICE BRENNAN delivered the opinion of the Court.
A schedule of reduced rates proposed by the respondent rail carriers was suspended by the Interstate Commerce Commission for the maximum statutory period of seven months pending a determination whether the reduction was lawful. The statute[1] expressly provides that "the *660 proposed change of rate . . . shall go into effect," if the Commission's proceeding has not been concluded and an order made within the period of suspension. The Commission did not reach a decision within seven months, or within the following five months during which the respondents voluntarily postponed the change, and the respondents announced that the reduced rates would be put in effect. Thereupon the petitioners[2] brought this *661 action in the District Court for the Northern District of Alabama to enjoin the respondents from making the change effective pending the Commission's decision. The District Court concluded after examination of the pleadings and a brief hearing that "there is grave danger that irreparable injury, loss or damage may be inflicted on . . . [petitioners] if the proposed rates go into effect . . . for which . . . [petitioners] will have no adequate remedy at law."[3] The court held, however, that § 15 (7) vested *662 exclusive power in the Commission to suspend a change of rate for a limited time and thereby precluded District Court jurisdiction to grant injunctive relief extending the statutory period. The Court of Appeals for the Fifth Circuit affirmed, stating, "Congress, in its wisdom, has fixed seven months as the maximum period of suspension. It seems clear to us that if the courts extend that period, they are in effect amending the statute and that is a matter beyond their power." 308 F. 2d 181, 186. We granted certiorari, 371 U. S. 859.[4] We affirm the judgment of the Court of Appeals.
I.
The Interstate Commerce Commission was granted no power to suspend proposed rate changes in the original *663 Act of 1887. That power first appeared among the 1910 amendments introduced by the Mann-Elkins Act.[5] The problem as to whether the application of new rates might be stayed pending decision as to their lawfulness first emerged after the Commission was empowered by the Hepburn Act of 1906 to determine the validity of proposed rates. In the absence of any suspension power in the Commission, shippers turned to the courts for injunctive relief. The results were not satisfactory. The lower federal courts evinced grave doubt whether they possessed any equity jurisdiction to grant such injunctions, and the availability of relief depended on the view of a particular court on this much controverted issue.[6] The Interstate Commerce Commission was more concerned, however, with certain practical consequences of leaving the question with the courts. In its Annual Reports for the three years before 1910 the Commission had directed attention to the fact that such courts as entertained jurisdiction were reaching diverse results, which engendered confusion and produced competitive inequities. The large expense entailed in prosecuting an action and financing a substantial bond proved prohibitive for many small shippers of modest means. Even when a large shipper secured an injunction, the scope of its relief often protected only that particular shipper, leaving his weaker *664 competitors at the mercy of the new rate.[7] Therefore, the Commission reported to Congress, ". . . as a practical matter the small shipper who can not file the bond can not and does not continue in business under the higher rate." I. C. C. Annual Report, 1908, p. 12. As an equally serious consequence, the regulatory goal of uniformity was jeopardized by the diverse conclusions reached by different District Courtseven, it appears, as to the reasonableness of a particular rate change. This resulted in disparity of treatment as between different shippers, carriers, and sections of the country, causing in turn "discrimination and hardship to the general public." I. C. C. Annual Report, 1907, p. 10.
It cannot be said that the legislative history of the grant of the suspension power to the Commission includes unambiguous evidence of a design to extinguish whatever judicial power may have existed prior to 1910 to suspend proposed rates. However, we cannot suppose that Congress, by vesting the new suspension power in the Commission, intended to give backhanded approval to the exercise of a judicial power which had brought the whole problem to a head.
Moreover, Congress engaged in a protracted controversy concerning the period for which the Commission might suspend a change of rates. Such a controversy would have been a futile exercise unless the Congress also meant to foreclose judicial power to extend that period. This controversy spanned nearly two decades. At the outset in 1910, the proposal for conferring any such power on the Commission was strenuously opposed. The carriers *665 contended that any postponement of rate changes would result in loss of revenue or competitive advantages fairly due them in the interim if the rates were finally determined to be lawful. But this opposition eventually took the form of efforts to limit the time for which suspension might be ordered by the Commission.[8] The Mann-Elkins Act authorized a suspension for an initial period not to exceed 120 days with a discretionary power in the Commission to extend the period for a maximum additional six months.[9] Ten years later the Esch-Cummins Act of 1920 cut the authorized period of extension from six months to 30 days,[10] thus reducing from 10 to five months the overall period for which the Commission might order a suspension. Congress was aware throughout the consideration of these measures that some shippers might for a time have to pay unlawful rates because a proceeding might not be concluded and an order made within the reduced time.[11] To mitigate that hardship, *666 the 1920 amendments authorized the Commission in such cases to require the carriers to keep detailed accounts of charges collected and to order refunds of excess charges if the Commission ultimately found the rates to be unlawful.[12] The suspension provisions took their present form, vesting authority in the Commission to suspend for a maximum period of seven months, in the Act of 1927.[13] The accounting and refund provisions of the 1920 law remained. Thus, as we have observed before, the present limitation was "formed after much experimentation with the period of suspension . . . ." Interstate Commerce Comm'n v. Inland Waterways Corp., 319 U. S. 671, 689.
*667 We cannot believe that Congress would have given such detailed consideration to the period of suspension unless it meant thereby to vest in the Commission the sole and exclusive power to suspend and to withdraw from the judiciary any pre-existing power to grant injunctive relief. This Court has previously indicated its view that the present section had that effect. In Board of Railroad Comm'rs v. Great Northern R. Co., 281 U. S. 412, 429, Chief Justice Hughes said for the Court: "This power of suspension was entrusted to the Commission only."[14] The lower federal courts have also said as much.[15] And *668 the commentators on the matter have consistently supported the soundness of that view.[16]
There is, of course, a close nexus between the suspension power and the Commission's primary jurisdiction to determine the lawfulness and reasonableness of rates, a jurisdiction to which this Court had, even in 1910, already given the fullest recognition. Texas & Pacific R. Co. v. Abilene Cotton Oil Co., 204 U. S. 426.[17] This relationship suggests it would be anomalous if a Congress which created a power of suspension in the Commission because of the dissonance engendered by recourse to the injunction nevertheless meant the judicial remedy to survive. The more plausible inference is that Congress meant to foreclose a judicial power to interfere with the timing of rate changes which would be out of harmony with the uniformity of rate levels fostered by the doctrine of primary jurisdiction.
*669 It must be admitted that Congress dealt with the problem as it affected the relations between shippers and carriers, making no express reference to the interests of competing carriers and their customers such as are involved in the instant case. We see no warrant in that omission, however, for a difference in result. Conflicts over rates between competing carriers were familiar to the Commission long before 1910;[18] indeed, the struggle between competing barge and rail carriers has been going on almost since railroads came onto the national scene. Indeed, in another provision of the very same statute Congress in 1910 dealt explicitly with the reduction of rates by railroads competing with water carriers: Section 4 (2) of the Act forbids a rail carrier competing with a water carrier to increase rates once reduced on a competitive service, unless "after hearing by the Commission it shall be found that such proposed increase rests upon changed conditions other than the elimination of water competition." 49 U. S. C. § 4 (2). In addition § 8 of the Act, 49 U. S. C. § 8, creates a private right of action for damagesbased upon conduct violative of the Actwhich might be available, though we have no occasion here to decide the question, to a competitor claiming that a proposed rate reduction had been grossly discriminatory. Our holding today therefore means only that the injunction remedy is not available to these petitioners, just as it is unavailable to shippers.
II.
Our conclusion from the history of the suspension power is buttressed by a consideration of the undesirable consequences which would necessarily attend the survival of the injunction remedy. A court's disposition of an application for injunctive relief would seem to require at least *670 some consideration of the applicant's claim that the carrier's proposed rates are unreasonable. But such consideration would create the hazard of forbidden judicial intrusion into the administrative domain.[19] Judicial cognizance of reasonableness of rates has been limited to carefully defined statutory avenues of review.[20] These considerations explain why courts consistently decline to suspend rates when the Commission has refused to do so, or to set aside an interim suspension order of the Commission.[21] If an independent appraisal of the reasonableness *671 of rates might be made for the purpose of deciding applications for injunctive relief, Congress would have failed to correct the situation so hazardous to uniformity which prompted its decision to vest the suspension power in the Commission. Moreover, such a procedure would permit a single judge to pass before final Commission action upon the question of reasonableness of a rate, which the statute expressly entrusts only to a court of three judges reviewing the Commission's completed task.[22]
Nor is the situation different in this case if it be suggested that a court of equity might rely upon the Commission's finding of unreasonableness which preceded the Commission's suspension order. The Commission's consideration *672 of the question, through its Suspension Board, involves only a brief and informal hearing.[23] Automatic judicial acceptance of a finding reached in that way would delegate greater effect to such an administrative process than the process itself warrants. As the basis for a judicial decree of a single district judge, such a procedure would be inconsistent with § 15 (1) of the Act, which provides that effective rates may be struck down as unlawful after a "full hearing" by the Commission.[24]
III.
