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SUMMARY MEMORANDUM AND OPINION; NOT INTENDED FOR PUBLICATION.
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
JOHN STANTON,
Plaintiff,
v. Civil Action No. 11-cv-0613 (RLW)
D.C. COURT OF APPEALS,
Defendant.
MEMORANDUM OPINION1
John Stanton is a suspended attorney who has been seeking reinstatement to the District
of Columbia Bar for almost three decades. Stanton has unsuccessfully petitioned the District of
Columbia Court of Appeals (“DCCA”) for reinstatement no less than five times. In addition, he
has also filed lawsuits in federal court posing constitutional challenges to both the substantive
provisions of the District of Columbia Rules of Professional Conduct, and to the procedures
governing reinstatement. 2 Now Stanton has initiated yet another collateral attack on the District
of Columbia Bar disciplinary procedures which have been established and operated by the
DCCA. The DCCA has moved to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(1) and
1
This is a summary opinion intended for the parties and those persons familiar with the
facts and arguments set forth in the pleadings; not intended for publication in the official
reporters.
2
The details of Stanton’s reinstatement efforts are well-documented. The Court shall not
recite the details here. For a full history see the following cases: In re Stanton, 470 A.2d 272
(D.C. 1983); In re Stanton, 470 A.2d 281 (D.C. 1983); In re Stanton, 532 A.2d 95 (D.C. 1987);
In re Stanton, 589 A.2d 425 (D.C. 1991); In re Stanton, 682 A.2d 655 (D.C. 1996); In re Stanton,
757 A.2d 87 (D.C. 2000); In re Stanton, 860 A.2d 369 (D.C. 2004).
(6). For the reasons set forth below, the Court will grant the DCCA’s motion and dismiss
Stanton’s Complaint with prejudice.
Stanton’s complaint for declaratory and equitable relief asserts several constitutional
challenges to the District of Columbia Court of Appeals Board on Professional Responsibility
(“BPR”) Board Rules. All seven counts of Stanton’s complaint allege that the District of
Columbia Bar disciplinary process and procedures violate his right to due process under the Fifth
and Fourteenth Amendments to the United States Constitution and under the Civil Rights Act of
1871. Count I asserts that BPR Rule 11.3 violates Stanton’s due process rights because it
dictates that the BPR is not “bound by provisions or rules of court practice, procedure, pleading,
or evidence.” (Compl. ¶ 91). Count II asserts that BPR procedures, specifically BPR Rules 7.16
and 9.4, violate due process because they do not permit the subject of a disciplinary charge to
challenge the sufficiency of the allegations of misconduct prior to fact-finding, while Bar
Counsel may move to dismiss a reinstatement petition that is legally insufficient on its face.3
(Compl. ¶¶ 93-96). Count III contends that the fact that the DCCA does not consider factual
assertions and arguments that were not raised in the reinstatement petition violates his due
process rights. (Compl. ¶¶ 99-100). Count IV challenges the DCCA’s deferential review of the
factual findings of the BPR on due process grounds because its deference to the BPR’s findings
“increases the already excessive risk of error (injustice) apparent in the BPR process.” (Compl.
¶¶ 105-106). Count V contends that the DDCA’s interpretation of the DC Bar disciplinary
rules—to require “straightforward acceptance” of advocacy for guilty pleas by counsel for the
accused in criminal prosecutions—violates his due process rights because it fails to provide fair
3
Stanton also claims that BPR Rules 7.16 and 9.4 violate his rights to equal protection
under the Fourteenth Amendment and the Civil Rights Act of 1871.
2
notice as to a lawyer’s obligations under the rules.4 (Compl. ¶ 111). Count VI alleges that the
application of the bar disciplinary rules by the DCCA in Stanton’s disciplinary proceedings
violated the due process and ex post facto clauses of the Constitution. (Compl. ¶ 114, 118).
Finally, Count VII asserts that the DCCA’s “dishonesty and pervasive bad faith in the
disciplinary action” deprived him of his due process rights. (Compl. ¶ 130).
Legal Standard
Federal Rule of Civil Procedure 12(b)(1) requires the plaintiff to bear the burden of
proving by a preponderance of the evidence that the Court has jurisdiction to entertain his claims.
Fed. R. Civ. P. 12(b)(1); Khadr v. United States, 529 F.3d 1112, 1115 (D.C. Cir. 2008). In ruling
on a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1), the Court must
construe Plaintiff’s complaint liberally, giving him the benefit of all favorable inferences that can
be drawn from the alleged facts. See Barr v. Clinton, 370 F.3d 1196, 1199 (D.C. Cir. 2004).
However, the Court has 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, 13-14 (D.D.C. 2001). For this reason, “[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.” Id. at 13-14 (quoting 5A CHARLES ALAN WRIGHT & ARTHUR R.
MILLER, FEDERAL PRACTICE AND PROCEDURE § 1350 (2d ed. 1990)) (internal quotes omitted). In
deciding a 12(b)(1) motion, the Court need not limit itself to the allegations of the complaint, and
it may consider such materials outside the pleadings as it deems appropriate to resolve the
4
Stanton has claimed that this interpretation of the DC Bar disciplinary rules has also
violated his right to free speech by depriving him of his “right to criticize the state of the law.”
(Compl. ¶ 112).
3
question whether it has jurisdiction in the case. See Herbert v. Nat’l Acad. Of Sciences, 974
F.2d 192, 197 (D.C. Cir. 1992).
“To survive a motion to dismiss under Rule 12(b)(6), a complaint must contain sufficient
factual matter, acceptable as true, to state a claim to relief that is plausible on its face.”
Anderson v. Holder, 691 F. Supp. 2d 57, 61 (D.D.C. 2010) (brackets omitted) (quoting Ashcroft
v. Iqbal, --- U.S. ----, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (citing Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 556 (2007)) (internal quotes omitted).
A court considering a Rule 12(b)(6) motion must construe the complaint in the light most
favorable to plaintiffs and must accept as true all reasonable factual inferences drawn from well-
pleaded factual allegations. In re United Mine Workers of Am. Employee Benefit Plans Litig.,
854 F. Supp. 914, 915 (D.D.C. 1994). However, where the well-pleaded facts do not permit a
court, drawing on its judicial experience and common sense, to infer more than the “mere
possibility of misconduct,” the complaint has not shown that the pleader is entitled to relief.
Iqbal, 129 S. Ct. at 1950. In evaluating a Rule 12(b)(6) motion to dismiss, a court “may
consider only the facts alleged in the complaint, any documents either attached to or incorporated
in the complaint and matters of which [a court] may take judicial notice.” Trudeau v. FTC, 456
F.3d 178, 183 (D.C. Cir. 2006) (quoting EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d
621, 624-25 (D.C. Cir. 1997)).
Analysis
As a preliminary matter, the Court is obligated to determine whether it has jurisdiction to
hear plaintiff’s claims. Steele Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94 (1998) (a
court’s jurisdiction to decide the merits of a case must be established as a “threshold matter”).
The United States Supreme Court has declared that federal district courts do not have jurisdiction
4
to review or modify a judgment of a state court. See Rooker v. Fidelity Trust Co., 263 U.S. 413
(1923); District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983). Congress has
vested federal court review of such state-court decisions in the Supreme Court. See 28 U.S.C. §
1257. The Rooker-Feldman doctrine precludes claims that have been already addressed by a
state court, but also those claims that are “inextricably intertwined” with the merits of a state-
court judgment. Feldman, 460 U.S. at 483-84 n. 16. Thus, the claims raised in district court
need not have been argued in the state judicial proceeding for them to be barred by the Rooker-
Feldman doctrine. Id.
With respect to the application of the Rooker-Feldman doctrine in the context of
constitutional challenges to bar rules—as is the case here—the District of Columbia Circuit’s
decision in Stanton is particularly instructive:
Applying Rooker-Feldman requires us to draw a line between
permissible general challenges to rules and impermissible attempts
to review judgments. And Feldman also tells us that even a
constitutional claim pled as a general attack may be so
‘inextricably intertwined’ with a state court decision that the
district court is in essence being called upon to review the state-
court decision.
Stanton v. District of Columbia Court of Appeals, 127 F.3d 72, 75 (D.C. Cir. 1997)
(citations omitted).
Turning to Stanton’s claims in this case, it is clear that the gravamen of his complaint is
that the manner in which the BPR and DCCA adjudicated the initial disciplinary proceedings that
resulted in his suspension and his subsequent petitions for reinstatement were violative of his
constitutional rights. However, all of Stanton's claims are either directly precluded by the
Rooker-Feldman doctrine because each of these claims was raised by Stanton and addressed by
the DCCA in Stanton's original disciplinary and subsequent reinstatement proceedings, or his
claims are "inextricably intertwined" with the judgment issued by the DCCA in his previous
5
cases.5 See In re Stanton, 470 A.2d 281, 287-88 (D.C. 1983) (“We also agree with the Board
that respondent’s contention concerning certain improprieties in the conduct of his disciplinary
proceedings are similarly without merit.”); In re Stanton, 532 A.2d 95, 96 (D.C. 1987)
(“petitioner is precluded from challenging the constitutionality of the earlier disciplinary
proceedings and disposition of this court.”). Thus, Stanton is inviting this court to review the
decisions in his previous cases, and therefore this Court lacks the subject-matter jurisdiction to
entertain plaintiff’s claims.6
Further, because Stanton raised all of these claims in previous litigation against the
DCCA—most recently in his fifth petition for reinstatement—the doctrines of claim preclusion
(res judicata) and issue preclusion (collateral estoppel) bar this and further litigation on these
issues against the DCCA. See Nat. Res. Def. Council v. Envtl Prot. Agency, 513 F.3d 257, 260
(D.C. Cir. 2008) (setting forth standards for claim preclusion); Yamaha Corp. of Am. V. United
States, 961 F.2d 245, 254 (D.C. Cir. 1992) (setting forth standards for issue preclusion).
Moreover, claim preclusion bars re-litigation not only of a matter determined in the prior action,
but also all matters that might have been determined, Tutt v. Doby, 459 F.2d 1195, 1197 (D.C.
5
A judgment of the DCCA is a “state-court” judgment under the Rooker-Feldman
doctrine. See 28 U.S.C. 1257 (“For the purposes of this section, the term ‘highest court of a
State’ includes the District of Columbia Court of Appeals.”); Feldman, 460 U.S. at 463-64.
6
Even if Stanton’s claims could be fairly characterized as independent claims generally
challenging the bar rules—whereby this court would have jurisdiction to entertain the claims—
the claims would still be precluded. Stanton has not alleged any imminent application of the
BPR’s rules and disciplinary procedures. Therefore, to the extent that Stanton claims that his
constitutional claims are independent of the disciplinary action taken by the DCCA, it appears
that he likely lacks the “personal stake” to comply with standing principles. Richardson v.
District of Columbia Court of Appeals, 83 F.3d 1513, 1516 (D.C. Cir. 1996) (“[a]bsent any
actual or imminent application to [plaintiff], it is doubtful that he would have standing to secure
adjudication of his general due process claim.”).
6
Cir. 1972), and issue preclusion bars new legal theories that could have been raised in the
previous action, Hall v. Clinton, 285 F.3d 74, 81 (D.C. Cir. 2002).
For the foregoing reasons, this Court will grant the defendant’s motion to dismiss
plaintiff’s complaint. Plaintiff’s complaint is hereby dismissed with prejudice. The Court will
deny defendant’s motion to preclude plaintiff from filing future lawsuits against the DCCA. A
separate Order accompanies this Memorandum Opinion.
SO ORDERED.
Digitally signed by Judge Robert
L. Wilkins
DN: cn=Judge Robert L. Wilkins,
o=U.S. District Court,
ou=Chambers of Honorable
Robert L. Wilkins,
email=RW@dc.uscourt.gov, c=US
Date: 2012.02.23 15:08:39 -05'00'
Date: February 23, 2012
Robert L. Wilkins
United States District Judge
7
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
ANTONIO COLBERT, )
)
Plaintiff, )
)
v. ) Civil Action No. 11-666 (JDB)
)
UNITED STATES POSTAL SERVICE, )
)
Defendant. )
)
MEMORANDUM OPINION
I. Introduction.
Plaintiff Antonio Colbert commenced this case against Defendant the United States
Postal Service (USPS), alleging that it has failed to deliver his mail to him since December 6,
2010. Defendant has moved to dismiss this case alleging, among other things, that the Court
lacks subject-matter jurisdiction to consider this case. The motion will be granted. Defendant is
entitled to sovereign immunity from Plaintiff’s claims to the extent that Plaintiff alleges that
Defendant has lost, miscarried, or negligently transmitted his mail; moreover, as to any mail-
delivery claim Plaintiff might have, he has not pled that he exhausted his administrative
remedies. This case will therefore be dismissed for lack of subject-matter jurisdiction.
II. Legal Standard.
Under Federal Rule of Civil Procedure 12(b)(1), the party seeking to invoke the
jurisdiction of a federal court—Plaintiff here—bears 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)
(citing Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 103–04 (1998)); see also Grand
Lodge of Fraternal Order of Police v. Ashcroft, 185 F. Supp. 2d 9, 13 (D.D.C. 2001) (“[A] Rule
12(b)(1) motion imposes on the court an affirmative obligation to ensure that it is acting within
the scope of its jurisdictional authority.”); Pitney Bowes, Inc. v. USPS, 27 F. Supp. 2d 15, 19
(D.D.C. 1998). Although a court must accept as true all the factual allegations contained in the
complaint when reviewing a motion to dismiss pursuant to Rule 12(b)(1), Leatherman v. Tarrant
Cnty. Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 164 (1993), “‘Plaintiff[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. 1990)). At the stage of litigation when dismissal is sought, a plaintiff’s complaint
must be construed liberally, and the plaintiff should receive the benefit of all favorable
inferences that can be drawn from the alleged facts. See EEOC v. St. Francis Xavier Parochial
Sch., 117 F.3d 621, 624 (D.C. Cir. 1997). Additionally, a court may consider material other than
the allegations of the complaint in determining whether it has jurisdiction to hear the case, as
long as it still accepts the factual allegations in the complaint as true. See Jerome Stevens
Pharm., Inc. v. FDA, 402 F.3d 1249, 1253–54 (D.C. Cir. 2005); St. Francis Xavier Parochial
Sch., 117 F.3d at 624–25 & n.3; Herbert v. Nat’l Acad. of Scis., 974 F.2d 192, 197 (D.C. Cir.
1992).
III. Analysis.
A. Plaintiff’s Claim Will Be Evaluated Under the Federal Tort Claims Act.
Plaintiff claims that Defendant has failed to deliver his mail to him since December 6,
2010. Compl., ECF No. 5-1 He seeks $5,000,000 in damages for that alleged failure. Id. The
Federal Tort Claims Act (FTCA) “shall apply to tort claims arising out of activities of the Postal
2
Service.” Id. 39 U.S.C. § 409(c); see 28 U.S.C. § 1346. Plaintiff’s claim against the USPS for
money damages will therefore be evaluated as a claim against the United States under the FTCA.
B. This Case Will Be Dismissed for Lack of Subject-Matter Jurisdiction.
As “‘an independent establishment of the executive branch of the Government of the
United States’ . . . [h]olding a monopoly over carriage of letters,” Defendant “enjoys federal
sovereign immunity absent a waiver.” Dolan v. USPS, 546 U.S. 481, 484 (2006) (quoting 39
U.S.C. § 201). “Sovereign immunity is jurisdictional in nature.” Fed. Deposit Ins. Corp. v.
Meyer, 510 U.S. 471, 475 (1994). Therefore, “[a]bsent a waiver, sovereign immunity shields the
Federal Government and its agencies from suit.” Id.
The FTCA contains a general waiver of sovereign immunity for
claims against the United States, for money damages, accruing on and after
January 1, 1945, for injury or loss of property, or personal injury or death caused
by the negligent or wrongful act or omission of any employee of the Government
while acting within the scope of his office or employment, under circumstances
where the United States, if a private person, would be liable to the claimant in
accordance with the law of the place where the act or omission occurred.
28 U.S.C. § 1346(b)(1). However, that waiver does not apply to any claims “arising out of the
loss, miscarriage, or negligent transmission of letters or postal matter.” Id. § 2680(b). Defendant
has therefore moved to dismiss this case for lack of subject-matter jurisdiction based on
sovereign immunity. Mem. of P. & A. in Supp. of Def.’s Mot. to Dismiss at 7–9, ECF No. 3-1
[hereinafter Def.’s Mem.].
“Mail is ‘lost’ if it is destroyed or misplaced . . . .” Dolan, 546 U.S. at 487. Mail is also
“lost” if it is stolen by a postal employee. See, e.g., Levasseur v. USPS, 543 F.3d 23, 24 (1st Cir.
2008) (“[M]ail that is stolen by a postal employee is thereby ‘lost’ from the postal system.”).
“Mail is . . . ‘miscarried’ if it goes to the wrong address.” Dolan, 546 U.S. at 487. Mail is
“negligently transmitted” when the USPS commits negligence during and related to “the process
3
of conveying [letters or postal matter] from one person to another, starting when the USPS
receives the letter or postal matter and ending when the USPS delivers the letter or postal
matter.” Dolan v. USPS, 377 F.3d 285, 288 (3d Cir. 2004), rev’d on other grounds, Dolan, 546
U.S. 481. Notably, while the USPS is immune from claims arising out of transmission only if
such transmission is negligent, the USPS is immune from all claims arising out of loss or
miscarriage, regardless of intentionality or negligence. Levasseur, 543 F.3d at 24 (noting that
“the fact that the word ‘negligent’ only modifies the word ‘transmission’ indicates that
intentional acts of ‘loss’ and ‘miscarriage’ are also covered” by the exception to the waiver of
sovereign immunity).
Plaintiff does not specify whether his claim arises out of loss, miscarriage, negligent
transmission, or intentional mis-transmission. He simply asserts that his mail has been “held up”
since December 6, 2010; that he has not “received mail since” that date; and that Defendant has
“declined to give me the mail.” Am. Compl; see also Opposing Dismissal, ECF No. 9
[hereinafter Opp’n] (arguing in opposition to Defendant’s motion that the USPS has “literally
robbed me of . . . my mail” and has “held my mail up”). Assuming that Plaintiff has, in fact, not
received his mail since December 6, 2010, it could be that his mail has been destroyed,
misplaced, or stolen—i.e., lost. It could also be that Plaintiff’s mail has been consistently
delivered to the wrong address, whether by accident or intentionally—i.e., miscarried. It could
be that his mail has not been delivered to him due to some ongoing negligence by the U.S. Postal
Service—i.e., negligently transmitted. But whether Plaintiff claims that his mail has been lost,
miscarried, or negligently transmitted, the result is the same—sovereign immunity bars the
claims and the Court lacks subject-matter jurisdiction over them.
4
Of course, it could also be that the USPS has been intentionally interfering with the
transmission of Plaintiff’s mail, by some means short of stealing it. In that narrow window of
intentional mis-transmission, Defendant is not entitled to sovereign immunity. See LeRoy v. U.S.
Marshal’s Serv., No. 06-cv-11379, 2007 WL 4234127, at *1 n.2 (E.D. La. Nov. 28, 2007)
(noting that a postal employee’s “refusal to deliver plaintiff’s mail to him was an intentional act,”
not “‘the loss, miscarriage, or negligent transmission of letters or postal matter’” (quoting 28
U.S.C. § 2680(b)). However, Defendant has also moved to dismiss this case for lack of subject-
matter jurisdiction based on failure to exhaust administrative remedies. Def.’s Mem. at 9–10.
“An action shall not be instituted” under the FTCA “unless the claimant shall have first
presented the claim to the appropriate Federal agency and his claim shall have been finally
denied by the agency.” 28 U.S.C. § 2675(a). This statutory requirement of administrative
exhaustion “is a jurisdictional prerequisite to the maintenance of a tort suit against the United
States.” GAF Corp. v. United States, 818 F.2d 901, 904 (D.C. Cir. 1987). A plaintiff must
therefore plead administrative exhaustion in an FTCA case. See Fed. R. Civ. P. 8(a)(1)
(requiring a plaintiff to plead “a short and plain statement of the grounds for the court’s
jurisdiction”); see also Eastridge v. United States, No. 06-cv-448, 2007 WL 495797, at *12
(D.D.C. Feb. 12, 2007) (dismissing FTCA claims “for lack of jurisdiction” where the plaintiff
had “not alleged that before filing suit in this Court he first presented his claims in writing to the
federal agency that allegedly caused the injury”).
Plaintiff’s complaint does not contain any assertion that he has presented his claim to the
USPS or that the USPS has finally denied any such claim. See Am. Compl. Moreover, Plaintiff
has not responded to Defendant’s argument that the Court lacks subject-matter jurisdiction
because Plaintiff has not exhausted his administrative remedies. See Opp’n. Plaintiff has thus
5
conceded that he has not exhausted his administrative remedies. See, e.g., Kone v. District of
Columbia, No. 11-cv-54, 2011 WL 3841072, at *2 (D.D.C. Aug. 30, 2011) (treating as conceded
arguments for dismissal to which a pro se plaintiff did not respond). The Court therefore lacks
subject-matter jurisdiction to consider any of Plaintiff’s claims, whether they are construed as
claims for loss, miscarriage, negligent transmission, or intentional mis-transmission.1
IV. Conclusion.
Because the Court lacks subject-matter jurisdiction to consider this case, Defendant’s
motion to dismiss will be granted and this case will be dismissed. A separate order consistent
with this Memorandum Opinion shall issue this date.
DATE: December 22, 2011 /s/
JOHN D. BATES
United States District Judge
1
Because the Court will dismiss this case for lack of subject-matter jurisdiction, the
Court will not address Defendant’s other arguments in favor or dismissal.