The petitioners contend that in any event injunctive relief is authorized in this case to enforce the National Transportation Policy.[25] They argue that when the rail carriers' rates go into effect the barge line will inevitably *673 and immediately be driven out of business, contrary to the paramount concern of the policy for the protection of water carriers threatened by rail competition. Apart from the absence of any decisive showing that the barge line would suffer this misfortune, it is clear that nothing in the National Transportation Policy, enacted many years after the 1927 revision of § 15 (7), indicates that Congress intended to revive a judicial power which we have found was extinguished when the suspension power was vested in the Commission. Cf. United States v. Borden Co., 308 U. S. 188, 198-199. Indeed, if anything, the policy reinforces our conclusion. The mandate to achieve a balance between competing forms of transportation is directed not to the courts but to the Commission.[26] It is reasonable to suppose that had Congress felt that balance to be in danger of distortion, it would have addressed itself to our problem directly by enhancing the powers granted the Commission to enforce the policy. Surely Congress would not have meant its silence alone to imply the revival of a judicial remedy the exercise of which might well defeat rather than promote the objectives of the National Transportation Policy.
Affirmed.
MR. JUSTICE CLARK, with whom THE CHIEF JUSTICE and MR. JUSTICE BLACK join, dissenting.
The Court by its action today sounds the death knell for barge transportation on the Tennessee River. The war of extermination between the railroads and barge lines began years ago, and, as Chairman Eastman said in Petroleum Products From New Orleans, La., Group, *674 194 I. C. C. 31, 44 (1933), has been effected "by [the railroads] cutting rates where the [barge] competition existed, to whatever extent was necessary to paralyze it, at the same time maintaining rates at a very high level elsewhere." Indeed, this Court has on many occasions had to protect barge lines from such unlawful practices, even in cases where railroad rate activity has received approval of the Interstate Commerce Commission. See Dixie Carriers, Inc., v. United States, 351 U. S. 56 (1956), and Interstate Commerce Comm'n v. Mechling, 330 U. S. 567 (1947). See also Arrow Transp. Co. v. United States, 176 F. Supp. 411 (D. C. N. D. Ala. 1959). And just a few months ago there was filed here in No. 746, Mechling Barge Lines, Inc., v. United States, another case in which the appellants contend that the same old practices were employed. Although the Court admits that "It cannot be said that the legislative history . . . [of the suspension power of the Commission, § 15 (7)] includes unambiguous evidence of a design to extinguish . . . judicial power . . . ," it nevertheless strips the courts of any power to prevent (1) the collection by the railroads of "rates and charges . . . which would be unjust and unreasonable, in violation of the Interstate Commerce Act, and constitute unfair and destructive competitive practices in contravention of the National Transportation Policy. . ." as found by the Interstate Commerce Commission;[1] (2) the frustration of the National Transportation Policy under which Congress has commanded the Commission to preserve each medium of transportation *675 against unlawful and destructive practices and to guard against the consequences of discrimination; (3) the complete destruction of competing barge lines as well as gross discrimination against shippers and localities along the Tennessee River. I agree with the United States, which has filed at our suggestion an amicus curiae brief, that where "a competing carrier will be destroyed and others will suffer gross discrimination and injury before the administrative proceeding is terminated," the appropriate federal court does have the power to enjoin such an extraordinary injury pending decision of the Commission.
I.
The conclusions below that the proposed rate reductions will likely force the barge line out of business are not disputed. As the District Court found, there was "grave danger that irreparable injury, loss or damage may be inflicted . . . if the proposed rates go into effect" and that petitioners "will have no adequate remedy at law." On its face the rate reduction is but a continuation of the old policy found by Chairman Eastman to paralyze barge operationsactivity to which the Court now gives its blessingby a drastic reduction in the present all-rail rate on multiple-car grain shipments while maintaining the higher rate on the ex-barge traffic. The new rate for the haul from St. Louis to Birmingham, reduced from $8.70 per ton to a mere $3.12, is an example which illustrates the effect of the proposed rate reduction. Arrow's present rate for shipments between those points is $5.48, including expense to Arrow of $2.20 for the 71-mile rail leg from Guntersville, Alabama, to Birmingham and 89¢ for transferring the grain from the barge to the rails at Guntersville, which leaves it only $2.39 for transportation by barge. In order to meet Southern's new rate Arrow would have to reduce by $2.36 *676 its charge allocable to water travel, which would leave it exactly 3¢ per ton for that haul. I note further that the all-rail rate for the St. Louis-Birmingham haul is only 92¢ more than the charge to Arrow for the 71-mile Guntersville-Birmingham rail trip. The result of the effectuation of such drastic reductions is elementaryeconomic destruction of an important mode of transportation. Still the Court refuses to allow the exercise of an inherent equity power to prevent an unconscionably destructive practice which is damaging not only to Arrow, or to barge lines generally, or to water shippers or river ports, or to industries, but to the public welfare itselfall of this by inference. The Court says "that Congress meant to foreclose a judicial power to interfere with the timing of rate changes . . . out of harmony with the uniformity of rate levels . . . ." That reasoning, in the light of the fact that many of the proposed rates are less than 40% of existing ones, coupled with the findings of the Commission and the District Court as to the probable result of this drastic action, is, with due deference, entirely insupportable.
II.
The Court seems to say that because Congress, by § 15 (7), gave the Commission the power in its discretion to suspend rates for a short period, a power which it never previously had, it ipso facto foreclosed the federal courts from exercising a power they had always possessed, i. e., equity jurisdiction to preserve the status quo and prevent irreparable injury. The two powers are of an entirely different character. The suspension power granted the Commission under § 15 (7) is primary and is exercised in its discretion while the validity of a proposed rate is under consideration, but it is limited under present law to a period of seven months. No criteria or guidelines are laid down for the Commission, the only prerequisite being *677 the filing of "a statement in writing of its reasons for such suspension." Hence the Commission has a broad, general discretion to suspend proposed rates for a limited period pending investigation. The court, on the other hand, can act only in compelling circumstances to prevent an irreparable injury and to maintain the status quo pending the Commission's decisionan equitable power long recognized as existing in the courts. The exercise of these judicial powers is but in aid of and ancillary to the temporary suspension power of the Commission and supports rather than interferes with the latter's jurisdiction, preventing irreparable injury from resulting while the Commission has the matter under consideration. Indeed, this power should be exercised only in the most exigent circumstances, such as in the present case, where the Commission has found a strong likelihood of irreparable injury resulting from effectuation of proposed rates, has in fact exercised the full measure of its suspension power and now finds itself powerless to prevent those rates from going into effect. I submit that neither the language of § 15 (7) nor its legislative history supports the removal of judicial power to act in such circumstances.
Prior to 1910 the Commission had the power neither to suspend proposed rates nor "to prevent by direct action excessively low rates," Skinner & Eddy Corp. v. United States, 249 U. S. 557, 566 (1919), and its earliest suspensions of proposed rate reductions occurred subsequent to 1910. See Suspension of Rates on Packinghouse Products, 21 I. C. C. 68 (1911); Board of Trade of Chicago v. Illinois Central R. Co., 26 I. C. C. 545 (1913). It was not until 1920 that the Commission was given power to exercise direct action and prescribe minimum rates. Transportation Act of 1920, 41 Stat. 484, 49 U. S. C. § 15 (1); see United States v. Illinois Central R. Co., 263 U. S. 515, 525 (1924). At the time of the enactment *678 of § 15 (7), as the legislative history shows, there was no evident concern with rate decreases and protection of competing carriers, but attention was focused on the protection of shippers from excessive rate increases with which the Commission had ample power to deal, though it could not at that time suspend rates.[2] This omission was noted on the floor of the Senate on the day before the vote was taken on § 15 (7) when Senator Heyburn observed that "Little or no consideration seems to have been given to the advisability of including decreases in rates under the amendment." 45 Cong. Rec. 6792. There is no evidence that complaints as to rate reductions occupied any significant portion of the Commission's docket prior to 1910. Prior to that time the Commission was concerned almost exclusively with shippers' complaints of rate increases. It is hard for me to see, therefore, how it could be said that Congress, when it first enacted the suspension power in 1910, was faced with the problem of the suspension of rate decreases as between competing carriers when there had apparently been very few, if indeed any, such complaints previous to 1910. The Court says that prior to enactment of the suspension power in 1910, "such courts as entertained jurisdiction" in rate cases "were reaching diverse results" and producing "confusion and . . . competitive inequities," but those cases, as far as can be determined, did not involve unjust and destructively low rates. Therefore, while there were, as the Court points out, "[c]onflicts . . . between competing carriers" prior to 1910, there is no indication that *679 any of these cases involved reductions in rates. Finally, a suspension power similar to the "judicial power" which the Court says brought "the whole problem to a head" is now, by statute, exercised by the Commission for a limited period as a matter of primary jurisdictiona power quite different from that which the District Court was asked to exercise here. A simple grant of jurisdiction to an administrative agency without reference to a long-recognized equity jurisdiction which is not inconsistent therewith is a strange way to dispose of judicial power. See Hewitt-Robins Inc. v. Eastern Freight-Ways, Inc., 371 U. S. 84 (1962). I attribute no such purblindness to Congress.
It can hardly be said that the granting of this primary jurisdiction with power to suspend for seven months totally ousted the equity courts of their traditional power to grant injunctive relief to preserve the status quo and prevent irreparable injury while the case is in progress in another forum. The cases do not support this conclusion where the other forum is either a court of law, Erhardt v. Boaro, 113 U. S. 537 (1885); Louisville & N. R. Co. v. Western Union Telegraph Co., 207 F. 1 (C. A. 6th Cir. 1913), or an administrative agency. Trans-Pacific Frgt. Conf. of Japan v. Federal Maritime Bd., 112 U. S. App. D. C. 290, 295, 302 F. 2d 875, 880 (1962); Board of Governors v. Transamerica Corp., 184 F. 2d 311 (C. A. 9th Cir. 1950); West India Fruit & Steamship Co. v. Seatrain Lines, 170 F. 2d 775 (C. A. 2d Cir. 1948); Isbrandtsen v. United States, 81 F. Supp. 544 (D. C. S. D. N. Y. 1948). Moreover, whenever Congress wanted to oust the jurisdiction of the courts it not only knew how to do it but did so in no uncertain terms. See, e. g., Internal Revenue Code of 1954, § 7421; Norris-La-Guardia Act, 29 U. S. C. §§ 101-115. In addition to these considerations, I submit that the Interstate Commerce Act itself supports the conclusion that the courts retained their traditional jurisdiction. Section 22 (1) *680 of the Act, 24 Stat. 387, 49 U. S. C. § 22 (1), provides that no provision of the Act shall "in any way abridge or alter the remedies now existing at common law or by statute, but the provisions of this act are in addition to such remedies." The "remedies now existing at common law" include such equitable remedies as injunctions. Knapp, Stout & Co. v. McCaffrey, 177 U. S. 638 (1900).
Finally, in 1940, the Congress adopted the National Transportation Policy (54 Stat. 899, 49 U. S. C. preceding § 1) in which it enjoined the Commission to
"foster sound economic conditions in transportation and among the several carriers; . . . encourage the establishment and maintenance of reasonable charges for transportation services, without unjust discriminations. . . or unfair or destructive competitive practices; . . . all to the end of developing, coordinating, and preserving a national transportation system by water, highway, and rail, as well as other means, adequate to meet the needs of the commerce of the United States . . . . All of the provisions of [the Interstate Commerce Act] shall be administered and enforced with a view to carrying out the above declaration of policy."
The policy of "developing, coordinating, and preserving a national transportation system by water, highway, and rail . . . adequate to meet the needs of the commerce of the United States" (emphasis supplied) will be completely thwarted if Arrow and other barge lines on the Tennessee River are forced out of business. It is, indeed, a sad day for our judicial processes when our courts are rendered powerless to prevent this miscarriage of the clear policy of our Government, the frustration of the admitted duties of the Interstate Commerce Commission and the destruction of an entire system of transportation.
*681 In short, this case presents a situation peculiarly appropriate for the exercise of the inherent equity jurisdiction of a federal court to supplement the now-exhausted suspension power of the Commission, consistent with the Commission's conclusion that such suspension is in the public interest and consistent with the affirmative mandate of the Congress in the National Transportation Policy.
In addition, while it would be inappropriate to discuss the constitutional questions raised as to § 15 (7), the opinion of the Court evokes grave doubt about the constitutionality of the statute, as interpreted. See Porter v. Investors Syndicate, 286 U. S. 461, 470-471 (1932); Pacific Tel. & Tel. Co. v. Kuykendall, 265 U. S. 196, 201, 204-205 (1924)
I dissent.
NOTES
[1] 49 U. S. C. § 15 (7):
"Whenever there shall be filed with the Commission any schedule stating a new . . . rate . . . the Commission shall have . . . authority, either upon complaint or upon its own initiative without complaint, at once . . . to enter upon a hearing concerning the lawfulness of such rate . . . and pending such hearing and the decision thereon the Commission, upon filing with such schedule and delivering to the carrier or carriers affected thereby a statement in writing of its reasons for such suspension, may from time to time suspend the operation of such schedule and defer the use of such rate . . . but not for a longer period than seven months beyond the time when it would otherwise go into effect; and after full hearing, whether completed before or after the rate . . . goes into effect, the Commission may make such order with reference thereto as would be proper in a proceeding initiated after it had become effective. If the proceeding has not been concluded and an order made within the period of suspension, the proposed change of rate . . . shall go into effect at the end of such period . . . ."
[2] The petitioners are a barge line, Arrow Transportation Co., a competitor of the respondent railroads for grain carriage; a municipality, Guntersville, Alabama, served by Arrow; a grain merchant, O. J. Walls, located in that municipality; and a grain consumer, John D. Bagwell Farms & Hatchery, Inc., which receives its grain by truck from Guntersville. The rate reductions which respondents have filed cover the shipment of grain to various points in the Southeastern United States, but apply only to multiple-car shipments from certain Mississippi and Ohio River ports. The Commission, following a complaint by competing barge lines and other parties, and on the basis of a recommendation of its Suspension Board, made a tentative finding that the proposed rates would be "unjust and unreasonable, in violation of the Interstate Commerce Act," and would "constitute unfair and destructive competitive practices in contravention of the National Transportation Policy." After the full hearing, however, Division 2 of the Commission, on January 21, 1963, concluded that Southern's rates at least were compensatory and reasonable, Grain in Multiple-Car ShipmentsRiver Crossings to the South, I. & S. Docket No. 7656. That decision is now awaiting reconsideration by the full Commission.
The four petitioners have contended throughout this litigation that the application of the proposed new rail rates will irreparably injure their respective economic interests, particularly because they threaten to force Arrow out of business. Petitioners further contend that the proposed rates, being substantially lower than the competitive barge rates in effect at the time of filing, unlawfully discriminate against a competing form of transportation. The reductions, in petitioners' view, will benefit only those users of grain who are equipped to receive very large rail shipments, to the detriment of all receivers off the rail routes, and the smaller rail-side purchasers who lack facilities for receipt and storage of multiple-car shipments. Southern responds that its reductions, at least, were made possible by technological innovations and efficiencies culminating in the inauguration of new aluminum freight cars designed especially for carriage of large grain shipments. Southern also maintains that the proposed rates are both nondiscriminatory and compensatory, and have been necessitated by vigorous competition against the railroads by unregulated motor carriers on certain routes which the barge lines do not serve.
In the course of the hearings before the Commission, the proposed rates were supported by representatives of the United States Department of Agriculture, the Southern Governors' Conference, the Southeastern Association of Railroad and Utilities Commissioners, and by various receivers and users of grain throughout the Southeast. On the other hand, the rates were protested by certain barge lines besides Arrow, several receivers of grain by barge, the Tennessee Valley Authority, flour milling interests and certain boards of trade outside the Southeast.
[3] The District Court concluded in its memorandum following an oral argument:
". . . I have convinced myself that should this Court have jurisdiction of this matter, it should consider all of these matters most carefully and deliberately before denying injunctive relief to plaintiffs. At this time I am of the opinion that the ends of justice would be best served by granting temporary injunctive relief for a limited period of time, not to urge the Commission to greater speed in determining this issue but to be sure that the parties conclude the hearings as speedily as possible. However, lacking jurisdiction, I find myself powerless to grant the relief sought; therefore, at this time it is the judgment of the Court that the motion for preliminary injunction be, and the same is hereby denied. At the same time I am denying defendants' motion to dismiss this case."
The District Court's formal order, entered the following day, denied both the petitioners' motion for a preliminary injunction and the respondents' motion to dismiss.
[4] One judge of the Court of Appeals granted petitioners' motion for a temporary restraining order on August 3, 1962, the day on which the order of the District Court issued. On August 8, however, a panel of the Court of Appeals denied petitioners' application for a restraining order pending decision of the appeal. Thereafter, but before oral argument in the Court of Appeals, MR. JUSTICE BLACK issued an order extending the Court of Appeals' restraining order pending the presentation and disposition by this Court of a petition for certiorari. The Court of Appeals rendered its opinion on September 7, 1962, and we granted certiorari on October 15. We invited the Solicitor General to file a brief expressing the views of the United States, and he filed a brief for the United States as amicus curiae. Southern was the only railroad which opposed certiorari or argued the merits of the case before this Court.
[5] 36 Stat. 552.