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
____________________________________
)
CITIZENS FOR RESPONSIBILITY AND )
ETHICS IN WASHINGTON, )
)
Plaintiff, )
)
v. ) Civil Action No. 08-1481 (PLF)
)
U.S. DEPARTMENT OF VETERANS )
AFFAIRS, )
)
Defendant. )
____________________________________)
OPINION
This Freedom of Information Act case is before the Court on the defendant’s
renewed motion for summary judgment. On September 28, 2011, the Court denied that motion
without prejudice and granted in part the plaintiff’s request for discovery. This Opinion explains
the reasoning underlying that September 28, 2011 Order and sets forth the scope of permissible
discovery.1
1
The papers reviewed in connection with the defendant’s renewed motion for
summary judgment include: the plaintiff’s complaint (“Compl.”) [Dkt. No. 1]; the defendant’s
motion for summary judgment (“First MSJ”) [Dkt. No. 16]; the plaintiff’s opposition to the
defendant’s motion for summary judgment (“Opp. to First MSJ”) [Dkt. No. 18]; the defendant’s
reply in support of its motion for summary judgment (“Reply to Opp. to First MSJ”) [Dkt.
No. 21]; the plaintiff’s supplemental memorandum in opposition to the defendant’s motion for
summary judgment (“Pl. Surreply to First MSJ”) [Dkt. No. 23]; the defendant’s renewed motion
for summary judgment (“Mot.”) [Dkt. No. 36]; the defendant’s statement of material facts as to
which there is no genuine dispute (“Def. Statement”) [Dkt. No. 36]; the plaintiff’s opposition to
the defendant’s renewed motion for summary judgment (“Opp.”) [Dkt. No. 37]; the plaintiff’s
statement of material facts as to which there is no genuine issue (“Pl. Statement”) [Dkt. No. 37];
the defendant’s reply in support of its renewed motion for summary judgment (“Reply”) [Dkt.
No. 40]; the plaintiff’s surreply to the defendant’s reply in support of its renewed motion for
summary judgment (“Pl. Surreply”) [Dkt. No. 45]; the defendant’s memorandum in response to
I. BACKGROUND
On March 20, 2008, Dr. Norma J. Perez, at that time employed as a psychologist
and coordinator of the post traumatic stress disorder (“PTSD”) clinical team at a Department of
Veterans Affairs (“VA”) medical center in Temple, Texas, authored an e-mail that she sent to
eight local VA colleagues. See Declaration of Norma J. Perez (“Perez Decl.”) ¶¶ 1, 3, Oct. 1,
2010 [Dkt. No. 40-8]. This e-mail, titled “Suggestion,” stated in full:
Given that we are having more and more compensation seeking
veterans, I’d like to suggest that you refrain from giving a
diagnosis of PTSD straight out. Consider a diagnosis of
Adjustment Disorder, R/O PTSD.
Additionally, we really don’t or have time to do the extensive
testing that should be done to determine PTSD.
Also, there have been some incidence [sic] where the veteran has a
C & P, is not given a diagnosis of PTSD, then the veteran comes
here and we give the diagnosis, and the veteran appeals his case
based on our assessment.
This is just a suggestion for the reasons listed above.
Perez Decl., Attachment, E-mail from Dr. Norma J. Perez at 1, Mar. 20, 2008. This e-mail was
leaked to the public in May 2008. See generally Compl., Ex. 6.
Dr. Perez since has stated that her intent in sending this e-mail “was to emphasize
the importance of providing an accurate diagnosis and to ensure that veterans receive treatment
appropriate to their precise needs immediately; thus improving the access to care and quality of
care provided to veterans.” Perez Decl. ¶ 3. But many viewed the e-mail as suggesting that VA
the plaintiff’s surreply (“Def. Response to Pl. Surreply”) [Dkt. No. 49]; the defendant’s notice of
supplemental release (“Def. Supp. Release”) [Dkt. No. 50]; and the plaintiff’s response to the
defendant’s notice of supplemental release (“Pl. Response to Def. Supp. Release”) [Dkt. No. 51].
2
employees should refrain from giving PTSD diagnoses as a cost-cutting measure, see generally
Compl., Ex. 6, and Dr. Perez’s e-mail became the subject of a congressional hearing and
substantial news coverage. See Opp. at 3.
On May 14, 2008, shortly after Dr. Perez’s e-mail became public, plaintiff
Citizens for Responsibility and Ethics in Washington (“CREW”) submitted an FOIA request to
the VA, stating:
CREW seeks from the [VA], any and all records from January 1,
2001, to the present relating to any and all guidance given to any
VA staff, consultants and/or other recipient(s) of federal funds
regarding the diagnosis of post traumatic stress disorder (“PTSD”)
in veterans. This request includes, but is not limited to, any and all
records that reflect or contain guidance on (1) whether or not to
make a diagnosis of PTSD; (2) alternative diagnoses that should or
could be made in lieu of diagnosing PTSD; (3) time or expense
factors bearing on a diagnosis of PTSD; and (4) guidance on PTSD
diagnoses as they relate to veteran appeals. As used herein,
“guidance” includes both formal and informal guidance, advice,
recommendations, both formal and informal, no matter how
memorialized. Please note that we are not seeking records about
individual veterans or individual veteran applications for benefits.
Compl., Ex. 1, Letter from Anne L. Weismann to the VA at 1, May 14, 2008 [Dkt. No. 1-2].
CREW also requested from the VA a wavier of fees associated with processing its request for
records. See id. at 2.
By letter dated June 5, 2008, the VA denied CREW’s request for a fee waiver and
also claimed that the request for documents was “‘overly broad’” and imposed on the VA “‘an
extremely burdensome search effort.’” Compl. ¶ 18 (citation omitted). CREW appealed the
VA’s decisions administratively, see id. ¶ 19, but, as of August 27, 2008, the VA neither had
responded to CREW’s administrative appeal nor had produced any documents responsive to
3
CREW’s request. See id. ¶ 22. Consequently, on that date, CREW filed a complaint in this
Court under the FOIA, making two claims: (1) that the VA failed to produce requested records;
and (2) that the VA improperly denied CREW’s request for a fee waiver. See id. at 6-8.
After CREW filed its complaint, the VA issued the requested fee waiver to
CREW, reversing its prior position. See Order at 1, June 6, 2009 [Dkt. No. 12]. The Court
therefore dismissed as moot CREW’s second claim for relief, see id., leaving one remaining
claim in this case: that the VA failed to produce requested records to CREW. See Compl. ¶ 2.
On September 23, 2009, the VA filed a motion for summary judgment in which it
asserted that it had performed an adequate search and released to CREW all records responsive to
CREW’s request. See First MSJ at 1. CREW opposed the VA’s motion, arguing, among other
things, that the VA’s declarations were deficient and that the VA had failed to conduct an
adequate search for electronic records. See Opp. to First MSJ at 8-14. Regarding the issue of
electronic records, although Dr. Perez’s e-mail was dated March 20, 2008, CREW asserted that
the VA’s declarations revealed that its search of its electronic records “did not reach back to that
time, but rather included only e-mail messages dating back to December 9, 2008.” Id. at 9. In
support of its position, CREW pointed to the declaration of John Livornese, the Director of FOIA
Service for the VA, in which Mr. Livornese stated: “As a result of the search [of Dr. Perez’s
records], two files were provided by VA Exchange Administrators — a snapshot of her current
mailbox and a copy of email messages dating back to 12/9/08, which contained one or more
search terms and were deemed responsive.” Declaration of John Livornese (“Sept. 2009
Livornese Decl.”) ¶ 8, Sept. 18, 2009 [Dkt. Nos. 16-4, 36-3].
4
The VA subsequently explained in reply that it was “unable to recover emails
created before December 9, 2008 because the VA’s regular rotation of backup tapes precluded
the recovery of older email messages.” Reply to Opp. to First MSJ at 9. In a supplemental
declaration dated November 5, 2009, Mr. Livornese further elaborated:
Results of the search of the Perez email account that were deemed
responsive included a copy of email messages dating back to
12/9/08. Email messages prior to that date were not available for
the following reasons: a search of email by history involves a
search of emails that have been backed-up. Prior email messages
are backed up, or copied, to a tape; when a request is made for a
search of email, the tapes are restored. In this case, the availability
for the tapes on the email system containing the Perez emails
allowed for recovery back to the date of 12/9/08. Tapes containing
information prior to this date had been placed back into tape
rotation and reused, causing old data to be rewritten. Emails
before 12/9/08, therefore, were not available. In sum, although the
search encompassed the period January 1, 2001 to December 31,
2008, the records retrieved as a result of that search dated back
only to December 9, 2008.
Supplemental Declaration of John Livornese (“Nov. 2009 Livornese Supp. Decl.”) ¶ 5, Nov. 5,
2009 [Dkt. Nos. 21-1, 36-3].
Far from putting this issue to rest, CREW considered the VA’s reply a
“revelation[] that the VA . . . destroyed documents clearly responsive to CREW’s . . . FOIA . . .
request[.]” Pl. Surreply to First MSJ at 1. According to CREW, Mr. Livornese’s supplemental
declaration established that the “VA destroyed potentially responsive records after CREW made
its FOIA request in this matter on May 14, 2008 — a request that expressly sought emails and
other electronic records — and after CREW filed its lawsuit on August 27, 2008 in this case.”
Id. at 2-3 (emphasis in original).
5
After briefing on the VA’s motion for summary judgment was complete, the VA
made two supplemental releases of documents to CREW, containing, among other things, a copy
of Dr. Perez’s March 20, 2008 e-mail. See Notice of Supplemental Release at 1, Mar., 26, 2010
[Dkt. No. 24]; Notice of Supplemental Release at 1-2, Apr. 16, 2010 [Dkt. No. 30]. And the VA
then withdrew its motion for summary judgment with the intent of filing a renewed motion that
would consolidate all issues into a single set of briefs. See Notice of Withdrawal of Motion at 1,
May 27, 2010 [Dkt. No. 32].
Before the parties proceeded with a second round of summary judgment briefing,
however, another issue arose: CREW sought the deposition of Mr. Livornese “to obtain
information on the unexplained issue of destruction of electronic records[.]” Opp. to Mot. for
Protective Order at 6, July 6, 2010 [Dkt. No. 34]. The VA sought a protective order precluding
this deposition. See Mot. for Protective Order at 1, July 1, 2010 [Dkt. No. 33]. The VA argued
that such discovery was inappropriate in this FOIA case; moreover, the VA asserted that
CREW’s concerns likely would be addressed in the VA’s renewed summary judgment motion.
See id. at 4-5. As the VA stated, its renewed motion would include “a declaration from Mr.
Livornese and an IT employee who was more directly involved with the electronic search,”
which would address “the extent to which backup tapes were searched.” Id. at 5 n.2.
On July 14, 2010, the Court denied the VA’s motion for a protective order,
concluding that limited discovery through Mr. Livornese’s deposition likely would assist the
Court in resolving the issues in this case. See Memorandum Op. & Order at 1, July 14, 2010
[Dkt. No. 35]. Thus, the parties proceeded with Mr. Livornese’s deposition, which took place on
July 23, 2010.
Soon thereafter, on August 3, 2010, the VA filed its renewed motion for summary
judgment. CREW filed its opposition, and the VA replied. Both sides then filed surreplies.
6
II. THE FREEDOM OF INFORMATION ACT
The fundamental purpose of the FOIA is to assist citizens in discovering “what
their government is up to.” U.S. Department of Justice v. Reporters Comm. for Freedom of the
Press, 489 U.S. 749, 773 (1989) (internal quotations and citation omitted) (emphasis in original).
As the Supreme Court recently emphasized again, the FOIA strongly favors openness and
“‘broad disclosure’” with narrowly construed exemptions. Milner v. Department of the Navy,
131 S. Ct. 1259, 1265 (2011) (quoting Department of Justice v. Tax Analysts, 492 U.S. 136, 151
(1989)). As Congress recognized in enacting the FOIA, an informed citizenry is “vital to the
functioning of a democratic society, needed to check against corruption and to hold the governors
accountable to the governed.” NLRB v. Robbins Tire & Rubber Co., 437 U.S. 214, 242 (1978);
see also Department of the Air Force v. Rose, 425 U.S. 352, 361 (1976) (purpose of the FOIA is
“to pierce the veil of administrative secrecy and to open agency action to the light of public
scrutiny”) (internal quotations and citation omitted). Therefore, “disclosure, not secrecy, is the
dominant objective of the Act.” Department of the Air Force v. Rose, 425 U.S. at 361.
FOIA cases typically and appropriately are decided on motions for summary
judgment. See Defenders of Wildlife v. U.S. Border Patrol, 623 F. Supp. 2d 83, 87 (D.D.C.
2009); Bigwood v. U.S. Agency for Int’l Dev., 484 F. Supp. 2d 68, 73 (D.D.C. 2007); Farrugia v.
Executive Office for U.S. Attorneys, Civil Action No. 04-0294, 2006 WL 335771, at *3 (D.D.C.
Feb. 14, 2006). And in an FOIA case, the Court may award summary judgment solely on the
basis of information provided in affidavits or declarations when the affidavits or declarations are
“relatively detailed and non-conclusory,” SafeCard Servs., Inc. v. SEC, 926 F.2d 1197, 1200
(D.C. Cir. 1991) (internal quotations and citation omitted), and “describe the documents and the
7
justifications for nondisclosure with reasonably specific detail, demonstrate that the information
withheld logically falls within the claimed exemption, and are not controverted by either contrary
evidence in the record nor by evidence of agency bad faith.” Military Audit Project v. Casey,
656 F.2d 724, 738 (D.C. Cir. 1981); see also Vaughn v. Rosen, 484 F.2d 820, 826-27 (D.C. Cir.
1973); Hertzberg v. Veneman, 273 F. Supp. 2d 67, 74 (D.D.C. 2003). In the end, an agency must
demonstrate that “each document that falls within the class requested either has been produced, is
unidentifiable, or is wholly [or partially] exempt from the Act’s inspection requirements.”
Goland v. CIA, 607 F.2d 339, 352 (D.C. Cir. 1978) (internal quotations and citation omitted); see
also Students Against Genocide v. Department of State, 257 F.3d 828, 833 (D.C. Cir. 2001);
Hertzberg v. Veneman, 273 F. Supp. 2d at 74.
III. DISCUSSION
A. The VA’s Evolving Declarations
The VA contends that it is entitled to summary judgment because it conducted
reasonable searches for responsive records and released to CREW all responsive records in full
except for one minor withholding, the redaction of a name, under FOIA Exemption 6. CREW
argues that summary judgment is inappropriate because the VA has failed to conduct reasonable
searches for responsive records. Most importantly for CREW’s request for discovery, its
opposition includes an allegation that the VA improperly destroyed relevant records. As CREW
describes it, the VA “failed to impose a litigation hold for records responsive to CREW’s FOIA
request and, as a result, the VA has improperly destroyed responsive records after they were
requested by CREW.” Opp. at 9.
8
CREW’s allegation of document destruction arises from four declarations of Mr.
Livornese now filed in this case and the declarations of Ronald Klavohn, the Director of the Core
Infrastructure Services group for the Office of Information and Technology at the VA. The Court
reviews below those declarations as they relate to the allegation of document destruction.
In Mr. Livornese’s first declaration, which he signed on September 18, 2009, he
stated that the VA searched Dr. Perez’s electronic records for documents responsive to CREW’s
FOIA request. See Sept. 2009 Livornese Decl. ¶ 8. He asserted, without providing any
explanation, that the VA only was able to review Dr. Perez’s e-mail messages dating back to
December 9, 2008. See id. The e-mail that ultimately gave rise to this case, however, was sent
by Dr. Perez nine months earlier, on March 20, 2008. See Perez Decl. ¶ 3.
On November 5, 2009, Mr. Livornese submitted a supplemental declaration in
which he provided an explanation for the purported December 9, 2008 limitation on available
e-mails:
Results of the search of the Perez email account that were deemed
responsive included a copy of email messages dating back to
12/9/08. Email messages prior to that date were not available for
the following reasons: a search of email by history involves a
search of emails that have been backed-up. Prior email messages
are backed up, or copied, to a tape; when a request is made for a
search of email, the tapes are restored. In this case, the availability
for the tapes on the email system containing the Perez emails
allowed for recovery back to the date of 12/9/08. Tapes containing
information prior to this date had been placed back into tape
rotation and reused, causing old data to be rewritten. Emails
before 12/9/08, therefore, were not available. In sum, although the
search encompassed the period January 1, 2001 to December 31,
2008, the records retrieved as a result of that search dated back
only to December 9, 2008.
Nov. 2009 Livornese Supp. Decl. ¶ 5 (emphasis added).
9
Mr. Livornese then signed a second supplemental declaration, dated March 12,
2010, which was not provided to CREW’s counsel until the day of Mr. Livornese’s court-ordered
deposition on July 23, 2010. See Second Supplemental Declaration of John Livornese (“Mar.
2010 Livornese 2d Supp. Decl.”), Mar. 12, 2010 [Dkt. Nos. 36-3]. Mr. Livornese stated in that
declaration that he was submitting it “to further clarify the searches that were performed.” Id.
¶ 3. He did not revise either of his two prior sworn statements that the VA only was able to
review Dr. Perez’s e-mails dating back to December 9, 2008. Nor did he suggest that those
statements were inaccurate in any way. Instead, Mr. Livornese stated only that more information
“clarifying that issue” would be forthcoming in a subsequent declaration by another, unnamed
VA employee:
In my prior declarations, I also discussed the date range of
materials that were retrieved in the search of Norma Perez’s User
Hard Drive, User Server Folder, Outlook Exchange (Email) Files,
and personal email folder. . . . An employee in the Office of
Information and Technology’s Core Infrastructure Services group
and/or Network Security Operations Center . . . will provide a
declaration further clarifying that issue.
Mar. 2010 Livornese 2d Supp. Decl. ¶ 6 (citation omitted).
In its renewed motion for summary judgment, filed on August 3, 2010, the VA
specifically acknowledged that Mr. Livornese inadvertently had made inaccurate statements in
his first two declarations. See Mot. at 11. As the VA described it,
In the declaration submitted with previous summary judgment
briefing, John Livornese mistakenly referred to December 9, 2008
as the date of the oldest available email messages retrieved through
the electronic search of Dr. Perez’s records. . . . That error led other
witnesses and defense counsel to mis-describe December 9, 2008
in the same manner . . . to indicate that the emails retrieved by the
electronic search of Dr. Perez’s computer files dated back to
December 9, 2008. . . . However, it has since become clear that Mr.
Livornese (who supervised, but did not personally conduct the
10
electronic search . . . ) was mistaken regarding the date range of
retrievable emails. The Director of Core Infrastructure Services
group[, Mr. Klavohn,] . . . has clarified that December 9, 2008 is
the date of the oldest monthly disaster recovery tape that was
available at the time of the electronic search. . . . [D]efendant’s
prior reference to December 9, 2008 as the date of the oldest
retrievable email files was a mistake; Mr. Livornese appears to
have confused the date of the disaster recovery tape with the date
of the oldest files on that tape.
Id. at 11 (citations omitted).
With its renewed motion for summary judgment, the VA submitted the
declaration of Ronald Klavohn. See Declaration of Ronald Klavohn (“Klavohn Decl.”), Mar. 31,
2010 [Dkt. No. 36-3]. Mr. Klavohn signed and dated that declaration on March 31, 2010, see id.
at 2 — almost a month before the VA produced Mr. Livornese for deposition on July 23, 2010,
and only 19 days after Mr. Livornese signed his second supplemental declaration. Although Mr.
Klavohn was alluded to by Mr. Livornese during his deposition, Mr. Klavohn’s declaration was
not provided to CREW’s counsel before or at Mr. Livornese’s deposition. Rather, it was
attached to the VA’s renewed motion for summary judgment, filed on August 3, 2010.
In his March 31, 2010 declaration, Mr. Klavohn explained that — contrary to
what Mr. Livornese previously twice stated under oath — December 9, 2008 in fact was not the
date of the oldest available e-mail messages retrieved through the electronic search of Dr. Perez’s
records. Klavohn Decl. ¶ 9. Rather, December 9, 2008 was the date of the oldest monthly
recovery tape that was available at the time of the electronic search, id. ¶ 7, and this backup tape
“would contain any emails that were in [Dr. Perez’s] mailbox on [December 9, 2008] but the
actual email messages could go back further in time; in other words the emails on the tape could
date back earlier than the date of the tape.” Id. ¶ 9.
11
Regarding the creation of backup tapes, Mr. Klavohn described the following
process:
Each night, Monday through Friday, a backup tape is created which
contains an exact copy of each user’s mailbox as it existed at the
time that the backup tape was created. Under normal operations,
those tapes are kept for 15 days and then reused. Under normal
operations, once a month one tape is cycled out of the rotation and
it is kept for a longer period of time, usually one year, before it is
rotated back for reuse. All our tapes are automatically created by
the system and are used for disaster recovery in case of system
failure or for restoration of files that are accidentally deleted. At
the time of the electronic search for records responsive to this
FOIA request, the oldest monthly backup tape available was the
one dated 12/9/08. No monthly back up tapes were created
between January 2008 through November 2008.
Klavohn Decl. ¶ 7 (emphasis added).
After CREW pointed out that Mr. Klavohn’s declaration provided no explanation
whatsoever as to why monthly backup tapes were not created between January 2008 and
November 2008, see Opp. at 7, Mr. Klavohn submitted a supplemental declaration, dated
September 30, 2010, in which he stated:
I am submitting this supplemental declaration to reiterate that the
absence of back-up tapes between January 2008 and November
2008 is unrelated to the CREW request that is the center of this
litigation. . . . The automatic system for creating monthly back-up
tapes was not in effect between January 2008 and November 2008,
because the daily tapes were set to unlimited retention for use in
another litigation matter (which is not a FOIA case and does not
involve CREW’s FOIA request). With the unlimited retention for
the back-up tapes taken between January 2008 and November
2008, the automated system for creating back-up tapes did not have
the capacity to create additional monthly back-up tapes. . . . The
automatic system was updated to resume the normal backup-tape
rotation including creation of daily backups with a 15-day retention
time and creation of monthly back-up tapes with a 1 year retention
on October 28, 2008. However, when the VA’s backup software
12
was programmed to resume the normal back-up tape rotation, the
software rendered all of the daily, unlimited retention, backup tapes
created prior to October 28, 2008 unusable. The unusability of
those tapes resulted from the way in which the backup software
sets new rotation schedules; the nature of the software rendered
those older back-up tapes unusable. . . . The first monthly back-up
tape created in 2008 was made on December 9, 2008, after the
back-up rotation was set back to normal operational mode.