[6] The cases decided between 1906 and 1910 disclose the judicial uncertainty about the availability of any equitable relief. Compare, e. g., Northern Pac. R. Co. v. Pacific Coast Lumber Mfrs. Assn., 165 F. 1 (C. A. 9th Cir. 1908); Jewett Bros. & Jewett v. Chicago, M. & St. P. R. Co., 156 F. 160 (C. C. D. S. D. 1907) with, e. g., Atlantic Coast Line R. Co. v. Macon Grocery Co., 166 F. 206 (C. A. 5th Cir. 1909), aff'd on other grounds, 215 U. S. 501; and Wickwire Steel Co. v. New York Cent. & H. R. R. Co., 181 F. 316 (C. A. 2d Cir. 1910). See for a contemporary view that courts lacked such injunctive powers over proposed rates, 1 Drinker, The Interstate Commerce Act (1909), § 243.
[7] See In re Advances in RatesWestern Case, 20 I. C. C. 307, 313-314; Dixon, The Mann-Elkins Act, 24 Quarterly Journal of Economics, August 1910, p. 593, at 603; Crook, The Interstate Commerce Commission, 194 North American Review, December 1911, p. 858, at 867.
[8] The Administration originally recommended a period of 60 days; congressional proponents of suspension urged in response an unlimited suspension power, see 45 Cong. Rec. 6409. The Commission itself originally proposed a period of 120 days; the Senate Committee which reported on the Senate version of the bill recommended 90 days, S. Rep. No. 355, 61st Cong., 2d Sess. 9. For other stages of the legislative give-and-take which finally produced a period of 10 months as the maximum suspension term, see 45 Cong. Rec. 3373-3374, 3472, 4109-4110, 6500-6501, 6503, 6509, 6510-6511, 6783-6784, 6787-6788, 6900-6901, 6915-6921, 8239, 8473.
[9] 36 Stat. 552.
[10] 41 Stat. 486-487. Section 418 of the Esch-Cummins Act also added an express provision that if the hearing had not been concluded at the expiration of the 30-day extension period, "the proposed change of rate, fare, charge, classification, regulation, or practice shall go into effect at the end of such period . . . ."
[11] See, e. g., Statement of Commissioner Clark, Hearings on H. R. 4378 before House Committee on Interstate and Foreign Commerce, 66th Cong., 1st Sess. 91, 2944; H. R. Rep. No. 456, 66th Cong., 1st Sess. 20-21. President Taft's 1910 message expressly adverted to the possibility that the hearings might outlast the suspension period. 45 Cong. Rec. 380.
A recent summary indicates that only about three-fifths of the investigation and suspension proceedings are completed within the seven-month period, but only four percent of such cases require more than a year. Remarks of Commissioner Charles A. Webb, in Expedition of Commission Proceedings, A Panel Discussion, 27 I. C. C. Prac. J. 15, 16 (1959). Professor Sharfman is authority that at the time he wrote it was invariably the practice of carriers voluntarily to extend the period at least with respect to proposed increases. 1 Sharfman, The Interstate Commerce Commission (1931), 203.
[12] Section 418 of the Transportation Act of 1920, 41 Stat. 484, 486-487, amending § 15 of the Interstate Commerce Act.
[13] 44 Stat. 1447-1448. See S. Rep. No. 1508, 69th Cong., 2d Sess. 4. Since the enactment of § 15 (7), similar suspension provisions have been included in numerous other regulatory statutes. See 49 U. S. C. §§ 316 (g), 318 (c) (Motor Carrier Act); 49 U. S. C. § 907 (g), (i) (Water Carrier Act); 49 U. S. C. § 1006 (e) (Freight Forwarders Act); 47 U. S. C. § 204 (Federal Communications Act); 16 U. S. C. § 824d (e) (Federal Power Act); 15 U. S. C. § 717c (e) (Natural Gas Act); and 49 U. S. C. § 1482 (g) (Federal Aviation Act). The terms of these later statutes are virtually identical to those of § 15 (7), although the length of the prescribed suspension period varies. However, it should be apparent that nothing we hold with respect to § 15 (7) necessarily governs the construction and application of these other suspension provisions.
[14] Great Northern held only that the District Court lacked power to enjoin intrastate rates which had been duly prescribed by a state regulatory agency and which the railroads were protesting before the Interstate Commerce Commission as discriminatory against interstate commerce. Although, unlike this case, the situation there involved a danger of direct conflict between federal and state regulation, see 281 U. S., at 426-430, the reasoning there does suggest the Court was of the view that even in the absence of such a direct conflict, the federal courts might not enjoin proposed rates when the Commission lacked either the inclination or the power to do so.
[15] E. g., M. C. Kiser Co. v. Central of Ga. R. Co., 236 F. 573 (D. C. S. D. Ga.), aff'd, 239 F. 718 (C. A. 5th Cir.); Freeport Sulphur Co. v. United States, 199 F. Supp. 913, 916 (D. C. S. D. N. Y.); Luckenbach S. S. Co. v. United States, 179 F. Supp. 605, 609-610 (D. C. D. Del.), vacated in part as moot, 364 U. S. 280; cf. Manhattan Transit Co. v. United States, 24 F. Supp. 174, 177 (D. C. D. Mass.). See also Director General v. Viscose Co., 254 U. S. 498, 502, recognizing on similar grounds that under the Transportation Act of 1920 the District Courts lacked power to enjoin the action of the Director General of Railroads in instituting changes of commodity classifications and similar terms: "[T]here was ample and specific provision made therein for dealing with the situation through the Commission,for suspending the supplement or rule . . . ." 254 U. S., at 502. Cantlay & Tanzola, Inc., v. United States, 115 F. Supp. 72 (D. C. S. D. Calif.), upon which petitioners rely, is not contrary. There the District Court found no need to enjoin or suspend the proposed rates because, pendente lite, the carries had voluntarily restored the previous schedule. But the court said: "The Congressional intent [underlying § 15 (7)] plainly is that the courts not interfere to suspend carrier-made rates `prior to an appropriate finding by the Interstate Commerce Commission.' " 115 F. Supp., at 83.
[16] See, e. g., Professor Sharfman's view that "[u]pon failure of the Commission to issue an order within this prescribed period, the proposed changes in rates were automatically to become effective, although the Commission might continue its investigation and bring it to decision." 1 Sharfman, The Interstate Commerce Commission (1931), 202. A contemporary commentator's view of the operation of the new statute was as follows: "In other words, the Commission may suspend rates for ten months beyond their effective date but no longer, and if the investigation is not then complete, the rates automatically go into effect." Dixon, The Mann-Elkins Act, 24 Quarterly Journal of Economics, August 1910, p. 593, at 604. For a current view, see Brooks and Daily, The Commission's Power of Suspension and Judicial Review Thereof, 27 I. C. C. Prac. J. 589, 599 (1960).
[17] See also Board of Railroad Comm'rs v. Great Northern R. Co., supra, at 429-430; Director General v. Viscose Co., 254 U. S. 498, 504; In re Advances in RatesWestern Case, 20 I. C. C. 307, 313-314; Brooks and Daily, supra, note 16, at 605.
[18] See Commissioner Eastman's description of the evolution of this competition, Petroleum Products from New Orleans, La., Group, 194 I. C. C. 31, 44.
[19] See Texas & Pacific R. Co. v. Abilene Cotton Oil Co., supra, at 440-441; Director General v. Viscose Co., 254 U. S. 498; Baltimore & O. R. Co. v. Pitcairn Coal Co., 215 U. S. 481, 493-495. It has been pointed out that "the agencies, through their power to suspend or deny suspension, often make final determinations of what the rates shall be during the suspension period . . . ." 1 Davis, Administrative Law (1958), 442.
[20] 28 U. S. C. § 2325 requires the convening of a three-judge District Court pursuant to 28 U. S. C. § 2284 to enjoin even temporarily the operation or execution "of any order of the Interstate Commerce Commission . . . ."
The Court of Appeals also suggestedthough the suggestion has not been challenged before this Courtthat § 16 of the Clayton Act, 15 U. S. C. § 26, might independently bar the injunctive relief sought here. 308 F. 2d, at 185. That section restricts to the United States, in suits for violations of the antitrust laws, the right to seek injunctive relief against any common carrier "in respect of any matter subject to the regulation, supervision, or other jurisdiction of the Interstate Commerce Commission." Its applicability would, of course, depend upon whether or not the petitioners' action rests upon claimed violations of the antitrust laws. Cf. Central Transfer Co. v. Terminal Railroad Assn., 288 U. S. 469.
[21] See, e. g., Carlsen v. United States, 107 F. Supp. 398 (D. C. S. D. N. Y.); Bison S. S. Corp. v. United States, 182 F. Supp. 63 (D. C. N. D. Ohio); Luckenbach S. S. Co. v. United States, 179 F. Supp. 605 (D. C. D. Del.). But cf. Amarillo-Borger Express, Inc., v. United States, 138 F. Supp. 411 (D. C. N. D. Tex.), vacated as moot, 352 U. S. 1028; Seatrain Lines, Inc., v. United States, 168 F. Supp. 819 (D. C. S. D. N. Y.). Compare generally Goodman, The History and Scope of Federal Power to Delay Changes in Transportation Rates, 27 I. C. C. Prac. J. 245 (1959), with Brooks and Daily, The Commission's Power of Suspension and Judicial Review Thereof, id., 589 (1960).
[22] Thus we do not reflect in any way upon decisions which have recognized a limited judicial power to preserve the court's jurisdiction or maintain the status quo by injunction pending review of an agency's action through the prescribed statutory channels. Cf., e. g., Scripps-Howard Radio, Inc., v. Federal Communications Comm'n, 316 U. S. 4; West India Fruit & S. S. Co. v. Seatrain Lines, Inc., 170 F. 2d 775; Board of Governors v. Transamerica Corp., 184 F. 2d 311. Such power has been deemed merely incidental to the courts' jurisdiction to review final agency action, and has never been recognized in derogation of such a clear congressional purpose to oust judicial power as that manifested in the Interstate Commerce Act.
It has also been suggested that a judicial power of this sort may have survived by reason of the "saving clause" of the statute, 49 U. S. C. § 22 (1). That conclusion would, of course, follow only if prior to the adoption of the Act there had been a clearly recognized equitable power to enjoin proposed rate changes. This, as we have already indicated, was not the case. Moreover, we have generally rejected such constructions of this and similar saving clauses, see, e. g., Texas & Pacific R. Co. v. Abilene Cotton Oil Co., supra; T. I. M. E., Inc., v. United States, 359 U. S. 464, 472-474.
[23] See North Carolina Natural Gas Corp. v. United States, 200 F. Supp. 745, 750 (D. C. D. Del.). The Commission's regulations and rules contemplate only an informal hearing before the Suspension Board upon a protest, of which no transcript is to be made, although reconsideration may be requested. See 49 CFR §§ 1.42, 1.200; see also 1 Davis, Administrative Law (1958), 441: "Although a hearing cannot be held on the question whether to suspend pending hearing, in many cases hurried conferences are held, which provide substantial safeguard against arbitrary action." The practice of the Civil Aeronautics Board under a virtually identical suspension statute appears to be more formal, 14 CFR § 302.505; see Air Freight Forwarder Assn., 8 C. A. B. 469, 474.
[24] We suggest no lack of congressional power to grant either administrative or judicial authority to extend a suspension period prior to completion of the administrative proceeding. Under other statutes Congress has evinced a clear intention to vest the courts with such power. The National Labor Relations Board, for example, has expressly been authorized to apply to the courts for "appropriate temporary relief or restraining order" pending the Board's decision of an unfair labor practice case. 29 U. S. C. § 160 (j). Cf. Trans-Pacific Freight Conference v. Federal Maritime Board, 112 U. S. App. D. C. 290, 295, 302 F. 2d 875, 880.
[25] 54 Stat. 899, which has been inserted before Part I of the Interstate Commerce Act.
[26] Schaffer Transportation Co. v. United States, 355 U. S. 83, 87-88; Arrow Transportation Co. v. United States, 176 F. Supp. 411, 416 (D. C. N. D. Ala.), aff'd per curiam sub nom. State Corporation Comm'n v. Arrow Transportation Co., 361 U. S. 353.
[1] We note that on January 21, 1963, while the case was pending here, the Division of the Commission which had previously considered the case concluded that some of the rates proposed by Southern were lawful but still found most (88%) of the entire rate package of all of the railroads unlawful. Even this finding, however, is not final, for it is subject to and is in fact pending reconsideration before the full Commission.
[2] In 1910 Congress enacted § 4 (2) of the Act, the provisions of which evidence an awareness that railroad rate reductions could be destructive competitive practices, see Skinner & Eddy Corp. v. United States, 249 U. S. 557, 566-567 (1919), but § 4 (2) clearly does not prohibit such practices. Not until the Transportation Act of 1920, as we have noted, was the Commission given the power to prescribe minimum rates. | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/203302/ | 526 F.3d 58 (2008)
UNITED STATES, Appellee,
v.
Oleksiy SHARAPKA, Defendant, Appellant.
No. 06-2715.
United States Court of Appeals, First Circuit.
Heard April 8, 2008.
Decided May 22, 2008.
*59 Adam J. Bookbinder, Assistant U.S. Attorney, with whom Michael J. Sullivan, U.S. Attorney, was on brief for appellant.
Peter B. Krupp with whom Lurie & Krupp, LLP was on brief for appellee.
Before LYNCH, Circuit Judge, MERRITT,[*] Senior Circuit Judge, and HOWARD, Circuit Judge.
MERRITT, Senior Circuit Judge.
Oleksiy Sharapka was sentenced to 121 months' imprisonment after he pled guilty to a 13-count information alleging identity theft, counterfeiting, and mail fraud. The charges stemmed from the defendant's illegal activities in Georgia a state that he had fled during pretrial custody[1] and in Boston, Massachusetts. At the time of his arrest, Sharapka was found with approximately 315 stolen credit card numbers, "ID kits," various other PIN and credit card numbers, and equipment valued at over $80,000.[2]
In this appeal, the defendant challenges his sentence on two grounds. First, he argues as a factual matter that the district court improperly determined that ten or more victims suffered financial losses due to his activities, a finding that increased his sentence by two levels. See U.S. Sentencing Guidelines Manual ("Guidelines") § 2B1.1(b)(2)(A) (2005). And second, he argues that the district court erred in imposing a two-level enhancement for possession of device-making equipment pursuant to § 2B1.1(b)(10)(A) of the Guidelines. The defendant does not raise any Sixth Amendment sentencing issue under the Blakely-Booker-Cunningham line of cases. See Blakely v. Washington, 542 U.S. 296, 124 S.Ct. 2531, 159 L.Ed.2d 403 (2004); United States v. Booker, 543 U.S. *60 220, 125 S.Ct. 738, 160 L.Ed.2d 621 (2005); Cunningham v. California, 549 U.S. 270, 127 S.Ct. 856, 166 L.Ed.2d 856 (2007).
For the following reasons, we affirm the district court's sentence of 121 months.
I. Sharapka's sentence
Because the defendant only challenges the sentence, and not the underlying conviction, we will only address the facts pertinent to the issues raised. At sentencing, the district court found a base offense level of seven under § 2B1.1(a)(1) of the Guidelines, and then added the following enhancements: (1) 14 levels for the stipulated loss ($400,000 to $1,000,000), (2) two levels for more than 10 but fewer than 50 victims, (3) two levels for receipt of stolen property, (4) three levels for the commission of an offense while on release, (5) two levels for possession of device-making equipment, and (6) two levels for managerial role in the offense. The court then deducted two levels for acceptance of responsibility. The resulting offense level of 30 corresponded to a Guidelines sentencing range of 97-121 months. In addition, there was a 24-month mandatory consecutive sentence for aggravated identity fraud, which, when added to the level 30 offense, resulted in a range of 121-145 months. See U.S. Sentencing Guidelines Manual § 2B1.6 (2005). The district court then sentenced Sharapka to the bottom of this range, 121 months.
We review findings of fact at sentencing hearings for clear error and legal issues de novo. United States v. Pacheco, 489 F.3d 40, 44 (1st Cir.2007).
II. The enhancement for more than 10 but fewer than 50 "victims"
At the first day of the sentencing hearing, a government agent testified that the issuing banks suffered direct financial losses as a result of Sharapka's credit card fraud. However, another agent later testified that he had been unable to quantify these values because banks purge credit card accounts that are the subject of fraud. The government maintained that the issuing bank, and not the credit card company, suffered the direct financial loss as a result of the fraudulent use.[3] After the second day of the sentencing trial, the district court indicated that it was still unsure as to whether there were, in fact, more than 10 victims who suffered a financial loss.
On the third day of the sentencing hearing, the government introduced a proffer based on its conversation with American Express that the vendor, and not the card-issuing bank, actually suffered the financial losses due to Sharapka's activities. The government then provided a list of 14 vendors its agents had contacted and who had reported losses due to Sharapka's illegal purchases. Based on this newly introduced information, the district court imposed a two-level increase to the defendant's sentence. The defendant contends that the court erred by relying on this proffer; specifically, he argues that the proffer fails to link the alleged losses (i.e. items seized at Sharapka's apartment) and that the court's analysis of the document was insufficient. In addition, the defendant notes that the government was unable to confirm losses attributable to specific entities at a later restitution hearing.
*61 The United States Sentencing Guidelines permit a court to increase a criminal defendant's sentence by two levels if the offense involved "10 or more victims." U.S. Sentencing Guidelines Manual § 2B1.1(b)(2)(A) (2005). To support such an enhancement, the sentencing judge must find that 10 or more victims suffered actual loss by a preponderance of the evidence. United States v. Leahy, 473 F.3d 401, 413 (1st Cir.2007). The Guidelines define "actual loss" as the "reasonably foreseeable pecuniary harm that resulted from the offense." U.S. Sentencing Guidelines Manual § 2B1.1 (2005), cmt. n. 3. The same explanatory note indicates that deference is owed to a sentencing judge's determination of the loss: "The court need only make a reasonable estimate of the loss. The sentencing judge is in a unique position to assess the evidence and estimate the loss based on that evidence." Id. In the instant case, we believe that the district court's determination that vendors were included within the definition of "victim" was correct, and also that the record adequately supports the two-level increase for more than 10 victims.