Supplemental Declaration of Ronald Klavohn (“Klavohn Supp. Decl.”) ¶¶ 3, 5, 6, Sept. 30, 2010
[Dkt. No. 40-5].
Mr. Livornese submitted a fourth declaration, dated September 29, 2010, over a
year after his first declaration in this case, in which he finally retracts his prior inaccurate
statements and confirms that “December 9, 2008 is the date of the oldest back-up tape that was
searched,” not the date of the oldest retrievable e-mails. See Supplemental Declaration of John
Livornese (“Sept. 2010 Livornese 4th Decl.”) ¶ 8, Sept. 29, 2010. Mr. Livornese explained in
that declaration that his “prior testimony was based upon an error in the report from OIT, and that
the . . . electronic search recovered a broader range of records than [he] initially believed.” Id.
According to CREW, these declarations establish that the VA improperly
destroyed responsive records. See Opp. at 9; Pl. Surreply at4. And relying on the court of
appeals’ decision in Chambers v. U.S. Department of the Interior, 568 F.3d 998 (D.C. Cir. 2009),
CREW argues that the VA’s improper destruction of responsive records “bears on the issue of
whether the agency conducted an adequate search.” Opp. at 9. Moreover, “in light of the [VA’s]
conduct in this case,” CREW requests that the Court (1) “state clearly for the VA the obligations
of federal agencies to preserve evidence and impose litigation holds for responsive materials
upon receipt of FOIA requests”; (2) approve the deposition, at the VA’s expense, of Dr. Perez
13
and possibly the recipients of her March 20, 2008 e-mail, as well as the deposition of Mr.
Klavohn for purposes of obtaining discovery regarding the circumstances of the suspension of
normal operations in saving backup tapes; and (3) order the VA “to attempt to reconstruct the
destroyed records or information contained in the destroyed records[.]” Opp. at 11-12.
Upon consideration of the parties’ papers, the attached declarations and exhibits,
the relevant legal authorities, and the entire record in this case, the Court will grant in part
CREW’s second request; will deny without prejudice CREW’s third request; and will deny
CREW’s first request. Because the Court concludes that limited discovery should proceed, the
Court also will deny without prejudice the VA’s renewed motion for summary judgment.2
B. CREW’s Requests for Discovery and Record Reconstruction
The Court is deeply troubled (1) that Mr. Livornese, prior to his court-ordered
deposition on July 23, 2010, made inaccurate statements in two declarations; (2) that Mr.
Livornese signed a second supplemental declaration on March 12, 2010 that was not provided to
CREW’s counsel until four months later, at Mr. Livornese’s court-ordered deposition on July 23,
2010; (3) that Mr. Livornese’s second supplemental declaration did not correct his prior
inaccurate statements — or even suggest that they were inaccurate in any way — but simply
2
CREW requests that the Court award it attorneys’ fees and costs incurred in this
case generally, as well as costs incurred in taking the deposition of Mr. Livornese. See Opp.
at 15, 20. Because final judgment is not appropriate at this stage, and because CREW has not
articulated any need for an interim award of fees, the Court concludes that CREW’s request for
fees is premature. See Beltranena v. Clinton, 770 F. Supp. 2d 175, 187 (D.D.C. 2011) (citing
Hussain v. U.S. Department of Homeland Sec., 674 F. Supp. 2d 260, 272-73 (D.D.C. 2009)).
The VA will, however, be required to bear the costs of the depositions ordered by this Opinion
and accompanying Order.
14
stated that another, unnamed VA employee would “provide a declaration further clarifying that
issue,” Mar. 2010 Livornese 2d Supp. Decl. ¶ 6; (4) that the VA did not provide Mr. Klavohn’s
declaration, dated March 31, 2010, to CREW’s counsel at the July 23, 2010 deposition of Mr.
Livornese, even though the substance of the undisclosed declaration was discussed by Mr.
Livornese at the deposition and counsel for the VA certainly knew of the existence of the
Klavohn declaration; and (5) that even Mr. Klavohn’s first declaration was incomplete and had to
be supplemented after its deficiencies were pointed out by CREW.
The Court is not yet ready to conclude that the myriad declarations, the way they
evolved and changed, and the timing of their disclosure means that the VA improperly destroyed
responsive records. Nor is the Court ready to order at this time the VA to attempt to reconstruct
any of its records, since such an order must be based on a finding of improper document
destruction. See Landmark Legal Found. v. EPA, 272 F. Supp. 2d 59, 67 (D.D.C. 2003)
(“Reconstruction of . . . destroyed documents to the extent possible is an appropriate remedy for
bad faith document destruction.”); Cal-Almond, Inc. v. U.S. Department of Agric., 960 F.2d 105,
109 (9th Cir. 1992) (“Absent a showing that the government has improperly destroyed agency
records, FOIA does not require these records to be recreated.”) (internal quotations omitted).
But the Court does believe that counsel for the VA decided as a matter of
litigation tactics not to be forthcoming by withholding relevant evidence until after the limited
discovery ordered by this Court was concluded: Although Mr. Livornese signed his second
supplemental declaration on March 12, 2010, it was not provided to CREW until the date of his
court-ordered deposition, on July 23, 2010. Although Mr. Klavohn signed his first declaration on
March 31, 2010, it was not provided to CREW until after Mr. Livornese’s deposition concluded.
15
These litigation tactics — which at the very least contradict the fundamental purpose of the FOIA
— rendered Mr. Livornese’s deposition at best incomplete, and perhaps useless. The Court
therefore agrees with CREW that it should be permitted to take additional discovery for the
purpose of determining whether the explanation for the current state of affairs is document
destruction, incompetence, or something in between. It is clear to the Court that this discovery
will be central to any subsequent dispositive motion and will assist the Court in resolving any
such motion once filed.
Consequently, in light of its broad discretion to manage discovery, see, e.g.,
Budick v. Department of the Army, 742 F. Supp. 2d 20, 39 (D.D.C. 2010), the Court will grant in
part CREW’s second request: that is, it will approve the deposition of Mr. Klavohn and an
additional deposition of Mr. Livornese, both at the VA’s expense, for the purpose of obtaining
discovery regarding the circumstances of the suspension of normal operations in saving backup
tapes as it relates to this case and whether the explanation for the suspension is document
destruction or something else. The Court will not, at this time, approve the deposition of Dr.
Perez or the recipients of her March 20, 2008 e-mail; CREW, however, may make an appropriate
motion for such discovery after taking the depositions of Mr. Klavohn and Mr. Livornese.
* * *
The Court will deny CREW’s request to “state clearly for the VA the obligations
of federal agencies to preserve evidence and impose litigation holds for responsive materials
upon receipt of FOIA requests.” Opp. at 11. In its opposition to that request, the VA argues that
“CREW has not cited a single case that holds that agencies must preserve, restore, and search
16
disaster recovery tapes whenever a pending FOIA request seeks electronic records.” Reply at 13.
According to the VA, “there is no legal foundation, nor legitimate reason, for imposing such a
sweeping new burden upon federal agencies.” Id. Whether the VA is correct or not, there is no
claim for such relief in CREW’s complaint and, even if there were, it is not clear that an FOIA
lawsuit is the proper mechanism through which to litigate such a claim.3
IV. CONCLUSION
For the foregoing reasons, the Court will deny without prejudice the defendant’s
renewed motion for summary judgment [Dkt. No. 36] and will grant in part the plaintiff’s request
for discovery. An Order consistent with this Opinion issued on September 28, 2011. An Order
specifying the terms of the permissible discovery, as set forth in this Opinion, shall issue this
same day.
SO ORDERED.
/s/
PAUL L. FRIEDMAN
DATE: December 15, 2011 United States District Judge
3
CREW’s request for such declaratory relief relies on an extension of the court of
appeals’ holding in Chambers v. U.S. Department of the Interior, 568 F.3d 998 (D.C. Cir. 2009)
— a case that dealt with the deliberate destruction of a specific document — to require that once
CREW made its FOIA request, the VA then had an obligation to preserve backup tapes. The
court in Chambers did not set forth such a requirement on agencies. Where a plaintiff contends
that an agency failed to show the adequacy of its search because it did not “address . . . archived
emails and backup tapes,” the court of appeals has concluded that it is reasonable to expect an
agency “to inform the court and plaintiff[] whether backup tapes of any potential relevance exist;
if so whether their responsive material is reasonably likely to add to that already delivered; and, if
these questions are answered affirmatively, whether there is any practical obstacle to searching
them.” Ancient Coin Collectors Guild v. U.S. Department of State, 641 F.3d 504, 514 (D.C. Cir.
2011). But to this point the court of appeals has not set forth a rule requiring that an agency
always must preserve backup tapes upon the making of a FOIA request.
17
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01-03-2023
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03-31-2014
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https://www.courtlistener.com/api/rest/v3/opinions/2658716/
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
PHYSICIANS COMMITTEE FOR )
RESPONSIBLE MEDICINE, )
)
Plaintiff, )
) Civil Case No. 11-38 (RJL)
v. )
)
TOM VILSACK, in his official )
capacity, ) F I L E D
)
and ) nEc 1 1 2011
) . .
KATHLEEN SEBELH)S, in her ofhcial ) é§'§§‘§; §‘5 U.S.C. § 555(b), seeking
injunctive relief against defendants Tom Vilsack, Secretary of the United States
Department of Agriculture ("USDA") and Kathleen Sebelius, Secretary of the
Department of Health and Human Services ("DHHS") (collectively, "defendants"),
which would require defendants (l) to provide a response to a petition that plaintiff had
previously submitted and (2) to withdraw those portions of defendants’ most recent
dietary guidelines that are vague or ambiguous. In its petition, plaintiff requested that
defendants withdraw the current "l\/IyPyramid" food diagram and dietary guidelines, and
adopt plaintiffs proposed "Power Plate” food diagram and dietary guidelines After
careful consideration of the law and pleadings, defendants’ Motion to Dismiss is
GRANTED.
BACKGROUND
Plaintiff is a national non-profit public health organization that advocates for
preventative medicine through proper nutrition. Amended Complaint ("Compl.") ll 3.
Plaintiff represents more than l0,000 physicians and 100,000 other medical professions,
scientists, and lay persons. ]d.
ln 20()5, USDA and DHHS promulgated the most recent food diagram:
l\/lyPyramid. Id. ll 5. On March l l, 201(), plaintiff submitted to defendants a petition
requesting they exercise their joint authority under the National Nutrition Monitoring &
Related Research Act ("Nutrition Act"), 7 U.S.C. § 5341, to withdraw the current
MyPyramid food diagram and associated dietary guidelines, and adopt plaintiffs
proposed Power Plate food diagram and dietary guidelines. Compl. ll 6. Neither agency
responded to plaintiffs request. Ia’. ll 9.
On January 3l, 2()11, defendants jointly issued new dietary guidelines~the
Dz`etary Guz`delinesfor Amerl`cans, 2010 ("Dietary Guicz'elz`nes"). Id. ll l l. Defendants
did not, however, issue a new food diagram. Id. In part. the Dz`elary Guicz'elz'nes
acknowledges the value of plant-based diets, which plaintiff alleges properly reflects the
preponderance of current scientific and medical knowledge. Ia’. Plaintiff, however, also
alleges that other portions of the Dz`etary Guidelines do not reflect the preponderance of
current scientific and medical knowledge. Id. ll 12. Sp'ecifically, plaintiff alleges that
while the guidelines specify foods to eat more frequently (e.g. fruits and vegetables), they
do not identify foods to eat less often (e.g. meat and cheese). Icz'. ll 13.
On January 5, 2011, plaintiff filed this lawsuit. See Docket Entry l. On February
15, 2011, plaintiff filed an amended complaint. See Docket Entry 9. On March 21, 2011,
defendants filed a motion to dismiss. See Docket Entry l0.
STANDARD OF REVIEW
A court may dismiss a comp1aint, or any portion of it, that does not fall within the
court’s subject-matter jurisdiction. Fed. R. Civ. P. l2(b)(l). Where a motion to dismiss
under Rule 12(b)(1) makes a facial attack on the complaint, the reviewing court "must
accept as true all material allegations on the complaint, and must construe the complaint
in favor of the complaining party." Ora’ v. Distrz'ct of Columbz'a, 587 F.3d ll36, 1140
(D.C. Circuit 2009) (internal citation and quotation marks omitted). "Under Rule
l2(b)(l), the plaintiff bears the burden of establishing that the court has jurisdiction."
Grand Lodge of Fraterrzal Ora’er of Polz`ce v. Ashcrofl, 185 F. Supp. 2d 9, 13 (D.D.C.
2001).
A court may also dismiss a complaint_, or any portion of it, for failure to state a
claim upon which relief may be granted. Fed. R. Civ. P. l2(b)(6). A court considering a
motion to dismiss, however, may only consider "the facts alleged in the complaint, any
documents either attached to or incorporated in the complaint and matters of which [the
court] may take judicial notice." E.E.O.C. v. St. Francz`s Xavz`er Parochz'al Sch., 117 F.3d
621, 624 (D.C. Cir. 1997). To survive a motion to dismiss, a complaint must "plead [ ]
factual content that allows the court to draw the reasonable inference that the defendant is
3
liable for the misconduct alleged." Ashcroft v. Iqbal, --.-U.S.---, 129 S. Ct. 1937, 1949
(2009). In evaluating a Rule l2(b)(6) motion, the court construes the complaint "in favor
of the plaintiff, who must be granted the benefit of all inferences that can be derived from
the facts alleged." Schuler v. United Stales, 617 F.2d 605, 608 (D.C. Cir. 1979) (intemal
quotation marks omitted). However, factual allegations, even though assumed to be true,
must still "be enough to raise a right to relief above the speculative level." Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 555 (2007). Moreover, the court "need not accept inferences
drawn by plaintiff[] if such inferences are unsupported by the facts set out in the
complaint. Nor must the court accept legal conclusions cast in the form of factual
allegations." Kowal v. MC1 Commc’ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994).
LEGAL ANALYSIS
1. Subject-Matz‘er Jurz'sdz`ction
Defendants contend plaintiffs claims-(l) failure to timely respond to plaintiffs
petition, in violation of 5 U.S.C. § 555(b); and (2) arbitrary and capricious agency action
because some portions of the Dietary Guz'delz`nes do not reflect the preponderance of
current scientific and medical knowledge_should be dismissed because plaintiff has
failed to demonstrate the necessary standing under Article 111 of the U.S. Constitution and
the APA to establish that this Court has subject-matter jurisdiction over the claims.
Defs.’ Mem. in Supp. of Mot. to Dismiss ("Defs.’ Mot.”), Mar. 21, 2011 at 10. "Because
Article 111 limits the constitutional role of the federal judiciary to resolving cases and
controversies, a showing of standing is an essential and unchanging predicate to any
exercise our jurisdiction." Fla. Audubon S0c y v. Bentsen, 94 F.3d 658, 663 (D.C. Cir.
4
1996) (internal citation and quotation marks omitted). Standing, therefore, "must be
resolved as a threshold matter." Raytheon C0. v. Ashborn Agencies, Lta’., 372 F.3d 451,
453 (D.C. Cir. 2004). To satisfy the "irreducible constitutional minimum of standing," a
plaintiff must demonstrate that it has suffered a concrete and particularized injury that is:
"l) actual or imminent, 2) caused by, or fairly traceable to, an act that [plaintiff]
challenges in the instant litigation, and 3) redressable by the court." Bentsen, 94 F.3d at
663 (internal citation and quotation marks omitted). There is no standing where "a court
would have to accept a number of very speculative inferences and assumptions," as
courts "are powerless to confer standing when the casual link is too tenuous."'
Winpisz'nger v. Watson, 628 F.2d 133, 139 (D.C. Cir. 1980).
With respect to the first claim, plaintiff has failed to demonstrate in its complaint
that it, or its members, have suffered a concrete and particularized injury that is actual or
imminent. lndeed, any injury alleged is based on conjecture and speculation, which this
Court is prohibited from considering. See z`a’. at 139. 1n its opposition memorandum,
plaintiff, citing to FEC v. Atkz'ns, 524 U.S. 1 1 (1998) for support, contends that it has
suffered an injury through defendants’ failure to provide information as required by the
Nutrition Act. Pl.’s Opp., Mar. 30, 2011, at 3. Atkz'ns, however, is easily distinguishable.
1 Additionally, associations have standing to pursue litigation "on behalf of its members
when its members would have standing to sue in their own right, the interests at stake are
germane to the organization’s purpose, and neither the claim asserted nor the relief
requested requires members’ participation in the lawsuit." Consumer Fea’ ’n of Am. V.
Fea’. Commc’n Comm ’n, 348 F.3d 1009, 1011 (D.C. Cir. 2003) (internal quotation marks
omitted). Further, when suing under the APA, the plaintiff must show that the alleged
injury falls within the zone of interests "sought to be protected by the statutory provision
whose violation forms the legal basis for his complaint." Lujan v. Nat’l Wz'ldy”zre Fea’ ’n,
497 U.S. 871, 883 (1990).
ln Atkz`ns, a group of voters were denied all requested information, which was required to
be publicly disclosed under the Federal Election Campaign Act. 524 U.S. at 20, Here,
however, defendants have not failed to provide information that must be publicly
disclosed. The Nutrition Act requires defendants to publish a report of nutritional and
dietary information and guidelines every five years. See 7 U.S.C. § 5341(a)(1).
Defendants complied with the Act’s mandate by publishing such a report. See Compl. ll
ll. Therefore, with respect to the first claim, plaintiff has failed to demonstrate any
injury-in-fact.
Similarly, plaintiff has failed to demonstrate an injury-in-fact with respect to its
second claim. Plaintiff, which recommends a plant-based diet, contends that defendants’
failure to reflect the preponderance of current scientific and medical knowledge by
promoting meat and dairy products "interfere[s] with the efforts of [Plaintiff] . . . to
improve the health and well-being of Americans and combat the epidemics of obesity,
cardiovascular disease, diabetes, and other conditions related to food choices." Compl. ll
36. Plaintiff fails to provide any support, however, for this alleged injury, which is based
in whole on conjecture and speculation. lndeed, plaintiffs own founder concedes that its
staff is "skilled at ejj’ectivelj) conveying information regarding health and diet to the
public." Decl. ofNeal D. Bamard, M.D. in Supp. ofPls.’ Opp’n, Mar. 30, 201l, Dkt.l2-
l, ll 3 (emphasis added).
Therefore, because plaintiff has failed to demonstrate standing, defendants’
Motion to Dismiss must be GRANTED.
II. Fczz`lure to State a Claz`m
With respect to its first claim, plaintiff contends that defendants have failed to
provide a timely response to its petition, as required under 5 U.S.C. § 555(b). Section
555(b) provides: "With due regard for the convenience and necessity of the parties or
their representatives and within a reasonable time. each agency shall proceed to conclude
a matter presented to it." On March l1, 20l0, plaintiff submitted to defendants its
petition requesting they withdraw and replace the then-existing dietary guidelines and
food pyramid. Compl. ll 6. On January 31, 2011, defendants issued new dietary
guidelines, which, in part, were not objectionable to plaintiff. Ia’. llll 10~12. Defendants
contend that by publishing the Dietary Guz`delz'nes in final form, they "did effectively
‘conclude the matter’ as presented by plaintiff." Defs.’ Reply, Apr. 13, 2011 at 13.
Because plaintiff has failed to allege facts sufficient to show how defendants failed "to
conclude a matter presented to it," plaintiff has failed to state a claim under Section
555(b).
With respect to its second claim (that the Dietary Guidelines are arbitrary and
capricious), plaintiff contends that the Dz`ezary Guidelz`nes is entitled to judicial review
under 5 U.S.C. §§ 702, 704. Section 702 provides that a "person suffering legal wrong
because of agency action, or adversely affected or aggrieved by agency action within the
meaning of a relevant statute, is entitled to judicial review thereof." Section 704 provides
that "final agency action for which there is no other adequate remedy in a court [is]
subject to judicial review." Under the APA, "‘agency action’ includes the whole or a part
of an agency rule, order, license, sanction, relief, or the equivalent or denial thereof, or
7
failure to act." 5 U.S.C. § 551(13). In turn, "‘rule’ means the whole or a part of an
agency statement of general or particular applicability and future effect designed to
implement, interpret, or prescribe law or policy or describing the organization
procedure or practice requirements of an agency."’ Ia’. § 551(4) (emphasis added).
Plaintiff contends that the latter category includes the Dietary Guz'delz`nes. Pl.’s Opp’n at
10. The Dz'etary Guidelz'nes, however, is not an agency statement describing the USDA
or DHHS organizations or the agencies’ procedures or practice requirements. lt is, in
sum, a report containing "nutritional and dietary information and guidelines for the
general public." 7 U.S.C. § 534l(a)(l). As the Nutrition Act makes clear, such dietary
guidance "does not include any rule or regulation issued by a Federal agency," and thus,
does not constitute an "agency action." Ia’. § 5341(b)(3). Therefore, because plaintiff has
not established that the Dz`etary Guz'delines is actually subject to judicial review under the
APA, it has failed to state a claim upon which relief can be granted.
CONCLUSION
Thus, for all of the foregoing reasons, Defendants’ Motion to Dismiss is
GRANTED. An appropriate Order will accompany this memorandum opinion.