As described supra, the government first argued that only financial institutions could suffer losses under § 2B1.1(b)(2)(A), and then amended their theory to also include vendors. This change resulted from an agent's discussion with American Express in which the government learned that banks suffer losses caused by fraudulent ATM use, while vendors incur losses resulting from fraudulent credit card use. At the sentencing hearing, the defendant contended that this new interpretation was incorrect. We believe that the district court properly relied on both the testimony regarding the conversation with American Express and the Sentencing Guidelines explanatory notes, which defines "victims" for purposes of § 2B1.1(b)(2)(A) as including "individuals, corporations, companies ..." See U.S.S.G. § 2B1.1(b)(2)(A), cmt. n. 1. Such a definition is broader than financial institutions and fairly encompasses the vendors identified by the government agents.
As a result, the question is whether the government provided sufficient evidence to support the court's finding that more than 10 vendors suffered financial losses due to Sharapka's credit card fraud. The government proffered that its agents had contacted 14 vendors who verified that they had suffered losses resulting from this fraud. In addition, the government provided a spreadsheet listing the amount of loss and specific vendors for fraudulent purchases made using American Express cards. The government then gave the information about the 14 vendors to defense counsel and the court. The defendant contends that because the government did not later rely on the same information at the restitution hearing, the district court should have disregarded this evidence at sentencing.
We believe, however, that the government's factual determinationbased on the government's profferwas sufficient to support its enhancement under clear error review. The fact that the government did not later rely on the same 14 vendors at the restitution hearing does not necessarily cast doubt on the sentencing phase; rather, it appears that vendors may, for various reasons, have chosen not to submit the victim impact statements necessary to qualify for restitution. Similarly, we believe that the spreadsheet identifying the 14 vendors sufficiently connects their losses to Sharapka's fraudulent activities. Accordingly, the two-level enhancement was proper.
III. The enhancement for possession of device-making equipment
The defendant also contends that the court's two-level enhancement for possession *62 of "device-making equipment" resulted in impermissible double counting. See U.S. Sentencing Guidelines Manual § 2B1.1(b)(10)(A)(i) (2005). This enhancement stemmed from the discovery of a read/write scanning device at the defendant's home. According to Sharapka, the mandatory, consecutive sentence for aggravated identity theftpunishable under § 2B1.6 of the Guidelinesprecludes application of a two-level increase for specific offense characteristics under § 2B1.1(b)(10).
Section § 2B1.6 compels the sentencing court to impose a consecutive punishment for identity theft counts punishable under 18 U.S.C. § 1028A (i.e., counts eleven and twelve of the information to which Sharapka pled guilty). However, the commentary to the Guidelines states that "if a sentence under this guideline is imposed in conjunction with a sentence for an underlying offense, do not apply any specific offense characteristic for the transfer, possession, or use of a means of identification..." U.S. Sentencing Guidelines Manual § 2B1.6 (2005), cmt. n. 2 (emphasis added). This section therefore applies to certain enhancements under § 2B1.1(b)(10), but not to all. Section 2B1.1(b)(10) reads as follows:
If the offense involved (A) the possession or use of any (i) device-making equipment, or (ii) authentication feature; (B) the production or trafficking of any (i) unauthorized access device or counterfeit access device, or (ii) authentication feature; or (C)(i) the unauthorized transfer or use of any means of identification unlawfully to produce or obtain any other means of identification, or (ii) the possession of 5 or more means of identification that unlawfully were produced from, or obtained by the use of, another means of identification, increase by 2 levels.
(emphasis added). The defendant argues that because § 2B1.1(b)(10)(C)(i) includes the language "transfer" and "possession," the prohibition under note 2 of § 2B1.6 operates to bar application of any enhancement. The government responds by arguing that the enhancement in this case resulted solely from "the possession or use of device-making" equipment, which makes § 2B1.6 inapplicable.
We believe that the plain language supports the government's argument. § 2B1.1(b)(10) lists different offense characteristics, separated by the conjunction "or," whose presence may justify a two-level enhancement. Had the court imposed the enhancement under § 2B1.1(b)(10)(C)(i), then § 2B1.6 would preclude application of a two-level enhancement. In Sharapka's case, however, the court imposed its enhancement after finding that the defendant possessed "device-making equipment"to wit, a read/write device. This finding implicates § 2B1.1(b)(10)(A)(i) and not § 2B1.1(b)(10)(C)(i); the two are different offense characteristics. Because § 2B1.6 does not cover possession of device-making equipment, the court acted appropriately in applying both the mandatory minimum under § 2B1.6 and the two-level enhancement under § 2B1.1(b)(10)(A)(i). To hold otherwise would result in an expansion of the application of § 2B1.6 beyond the specific characteristics identified by the Guidelines in the explanatory text.
We therefore affirm Sharapka's sentence.
NOTES
[*] Of the Sixth Circuit, sitting by designation.
[1] The federal charges from Georgia were incorporated into the 13-count information in this case.
[2] Sharapka's scheme operated as follows: he would order merchandise online using the stolen credit cards, have the items sent to Mail Boxes Etc., arrange for someone to deliver the items to his house, and then ship them overseas (primarily to Russia).
[3] The government provided evidence that Sharapka had used 10 or more cards, but conceded that it lacked sufficient evidence to prove that Sharapka had used each of these cards. The evidence only showed that American Express had suffered a discernible, actual loss. | 01-03-2023 | 02-07-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/221487/ | 658 F.3d 879 (2011)
Hoshiyar SINGH, Petitioner,
v.
Eric H. HOLDER Jr., Attorney General, Respondent.
No. 07-70500.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted May 10, 2011.
Filed July 21, 2011.
*882 Robert B. Jobe (argued), Lina Baroudi, Law Office of Robert B. Jobe, San Francisco, CA, for the petitioner.
Jessica Segall (argued), U.S. Department of Justice, Office of Immigration Litigation, Washington, D.C., for the respondent.
Before: BETTY B. FLETCHER and SIDNEY R. THOMAS, Circuit Judges, and NANCY GERTNER, District Court Judge.[*]
OPINION
B. FLETCHER, Circuit Judge:
Hoshiyar Singh appeals from the BIA's January 2007 denial of his motion to reopen premised on ineffective assistance of counsel. Singh married a U.S. citizen during the pendency of his appeal from the IJ's denial of his affirmative asylum application. He is the beneficiary of an approved immediate relative visa, and seeks to reopen so that he may apply for adjustment of status.
The BIA concluded that Singh's prior counsel did not render ineffective assistance, because counsel made a "tactical" decision to forgo seeking a stay of voluntary departure in favor of filing a "motion to remand" with the Ninth Circuit. Moreover, the BIA held that Singh was not prejudiced by prior counsel's failures, because he was ineligible for adjustment of status on account of his voluntary failure to comply with the BIA's order of voluntary departure. We hold that both conclusions constitute an abuse of discretion. Accordingly, we grant the petition for review and remand to the BIA for further proceedings consistent with this opinion.
I.
Singh, thirty-five, is a citizen and native of India, and his primary language is Hindi.[1] He arrived in the U.S. on a visitor's visa on May 22, 1998. On June 25, 1998 (approximately two weeks after his visa expired), through counsel, Singh filed an affirmative application for asylum and withholding of removal.
On August 13, 2003, after a hearing, the IJ denied Singh's application for asylum and withholding of removal. The IJ also granted Singh a voluntary departure period of sixty days, meaning that if he did not appeal, he would have to depart the United States by October 12th, 2003.[2] Notably, in his oral decision, the IJ told Singh:
[Y]ou don't have to accept this decision as final. You can appeal. If you appeal, then my decision won't be final ..., and while your appeal is pending, the Government *883 won't require that you depart the United States but they will see what happens with the appeal.... I did grant you voluntary departure, so you have to post a $500 bond by ... August 20th, and then you are required to depart the country by October 12th. However, if you put in your appeal, that date will probably change. Talk to your lawyer about that. She will be able to tell you what happens with your voluntary departure date.
(emphasis added).
Singh retained Satwant Pandher to appeal the IJ's decision.[3] Singh paid Pandher $1,500 in cash, and Pandher timely filed a notice of appeal with the BIA on September 2, 2003. On May 17, 2004, while his appeal was pending, Singh married a naturalized U.S. citizen. Shortly after his marriage, Singh asked Pandher to file a visa petition and an application for adjustment of status. Singh paid Pandher an additional $1,500 for these services. In September 2004, after two erroneous filings, Pandher filed a Form I-130, petition for an immediate relative visa, on Singh's behalf. Singh regularly contacted Pandher to ensure that his visa petition was being handled appropriately.