A
warsaw
mCHARDQg)oN
United States District Judge
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01-03-2023
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03-31-2014
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https://www.courtlistener.com/api/rest/v3/opinions/3283449/
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This appeal is by certain heirs at law of Thomas B. Rickey from a judgment of nonsuit in an action in which they sought the revocation of an order admitting to probate a certain instrument as the will of Thomas B. Rickey, deceased. *Page 735
Thomas B. Rickey died on January 11, 1920, and an instrument in writing was admitted to probate as his will by the superior court of the county of Alameda, state of California, on January 27, 1920. By this instrument the appellants and contestants were left small legacies with the statement that the testator had made gifts to them at different times, a sister of the testator was given $100 a month for the remainder of her life, together with such additional sums as might be necessary for unusual expenses, such as illness, etc., the wife and youngest daughter of the testator, the proponents of the will, were given $5,000 each and the income from the bulk of the estate was to be enjoyed by the wife and said youngest daughter of the testator during their joint lives, said youngest daughter taking the residuum of the estate after her mother's death. By the will, the wife and youngest daughter were named as executrices to serve without bond, and they were duly appointed and thereafter qualified and were the acting executrices of the will at the time of the trial.
Within the statutory period the appellants Bertha Levina Scott, a daughter of the testator by his first wife, and Charles Treadwell Rickey and Jeannette Rickey, children of a deceased son of said testator by his first wife, severally, filed petitions contesting the validity of said instrument and praying for the revocation of its probate. The residuary beneficiaries, individually and as executrices, severally, answered each of the petitions. The contests were consolidated. A jury was called in an advisory capacity by the court, but after the evidence was presented the trial court refused to submit the case to the jury but granted the motion of the proponents of the will for an order of nonsuit against the contestants.
The petitions are lengthy, the allegations including recitals of incidents in the personal history of the testator occurring during a period of nearly thirty years. A detailed statement of these matters does not seem necessary and we shall merely state the general issues as they are concisely outlined by the appellants in their brief, to wit: Was the paper writing probated executed by Thomas B. Rickey as his will? Was the signature to said paper writing procured by fraud exercised and practiced upon said T. B. Rickey by the proponents of the will? Was the signature *Page 736
to said paper writing procured by the undue influence of said proponents or either of them?
[1] It is, of course, beyond question that if there is evidence in the record, which standing alone or coupled with testimony erroneously excluded, or admitted and subsequently erroneously stricken out, sufficient to sustain a possible verdict that the will should be set aside on any of the grounds alleged in any of the petitions for revocation of probate, the judgment upon the order granting the nonsuit must be set aside.
The trial of the case extended over a period of many days, sharp legal contests occurring over the admission of evidence and much of the evidence admitted was subsequently stricken out upon motions of the proponents of the will. The reporter's transcript includes over 2,500 pages.
The appellants have printed in their brief the testimony upon which they rely and have included therein not only the testimony admitted by the trial court, but also the testimony which was stricken out upon motion. The rulings upon these motions present many intricate questions in the law of evidence, but for a decision upon this appeal a solution of these problems in unnecessary. For the purposes of this appeal only, we will concede to the appellants that every ruling on evidence of which they complain was erroneous; that all the testimony printed in their brief should have been admitted by the trial court. We consider the motion for nonsuit, then, in the light of all the testimony appearing in the appellants' brief and accept it all as true.
That evidence indicates reasons for antagonism between the proponents of the will and the contestants, who were descendants of testator's first wife. It also shows that the testator and Alice Belle Rickey, one of the proponents of the will, had been husband and wife for over twenty-five years prior to his death; that they had married in 1893 after the children of his first marriage were grown and after the death of their mother in 1891. A great deal of testimony was introduced tending to show that the second wife, before her marriage with the testator and during the lifetime of his first wife, had been the cause of unhappiness in his home; that after the death of his first wife, testator married said Alice Belle Rickey and considerable hostility *Page 737
existed between the second wife and the children of the first wife; that testator was a man of great wealth and large business interests. After his second marriage he became involved in business difficulties in Nevada and was sued for a large amount of money and threatened with criminal prosecution because of the failure of a bank of which he had been president; that he feared his entire fortune would be subjected to the payment of judgments against him and entered into a scheme with the consent and connivance of his second wife and his son by his first marriage by which his property and assets were so manipulated as to be concealed from creditors until such time as he succeeded in disposing of the claims against him.
Testimony was offered showing the testator's apparent affection for his daughter Mrs. Scott, one of the contestants and appellants here. There was also some testimony that he had made remarks on some occasions during the last few years of his life indicating that he was not happy in his domestic relations and that he disliked and distrusted his second wife; that his daughter, Mrs. Scott, was without money for her support; that she was in poor health; that testator had told his sister that this daughter would be provided for; that the wife and her daughter, the chief beneficiaries under the will, had received valuable property from the testator at different times prior to the execution of his will.
It is upon substantially these facts that the appellants rely. They argue that the wife knew of the concealment of the husband's property to avoid the payment of possible judgments against him and used this knowledge as a means of coercion. There is not the slightest evidence that she so used this knowledge, but, on the contrary, the record discloses that the lawsuits which brought about the concealment of the property had been settled and the judgment paid years before the making of the will. The record does not even show that this matter furnished a possible means of coercion at the time of the making of the will, much less that such means were used by the proponents. [2] The testimony regarding the early relations of the parties suggests a reason for the alleged hostility between the respondents and appellants. But that fact being established would not raise a presumption of fraud or undue influence in the *Page 738
making of the will. To prove that the wife was a person capable of influencing testator does not prove that she actually did so. "It will not be presumed because a wife has ample opportunity to exert an influence which may be undue, that she has in fact done so." (Fulton v. Freeland, 219 Mo. 494 [113 Am. St. Rep. 576, 118 S.W. 12, 19]. See, also, Peery v. Peery,94 Tenn. 328 [29 S.W. 1], and In re Langford, 108 Cal. 608, 622 [41 P. 701].) In a Missouri case quoted with approval inFulton v. Freeland, supra, it was said in relation to matters urged upon our attention by the present appellants: "The plaintiffs sought to raise a presumption of undue influence affecting the execution of the will by proofs of the relations existing between the testator and his second wife before their marriage, which was about eleven years before the making of the will; by testimony showing the dependent condition of the disinherited children; by showing that the testator had had difficulties with his first wife and had separated from her and that some of the disinherited children had taken sides with their father in those controversies; by showing that the relations between the testator and his disinherited children were friendly and affectionate about the time of the making of the will; by showing that some of the first wife's children had assisted the testator in accumulating property; and by proving some conversation of the testator, in the same year in which the will was made, concerning his intended disposition of his property. There was also an offer to prove that one of the testator's daughters by his first wife had been obliged to leave her father's house, by reason of his second wife's request or influence to that effect. All the offers of testimony upon these matters were, upon defendant's objections, refused by the court, and these refusals are assigned for error. We can discover no ground for admissibility of any of this proposed testimony. The plaintiffs have undertaken to prove that the paper purporting to be the last will and testament of their ancestor was the product of an undue influence exercised upon him by Sarah M. Ketchum. 'Undue influence is that which compels a testator to do that which is against his will, through fear, through the desire of peace, or some coercive power which he is unable to resist, and but for the exercise of which the will would not have been made as it was.' (Pierce v. Pierce, 3 *Page 739
Cent. L. J. 226.) The testator was married to his second wife in 1855. His will was executed in 1866, and he died in 1877. Here is a period of more than twenty years, at some time during which these incidents of remote bearing or none at all, are supposed to have indicated that the testator, in the hour when his will was written and signed, was acting under the coercive power above described, and that this coercive power was in fact held over him by Sarah M. Ketchum. Cause and effect are here far too widely separated for the purpose of fair investigation. All or any of the facts tendered might or might not coexist with a total absence of any such undue influence. They prove, or tend to prove, upon the question at issue, absolutely nothing. Their only effect, if introduced in evidence, might be, in the hands of ingenious counsel, to play upon the passions or prejudices of a jury, and give them an apparent excuse for thwarting the unkind discrimination of a father against some of his children."
The facts appearing in the record show that the proponents of the will had nothing whatsoever to do with its execution and knew nothing of its terms. The following facts with relation to the testamentary disposition of testator's property appear uncontradicted in the record: The will was signed on August 14, 1918, about a year and a half before Mr. Rickey's death. At that time Mr. Rickey was in a sanitarium recovering from an illness. He was nearly eighty years old and his eyesight had been poor for some time. It was impossible for him to read, but he was able to distinguish persons and to go about unaided. He appears to have been a man of great mental vigor at all times and the evidence shows that this condition had not changed at the time the will was made nor for considerable time after that. About August 10 or 11, 1920, testator asked his wife to telephone to his attorney and ask the attorney to call at the hospital. She stated she did not know why Mr. Rickey desired to see his attorney, but she complied with his request. The attorney was not alive at the time of the trial, but his deposition was introduced in evidence and, in all essential particulars, it corroborates the proponents of the will in their account of the circumstances surrounding its execution. It appears, uncontradicted in the record, that the attorney went to the hospital in response to this telephone *Page 740
message and was told by Mr. Rickey that he wished to make a will. Mr. Rickey explained what provisions he desired and gave the attorney the names of his children and grandchildren. The conversation occurring at that time, as narrated by the attorney, showed a complete intellectual grasp of his personal affairs by the testator. The attorney made notes of what was desired and returned to his office and had a draft of a will made. He returned the next day with the typewritten will. Rickey asked the attorney to read the will to him, which was done. He then asked that it be read again. After the second reading, testator said, "Now that is all right, just the way I want it, but I forgot something. I want to make a provision for my sister, Anna Plate." The attorney took the draft of the will to his office and had it typewritten, incorporating therein a provision for the benefit of the sister of testator in accordance with directions from said testator. Upon the next day the attorney took the amended draft of the will to the sanitarium and at the request of Mr. Rickey read it aloud to him. Mr. Rickey asked questions about the legal effect of certain provisions and then asked that the entire will be read to him again, which was done. Mr. Rickey then said that the will was what he wanted and that he was ready to execute it. The proponents of the will were not in the room with the testator during the times when any of these conversations occurred between him and his attorney. The attorney went into the office of the sanitarium and secured two nurses to witness the will. Mr. Rickey duly executed the will and handed it to his attorney, telling him to keep it and not disclose its contents to anyone. The attorney kept the will in his safe deposit box until after the death of the testator, when he handed it to Mrs. Rickey. The attorney testified that he had known Mr. Rickey for years before his death; that at the time of the execution of the will "his mental condition was as clear and vigorous and keen as it ever was. . . . Physically he was getting over a spell of sickness. He was feeling well; he was cheerful, smiling, laughing and joking with the nurse and sitting up in bed. He was all right and within a few days afterwards he left the sanitarium and went home, and was discharged." There is evidence that over a year later the contestant Mrs. Scott and a nurse employed *Page 741
to care for Mr. Rickey read to him daily books and magazines and newspapers and that he took a keen interest in them and his mind was clear and active, and there is abundant evidence in the entire record that during his entire lifetime Mr. Rickey was a man of more than ordinary mental acuteness.
In relation to the making of the will, proponents testified in substantial accord with the attorney and from their testimony it appears that they had no knowledge that a will was to be made and knew of none of its provisions until after Mr. Rickey's death; that after the execution of the will and the departure of the attorney, they learned from the testator that a will had been executed by him and left with his attorney, but did not learn the contents thereof.
The motion for a nonsuit was made upon the ground that there was no evidence produced of any influence, undue or otherwise, upon the testamentary act. The appellants do not point out to us any such evidence. In this case, as in the case ofEstate of Donovan, 140 Cal. 390 [73 P. 1081], "the testator was of sound mind and in the active management of his own affairs . . . no evidence was offered to show that it was executed at a time other than upon the date it bore; that no claim was made that the appellant (respondent here) was present when the will was made, or that she ever at any time requested the decedent to make a will, or that she ever made a suggestion in reference to the making of a will, or that she ever knew of the existence of the will (in the present case, the contents of the will) until after her husband's death."
As stated in the Estate of Donovan, supra: "General influence not brought to bear upon the testamentary act, however controlling, is not undue influence such as will afford ground for the setting aside of the will of a person of sound mind. (Estate of McDevitt, 95 Cal. 17 [30 P. 101]; Estate ofLangford, 108 Cal. 609 [41 P. 701]; Estate of Calkins,112 Cal. 296 [44 P. 577]; In re Wilson, 117 Cal. 262
[48 P. 983].) Undue influence, however used, must, in order to avoid a will, destroy the free agency of the testator at the time and in the very act of the making of the testament. It must bear directly upon the testamentary act. (Goodwin v. Goodwin,59 Cal. 560; Englert v. Englert, 198 Pa. St. 327 [82 Am. St. Rep. 808, *Page 742
47 A. 940]; Page on Wills, ed. 1901, secs. 127, 130; Chaplin on Wills, p. 95.) Says Chaplin: 'The true test of undue influence is that it overcomes the will without convincing the judgment.' It is apparent, therefore, that there is in this case an entire absence of evidence legally sufficient to show that the appellant here unduly influenced the mind of this testator in his testamentary act, and the conclusion seems irresistible that under the stimulus of their sympathy the jury substituted their views of a fair will for that which under the law the testator had the undoubted right to make. For, as has been said, 'A testator of full age, sound and disposing mind and memory, and not under restraint, may make such disposition of his property as does not conflict with the law.' The fact, then, that a testator with such qualifications makes a foolish, unnatural or unjust will, does not show that undue influence caused the will."
In In re McDevitt, 95 Cal. 17, 33 [30 P. 101], it was aptly said: "The beneficiaries of a will are as much entitled to protection as any other property owners, and courts abdicate their functions when they permit the prejudices of a jury to set aside a will merely upon suspicion, or because it does not conform to their ideas of what was just or proper. . . . Evidence must be produced that pressure was brought to bear directly upon the testamentary act; but this evidence itself need not be direct. Circumstantial evidence is sufficient. It must, however, do more than raise a suspicion. It must amount to proof, and such evidence has the force of proof only when circumstances are proven which are inconsistent with the claim that the will was the spontaneous act of the alleged testator. I think there is nothing beyond suspicion shown here. There is no proof. Circumstances have been proven which accord with the theory of undue influence, none of which is inconsistent with the hypothesis that the will was the free act of an intelligent mind. This does not amount to proof. And many circumstances are shown which are wholly inconsistent with the hypothesis of undue influence. And the presumption of law, in the absence of all proof, in a contest, is in favor of the will."
In re Langford, 108 Cal. 608 [41 P. 701], recites facts which liken it to the instant case. In that case, a second wife was the chief beneficiary of the testator to the disadvantage *Page 743
of children of his first marriage who contested the will. Evidence was introduced to show that the second wife of testator had worked in the home of his first wife during the first marriage and that the relations between her and the testator had been illicit. The court said: "All this was seventeen years before the execution of the will, and twenty years before the codicil in which he reaffirmed the will; it was too remote in time to be admissible for any purpose; and that it was prejudicial to appellant is beyond question. There was also some testimony as to declarations and occurrences at a somewhat later period, but, before decedent's removal from Illinois to California, and, if admissible at all, they are entitled to no weight in the absence of evidence, either direct or circumstantial, that undue influence was brought to bear upon the very testamentary act. And such evidence must 'do more than raise a suspicion. It must amount to proof.' . . . In order to set aside a will for undue influence there must be substantial proof of a pressure which overpowered the volition of the testator at the time the will was made."
With regard to the claim of appellants that the will we are considering in the instant case is an unnatural one and suggests by its contents undue influence, it is pertinent to quote further from In re Langford, supra: "The consideration of the question whether or not a will is 'unnatural' — by which is meant, we suppose, different from what it might have been expected to have been — is of no importance except in a case where there is some evidence immediately tending to show mental incapacity, fraud or undue influence; in which event it might serve to help out a weak case. But there is no evidence in the case at bar that could be helped out. . . . And indeed, if it were important to consider it, we do not see how the will in the case at bar can be considered unnatural in such extreme sense as to be remarkable. At the time of the execution of the will the contestants — children of the first wife — were all grown up, middle-aged people with families of their own. He had seen but little of them after his marriage. . . . They had strenuously opposed the marriage and had said unkind things of his wife; and, as was very natural, there was not much social intercourse between the families afterwards. . . . At *Page 744
all events, being of sound mind and memory, it was for him to dispose of his property as he chose."
The case of In re Calkins, 112 Cal. 296 [44 P. 577], is pertinent because of the testimony relied upon by appellants in the instant case to show that the testator did not have any affection for his wife at the time he made the will and that he distrusted her. In the Calkins case it was said: "The claim of the contestant that the testatrix had no affection for her husband would rebut any presumption of undue influence on his part, as would also the claim that the testatrix had a hearty dislike for Mrs. J. W. Calkins."
[3] An examination of the authorities in this and other jurisdictions convinces us that the position of the respondents is correct when they state that if it be admitted that the testimony shows Mr. Rickey's love for the contestants and his hatred and distrust of the proponents of the will and that the trial court erred in every ruling in excluding and striking out such testimony, nevertheless, in the absence of any evidence showing undue influence directly operating upon the testamentary act at the time the will was executed, such testimony concerning the testator's feelings and all such rulings concerning such testimony would become immaterial. (Estate of McDevitt, supra; Estate of Arnold, 147 Cal. 583
[82 P. 252]; Estate of Anderson, 185 Cal. 700 [198 P. 407];Estate of Ricks, 160 Cal. 467, 485 [117 P. 539].)
The judgment is affirmed.
Nourse, J., and Sturtevant, J., concurred.
A petition by appellants to have the cause heard in the supreme court, after judgment in the district court of appeal, was denied by the supreme court on February 11, 1924. *Page 745
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01-03-2023
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07-05-2016
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https://www.courtlistener.com/api/rest/v3/opinions/2298158/
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128 F. Supp. 2d 618 (2000)
Mary Ann PALMQUIST, Plaintiff,
v.
CONSECO MEDICAL INSURANCE CO., Connecticut National Life Insurance Co., and Reginald Martin Agency, Inc., Defendants.
No. CIV 00-4192.
United States District Court, D. South Dakota, Southern Division.
December 22, 2000.
*619 Peter J. Bendorf, Sioux Falls, SD, for Plaintiff.
Kathryn Jean Hoskins, Siegel, Barnett & Schutz, Sioux Falls, SD, Derek L. Mandel, Huffer & Weathers, Indianapolis, IN, for Defendant Conseco Medical Ins. Co. Connecticut National Life Ins. Co.
John F. Cogley, Morgan, Theeler, Cogley & Petersen, Mitchell, SD, for Defendant Reginald Martin Agency.
MEMORANDUM OPINION AND ORDER
PIERSOL, Chief Judge.
Pending before the Court is Plaintiff's Motion to Remand. This action was filed by Plaintiff against all the above-named defendants in the Second Judicial District Court in Minnehaha County, South Dakota on October 12, 2000. The Complaint alleges breach of contract, bad faith breach of contract, negligent infliction of emotional distress, and intentional infliction of emotional distress. According to the Complaint, Plaintiff entered into a contract for major medical insurance with defendant Connecticut National Life Insurance Company ("CNLIC").[1] Plaintiff claims she paid her premiums on time and that CNLIC and Conseco Medical Insurance Company ("CMIC") ("the defendant insurance companies") violated state law by failing *620 to notify her of their intention not to renew her policy. Plaintiff alleges she did not learn of the cancellation of her insurance until after being bitten by a brown recluse spider. Plaintiff claims that since her injury, defendants have refused to honor their contract.
Defendants CMIC and CNLIC filed a Notice and Petition for Removal in this Court and in state court on October 16, 2000. CMIC and CNLIC based the removal of this action on diversity jurisdiction. Plaintiff is a resident of South Dakota. According to the Notice of Removal, CMIC is incorporated under the laws of the State of Indiana and CNLIC is incorporated under the laws of the State of Illinois. Each has its principal place of business in Carmel, Indiana. CMIC and CNLIC believe defendant Reginald Martin Agency, Inc. (the "Martin Agency") is an individual residing in South Dakota. CMIC and CNLIC claim that Plaintiff fraudulently joined the Martin Agency in this action for the purpose of destroying diversity jurisdiction.
On November 14, 2000, Plaintiff filed a Response in Opposition to Defendant Conseco's Petition for Removal which the Court will construe as a Motion to Remand. See 28 U.S.C. § 1447(c). Plaintiff attached to her motion an Amended Complaint dated October 18, 2000, which she argues resolves any claims of fraudulent joinder. Plaintiff served the Amended Complaint by mail on the same day that the Martin Agency served, by mail, its Answer to the original Complaint. The Martin Agency has since filed in this Court an Amended Answer to the Amended Complaint. Plaintiff's Amended Complaint has never been filed in this Court.
Defendants have filed a reply in support of their Petition for Removal. The Court will construe this as an opposition to the motion to remand.
DISCUSSION
Under 28 U.S.C. § 1441(a) "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants to the district court ... for the district and division embracing the place where such action is pending." CMIC and CNLIC have based removal of this action on diversity jurisdiction. A court has diversity jurisdiction under 28 U.S.C. § 1332 if the amount in controversy exceeds the sum of $75,000 and "the citizenship of each plaintiff is diverse from the citizenship of each defendant." Caterpillar Inc. v. Lewis, 519 U.S. 61, 68, 117 S. Ct. 467, 472, 136 L. Ed. 2d 437 (1996). A district court's diversity jurisdiction on removal is more narrow than it is with cases originally filed in district court. See Federal Beef Processors, Inc. v. CBS, Inc., 851 F. Supp. 1430, 1434 (D.S.D.1994). An action based on diversity jurisdiction may only be removed if "none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought." 28 U.S.C. § 1441(b). In its Notice of Removal, CMIC and CNLIC state that the amount in controversy exceeds $75,000 and that they believe "Co-Defendant Martin is an individual residing in the State of South Dakota." Plaintiff, in her motion to remand, asserts that the Martin Agency is a South Dakota corporation. Therefore, it would appear that there is no diversity jurisdiction.
CMIC and CNLIC claim, however, that removal is proper because Plaintiff fraudulently joined the Martin Agency for the purpose of destroying diversity.[2] If a *621 defendant is fraudulently joined that defendant's "residency is disregarded for purposes of determining the jurisdictional issue." Federal Beef Processors, Inc., 851 F.Supp. at 1435. The burden of proving fraudulent joinder is on the party seeking to remove the action. Id. A party does not need to demonstrate fraudulent intent on the part of the plaintiff in order to prove fraudulent joinder. Id. Instead, one way to prove fraudulent joinder is to show that "on the face of plaintiff's state court pleadings, no cause of action lies against the resident defendant," Anderson v. Home Insurance Co., 724 F.2d 82, 84 (8th Cir. 1983), and, therefore, "plaintiff has no chance of succeeding in its claim against the challenged defendant," Federal Beef Processors, Inc., 851 F.Supp. at 1435.
"The right of removal is generally determined from the record and the status of the pleadings at the time the petition for removal is filed." See Farm Bureau Mutual Insurance Co., Inc. v. Eighmy, 849 F. Supp. 40, 42 (D.Kan.1994); see also Marquette Nat'l Bank of Minneapolis v. First Nat'l Bank of Omaha, 422 F. Supp. 1346, 1349 (D.Minn.1976). Thus, before the Court can analyze the fraudulent joinder claim it must decide what the status of the pleadings were at the time of removal. Plaintiff argues that she timely served an Amended Complaint which states a claim against the Martin Agency and thereby defeats any claims of fraudulent joinder. In response CMIC and CNLIC claim that once the notice of removal was filed the federal court gained exclusive jurisdiction over the action. The result, according to CMIC and CNLIC, is that the Court may not consider the Amended Complaint because it was served after the notice of removal was filed.
Removal is not effective until a notice of removal is filed in state court. See Anthony v. Runyon, 76 F.3d 210, 213 (8th Cir.1996) (finding district court erred in refusing to consider an amended state court complaint where the amended complaint was filed after the notice of removal was filed in federal court but before the notice of removal was filed in state court). The Notice and Petition for Removal was signed on October 13, 2000, and filed in this Court on October 16, 2000. The Court requested the docket sheet in the state court action from the Clerk of Court for the Second Circuit Court of Minnehaha County. That docket sheet indicates that a notice of removal was also filed in the state court on October 16, 2000. Plaintiff executed the Amended Complaint on October 18, 2000. Therefore, removal was effective prior to Plaintiff's service of the Amended Complaint. As a result, only the original Complaint was properly before the Court at the time of removal and, therefore, only it will be considered by the Court in determining whether there was fraudulent joinder.
As noted above, a defendant is fraudulently joined if, "on the face of plaintiff's state court pleadings, no cause of action lies against the resident defendant." Anderson, 724 F.2d at 84. CMIC and CNLIC make this exact argument: that the Complaint does not allege a valid claim against the Martin Agency. The Court agrees. It is clear from the face of the Complaint that Plaintiff has not stated a cause of action against the Martin Agency. The Martin Agency is only mentioned in one paragraph of the Complaint. In that paragraph, Plaintiff merely states that the Martin Agency was, at all relevant times, the agent of the defendant insurance companies. Plaintiff does not make any substantive allegations against the Martin Agency. Indeed, in paragraph 12, Plaintiff claims that CNLIC and, parenthetically, CMIC were responsible for notifying her of the cancellation of her policy under the contract. At no point does Plaintiff ascribe *622 any duty to the Martin Agency or any failure to perform under the contract or state law. This Court concludes that the Martin Agency was fraudulently joined. As a result, the Martin Agency's residence may not be considered in determining this Court's jurisdiction and removal is proper on the basis of diversity jurisdiction pursuant to 28 U.S.C. § 1441(b).
That, however, does not end the inquiry. Plaintiff claims the action should be remanded on the basis of the Amended Complaint. Once removal was effective, this Court retained exclusive jurisdiction over the action and the parties became subject to the Federal Rules of Civil Procedure. See Ward v. Resolution Trust Corp., 972 F.2d 196, 198 (8th Cir.1992); 14C Charles Alan Wright & Arthur R. Miller, et al. Federal Practice and Procedure § 3738 (3d ed.1998). Therefore, under Federal Rule of Civil Procedure 15(a). Plaintiff might have been able to amend her complaint as of right "before a responsive pleading [was] served." But see Lyster v. First Nationwide Bank Financial Corp., 829 F. Supp. 1163, 1165 (N.D.Ca. 1993) (complaint amended as of right may not be used to defeat removal).
Plaintiff claims that her Amended Complaint was served simultaneously with service of the Martin Agency's answer. Certain courts have held that an amended complaint is not effective until is it filed with the court. See Donner v. Sulcus Computer Corp., 103 F.R.D. 548, 549 (N.D.Ga.1984); see also Masters v. Daniel Int'l Corp., 1991 WL 107410, at *1 n. 1 (D.Kan. May 3, 1991); Schacht v. Javits, 53 F.R.D. 321, 325 (S.D.N.Y.1971). In Donner for example, the court held that the plaintiff could not amend the complaint as of right where the amended complaint and the answer from the defendant were served simultaneously and the amended complaint was not filed until two days after service. See Donner, 103 F.R.D. at 549. The Donner court, relying in part on Federal Rule of Civil Procedure 3 which requires the filing of an initial complaint before an action can be commenced, reasoned that all complaints must be filed to be effective. Id.
This Court does not agree with the reasoning of Donner. Rule 3 must be read together with the service provisions of Federal Rule of Civil Procedure 5. Rule 5(a) states "[e]xcept as otherwise provided in these rules, ... every pleading subsequent to the original complaint unless the court otherwise orders ... shall be served upon each of the parties." Service is affected by "mailing it to the attorney or party." See Fed.R.Civ.P. 5(b). The filing of the initial complaint serves a specific purpose: it must be filed in order to commence the action and give the court in which it is filed jurisdiction over the action. Once the initial complaint is filed, the court has jurisdiction over the matter and the amended complaint does not need to be filed in order to give the court jurisdiction over the case. Of course, as discussed below, the Court recognizes that all pleadings subsequent to the original filing are subject to the requirement in Rule 5(d) that they be filed within a "reasonable time." Still, an amended complaint serves a different purpose than an initial complaint and there is nothing in Rule 3 to preclude an amended complaint from becoming effective upon proper service, as would any other pleading. Therefore, this Court does not find that the simultaneous service of an amended complaint and an answer to the original complaint would prevent Plaintiff from amending her complaint as of right.
However, Plaintiff has never filed the Amended Complaint with this Court. Under Rule 5(d). "[a]ll papers after the complaint required to be served on a party, ... shall be filed with the court within a reasonable time after service." It has been two months since Plaintiff served the Amended Complaint and it is still not filed with this Court. This is wholly unreasonable. See Biocore Medical Tech., Inc. v. Khosrowshahi, 181 F.R.D. 660, 668 *623 (D.Kan.1998). As a result, the Court finds that the original Complaint was not properly amended as of right and it will not be considered for purposes of the motion to remand.
Rule 5(d) does not provide a remedy for a violation of its provisions. A violation of the rule is generally corrected by an order compelling the filing of the missing pleading. See 4A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure, § 1152 (2d ed.1987). Compelling the filing of the Amended Complaint would not help Plaintiff, however, because the Amended Complaint would not have supported a motion to remand. Federal Rule of Civil Procedure 8(a)(1) requires that a complaint contain a "short and plain statement of the grounds upon which the court's jurisdiction depends." The Amended Complaint neglects to allege the residences of the defendants as required to establish diversity jurisdiction. Thus, even if the Amended Complaint were considered, it would not state a reason for defeating the Court's jurisdiction. Accordingly.
IT IS ORDERED:
(1) that Plaintiff's Response in Opposition to Defendant Conseco's Petition for Removal, which the Court has construed as a motion to remand, is denied without prejudice to a later motion to remand; and
(2) that the original Complaint will be controlling until and unless Plaintiff is granted leave to amend the Complaint.
NOTES
[1] The Complaint states that the contract is attached as Appendix A. That contract, however, is not attached to the Complaint submitted with the Notice of Removal.
[2] The Martin Agency did not join in the Petition for Removal. It is generally held that 28 U.S.C. § 1446(a) requires that all defendants consent to removal. See Balazik v. County of Dauphin, 44 F.3d 209, 213 (3d Cir.1995). While Plaintiff did not address this issue, the Court notes that the "unanimity rule may be disregarded ... where a defendant has been fraudulently joined." Id. at 213 n. 4; see also Jernigan v. Ashland Oil Inc., 989 F.2d 812, 815 (5th Cir.1993) (application of the unanimity rule in cases involving fraudulent joinder would be "nonsensical"). Thus, the Martin Agency's lack of consent is not a barrier to removal.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/3528097/
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A jury has found that on September 13, 1934, Grace Wynne shot and killed Mary Thompson. She was tried, found guilty and sentenced to fifteen years imprisonment, December 29, 1941 — January 2, 1942. From the facts and circumstances as detailed by the State's witnesses the jury reasonably found that in shooting and killing Mary Thompson she acted purposefully and with malice and was therefore guilty of murder in the second degree.
Briefly the background of the homicide is this: the defendant, Grace Wynne, and John "Jack" Thompson were married in 1913. She divorced him seven years later because of "other women." She left Kansas City and in January, 1920, within a month of her divorce, married Arthur Wynne. They had one child, Dorothy Lou. In the meanwhile Jack Thompson married Mary. At the time Grace and Thompson were divorced he was a deputy in the circuit clerk's office at a salary of about $125.00 a month. Subsequently he became an influential politician, a successful operator of slot machines and a man of considerable means. By 1925 he was a frequent and attentive visitor of Mrs. Wynne's in Oklahoma. In 1931 she moved to Kansas City and after divorcing Wynne lived in the Pickwick Hotel. Thompson paid all her bills, bought her an automobile and supplied *Page 281
her with money. He paid daily visits to her room, kept some clothes there and frequently spent the night with her.
According to the State's evidence the facts of the killing were that after numerous homicidal threats Grace went to the Thompson home on September 13, 1934, shortly after eight o'clock and waited on the porch knowing that Jack was bringing Mary home from a vacation. As Jack unlocked the front door Grace stepped out from behind a post and shot Mary five times with a .25 caliber automatic pistol. One bullet riccocheted and struck Grace in the forehead.
Grace's version of the matter was that she went to the Thompson home by prearrangement with Jack for the purpose of settling their triangular affairs and particularly for the purpose of discussing the amount of money Mary was to have for a divorce. She says that as she stepped upon the porch she said, "John, I have come like you told me. How do you do, Mary" and Mary jumped in her face, scratched and kicked her, and they fell to the floor fighting. The next thing she knew she felt as if she had been hit in the head with a brick and became unconscious as she was crawling down the steps. She testified that she did not have a gun and that she did not shoot Mary.
[1] The appellant admits that she has failed, in her motion for a new trial, to specify and assign as error the giving of Instruction C and the admission of expert evidence relating to firearms but she urges that the court has the power in its discretion to consider these matters and that the court should do so as they are plainly error and affect substantial rights prejudicially. Whether the court has the power urged we need not decide. Even if it has, the exigencies of this case are not such as to compel its exercise. The matters complained of were not assigned as error or called to the trial court's attention in the appellant's motion for a new trial and under the statute we are precluded from considering them. Mo., R.S.A., sec. 4125; State v. Bailey (Mo.), 169 S.W.2d 380; State v. Lazie (Mo.), 199 S.W. 122; State v. Sharp (Mo.), 300 S.W. 501.
[2] So it is with her arguments that the court should have sustained her motion to quash the indictment and her plea to the jurisdiction in which it was alleged that the court did not have jurisdiction to try her because she had been previously adjudged insane by a probate court. The record merely recites that these motions came on for hearing and were overruled. On this state of the record there being nothing on the face of the record or the indictment (State v. Finley, 193 Mo. 232, 91 S.W. 942) showing invalidity or no jurisdiction there is nothing for us to review in this regard. The motion and the plea do not prove themselves and in the absence of the evidence produced, if any, in support of them, we cannot say the court erred. Motions and pleas of this nature are not different from motions or pleas based on the assertion that the defendant had not had a *Page 282 [296] preliminary hearing [State v. Lettrell (Mo.), 39 S.W.2d 556] or that a juvenile court had jurisdiction [State v. Miller, 307 Mo. 365, 270 S.W. 291] or a plea of former jeopardy. State v. Rozell (Mo.), 279 S.W. 705; State v. Revard,341 Mo. 170, 106 S.W.2d 906; 22 C.J.S., secs. 426, 434, pp. 660, 679.
[3] In addition to the formal charges, the court instructed the jury on the three degrees of murder, self-defense and insanity. The court defined "insanity" and instructed the jury that if they found that Grace Wynne was insane when she shot Mary Thompson they should acquit her. It is urged that it was error for the court to give the instruction because it was a mere abstraction and prejudiced the defendant in that it would cause the jury to assume that she admitted the act of killing and was contending by way of confession and avoidance that she was not legally responsible for her acts. It is insisted that there was no evidence whatever that she was insane or even claimed to be at the time of the shooting although she was adjudged insane on November 19, 1934 and committed to the asylum in St. Joseph and appealed from a judgment of restoration of sanity in 1940. It is not necessary to detail the circumstances which may have caused the court to give the instruction nor to pass on whether there was any evidence of insanity because it is not pointed out and we cannot see how the instruction prejudiced the appellant in the manner claimed. The instruction did not tell the jury that the killing was admitted or that insanity was a plea by way of confession and avoidance. As the appellant says the instruction merely gave an abstract definition of insanity and told the jury that if they found her to be insane they should acquit her. Even if there was no evidence of insanity we cannot see how the appellant was injured by the instruction any more than a defendant is not injured by an instruction on alibi or self-defense when there is no evidence of either. State v. Millsap, 310 Mo. 500, 276 S.W. 625; State v. Pohl, 170 Mo. 422, 70 S.W. 695; State v. Bunyard, 253 Mo. 347, 161 S.W. 756. Insanity instructions under similar circumstances have been held to be harmless error in Chriswell v. State, 171 Ark. 255,283 S.W. 981 and Watson v. State, 46 Okla. Crim. 36, 287 P. 816. And it is our view in the absence of a certain demonstration of prejudice that the instruction in this case was harmless. 24 C.J.S., sec. 1922, p. 1019.
[4] The defendant's daughter, Dorothy Lou, testified for her mother. She was about twenty-one at the time of the trial. She stated that she became acquainted with Jack Thompson when he came to Oklahoma to call on her mother. She was then but a little girl. She called him "Daddy Jack." He brought her presents and was solicitous of her welfare. Jack met Dorothy Lou and her mother at the station when they came to Kansas City. She was then six. She went to the Pickwick Hotel almost daily and saw Jack there with her mother. She knew he was married to Mary. She knew that *Page 283
Jack often spent the night with her mother. She thought they were happy together and their relationship pleasant. The last time she saw Jack she was fourteen. That was when Jack went to St. Joseph and took her mother from the institution there and drove them to Topeka. On that occasion he gave the mother $2500.00 and promised to meet them in Dallas or New Orleans.
In his closing argument one of the prosecuting attorneys said: "Gentlemen of the Jury: I am ashamed to say it in answer to Mr. Walsh, I am ashamed to remind you of it again, but Mr. Walsh tells you that among other accomplishments that this defendant raised a daughter. Think of the fashion in which she raised that daughter, gentlemen. Will that not give you an insight of the character of the defendant here? When she was fourteen years old and when John Thompson was married, having been married in 1925 to Mary Hammond, and prior to that time, gentlemen, this daughter remains in Oklahoma before Mrs. Wynne was divorced from Arthur Wynne and while John was married to Mary Hammond, both of them married, under these circumstances, gentlemen, she reared a daughter and had the audacity to confront you with the proposition `Well, my daughter had good training.' Why, gentlemen of the jury, in the State of Missouri we call it adultery, and when you go across the State line it is a violation of the Mann Act. Are you going to believe what these witnesses tell you?"
It is urged that the argument was so prejudicially erroneous that the jury should have been discharged. It is said that the argument was uncalled for abuse. The statement with reference to the Mann Act may have been improper but as to that comment[297] the court, on objection, said, "The defendant is on trial only for the offense prescribed in the instructions and I think the argument should be confined to that. Let the comment be stricken." The court refused to discharge the jury and we cannot say that the court abused its discretion. The remaining part of the argument cannot be classified with that low order of abuse or denunciation which would entitle the defendant to a new trial. State v. Barrington, 198 Mo. 23, 95 S.W. 235. A portion of the argument was obviously in reply to the defendant's high praise of the witness [State v. Londe, 345 Mo. 185, 132 S.W.2d 501] and much of the prosecutor's argument was a fair inference and comment on the facts as they appeared from his standpoint. State v. Wilkins (Mo.), 100 S.W.2d 889; State v. Cohen (Mo.), 100 S.W.2d 544; State v. Johnson, 351 Mo. 785, 174 S.W.2d 139.
[5] It is urged that the court erred in permitting the State to prove the defendant's flight from the insane asylum at St. Joseph on July 11, 1935. It is contended that on that date and until August 13, 1935, there was no criminal charge of any character pending against her and consequently none of her movements at that time *Page 284
were for the purpose of avoiding arrest. This argument does not present the full picture and the evidence in its background was admissible. It is true that the first complaint filed against her in justice court had been dismissed and a second complaint was not filed in another justice court until August 13, 1935. It might be interpolated that she was not tried on the basis of any complaint filed in a justice court nor on an information but on a grand jury indictment returned on September 6, 1940. The night of the shooting one witness testified that the defendant said, "you don't have to hold me. I am not going to run away. It is all fixed. They won't do anything to me." On November 19, 1934, she was adjudged insane by the Probate Court of Jackson County on a complaint signed by her mother. She did not appear at the proceedings though she was in jail near the probate court and knew of the hearing. She or her mother were represented by lawyers chosen by Thompson. While she was in the asylum at St. Joseph she was visited weekly by her daughter, her mother, Thompson and frequently by his lawyers and friends. Many of the visits were for the purpose of persuading her that it was to her best interests to remain in the institution until things "cooled off" or until Jack "quieted things down." On July 11, 1935, she was given a leave of absence for the purpose of visiting her mother in a hotel in St. Joseph. She was met by Thompson and her daughter and driven to Topeka. From Topeka mother and daughter went to Pueblo, Trinidad, Santa Fe, Houston, San Antonio, Dallas and finally New Orleans where she operated a flower shop under the name of Grace Thompson. After several years detectives from Kansas City found her. Once she came back with the officers, once or twice she returned to Kansas City voluntarily. Once she resisted removal from the State of Louisiana in a proceeding in the Federal courts there. She said she told Jack, while she was in St. Joseph, that she had no right there and was anxious to get out of the place. There are many other circumstances in regard to her various movements and her incarceration in the institution at St. Joseph but these are sufficient to illustrate that though there was no charge pending on the day of her flight that she did, in fact, flee even though no charge was pending. From these circumstances though she may not have fled on that day to avoid arrest she may have fled to avoid a trial which she thought imminent though no proceeding was pending. State v. Duncan,336 Mo. 600, 80 S.W.2d 147. From all the evidence it is a fair inference that she had feigned insanity or permitted an insanity proceeding to be instituted for the purpose of avoiding a trial, the filing of a complaint or an arrest. State v. Stevens,242 Mo. 439, 147 S.W. 97. In any event in the circumstances of this case the evidence was not inadmissible merely because there was no complaint or criminal proceeding pending against her on the day of her original flight. Annotation, 25 A.L.R. 886. *Page 285
[6] The substantial merit of this appeal lies in the question of whether the appellant was unfairly and unjustly prejudiced by the prosecuting attorney's exhibition and demonstration with a pistol as he cross-examined her.
The night Mary Thompson was shot the appellant was asked what she had done with the gun. She said she had thrown it in the bushes. The police searched the shrubbery near the porch and found a .25 caliber automatic pistol. The pistol was marked and placed in the police department's property room. That pistol disappeared from [298] the property room and no one was able to find it and it was not produced at the trial nor was its disappearance accounted for.
As we have said the appellant testified that she did not have a gun and did not shoot Mary Thompson. Both the appellant and her daughter testified that Jack Thompson always carried a pistol. There was no direct testimony to the effect that Thompson had shot his wife or that he desired her death. But from the defendant's statement that Thompson was a "dirty double crosser" and had shot her (the appellant) it is a possible though most unlikely inference from that statement and the circumstances that he had shot his wife.
At any rate, on cross-examination the daughter, Dorothy Lou, said that her mother did not carry a gun and she never saw her with a gun. But she had often seen Jack Thompson carrying a gun. It was a small, black, flat gun, she thought. As to whether it had a trigger she said "To tell the truth, I don't know — had a trigger some place." She was asked: "Was it a gun about that long (indicating). Q. And "Where did John carry the gun? A. Back there (indicating). Q. In his hip pocket? A. Yes. Q. It made a large bulge, you couldn't help but see it? A. I didn't see it until he took his coat off. Q. When it would stick up over his pocket? A. Yes. Q. In this pocket with him (indicating)? A. Yes, it was there. Q. When he would take off his coat, you could see that gun sticking out of his pocket? A. Yes. Q. You could see it sticking out of his pocket? A. Yes. Q. It was a large gun then, wasn't it, Dorothy? A. It was small, looked like an ordinary gun to me. Q. Did he carry it in a scabbard or in his pocket? A. I think it was in some kind of a case or something. Q. That was inside his pocket, the case? A. Yes. Of course that was in the winter time. He had an overcoat too. Q. You wouldn't see the gun until he would take his coat off? A. Yes. Q. Then you would see it sticking out of his coat? A. Yes."