On February 1, 2005, the BIA denied Singh's appeal and granted him a thirty-day period of voluntary departure. At the time, the BIA did not mail copies of its decisions to alien petitioners. Only the alien's counsel received notice. See Matter of Compean, 24 I. & N. Dec. 710, 739 n. 13 (A.G.2009) (directing the Executive Office for Immigration Review "to begin sending courtesy copies of final Board decisions to the aliens themselves in addition to sending them to the aliens' lawyers"), vacated by Matter of Compean, 25 I. & N. Dec. 1 (A.G.2009). Singh first learned of the Board's decision in early February 2005, when he called Pandher to inquire about the status of his visa petition. Pandher then told Singh to come into his office to "sign some papers for an appeal of the Board's decision." Singh did so, and paid Pandher an additional $700 to appeal the Board's decision. Because Singh is unable to read English, he asked Pandher to explain the decision to him. Pandher told Singh "not to worry, and that he received documents like this frequently." Pandher did not tell Singh anything about voluntary departure. On February 22, 2005, Pandher filed a petition for review with the Ninth Circuit. The petition for review did not request a stay of voluntary departure, nor a stay of removal.
Singh's voluntary departure period expired on March 2, 2005, and Singh did not depart. An alien who is permitted to depart voluntarily, but "voluntarily fails to depart the United States within the time period specified" is subject to civil fines, and, more importantly, is "ineligible, for a period of ten years" for relief including cancellation of removal and adjustment of status. 8 U.S.C. § 1229c(d) (emphasis added) (incorporating by reference the relief discussed in 8 U.S.C. §§ 1229b (cancellation of removal and adjustment of status), 1255 (adjustment of status)).
On April 22, 2005, Singh and his wife attended a marriage fraud interview with United States Citizenship and Immigration Services. Pandher also attended. The immigration officer determined that Singh's marriage was bona-fide, and approved his application for an I-130 visa. Pandher then informed Singh that he would "send some paperwork regarding [the] asylum case," but instructed that Singh "not call him `unnecessarily.'" Unbeknownst to Singh, on July 15, 2005, Pandher *884 filed with the Ninth Circuit a "motion to remand" the case to the BIA. The motion was utterly worthless. Even setting aside any possible statutory ineligibility for adjustment on account of Singh's failure to depart within the designated period, the motion was filed before the wrong court,[4] and was untimely.[5] Not surprisingly, the Ninth Circuit denied the motion. The Ninth Circuit eventually denied Singh's petition for review of the denial of asylum. Singh v. Gonzales, 225 Fed.Appx. 632 (9th Cir.2007).
Pandher then filed a "motion to remand" with the BIA in light of Singh's marriage and approved visa petition. Again, the motion was worthless. Pandher failed to include the required filing fee. See 8 C.F.R. § 1003.2(g)(2)(i). Moreover, the motion was untimely, and Pandher failed to make any argument that the time period for filing the motion to reopen should have been equitably tolled. See 8 U.S.C. § 1229a(c)(7)(C)(i).
Dissatisfied with Pandher's representation, Singh and his wife consulted another attorney who referred Singh to his current counsel. Counsel requested and reviewed Singh's file, and informed Singh that Pandher had rendered ineffective assistance. Singh lodged a complaint against Pandher with the Washington State Bar, and informed him of the grievance. On October 23, 2006, counsel entered a notice of appearance with the BIA and filed a motion to reopen to apply for adjustment of status.
The motion to reopen alleged that Singh was "severely prejudiced by his former counsel's failure to: 1) seek a stay of voluntary departure in order to preserve Mr. Singh's eligibility for adjustment of status, and 2) move to reopen Mr. Singh's proceedings once his I-130 petition was approved." Further, the motion to reopen argued that the time period for filing a motion to reopen should be equitably tolled on account of ineffective assistance of counsel.
II.
An alien has the statutory right to file one motion to reopen. 8 U.S.C. § 1229a(c)(7)(A); Nevarez Nevarez v. Holder, 572 F.3d 605, 608 (9th Cir.2009). To be considered timely, a motion to reopen must be filed within ninety days of the entry of the final order of removal, unless equitable tolling applies. Iturribarria v. I.N.S., 321 F.3d 889, 897 (9th Cir. 2003). Ineffective assistance of counsel is one basis for equitable tolling. To qualify for equitable tolling on account of ineffective assistance of counsel, a petitioner must demonstrate (a) that he was prevented from timely filing his motion due to prior counsel's ineffectiveness; (b) that he demonstrated due diligence in discovering counsel's fraud or error; and (c) that he complied with the procedural requirements of Matter of Lozada, 19 I. & N. Dec. 637 (BIA 1988); Ray v. Gonzales, 439 F.3d 582, 587 (9th Cir.2006).
If an alien qualifies for equitable tolling of the time and/or numerical limitations on a motion to reopen, the motion is treated as if it were the one the alien is statutorily entitled to file.[6]See, e.g., Iturribarria, *885 321 F.3d at 899-903; Rodriguez-Lariz v. I.N.S., 282 F.3d 1218, 1226 (9th Cir.2002). When considering the merits of a motion to reopen premised on ineffective assistance of counsel, the BIA asks whether counsel's performance was deficient, and whether the alien suffered prejudice. Rodriguez-Lariz, 282 F.3d at 1226. Though counsel's ineffectiveness factors into the analysis of equitable tolling and the merits of a motion to reopen, the issues should be considered separately. Id.
We have jurisdiction under 8 U.S.C. § 1252(a)(2)(D) and review the BIA's denial of a motion to reopen for abuse of discretion. See De Martinez v. Ashcroft, 374 F.3d 759, 761 (9th Cir.2004); Socop-Gonzalez v. I.N.S., 272 F.3d 1176, 1187 (9th Cir.2001) (en banc). The BIA abuses its discretion when its decision is "arbitrary, irrational, or contrary to law." Ontiveros-Lopez v. I.N.S., 213 F.3d 1121, 1124 (9th Cir.2000) (internal quotation marks omitted). Here, the BIA concluded that there was no ineffective assistance of counsel, and denied the petition as untimely and on the merits.[7]
III.
The BIA abused its discretion when it concluded that Pandher performed effectively. "`Ineffective assistance of counsel in a deportation proceeding is a denial of due process under the Fifth Amendment if the proceeding was so fundamentally unfair that the alien was prevented from reasonably presenting his case.'" Ray, 439 F.3d at 587 (quoting Lopez v. I.N.S., 775 F.2d 1015, 1017 (9th Cir.1985)). Pandher prevented Singh from reopening his case to apply for adjustment of status. At any time after Singh's marriage, Pandher could have filed a motion to remand the case to the IJ and then petitioned the IJ for a continuance of removal proceedings pending the adjudication of the visa petition. See Avagyan v. Holder, 646 F.3d 672, 675 n. 3 (9th Cir.2011) (explaining the process for reopening a case when an alien in removal proceedings has applied for an immediate relative visa).[8] Furthermore, Pandher could have filed a motion to reopen after the BIA denied Singh's appeal but before the expiration of the period of voluntary departure. It was possible, even likely, that the motion would have been granted. See In Re Velarde-Pacheco, *886 23 I. & N. Dec. 253, 255-57 (BIA 2002). Filing the motion would have automatically tolled the voluntary departure period under then-existing Ninth Circuit law. See Azarte v. Ashcroft, 394 F.3d 1278, 1289 (9th Cir.2005), abrogated by Dada v. Mukasey, 554 U.S. 1, 19-21, 128 S.Ct. 2307, 171 L.Ed.2d 178 (2008) (rejecting the position that a motion to reopen automatically tolls the voluntary departure period, but holding that an alien who wishes to file a motion to reopen must be permitted to withdraw his request for voluntary departure).
Even if we excused Pandher's apparent desire to wait until Singh's I-130 visa petition was approved before filing a motion to reopen, it is clear Pandher failed to ensure that his client remained eligible for adjustment of status while the visa application was pending. Pandher should have recognized that failure to comply with a voluntary departure order potentially renders an alien ineligible for adjustment of status, and could have ensured that those penalties did not attach. For example, Pandher could have applied for a stay of voluntary departure pending circuit review of the BIA's denial of Singh's appeal; the stay probably would have been granted. See El Himri v. Ashcroft, 344 F.3d 1261, 1262-63 (9th Cir.2003) (holding that the courts can grant a stay of voluntary departure where there is "a probability of success on the merits and the possibility of irreparable injury") (quoting Abbassi v. INS, 143 F.3d 513, 514 (9th Cir.1998)), abrogated by regulation as recognized in Garfias-Rodriguez v. Holder, 649 F.3d 942, 951-52 (9th Cir.2011).[9] Pandher also could have applied for a stay of removal at the time he filed the petition for review with the Ninth Circuit; at the time, the motion for a stay of removal would have been construed as encompassing a motion to stay voluntary departure. Desta v. Ashcroft, 365 F.3d 741, 748-49 (9th Cir.2004). Had Pandher applied for a stay of removal or a stay of voluntary departure pending Ninth Circuit review of Singh's asylum claim, and had the motion been granted, the voluntary departure period would not have started to run until 2007, long after Singh's visa application was approved.