On direct examination the appellant stated that Jack Thompson owned and carried a revolver "all the time." On cross-examination the State's attorney said: "This gun you say John Thompson carried, what type of a gun was it? A. I couldn't say, just an ordinary gun I guess. Q. Did you ever see it sticking out of his pocket? A. Not much, it didn't stick out much. Q. How much of it did stick out? *Page 286
A. Very little . . . Q. Would you say that much of the gun stuck out (demonstrating)? A. I don't know."
It does not precisely appear at what point in the cross-examination the State's attorney produced a pistol and began demonstrating with it. But, he continued: Q. "Did it stick up that high (indicating)? A. Not quite that much. Q. How about that (indicating)? A. More like that. Q. More like that? A. Yes. Q. More like that (indicating)? A. Yes, sir, that is it."
At this point in the cross-examination defense counsel objected to "the display of firearms before the jury unless it be identified as the revolver claimed by the State to have been used by the defendant. It is highly inflammatory, and prejudicial, calculated to prejudice the jury against the defendant."
Then, out of the jury's presence the court said that the gun in question was a .25 caliber pistol. It was agreed that the gun itself had no connection whatever with the defendant nor with the case. The court then said: "Let the record show that the gun which the State has offered to use is an ordinary .25 caliber J. Caeser automatic pistol, and the court understands the State is exhibiting it at this time in the pocket of the State's attorney, Mr. Hill, only for the purpose of asking the defendant whether the amount that it will extend out of the hip pocket of the State's attorney is about the same as Mr. Thompson's extended from his pocket." Appellant's counsel then made further objection to the use of the gun and among other things said "without any foundation, a fire arm for the subtle effect it will have upon the jury . . . and is of such a highly inflammatory and prejudicial character as to prejudice the defendant [299] in the eyes of the jury and to make them conscious of the existence of a gun before them."
Then, over defense counsel's objection and exception the court said to the jury: "In passing upon the objection, the State will be permitted to exhibit the automatic pistol which Mr. Hill, the State's attorney, has in his pocket only for the purpose of asking the witness to determine to what extent the pistol of John Thompson extended from his pocket on occasions when she did see it. There is no contention by anyone that the pistol which Mr. Hill holds in his pocket had anything in the world to do with the occurrence in question, and it is conceded that the pistol is the personal property of Mr. Jack Gibbs, an investigator in the Prosecuting Attorney's office, and is completely and entirely unconnected with this case in any manner whatsoever."
The State's attorney then proceeded with the cross-examination: "Q. Mrs. Wynne, would you say the gun you saw in John Thompson's pocket was as large as that? (Indicating.) A. Well, to tell the truth, I never paid much attention. Q. You did see it sticking out of his pocket? A. Yes, sir, I did. Q. Do you see anything *Page 287
sticking out of my pocket (indicating)? A. I didn't say the gun was that size. . . . Q. Do you know whether it was larger than this gun I have shown you (indicating)? A. I really don't know. I did not pay any attention to his gun. . . . Q. Would you say the gun was larger than this, the gun I have just shown you (indicating)? A. I couldn't say, Mr. Hill. I didn't pay no attention to it."
Weapons or other objects which furnish evidence may be submitted to the senses of the jury. Such "real" or "demonstrative" evidence ("autoptic proference," Wigmore) is a direct physical illustration of a fact taking the place of an oral description by the witness. Thayer, Cases on Evidence, p. 713; 2 Wharton, Criminal Evidence, Sec. 755, p. 1274. But such "real" or "demonstrative" evidence must meet the tests of relevancy, materiality, probative value and reasons of policy in the administration of justice. 2 Wharton, Criminal Evidence, sec. 756. The rule and its underlying philosophy is summarized by Wigmore: "Accordingly, it might be asserted, `a priori,' that where the existence or the external quality or condition of a material object is in issue or is relevant to the issue, the inspection of the thing itself, produced before the tribunal, is always proper, provided no specific reason of policy or principle bears decidedly to the contrary. Such ought to be, and such apparently is, the principle accepted by the Courts." 4 Wigmore, Evidence, sec. 1151, pp. 240-241.
Thus weapons or objects connected with the defendant or the crime, when sufficiently identified become relevant and possess probative value. 22 C.J.S., sec. 712. But note with what great pains the court demonstrates that the machine gun, the rifle and the pistol used in the Kansas City Union Massacre were identifiable with the defendant, his associates and the crime. State v. Richetti, 342 Mo. 1015, 119 S.W.2d 330. As a general rule weapons and objects not connected with the defendant or the crime are not admissible unless they possess some probative value. 22 C.J.S., sec. 712, p. 1210. Thus when any one of three could have shot the deceased their respective .44, .45 and .38 caliber pistols were properly admissible in evidence against the defendant because the deceased was killed by .38 caliber bullets and his was the .38 caliber gun. Harris v. State, 129 Fla. 733,177 So. 187.
In this case, as the court told the jury, the .25 caliber gun in question had no connection whatever with the defendant or the crime. The stated purpose of its use was to demonstrate how far a pistol stuck out of John Thompson's pocket. And a demonstration or illustration with a gun might have some probative force for that purpose. But entirely aside from the relevancy and materiality of the fact, under the circumstances of this case, of how far a pistol stuck out of his pocket, there was not sufficient proof of similarity of circumstances to warrant the demonstration. 4 Wigmore, Evidence, *Page 288
sec. 1154a; 2 Wharton, Criminal Evidence, sec. 757. No one testified that Jack Thompson carried a .25 caliber J. Caesar automatic pistol. The defendant insisted that she did not know the size of the gun he carried. As a matter of fact there was but little evidence of the type or size of gun he habitually carried. There was no evidence of the size of his hip pocket other than the jury's general personal knowledge of pockets. How far the gun stuck out of his pocket, if material and relevant, was a fact that the [300] witnesses could describe and illustrate without a gun about as clearly as it could be demonstrated with a gun especially with no more definite similarity of circumstances present. 2 Wharton, Criminal Evidence, sec. 755, p. 1275. At most how much a gun stuck out of Thompson's pocket when Dorothy or the defendant saw it in the Pickwick Hotel was a collateral, if not immaterial, matter. Tested by relevancy, materiality and similarity of circumstances the pistol was not properly admissible in evidence and the decisive question is whether its demonstration and exhibition prejudiced the defendant and deprived her of a fair trial or whether the error was harmless as the State contends.
We have been able to find but a single instance comparable in its circumstances to the present case and the problem it presents. In State v. Rusnak, 108 N.J.L. 84, 145 A. 754, after threats and a grudge of long standing the defendant shot a policeman. Within an hour and a half of the shooting the police searched his room and found a revolver, other than the one used in the homicide, hidden in a shoe. It was urged that it was error to receive that gun in evidence. The court was of the view that the jury could infer that the defendant had carried this revolver "in his quest for his victim, although he actually used another weapon" (which the police found) and for that reason the second revolver was admissible in evidence. However, the court was of the further opinion that even though the pistol was inadmissible the error was harmless; "but if its admission was technically erroneous, it was not and could not have been prejudicial to the defendant in maintaining his defense on the merits, since otherevidence demonstrated beyond a reasonable doubt that thedefendant actually shot and killed the decedent." (Italics supplied.)
It may be that as we view it there is but little, if any, doubt that Grace Wynne shot and killed Mary Thompson and that in so doing she was certainly guilty of murder in the second degree as the jury has found and yet we cannot say the error was harmless. Aside from the reasons of relevancy, probative value and similarity of circumstances which would exclude this demonstrative evidence the reason "of policy or principle" which "bears directly to the contrary" is unfair prejudice to the accused. The objection to the introduction of weapons or other demonstrative evidence, especially when not connected with the defendant or his crime, on the ground of unfair prejudice is based on sound psychological and philosophical principles. *Page 289
They are "First, there is a natural tendency to infer from the mere production of any material object, and without further evidence, the truth of all that is predicated of it. Secondly, the sight of deadly weapons or of cruel injuries tends to overwhelm reason and to associate the accused with the atrocity without sufficient evidence." 4 Wigmore, Evidence, sec. 1157, p. 254.
The presence of factors obviating these objections are not present in the instant case. "The objection in its first phase may be at least partly overcome by requiring the object to be properly authenticated, before or after production; and this requirement is constantly enforced by the Courts. The objection in its second phase cannot be entirely overcome, even by express instructions from the court; but it is to be doubted whether the necessity of thus demonstrating the method and results of the crime should give way to this possibility of undue prejudice." 4 Wigmore, Evidence, sec. 1157, p. 254.
Error in the admission of evidence "should not be declared harmless unless it is so without question." State v. Richards,334 Mo. 485, 494, 67 S.W.2d 58, 61. The record does not demonstrate that the defendant was not injured by the error as by showing that the jury disregarded or could not have been influenced by the evidence. State v. Nasello, 325 Mo. 442,30 S.W.2d 132; 24 C.J.S., Secs. 1915, 1915(7), pp. 954-958, 980-981. The object was a lethal weapon — coincidentally a .25 caliber automatic pistol. The inherent nature of the weapon was such, under the circumstances of this case, that the jury would undoubtedly have a tendency to infer from a demonstration with it "the truth of all that is predicated of it" when in fact it had nothing whatever to do with the defendant or the crime.
Because of this prejudicial error the appellant is entitled to a new trial and the cause is accordingly reversed and remanded.Westhues, C., dissents; Bohling, C., concurs.
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07-05-2016
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47 B.R. 882 (1983)
In re FIRST INTERNATIONAL SERVICES CORPORATION, Debtor.
FIRST INTERNATIONAL SERVICES CORPORATION, Plaintiff,
v.
ECONOTECH SERVICES, INC., Defendant.
Bankruptcy No. 5-81-00354, Adv. No. 5-83-0240, Civ. Misc. No. B-83-71.
United States District Court, D. Connecticut.
October 4, 1983.
Bertin C. Emmons, Boston, Mass., Barbara Hadley Katz, DiPietro, Kantrovitz & Brownstein, New Haven, Conn., for plaintiff.
Richard J. Kwasny, Robert Joel Zakroff, Washington, D.C., for defendant.
RULING ON MOTIONS FOR CHANGE OF VENUE
ELLEN B. BURNS, District Judge.
Plaintiff filed a petition under Chapter 11 of the Bankruptcy Code on April 12, 1981, in the United States Bankruptcy Court for the District of Connecticut. On April 18, 1983, plaintiff filed these adversary proceedings in the bankruptcy court, seeking to recover franchise termination and other fees and to enforce compliance with the reorganization plan. Subsequently, on May 27, 1983, the Bankruptcy Judge removed this and the related adversary matters to the United States District Court for the District of Connecticut. The defendants filed motions in both cases for change of venue to the United States District Court for the District of Maryland, pursuant to 28 U.S.C. Sections 1404 and 1406.
The plaintiff-debtor is a franchisor of hair styling salons which operate throughout the United States and Canada. It is currently operating under a reorganization plan (Plan) confirmed by an order of the Bankruptcy Court. In addition, the parties entered into a Stipulation for Interim Funding (Stipulation) dealing with operations during the period between the filing of the Plan and its confirmation. Both the Plan and the Stipulation, out of which the claims in the Complaint arise, are on file in the *883 bankruptcy court and may become part of the record in these adversary proceedings.
At the bankruptcy court's hearing on the confirmation of plaintiff's Plan, plaintiff's witnesses testified as to the importance of an inexpensive collection process to recover the fees due plaintiff under the Plan. Plaintiff has filed several complaints seeking to compel compliance with the Plan and to collect termination fees from former franchisees operating in as many as nine states. Plaintiff argues that the viability of its reorganization plan requires these collection suits to proceed in one forum rather than around the country.
DISCUSSION
It appears that venue for the two adversary proceedings may lie either in the District of Connecticut or the District of Maryland. Therefore, 28 U.S.C. Section 1404(a) is the statutory provision governing this motion for a change of venue. Under that provision, the Court may exercise its sound discretion to determine whether the interests of justice would be served by a transfer. Among the factors affecting a decision to transfer under 28 U.S.C. Section 1404(a), the Court may consider the convenience of witnesses, see e.g., Saminsky v. Occidental Petroleum Co., 373 F. Supp. 257, 259 (S.D.N.Y.1974), the relative financial resources of the parties, see e.g., Wyndham Associates v. Bintliff, 398 F.2d 614, 619 (2d Cir.), cert. denied, 393 U.S. 997, 89 S. Ct. 444, 21 L. Ed. 2d 438 (1968), the choice of law, see e.g., Lieb v. American Pacific International, Inc., 489 F. Supp. 690, 697 (E.D.Pa.1980), and judicial economy, see e.g., Wyndham Associates v. Bintliff, supra.
In addition to the usual factors considered under 28 U.S.C. Section 1404(a), bankruptcy courts have recognized several factors peculiar to bankruptcy proceedings in deciding a motion for change of venue under 28 U.S.C. Section 1475. These factors, derived from the remedial character of the reorganization proceeding, include "the proximity of creditors of every kind to the Court; the proximity of the debtor to the Court; the proximity of the witnesses necessary to the administration of the estate; the location of the assets; the economic administration of the estate; and the necessity for ancillary administration if bankruptcy should result." In re Cole Associates, Inc., 7 B.R. 154, 157 (Bkrtcy.D. Utah 1980). These factors weigh heavily in favor of a forum in the same district as the bankruptcy proceedings.
The Report of the Commission on the Bankruptcy Laws of the United States, which led to the passage of the Bankruptcy Reform Act of 1978, noted the importance of diminishing
the handicaps imposed on litigation by the trustee in the bankruptcy court by the jurisdictional limitations, while providing a mechanism for assuring convenience to all parties to particular litigation and ensuring that the more general public interest in a fair and expeditious disposition of the litigation will be appropriately balanced in the final selection of a forum.
Reprinted in Collier on Bankruptcy, Appendix 2, at 89-90 (15th ed. 1979). The new Bankruptcy Act "presumptively centered all bankruptcy-related litigation in one bankruptcy court, but provided exceptions to the general rule in certain cases where there was a non-forum district defendant." Matter of Trim-Lean Meat Products, Inc., 11 B.R. 1010, 1012 (D.C.D. Del.1981). The exceptions to the general rule that venue will lie in the bankruptcy court, listed in 28 U.S.C. Section 1473, are not applicable here. While the adversary proceedings at issue here have been removed to the District Court, there remains a presumption that venue should lie in the same district as the bankruptcy proceedings.
Plaintiff argues not only that the bankruptcy estate is administered in Connecticut, but that other adversary proceedings have been brought in Connecticut. Plaintiff's successful reorganization, with its resulting benefit to unsecured creditors, should be facilitated by prosecution of these cases in one forum. Plaintiff notes, *884 as well, that the franchise agreement with the defendants in each of the adversary proceedings provides for application of Connecticut law; the settlement by arbitration in Connecticut of disputes relating to the franchise agreements, and jurisdiction of the Superior Court of the State of Connecticut. It is clear that defendants had notice that they might be brought into court in Connecticut.
Defendants support their motions with conclusory allegations that the bulk of witnesses are located in the District of Maryland and that defendants will be unduly burdened by defense of the actions in Connecticut. The defendants do not identify the roles of the necessary witnesses from Maryland or otherwise explain their allegations.
Given the Congressional preference for centering bankruptcy-related proceedings in one district and the choice of Connecticut law and of a Connecticut forum within the franchise agreements, without counter-balancing claims by defendants, the Court finds that the interests of justice would be served by denying the motions to transfer.
SO ORDERED.
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10-30-2013
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The foregoing opinion by BARRETT, C., is adopted as the opinion of the court. All the judges concur.
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01-03-2023
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07-05-2016
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This is an original proceeding in mandamus to compel the respondent, the judge of the Circuit Court of Cass County, Missouri, to set aside an order and judgment sustaining the defendants' plea to the jurisdiction of respondent over the persons of the defendants, and dismissing the case wherein this relator is plaintiff and J. Clarence Fry and Robert W. Pringle, the executors of the estate of George H. Nute, deceased, and J. Clarence Fry and Esther M. Fry, his wife, Robert W. Pringle and Georgia Pringle, his wife, Louise Haines, Mina Loersch and Walter Loersch, her husband, Clara A. Nute, the Town of Wolfboro, Carroll County in the State of New Hampshire, the George H. Nettleton Home for Aged Women in Kansas City, Jackson County, Missouri, and the Children's Mercy Hospital located in Kansas City, Jackson County, Missouri, are defendants.
That cause of action was instituted in the Circuit Court of Cass County by the relator as plaintiff and the petition in substance stated that William T. Nute, Sr., was a resident of Jackson County, Missouri, and died on September 13, 1911, and that he left surviving him this relator as his only child and sole heir at law, and Hazel H. Nute, his wife, who was the mother of this relator. At the time of his death, and for many years prior to it, W.H. Nute, Sr., was in partnership with George H. Nute, under the firm name and style of "Nute Brothers" and engaged in the business of livestock brokers, in Kansas City, Missouri; that the partnership business, at the time of the death of William T. Nute, Sr., was very prosperous and paying high profits and returns on the capital investment, and that the good will of the said business was very valuable. The petition also stated that William T. Nute, Sr., and George H. Nute were brothers of the half-blood; that at the time of William T. Nute's death, the relator was a minor having been born on December 21, 1909; that on or about October 11, 1911, while relator's mother, Hazel H. Nute, was acting as natural guardian for the relator, the relator having no legal guardian, for and in his behalf entered into a contract not in writing wherein the said George H. Nute agreed to act as the legal guardian of the estate of the relator during the relator's minority, and that his share and interest in the estate of William T. Nute, Sr., deceased, including the share in the estate, should be collected, retained, cared for, controlled, managed, and used in said business as long as relator remained a minor; that in consideration thereof George *Page 1112
H. Nute agreed to allow interest on the amount of relator's estate, so used by George H. Nute, at the rate of 6 per cent per annum; and that when the relator should arrive at his majority, George H. Nute would turn over all principal remaining in his hands to this relator. It was further agreed that George H. Nute, in consideration of the benefits by him to be derived by the use of relator's property in the business, would pay to the relator the sum of $25,000 at the time he became of age, and that he would make a will leaving the relator the sum of $25,000 so that he would be paid if he became of age after the death of George H. Nute.
In pursuance of that agreement on October 11, 1911, George H. Nute was appointed by the Probate Court of Jackson County, Missouri, guardian of the estate of relator, duly qualified and thereafter acted as such until relator's legal majority, and that under the agreement took and received into his care, control and management the estate of relator and thereafter used the same in his business until relator arrived at his legal majority, at which time George H. Nute paid to the relator the sum of $9308.40, which he claimed to be the amount of the principal then belonging to the relator's estate, but he did not pay the relator the sum of $25,000 nor make any provisions to pay the relator out of his estate. The petition further stated that the relator had fully performed all the conditions of his part of the agreement, but that George H. Nute failed to perform his part of the agreement in that he failed to pay to the relator the sum of $25,000 at the time he became of age nor did he make any provisions to pay the relator this sum out of his estate, and that he did not account for the relator's share of the good will of the partnership business which was alleged to be of the value of $5000. That George H. Nute died September 28, 1931, a resident of Cass County, Missouri, and left his last will and testament, which was filed and probated in the probate court of that county; he left no children or other descendants or widow. That under the provisions of the will the defendants, J. Clarence Fry and Robert W. Pringle, were appointed by the probate court executors of the estate of said George H. Nute, deceased, and qualified as such; that under the provisions of the will all of the defendants named in the circuit court proceedings are named as devisees and legatees of said estate. The petition further alleged that George H. Nute at divers times, after entering into the agreement with relator's mother and while he was using the relator's property, told relator and his mother that he would make a will in accordance with the agreement providing that the relator should receive $25,000 out of his estate. That on May 27, 1927, George H. Nute, while mentally incapacitated to make a deed or transact any business, and while he was under the undue influence and domination of the said J. Clarence Fry and his wife, and Robert W. Pringle and his wife, *Page 1113
executed a deed conveying the farm in Cass County to J. Clarence Fry and Robert W. Pringle; that this conveyance was without consideration and the farm rightfully belonged to the estate of George H. Nute. The petition in the circuit court asked for the specific performance of the agreement, and for judgment in the sum of $25,000 with interest from the date the relator became of age and for the further sum of $5000 for his share of good will with interest from October 11, 1911, and that the same be declared to be charges and liens against the Cass County land and all other property belonging to the estate to the exclusion of any other claims of the legatees and devisees named in the will.
The defendants in the circuit court proceedings in Cass County filed a plea to the jurisdiction showing that none of the defendants were served by summons in Cass County, Missouri; and that the plaintiff was a resident of the State of California and for that reason the circuit court did not have jurisdiction over the persons of the defendants. The plea to the jurisdiction was sustained by the respondent and the cause dismissed. The relator filed a motion to set aside the order and judgment sustaining the defendants' plea to the jurisdiction, which motion was overruled by the respondent.
[1] Respondent has waived the issuance of the alternative writ and demurred to the petition therefor. This puts the cause at issue. [State ex rel. v. Gordon, 238 Mo. 168, 142 S.W. 315, Ann. Cas. 1913 A, 312.] The allegations of the petition demurred to stand admitted. [State ex rel. v. Reynolds, 256 Mo. 710, 165 S.W. 801; State ex rel. v. Hackmann, 283 Mo. 469, 223 S.W. 575.]