The BIA excused counsel's failings because it believed Pandher made a "tactical" decision to file a motion to remand with the Ninth Circuit instead of filing for a stay of voluntary departure (or pursuing any of the other avenues of relief). The motion to remand was worthless: the Ninth Circuit has no authority to grant such a motion. It is nigh impossible to imagine how a competent attorney would make a conscious decision to pursue a course leading to certain failure, when faced with several paths to success. Pandher's repeated mistakes, compounded by his inability to recognize the import of his errors, are the epitome of ineffective assistance. Pandher had four opportunities to ensure that his client remained eligible to apply for an adjustment of statusthe very form of relief he was paid to help his client obtainand he failed to take advantage of any of them. We do not require counsel's performance to be "brilliant," but we cannot sanction representation that prevents an alien from even filing necessary motions and applications. Lin v. Ashcroft, 377 F.3d 1014, 1027 (9th Cir. 2004).
IV.
The BIA also denied Singh's motion to reopen because it concluded that *887 he had not been prejudiced by counsel's failures. Counsel's deficiencies are prejudicial if they could have affected the outcome of the proceedings. See Mohammed v. Gonzales, 400 F.3d 785, 793 (9th Cir. 2005); Iturribarria, 321 F.3d at 899-90. "The failure to file a necessary document creates a presumption of prejudice[,]" rebutted only when the alien lacks plausible grounds for relief. Hernandez-Mendoza v. Gonzales, 537 F.3d 976, 979 (9th Cir. 2007). We must "consider the underlying merits of the case to come to a tentative conclusion as to whether petitioner's claim, if properly presented, would be viable." Nehad v. Mukasey, 535 F.3d 962, 971 (9th Cir.2008) (alteration and citation omitted). Pandher failed to preserve his client's eligibility to apply for adjustment of status and failed to timely file the motion to reopen that was a prerequisite for applying for adjustment of status. These failures create a presumption of prejudice.
The BIA concluded that Singh suffered no prejudice because he "voluntarily" failed to depart within the required period and is therefore statutorily ineligible for an adjustment of status. Nevertheless, two months after the BIA decided Singh's case, it held that an alien who is not aware of an order of voluntary departure does not fail to depart "voluntarily" and is not subject to the statutory penalties. In re Zmijewska, 24 I. & N. Dec. 87, 94 (BIA 2007). Under Zmijewska, Singh has a strong argument that he is not subject to the penalties for failing to comply with a voluntary departure order.
In Zmijewska, the BIA construed the phrase "voluntarily fails to depart" as a narrow exception to the penalties for failure to comply with an order of voluntary departure. 24 I. & N. Dec. at 93. Zmijewska's Board-accredited representative failed to notify her of the Board's decision until after the period granted for voluntary departure had passed. Id. at 88. The BIA first rejected the idea that either it or the courts could "apply[] an open-ended equitable exception to the penalties for failing to depart within the time for voluntary departure." Id. at 93. Nevertheless, the BIA recognized that "an alien [who], through no fault of his or her own, is unaware of the voluntary departure order or is physically unable to depart" is not subject to the penalties for voluntarily failing to depart. Id. at 94. The BIA emphasized that "the `voluntariness' exception is not a substitute for the repealed `exceptional circumstances' exception" but a "much narrower" one. Id. In light of counsel's failure to notify petitioner of the BIA's order of voluntary departure, the Board held that respondent did not "voluntarily" fail to depart. Id.
It appears Singh's failure to depart, like that in Zmijewska, was not "voluntary," so he remains eligible for an adjustment of status.[10] In that event, he was clearly prejudiced by Pandher's failure to file a motion to remand or motion to reopen after his marriage to a United States citizen. Given that the BIA did not have the opportunity to apply Zmijewska to the facts of Singh's case, we believe that remand is appropriate. I.N.S. v. Ventura, 537 U.S. 12, 16-17, 123 S.Ct. 353, 154 L.Ed.2d 272 (2002) (per curiam). We note the following facts which may be relevant to Zmijewska's applicability. First, Singh was not statutorily eligible for voluntary *888 departure, and the IJ and BIA granted voluntary departure in error. Second, the IJ specifically instructed Singh to talk to his lawyer about the voluntary departure period in the event that he filed an appeal. Third, Singh did not receive a personal copy of the Board's denial of his appeal and order of voluntary departure. Fourth, when Singh asked his lawyer to explain the contents of the order, Pandher told Singh "not to worry and that he received documents like this frequently." Fifth, Singh alleged that Pandher did not tell him anything about an order of voluntary departure.
V.
The BIA's denial of Singh's motion to reopen because counsel did not render ineffective assistance was an abuse of discretion. In addition, if Singh's failure to depart was not "voluntary" under Zmijewska, he remains eligible for adjustment of status and counsel's failures prejudiced him. Accordingly, we GRANT the petition for review and REMAND to the BIA for further proceedings consistent with this opinion.
NOTES
[*] The Honorable Nancy Gertner, District Court Judge for the United States District Court for Massachusetts, sitting by designation.
[1] The facts are drawn primarily from Singh's affidavit, submitted to the BIA with his motion to reopen. We accept such facts as true unless the BIA finds them to be "`inherently unbelievable.'" Ghahremani v. Gonzales, 498 F.3d 993, 999 (9th Cir.2007) (quoting Maroufi v. INS, 772 F.2d 597, 600 (9th Cir.1985)). The BIA made no such finding here.
[2] The grant of voluntary departure is puzzling, given that Singh's counsel did not request voluntary departure and was, in fact, statutorily ineligible to receive it. "An immigration judge may grant voluntary departure at the conclusion of the removal proceedings... if he or she finds," among other requirements, that the alien "has been physically present in the United States for a period of at least one year preceding the date the Notice to Appear was served." 8 C.F.R. § 1240.26(c)(1)(i). Singh entered the United States on May 22, 1998. He was served with a Notice to Appear on August 5, 1998. Singh had not accrued the requisite period of physical presenceand both the government and the IJ were on notice of this fact, as it was recognized by an IJ in an earlier hearing.
[3] Pandher was disbarred in February 2007 for failing to diligently and competently represent his clients.
[4] Any motion to remand filed after the BIA has rendered a final decision will be deemed a motion to reopen. Guzman v. I.N.S., 318 F.3d 911, 913 (9th Cir.2003). A motion to reopen must be filed with the BIA. 8 C.F.R. § 1003.2.
[5] A motion to reopen must be filed within ninety days of the entry of the final order of removal. 8 U.S.C. § 1229a(c)(7)(C)(i). To have been timely, Singh's motion to reopen should have been filed by May 2, 2005.
[6] In addition, the BIA may reopen proceedings on its own authority at any time. 8 C.F.R. § 1003.2. We are without jurisdiction to review the BIA's decision to reopen sua sponte. Mejia-Hernandez v. Holder, 633 F.3d 818, 823 (9th Cir.2011); Ekimian v. I.N.S., 303 F.3d 1153, 1156-57 (9th Cir.2002). This case, however, does not involve the Board's power to reopen sua sponte, as Singh argued that the time and numerical limitations on his motion to reopen should have been equitably tolled on account of ineffective assistance of counsel, and the BIA decided that there was no ineffective assistance.
[7] We reject the Government's argument that Singh has waived any challenge to the denial of equitable tolling. Counsel's opening brief seeks review of the determination that counsel performed adequately, and cites multiple cases involving equitable tolling on account of ineffective assistance of counsel. It sufficiently raises the issue of equitable tolling for review. See Fed. R.App. P. 28(a)(9)(A); Rattlesnake Coalition v. E.P.A., 509 F.3d 1095, 1100 (9th Cir.2007) (holding that appellant who challenged both of the lower court's holdings in the body of the brief has not waived the arguments).
[8] Contrary to the Government's assertion, Singh has adequately exhausted his administrative remedies with respect to the claim that Pandher was ineffective because he failed to file a motion to reopen or a motion to remand to the immigration court while the I-130 was pending. Singh's motion argued that he should be permitted to reopen because his counsel failed to preserve his eligibility to apply for adjustment of status, and the BIA conducted a full review of the record. Even if Singh did not raise a particular form of ineffective assistance, he has sufficiently exhausted the claim. Ladha v. I.N.S., 215 F.3d 889, 903 (9th Cir.2000), overruled on other grounds by Abebe v. Mukasey, 554 F.3d 1203 (9th Cir. 2009).
[9] Under the current regulations, filing either a petition for review or a motion to reopen automatically terminates voluntary departure. 8 C.F.R. §§ 1240.26(b)(3)(iii), 1240.26(i). The regulations apply to petitioners who were granted voluntary departure on or after January 20, 2009, so do not affect this case. 73 FR 76, 927, 76939 (Dec. 18, 2008).
[10] Granados-Oseguera v. Mukasey, 546 F.3d 1011, 1015-16 (9th Cir.2008) does not control. There, petitioner was fully aware of the voluntary departure order but remained in the United States in reliance on counsel's erroneous advice. In this case, Singh did not receive a copy of the BIA's decision and order of voluntary departure, and has alleged that his counsel did not tell him about the order of voluntary departure in response to his query about the contents of the BIA's decision. | 01-03-2023 | 07-21-2011 |
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