In determining whether or not the respondent had jurisdiction to try the cause pending before him, it is first necessary to decide if the petition states a cause of action in equity. The petition contains many irrelevant allegations. The prayer of the petition asks for "specific performance of said contract and agreement entered into by plaintiff's mother, as his natural guardian, with the said George H. Nute as aforesaid, and that plaintiff have judgment in the sum of $25,000 with interest thereon from date when plaintiff became of legal majority, December 21, 1930, at six per cent per annum, and the further sum of $5000 for the share of plaintiff in the good will of said business with interest thereon at six per cent per annum from October 11, 1911, and that said sums be declared and decreed to be charges and liens against said Cass County land and all other property belonging to said estate to the exclusion of any claims" of the defendants. [2] The relator seeks an ordinary money judgment and further asks that the judgment be declared a lien upon all property belonging to the estate and upon the Cass County land that had previously been conveyed by George H. Nute. If the relator's petition does not state facts that entitle him to the lien asked for, then he *Page 1114
would only be entitled to an ordinary money judgment, and, therefore, he would have an adequate remedy at law. The petition does not allege that George H. Nute promised to secure the payment of either of these sums asked for in the petition. Nor does the petition allege that the estate is insolvent, but on the other hand specifically states that the relator "does not know and is not informed as to the value and worth of the said George H. Nute, deceased."
In Dazey v. Laurence, 153 Mo. App. 435, l.c. 441, 134 S.W. 85, the Springfield Court of Appeals in speaking of a similar situation said:
"One of the requisites to the exercise of equitable jurisdiction is the absence of an adequate remedy at law. Equity does not supplant the law, but only lends its aid when the legal remedy is in some way inadequate. The real end sought to be attained in this case is damages for a breach of contract and security for such damages. Why should the security be exacted, and what reason is there for asking a court of equity to enforce it as a lien upon the land in question? If defendant, Frank Elvin, who breached his contract, is solvent so that a money judgment can be collected by execution, then plaintiff has an adequate remedy at law, and there is no occasion for him to apply to a court of equity for protection. There is no testimony whatever in this case as to whether defendant, Frank Elvin, was solvent or insolvent. Plaintiff charged him to be insolvent, but this is put in issue by the answer of Laurence, and since plaintiff is only seeking to recover and enforce collection of a money judgment, the burden was upon him to prove the insolvency of Frank Elvin in order to place himself in a position to insist upon his right to have his demand made a lien upon the land Frank Elvin had agreed to pledge as security for his debt to plaintiff. Having failed to do this he has failed to show any ground for equitable relief."
Without the allegation that George H. Nute agreed to secure the relator or an allegation that the estate is insolvent we do not believe that the relator would be entitled to the lien as prayed for in the petition.
Moreover, the allegation that "the said obligation of said George H. Nute to pay plaintiff the sum of $25,000 became, was and is a charge and lien on all the said property which he, the said George H. Nute, owned," is a mere conclusion and has no force as an issuable fact essential to the statement of a cause of action. [Musser v. Musser, 281 Mo. 649, 221 S.W. 46.]
The allegation that George H. Nute deeded the Cass County land to the defendants, J. Clarence Fry and Robert W. Pringle, without a sufficient or valuable consideration is no concern of the relator when he failed to allege in his petition that the estate was insolvent. Before this deed could be set aside it would first be necessary for the relator to allege and prove that the estate was insolvent and to *Page 1115
establish his claim as a creditor of the estate. [Merry v. Fremon, 44 Mo. 518; Humphreys v. Atlantic Milling Co.,98 Mo. 542, 10 S.W. 140; Lyons v. Murray, 95 Mo. 23, 8 S.W. 170.]
[3] The allegation in the petition to the effect that a large amount of personal property was not inventoried is not sufficient to make this a case in equity. Section 63, Revised Statutes 1929, provides a method for the executor or administrator or other person interested in the estate to discover assets of the estate that are not inventoried by filing an affidavit to the effect that a person has concealed or embezzled or wrongfully withheld property belonging to the estate. We do not see how the relator can be a person interested in the estate unless he is a creditor of the estate and its assets are insufficient to pay its debts. Unless there is some purely equitable ground stated to determine the title to the property that is alleged to belong to the estate, the probate court has exclusive jurisdiction to determine whether there has been any property concealed or embezzled, or otherwise wrongfully withheld from the assets of the estate.
In the case of Bank of Willow Springs v. Lillibridge,316 Mo. 968, 293 S.W. 116, we said:
"The appellant claims that the circuit court had no jurisdiction of the subject-matter of this action, and that the proper proceeding was that undertaken and carried through by the probate court under Section 62, Revised Statutes 1919, where the executor, administrator, or other person interested in any estate might start a proceeding in the probate court on a showing that some person `has concealed or embezzled, or is otherwise wrongfully withholding any goods, chattels, money, books, papers or evidences of debt of the deceased.'
"In support of that position the appellant cites among other cases, Clinton v. Clinton, 223 Mo. 371, 123 S.W. 1, and Brewing Co. v. Steckman, 180 Mo. App. 320, 168 S.W. 226. The opinion in the Clinton case reviews and adopts an opinion by Judge GOODE in In re Estate of Huffman, 132 Mo. App. 44, 111 S.W. 848. The Huffman case and the Clinton case, therefore, taken together, announce the rule contended for by appellant as strongly as it may be put. In a proceeding to discover assets, the probate court has jurisdiction to try the issues raised, and in doing so may determine the title to the property alleged to be withheld. If the person against whom the proceeding is instituted claims the title to the property by gift of the deceased, or otherwise, the probate court has jurisdiction to try the title.
"It is a general rule that a probate court has no equitable jurisdiction; no jurisdiction to try issues which are purely equitable in their nature, and where the relief demanded is equitable.
"In State ex rel. v. Shackelford, 263 Mo. l.c. 63, 172 S.W. 350, quoting from State ex rel. v. Bird, 253 Mo. l.c. 580, 162 S.W. 122, Ann. Cas. 1915C, 1353, it was said: `While the rule announced in *Page 1116
the two cases last cited is undoubtedly sound law, I am not willing to concede that a probate court has jurisdiction to entertain a suit or proceeding, the sole basis of which is a demand for equitable relief, even though such relief should incidentally pertain to some matter of probate jurisdiction.'
"Numerous cases are cited by respondent to the effect that the probate court has no jurisdiction of strictly equitable issues."
[4] As we see the petition, the relator's cause of action is one for damages for the failure of George H. Nute to give him $25,000 when he became of age and $5000 for the use of the good will of the firm, or if George H. Nute died prior to the time the relator became of age, then he agreed to make a will leaving the relator $25,000. The failure to make a will under such conditions leaves the relator with an adequate remedy at law as he has an action for a breach of the contract.
In Morrison v. Land, 169 Cal. 580, 147 P. 259, the Supreme Court of California said:
"There is no dissent in the authorities from the proposition that one may make a valid contract with another to devise or bequeath property by his last will in a certain specified way. It is clear that in the event of a breach of such a contract, the party damaged has an action at law for the damage caused by such breach of the promisor, and in some cases this, by reason of the circumstances, may be his only remedy, for a resort to any equitable remedy can be had only where the circumstances are such as to make the case one within the well-settled principles relative to the proper exercise of equitable jurisdiction."
In Ex parte Simons, 247 U.S. 231, 38 Sup. Ct. 497, 62 L. Ed. 1094, the Supreme Court of the United States said:
"No doubt alleged contracts to make a provision by will must be approached with great caution in the matter of proof, but there is no doubt that if proved they are valid so far as no statute intervenes. So much seems to be assumed by the order of the judge, and is the law we believe of New York as well as of other states and England. But if valid we see no reason why a contract to bequeath a certain sum should not give rise to an action for damages if broken, as certainly as a contract to pay the same sum in the contractor's life, or at the moment of the contractor's death. . . . If we are right, the order was wrong and deprived the plaintiff of her right to trial by jury."
We do not believe that the case of Hall v. Getman,121 Mo. App. 630, 97 S.W. 607, cited by relator, is in point. In that case the deceased promised the plaintiff that if she would come and live with her until her death, she would give plaintiff all of her property. Deceased did not promise to give any specific amount of money but all of her property. In that case plaintiff brought an action to recover *Page 1117
damages for breach of the contract. The Kansas City Court of Appeals in its opinion said:
"To permit plaintiff in the law action to recover the estimated value of the property mentioned in the contract would be, not only a flagrant violation of the statute requiring wills to be in writing, but it would be putting into an unalterable judgment, and thus making fixed and definite, that which, under the terms of the contract, is, in its very nature, indefinite and contingent. The contract contemplated that the demands of creditors of all classes should be satisfied in full out of the estate before plaintiff should receive anything, but, if plaintiff is permitted to recover a money judgment for the estimated value of that residue and thereby become a creditor of the estate, it is not only possible, but very likely, that her claim, added to the other proven demands, would exceed the amount of the proceeds actually derived from the administration of the estate, and other creditors, being compelled to prorate with her, would receive less than full payment, and thus plaintiff would obtain more than the contract entitled her to receive. The opinion of witnesses and the judgment of the jury, may easily err in estimating the value of the property, and, until the time for proving demands against the estate has expired, the witnesses may err in their statement of the amount and character of the indebtedness of the estate. To impose any part of the burden of such mistakes on the creditors would be in direct violation of the terms of the contract, and for that reason, if for no other, should not be permitted."
[5] The relator contends that even if the original case, brought by the relator in the Circuit Court of Cass County, was an action in law, that court would have original and concurrent jurisdiction with the probate court and relator's action was rightfully brought in that circuit court. There is no doubt that under Section 189, Revised Statutes 1929, the Circuit Court of Cass County had jurisdiction of the subject-matter of the cause of action alleged in the petition. This section is as follows:
"Any person having a demand against an estate may establish the same by the judgment or decree of some court of record, in the ordinary course of proceedings, and exhibit a copy of such judgment or decree, and shall also exhibit copies of all judgments or decrees rendered in the lifetime of the deceased to the probate court, and when a claim is allowed against an estate which is secured by mortgage, deed of trust or other lien held by the creditor, the same may be allowed as other claims, but shall not be paid until such security held by the claimant has been exhausted; but if such security be not sufficient to pay off and discharge the debt of such creditor, then such creditor for the residue of his debt shall be entitled in common with other creditors to have the same paid out of the estate."
As the relator lived in the State of California and none of the *Page 1118
defendants lived or were served with process in Cass County, the question then is, did that court have jurisdiction over the persons of the defendants? Relator contends that Section 189, supra, allows a claim against an estate to be established in the first instance by a judgment in the circuit court and that Section 5, Revised Statutes 1929, gives the circuit court of the county, in which the estate is being probated, jurisdiction over the persons of the defendants even though the defendants were served by summons in another county. Section 5, supra, is as follows:
"All orders, settlements, trials and other proceedings contemplated by articles one to thirteen, inclusive, of this chapter shall be had or made in the county in which the letters testamentary or of administration were granted."
We do not agree with the relator. If his contention is correct, then under Section 5, supra, the circuit court of the county in which the estate is being administered would have exclusive jurisdiction to by demands against the estate. Section 189, supra, provides that such demands may be established by judgment or decree of "some court of record" and "in the ordinary course of proceedings." We believe that Section 5, supra, relates only to proceedings in the probate courts and has nothing to do with suits in the circuit courts. After the judgment is obtained in the circuit court it is then necessary for the proper probate court to classify the claim. In the case of Green v. Strother,201 Mo. App. 418, 212 S.W. 399, in speaking of Section 189, supra, the Kansas City Court of Appeals said:
"The statute simply provides that the claimant may elect to first go into a court of record and establish his claim against the estate there by the same kind of proceeding that he would pursue if the deceased had not died, but was sued while living." In the case of Yarde v. Hines, 238 S.W. 151, l.c. 153,209 Mo. App. 547, in discussing Section 5, supra, the Kansas City Court of Appeals said:
"It is insisted that the Circuit Court of Jackson County was without jurisdiction over the subject-matter because the suit could be brought only in Macon County where plaintiff was appointed administratrix. In support of this defendant cites Section 5, Revised Statutes 1919. This statute relates to the administration of estates in the probate court, and has nothing to do with suits of this character. This suit was properly brought under Section 1180, Revised Statutes 1919."
We, therefore, believe that the Circuit Court of Cass County did not have jurisdiction over the persons of these defendants and that proceedings of this character are governed by Section 720, Revised Statutes 1929, and that the respondent correctly ruled on the plea in abatement. The writ of mandamus is, therefore, denied.
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01-03-2023
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07-05-2016
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https://www.courtlistener.com/api/rest/v3/opinions/4555630/
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Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
08/14/2020 08:08 AM CDT
- 192 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
LAMBERT v. LINCOLN PUBLIC SCHOOLS
Cite as 306 Neb. 192
Jena Lambert, individually and as guardian and
next friend of Olivia Lambert, a minor,
appellant, v. Lincoln Public
Schools et al., appellees.
___ N.W.2d ___
Filed June 19, 2020. No. S-19-620.
1. Summary Judgment: Appeal and Error. An appellate court affirms a
lower court’s grant of summary judgment if the pleadings and admitted
evidence show that there is no genuine issue as to any material facts or
as to the ultimate inferences that may be drawn from the facts and that
the moving party is entitled to judgment as a matter of law.
2. ____: ____. In reviewing a summary judgment, an appellate court views
the evidence in the light most favorable to the party against whom the
judgment was granted, and gives that party the benefit of all reasonable
inferences deducible from the evidence.
3. Political Subdivisions Tort Claims Act: Liability. Whether undisputed
facts demonstrate that liability is precluded by the discretionary function
exception of the Political Subdivisions Tort Claims Act is a question
of law.
4. Jurisdiction. Whether a court has subject matter jurisdiction is a thresh-
old issue that should be resolved prior to an examination of the merits.
5. Political Subdivisions Tort Claims Act: Dismissal and Nonsuit:
Immunity. In cases under the Political Subdivisions Tort Claims Act, if
the discretionary function exception applies, the political subdivision is
immune from suit and the proper remedy is to dismiss the action for lack
of subject matter jurisdiction.
6. Tort Claims Act: Political Subdivisions Tort Claims Act: Jurisdiction:
Dismissal and Nonsuit. Because it presents a jurisdictional question,
courts should determine the applicability of a statutory exception under
the Political Subdivisions Tort Claims Act or the State Tort Claims Act
before considering nonjurisdictional grounds for dismissal.
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LAMBERT v. LINCOLN PUBLIC SCHOOLS
Cite as 306 Neb. 192
7. Tort Claims Act: Political Subdivisions Tort Claims Act. The purpose
of the discretionary function exception of the State Tort Claims Act and
the Political Subdivisions Tort Claims Act is to prevent judicial “second-
guessing” of legislative and administrative decisions grounded in social,
economic, and political policy through the medium of an action in tort.
It does not extend to the exercise of discretionary acts at an operational
level, where there is no room for policy judgment. It is the nature of
the conduct, rather than the status of the actor, that governs whether the
discretionary function applies in a given case.
8. ____: ____. A two-part analysis determines whether the discretion-
ary function exception applies. First, the court must consider whether
the action is a matter of choice for the acting political subdivision or
employee. Second, if the court concludes that the challenged conduct
involves an element of judgment, it must then determine whether that
judgment is of the kind that the discretionary function exception was
designed to shield.
Appeal from the District Court for Lancaster County: John
A. Colborn, Judge. Affirmed.
John P. Weis, of Wolfe, Snowden, Hurd, Ahl, Sitzmann,
Tannehill & Hahn, L.L.P., for appellant.
Joshua J. Schauer and Haleigh B. Carlson, of Perry, Guthery,
Haase & Gessford, P.C., L.L.O., for appellee Lincoln Public
Schools.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke,
Papik, and Freudenberg, JJ.
Stacy, J.
A minor child and her mother were bitten by a dog on a
public school playground after students had been dismissed
for the day. They filed a tort action under the Political
Subdivisions Tort Claims Act (PSTCA) 1 generally alleging
Lincoln Public Schools (LPS) was negligent in failing to
enforce a policy of “no dogs” on the playground and in failing
to supervise the playground area after classroom instruction
ended. The district court granted LPS’ motion for summary
1
Neb. Rev. Stat. §§ 13-901 to 13-928 (Reissue 2012).
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Cite as 306 Neb. 192
judgment, finding that LPS was immune from suit under the
discretionary function exception 2 to the PSTCA and, alterna-
tively, finding that LPS owed no legal duty under the circum-
stances. A timely appeal was filed, and we moved the case to
our docket.
Because we agree LPS is immune from suit under the dis-
cretionary function exception, we affirm.
I. BACKGROUND
LPS is a political subdivision of the State of Nebraska. LPS
operates Sheridan Elementary School (Sheridan) in Lincoln,
Nebraska. At all relevant times, Olivia Lambert was a student
at Sheridan.
1. Dog Bite
On April 4, 2016, Sheridan dismissed students at 3:38 p.m.,
the normal time. Olivia’s mother, Jena Lambert, waited at the
dismissal door for Olivia to arrive, after which they walked
to the playground area on the south side of Sheridan, where
they joined other parents and students who were using the
playground.
At approximately 4 p.m., Kristine A. Griffin and Brian T.
Griffin, and their 8-year-old son, arrived at the Sheridan play-
ground. Kristine walked the family’s dog, on a leash, on the
city streets near the playground area. When Kristine asked
her son to hold the leash while she cleaned up after the dog,
he took the dog onto the Sheridan playground where Olivia
was playing. The dog bit Olivia’s hand, and while Jena was
attempting to help Olivia, the dog bit Jena’s abdomen.
Both Olivia and Jena were taken to a local hospital where
they received medical care. Olivia’s injury required surgery.
2. Lawsuit
Jena, individually and as guardian and next friend of Olivia
(collectively the Lamberts), filed this tort action against the
Griffins and against LPS. The parties do not dispute that
2
§ 13-910(2).
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LAMBERT v. LINCOLN PUBLIC SCHOOLS
Cite as 306 Neb. 192
the Lamberts complied with the presuit notice requirements
of the PSTCA before commencing the action. The opera-
tive amended complaint alleged the Griffins were negligent
in not properly confining and restraining their dog, and it
alleged LPS was negligent in failing to properly supervise and
monitor the Sheridan playground area and in failing to enforce
Sheridan’s “no dogs” policy.
The Griffins did not file a responsive pleading, and even-
tually, the Lamberts moved for default judgment. The dis-
trict court granted the motion, entering judgment against the
Griffins and in favor of the Lamberts in the total amount of
$140,000. No party has appealed that judgment.
LPS moved for summary judgment arguing, among other
things, that LPS owed no legal duty to the Lamberts on these
facts and that LPS was immune from suit under the discretion-
ary function exception of the PSTCA. Based on the evidence
received at the summary judgment hearing, the trial court
found the following facts were undisputed:
(a) School Hours
At Sheridan, the schoolday begins at 8:50 a.m. and ends at
3:45 p.m. Classroom instruction begins at 9 a.m. and ends at
3:38 p.m. The student dismissal period begins once classroom
instruction is over and ends at 3:50 p.m. Sheridan teachers are
required to be at work from 8:15 a.m. to 3:45 p.m., and the
school office closes at 4:30 p.m. Sheridan staff often remain in
the school building past the 3:50 p.m. student dismissal time.
After the student dismissal period, some Sheridan students
remain in the school building as late as 4:40 p.m. to engage
in non-LPS activities such as clubs sponsored by the parent-
teacher organization or “Family Services” activities. LPS does
not administer or supervise these after-school activities.
On the afternoon of April 4, 2016, when the dog bites
occurred, it was after the regular schoolday had ended and after
Sheridan students had been dismissed. Jena and Olivia were
not on the Sheridan playground in connection with an after-
school activity or club.
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LAMBERT v. LINCOLN PUBLIC SCHOOLS
Cite as 306 Neb. 192
(b) LPS Policy on Animals
On April 4, 2016, LPS “Regulation 3971.1” provided in
relevant part:
Animals at large. It shall be unlawful for any person
to allow or permit any dog or other animal to run at large
on any school ground. The term “at large” is defined to
mean not under the control of any person either by leash,
cord, chain, or confinement within a vehicle or pen or
other similar enclosure.
The LPS assistant superintendent for general administra-
tion and governmental relations testified that on April 4, 2016,
the official LPS policy was that a dog was allowed on school
grounds it if was on a leash and under control. He testified that
this policy generally applied only during the schoolday, and he
defined the term “schoolday” as beginning when students can
arrive at school and ending when students are dismissed.
(c) Other LPS Policies
LPS policies give the administrators and supervisory staff at
individual schools full power and authority to implement and
enforce restrictions on the use of school grounds. Additionally,
each school is authorized to determine how long before and
after the student schoolday staff is required to be on site, and
the principal designates which staff is required to serve on
playground, lunchroom, and hall supervision.
(d) Sheridan’s Policy on Dogs
Sheridan has adopted a policy on dogs that is more restric-
tive than the LPS regulation on animals. According to
Sheridan’s principal, on April 4, 2016, the policy at Sheridan
was “no dogs on school grounds.” The principal testified that
this “no dogs” policy was mentioned in the school handbook
and in school newsletters, and a sign near the Sheridan play-
ground had a red strike through an image of a dog, indicat-
ing dogs are not allowed. Both the principal and a Sheridan
teacher testified that if Sheridan staff see people with dogs
on school grounds during school hours, even on leashes, they
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LAMBERT v. LINCOLN PUBLIC SCHOOLS
Cite as 306 Neb. 192
ask them to remove the dog from school grounds. The prin-
cipal also testified that Sheridan’s “no dogs” policy applies
only during school hours, from 8:50 a.m. to 3:45 p.m., and
that once the schoolday ends, Sheridan staff do not monitor
the playground area and it becomes “kind of like a park . . .
after hours.”
(e) Summary Judgment Order
The district court granted summary judgment in favor of
LPS and dismissed the Lamberts’ tort action with prejudice. It
concluded that summary judgment was appropriate on several
grounds, including that LPS had no legal duty and that the
Lamberts’ claim was barred under the discretionary function
exception under the PSTCA 3.
Regarding Sheridan’s “no dogs” policy, the district court
found the evidence was undisputed that Sheridan had a policy
that no dogs were permitted on the school grounds and that this
policy was limited to regular school hours. It found that the
decision of Sheridan administrators not to supervise or monitor
the playground area after school hours, and thus not to enforce
the “no dogs” policy after school hours, was an administrative
decision grounded in social, economic, and political policy and
was the type of decision that fell squarely within the discre-
tionary function exception.
The Lamberts filed this timely appeal, which we moved to
our docket on our own motion.
II. ASSIGNMENTS OF ERROR
The Lamberts assign, restated and summarized, that the dis-
trict court erred in (1) determining the discretionary function
exception applied to bar the Lamberts’ claim and (2) finding
LPS owed no legal duty under the circumstances.
III. STANDARD OF REVIEW
[1,2] An appellate court affirms a lower court’s grant of
summary judgment if the pleadings and admitted evidence
3
See id.
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LAMBERT v. LINCOLN PUBLIC SCHOOLS
Cite as 306 Neb. 192
show that there is no genuine issue as to any material facts
or as to the ultimate inferences that may be drawn from the
facts and that the moving party is entitled to judgment as a
matter of law. 4 In reviewing a summary judgment, an appel-
late court views the evidence in the light most favorable to the
party against whom the judgment was granted, and gives that
party the benefit of all reasonable inferences deducible from
the evidence. 5
[3] Whether undisputed facts demonstrate that liability
is precluded by the discretionary function exception of the
PSTCA is a question of law. 6
IV. ANALYSIS
Before we review the lower court’s decision to grant sum-
mary judgment based on the discretionary function exception,
we comment briefly on the order in which a court should
address multiple grounds for dismissal. In cases such as this
one, where the political subdivision seeks summary judgment
on a number of different grounds, courts should address as a
threshold matter any grounds which are jurisdictional.
[4-6] Whether a court has subject matter jurisdiction is a
threshold issue that should be resolved prior to an examina-
tion of the merits. 7 In cases under the PSTCA, if the discre-
tionary function exception applies, the political subdivision
is immune from suit 8 and the proper remedy is to dismiss
the action for lack of subject matter jurisdiction. 9 Because
4
Williamson v. Bellevue Med. Ctr., 304 Neb. 312, 934 N.W.2d 186 (2019).
5
Id.
6
See Lemke v. Metropolitan Utilities Dist., 243 Neb. 633, 502 N.W.2d 80
(1993).
7
Hawley v. Skradski, 304 Neb. 488, 935 N.W.2d 212 (2019).
8
See McGauley v. Washington County, 297 Neb. 134, 897 N.W.2d 851
(2017).
9
Reiber v. County of Gage, 303 Neb. 325, 341, 928 N.W.2d 916, 928 (2019)
(“[a] suit that is barred by sovereign immunity is dismissed for lack of
subject matter jurisdiction”).
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Cite as 306 Neb. 192
it presents a jurisdictional question, courts should determine
the applicability of a statutory exception under either the
PSTCA or the State Tort Claims Act (STCA) 10 before consid-
ering nonjurisdictional grounds for summary judgment.
1. Applicable Legal Standards
The discretionary function exception is codified at
§ 13-910(2) and provides the PSTCA shall not apply to “[a]ny
claim based upon the exercise or performance of or the failure
to exercise or perform a discretionary function or duty on the
part of the political subdivision or an employee of the political
subdivision, whether or not the discretion is abused.” A simi-
lar provision is contained in the STCA, and we have held that
cases construing the STCA’s discretionary function exception
are equally applicable to cases under the PSTCA. 11
[7] The purpose of the discretionary function exception
of the STCA and the PSTCA is to prevent judicial “second-
guessing” of legislative and administrative decisions grounded
in social, economic, and political policy through the medium
of action in tort. 12 It does not extend to the exercise of discre-
tionary acts at an operational level, where there is no room for
policy judgment. 13 It is the nature of the conduct, rather than
the status of the actor, that governs whether the discretionary
function applies in a given case. 14
[8] A two-part analysis determines whether the discretion-
ary function exception applies. 15 First, the court must consider
whether the action is a matter of choice for the acting politi-
cal subdivision or employee. 16 Second, if the court concludes
10
Neb. Rev. Stat. §§ 81-8,209 to 81-8,235 (Reissue 2014).
11
See Shipley v. Department of Roads, 283 Neb. 832, 813 N.W.2d 455
(2012).
12
Id.
13
Holloway v. State, 293 Neb. 12, 875 N.W.2d 435 (2016).
14
Id.
15
See McGauley, supra note 8.
16
See id.
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Cite as 306 Neb. 192
that the challenged conduct involves an element of judgment,
it must then determine whether that judgment is of the kind that
the discretionary function exception was designed to shield. 17
Examples of discretionary functions include the initiation of
programs and activities, establishment of plans and schedules,
and judgmental decisions within a broad regulatory framework
lacking specific standards. 18
2. Lamberts’ Arguments
In arguing that the district court erred in applying the dis-
cretionary function exception, the Lamberts present two argu-
ments. First, they argue there is a genuine factual dispute about
whether Sheridan’s “no dogs” policy actually extended beyond
school hours. Second, and primarily, they argue the failure of
LPS employees to enforce Sheridan’s “no dogs” policy was
an operational judgment, and not the kind of judgment the
discretionary function exception was meant to shield. 19 As we
explain below, neither argument has merit.
(a) No Genuine Issue of Material Fact Regarding
Scope of Sheridan’s “No Dogs” Policy
We find no support in the record for the Lamberts’ sugges-
tion that there is a genuine issue of material fact regarding
whether Sheridan’s “no dogs” policy extended beyond the
hours students were in school. The Lamberts cite to depo-
sition testimony from a Sheridan teacher who also taught
after-school clubs pursuant to an agreement with Sheridan’s
parent-teacher organization. This teacher testified that when
students were dismissed from the after-school clubs, she, or
another person paid by the parent-teacher organization, would
stay with the students until they were picked up by a parent.
Even construing this testimony in the light most favorable to
the Lamberts and giving them every reasonable inference, this
17
Id.
18
Kimminau v. City of Hastings, 291 Neb. 133, 864 N.W.2d 399 (2015).
19
See McGauley, supra note 8.
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Cite as 306 Neb. 192
testimony had nothing to do with LPS employees monitoring
the playground area or enforcing the “no dogs” policy after
hours. There is nothing about this testimony that creates a
genuine issue of material fact concerning whether Sheridan’s
“no dogs” policy extended beyond regular school hours.
To the contrary, we agree with the district court that the
undisputed evidence in the record demonstrates that Sheridan’s
“no dogs” policy applied, and was enforced, only during
regular school hours, but not after students were dismissed for
the day.
(b) Discretionary Function Exception
Correctly Applied
The Lamberts concede that the decision of Sheridan admin-
istrators to adopt a “no dogs” policy was a discretionary
function, but they argue that the failure to enforce that policy
after school hours was a “failure on the operational level by
the employees to enforce the policy Sheridan had decided
to put in place.” 20 Their argument in this regard is premised
on the assumption that Sheridan’s “no dogs” policy applied
after school hours and therefore should have been enforced
after school hours. But this assumption finds no support in
the evidence.
As already stated, the evidence was undisputed that
Sheridan’s policy was not to allow dogs on the school grounds
during school hours, even on leashes, but that the “no dogs”
policy did not apply after regular school hours. And to the
extent the Lamberts can be understood to argue that Sheridan
negligently adopted a policy prohibiting dogs on school
grounds only during school hours, or that Sheridan negligently
decided not to supervise the playground after students were
dismissed for the day, we find such conduct falls squarely
within the discretionary function exception.
On this record, both steps of the discretionary function
analysis are met. Sheridan’s decision to enforce its “no dogs”
20
Brief for appellant at 21.
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policy only during school hours, and its decision not to super-
vise the playground area at all after school hours, involved
the exercise of judgment. 21 And it was precisely the kind
of judgment the discretionary function exception is designed
to shield. 22
LPS policies give individual school administrators broad
discretion as to what restrictions to place on the use of school
buildings and grounds and how to utilize staff to supervise
activities on school grounds. The record shows Sheridan
administrators, in the exercise of this discretion, decided to
establish and enforce a “no dogs” policy only during school
hours and decided not to supervise the school playground area
at all after students have been dismissed for the day. How to
utilize staff and budget to supervise school grounds and regu-
late activities thereon are administrative decisions grounded in
social, economic, and political policy, and they fall within the
discretionary function exception. 23
V. CONCLUSION
Because LPS is immune from the Lamberts’ claims under
the discretionary function exception of the PSTCA, the district
court correctly granted summary judgment on that basis and
dismissed the action as against LPS with prejudice. The judg-
ment of the district court is affirmed.
Affirmed.
21
See McGauley, supra note 8.
22
Id.
23
See Kimminau, supra note 18.
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01-03-2023
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08-14-2020
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
ABDELQADIR AL-MUDAFARI, )
)
Petitioner, )
)
v. ) Civil Action No. 05-CV-2185 (RCL)
)
BARACK H. OBAMA, et al., )
)
Respondents. )
)
SCHEDULING ORDER
THIS CAUSE comes before the Court upon the parties’ Joint Status Report. Based upon
the representations of the parties, it is hereby
1. ORDERED that Petitioner shall file his Amended Traverse on or before
October 15, 2010;
2. ORDERED that Respondents shall file their motion to amend the Factual
Return by November 19, 2010; and
3. ORDERED that the parties shall file a Joint Status Report on or before
December 3, 2010, in which they will either:
a. notify the Court that Petitioner seeks to move for additional discovery
and/or additional amendment to his Traverse and propose a briefing
schedule on that matter; or
b. propose a briefing schedule for the parties’ cross-motions for judgment
on the record.
SO ORDERED.
_8/10/2010_______ /s/
Date ROYCE C. LAMBERTH
CHIEF JUDGE
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01-03-2023
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04-04-2014
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https://www.courtlistener.com/api/rest/v3/opinions/2665589/
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
BEN JACOBS,
Plaintiff,
v. Civil Action No. 09-2134 (EGS)
FEDERAL BUREAU OF PRISONS,
Defendant.
MEMORANDUM OPINION
This matter is before the Court on the parties’ cross-motions for summary judgment.
Plaintiff’s motions for summary judgment will be denied, and defendant’s motion will be
granted in part and denied in part.
I. BACKGROUND
Plaintiff, a federal prisoner, brings this action under the Freedom of Information Act
(“FOIA”), see 5 U.S.C. § 552, against the Federal Bureau of Prisons (“BOP”), alleging that it
failed to respond to three FOIA requests sent in March 2008 by certified mail to its FOIA/PA
Office at the Washington, D.C. headquarters. See Compl. ¶¶ 1-2, 7; see also id., Ex. F-G
(certified mail receipt and United States Postal Service confirmation of delivery on March 17,
2008).
In the first request, plaintiff sought information pertaining to prices charged for
1
commissary items at FCI Butner:1
1. All memorandums, e-mails, reports, documents which authorize
institutional staff to mark up or raise the price of items in institutional
commissaries
2. All memorandums, e-mails, reports, documents which reveal
where these collected monies are stored locally & nationally
3. Any memorandums, e-mail, reports, or documents which pertain
for what this fund or account might be titled.
4. Any memorandums, e-mail, reports or documents which calculate
the interest & total monies collected in 2007 by FCI Butner from
interest or mark up to commissary items.
5. Any memorandums, e-mail, reports or documents which authorize
the BOP . . . to use these inflated rates.
6. Any memorandums, e-mail, reports, or documents which specify
how much items at FCI Butler could be increased in 2007.
Compl., Ex. C.
The second FOIA request pertained to plaintiff’s placement in a special housing unit in
November 2007:
1. All memorandums, e-mails, reports, documents bearing my name
and/or register number related to my being placed in the SHU on
November 17th 2007.
2. All memorandums, e-mails, reports, documents bearing my name
and/or register number related to my being placed in the dry cell on
November 17th 2007.
3. All memorandums, e-mails, reports, documents, lab reports or test
data related to the alleged evidence collected from dry cell on
November 20th 2007.
4. All memorandums, e-mails, reports, documents, chain of custody,
witness memos or test result witnesses related to collateral evidence
mentioned above, or any document related to this evidence.
Id., Ex. D.
1
The Federal Correctional Complex in Butner, North Carolina (“FCC Butner”) is
comprised of four facilities: the Federal Correctional Institution (FCI Butner), the Low Security
Correctional Institution (LSCI Butner), the Federal Medical Center (FMC Butner), and the
Federal Correctional Center II (FCI II Butner). Def.’s Mem. of P. & A. in Supp. of its Mot. for
Summ. J., Decl. of Alesia S. Sillah ¶ III.
2
Plaintiff’s third FOIA request pertained to his transport in March 2008:
1. Any documents which reveal the identity of the correction[s]
officer assigned to the back seat of the transport and the driver of said
bus on March 3rd, 2008.
2. Any memorandum, e-mail, report, document bearing my name or
register number by Lt. Bell on 3-3-08 pertaining to the injury
sustained by me from restraints.
3. Any memorandum, e-mail, report, document bearing my name or
register number by B.O.P. medical staff on 3-3-08 or after, pertaining
to the injury mentioned above.
4. Any other documents bearing my name or register number by any
B.O.P. employee pertaining [to] the injuries sustained by me from
restraints during transport on March 3, 2008.
Id., Ex. E.
The BOP did not receive these FOIA requests. Def.’s Opp’n to Pl.’s Mot. for Summ. J.,
Decl. of Alecia S. Sillah (“First Sillah Decl.”) ¶ 7. Upon receipt of plaintiff’s complaint, on
January 25, 2010, the BOP consolidated the requests and assigned them a single tracking
number, 2010-04129. Id. ¶ 8. On March 25, 2010, the BOP released 154 pages of responsive
records to plaintiff, after having redacted certain information under FOIA Exemptions 5, 6, and
7(C). Def.’s Mem. of P. & A. in Supp. of its Mot. for Summ. J., Decl. of Alesia S. Sillah
(“Second Sillah Decl.”), Ex. C (March 25, 2010 letter from A.S. Sillah for W.M. Hunt, Chief,
FOIA/PA Section, BOP) at 1-2.
II. DISCUSSION
A. Summary Judgment in a FOIA Case
The Court grants a motion for summary judgment if the pleadings, the discovery and
disclosure materials on file, together with any affidavits or declarations, show that there is no
genuine issue as to any material fact and that the movant is entitled to judgment as a matter of
law. Fed. R. Civ. P. 56(c). The moving party bears the burden of demonstrating the absence of a
3
genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). “[A] material
fact is ‘genuine’ . . . if the evidence is such that a reasonable jury could return a verdict for the
nonmoving party” on an element of the claim. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986). Factual assertions in the moving party’s affidavits or declarations may be accepted
as true unless the opposing party submits his own affidavits or declarations or documentary
evidence to the contrary. Neal v. Kelly, 963 F.2d 453, 456 (D.C. Cir. 1992).
In a FOIA case, the Court may grant summary judgment based on information provided
in an agency’s affidavits or declarations when they describe “the documents and the
justifications for nondisclosure with reasonably specific detail, demonstrate that the information
withheld logically falls within the claimed exemption, and are not controverted by either
contrary evidence in the record nor by evidence of agency bad faith.” Military Audit Project v.
Casey, 656 F.2d 724, 738 (D.C. Cir. 1981). Such affidavits or declarations are accorded “a
presumption of good faith, which cannot be rebutted by ‘purely speculative claims about the
existence and discoverability of other documents.’” SafeCard Servs., Inc. v. Sec. & Exch.
Comm’n, 926 F.2d 1197, 1200 (D.C. Cir. 1991) (quoting Ground Saucer Watch, Inc. v. Cent.
Intelligence Agency, 692 F.2d 770, 771 (D.C. Cir. 1981)).
“In opposing a motion for summary judgment or cross-moving for summary judgment, a
FOIA plaintiff must offer more than conclusory statements.” Schoenman v. Fed. Bureau of
Investigation, 573 F. Supp. 2d 119, 134 (D.D.C. 2008) (citations omitted). Rather, “a plaintiff
pursuing an action under FOIA must establish that either: (1) the Vaughn index does not
establish that the documents were properly withheld; (2) the agency has improperly claimed an
exemption as a matter of law; or (3) the agency has failed to segregate and disclose all
4
nonexempt material in the requested documents.” Id. (citations omitted).
B. Receipt of Plaintiff’s FOIA Request and Compliance with Statutory Deadlines
The FOIA requires that an agency, “upon any request for records which (i) reasonably
describes such records and (ii) is made in accordance with published rules stating the time, place,
fees (if any), and procedures to be followed, shall make the records promptly available” to the
requester. 5 U.S.C. § 552(a)(3)(A). The agency must “determine within 20 days (excepting
Saturdays, Sundays, and legal public holidays) after the receipt of any such request whether to
comply with [it] and shall immediately notify the [requester] of such determination and the
reasons therefor, and of the [requester’s] right . . . to appeal to the head of the agency any
adverse determination.” 5 U.S.C. § 552(a)(6)(A)(i).
Plaintiff demonstrates that he sent his FOIA requests by certified mail, see Compl., Ex.
F-G, and the BOP acknowledges that “there is a signed certified mail receipt,” First Sillah Decl.
¶ 6. Plaintiff moves for summary judgment, arguing that the BOP cannot justify its failure to
respond to his FOIA requests within 20 days of receipt. Pl.’s Mot. for Summ. J. ¶ 1.2
After conducting a search of the BOP’s E-Works FOIA/PA Database, the declarant
confirmed “that the [BOP] did not receive the three FOIA requests associated with [plaintiff’s]
certified mail submission.” First Sillah Decl. ¶ 6.3 However, upon receipt of plaintiff’s
complaint on January 6, 2010, it consolidated the requests, entered them into the E-Works
Database on January 25, 2010, id. ¶ 8, and released the requested records within approximately
2
It appears that plaintiff’s second summary judgment motion [Dkt. #25] is a
duplicate of the first [Dkt. #11].
3
BOP’s “computerized database for FOIA/PA requests is called E-Works.”
Second Sillah Decl. ¶ II.
5
three months, Second Sillah Decl. ¶¶ XIV-XV.
The BOP’s untimely response does not entitle plaintiff to judgment in his favor. See
Landmark Legal Found. v. Envtl. Prot. Agency, 272 F. Supp. 2d 59, 68 (D.D.C. 2003) (“[A] lack
of timeliness or compliance with FOIA deadlines does not preclude summary judgment for an
agency, nor mandate summary judgment for the requester.”). Furthermore, the FOIA authorizes
the Court “to enjoin the agency from withholding agency records and to order the production of
any agency records improperly withheld from the complainant.” 5 U.S.C. § 552(a)(4)(B). Once
the Court determines that the agency has, “however belatedly, released all nonexempt material,
[it has] no further judicial function to perform under the FOIA.” Perry, 684 F.2d at 125. It has
not yet been determined that the BOP improperly withheld records from plaintiff. And if the
BOP ultimately demonstrates its full compliance with its obligations under the FOIA with
respect to plaintiff’s three requests, the timeliness of its response is not dispositive. See Atkins v.
Dep’t of Justice, No. 90-5095, 1991 WL 185084 (D.C. Cir. Sept. 18, 1991) (“The question
whether DEA complied with the [FOIA’s] time limitations in responding to [appellant’s] request
is moot because DEA has now responded to this request.”); Tijerina v. Walters, 821 F.2d 789,
799 (D.C. Cir. 1987) (“‘[H]owever fitful or delayed the release of information under the FOIA
may be . . . if we are convinced appellees have, however belatedly, released all nonexempt
material, we have no further judicial function to perform under the FOIA.’”) (quoting Perry, 684
F.2d at 125); Crooker v. U.S. State Dep’t, 628 F.2d 9, 10 (D.C. Cir. 1980) (“Once the records are
produced the substance of the controversy disappears and becomes moot since the disclosure
which the suit seeks has already been made.”); Saldana v. Fed. Bureau of Prisons, No. 08-1963,
2010 WL 2245696, at *2 (D.D.C. June 4, 2010); Muhammad v. U.S. Customs & Border Prot.,
6
559 F. Supp. 2d 5, 7 (D.D.C. 2008).
C. The BOP’s Search for Responsive Records
“An agency fulfills its obligations under FOIA if it can demonstrate beyond material
doubt that its search was ‘reasonably calculated to uncover all relevant documents.’” Valencia-
Lucena v. U.S. Coast Guard, 180 F.3d 321, 325 (D.C. Cir. 1999) (quoting Truitt v. Dep’t of
State, 897 F.2d 540, 542 (D.C. Cir. 1990)). The agency bears the burden of showing that its
search was calculated to uncover all relevant documents. Steinberg v. U.S. Dep’t of Justice, 23
F.3d 548, 551 (D.C. Cir. 1994). To meet its burden, the agency may submit affidavits or
declarations that explain in reasonable detail the scope and method of the agency’s search. Perry
v. Block, 684 F.2d 121, 126 (D.C. Cir. 1982). In the absence of contrary evidence, such
affidavits or declarations are sufficient to demonstrate an agency’s compliance with the FOIA.
Id. at 127. If the record “leaves substantial doubt as to the sufficiency of the search, summary
judgment for the agency is not proper.” Truitt, 897 F.2d at 542.
1. Prices of Items in Institution Commissaries
The Trust Fund Department “is responsible for coordinating and maintaining a system of
financial services to control and manage money of [BOP] inmates,” and also is “responsible for
ensuring the safe and economical procurement and distribution of special articles that inmates
may procure using their own funds.” Second Sillah Decl. ¶ V. Trust Fund staff at FCC Butner
“handles inmate accounts and financial services of all the institutions located there.” Id. With
respect to plaintiff’s request for information pertaining to the price of items for sale in institution
commissaries, the declarant “contacted Trust Fund staff at FCC Butner[,]” id. ¶ IV, who
provided her “with a copy of BOP Program Statement 4500.06, titled Trust Fund/Deposit Fund
7
Manual,” id. ¶ VI. Program Statement 4500.06 “provides the pricing, inflation and/or mark-ups,
and interest calculation information” requested by the plaintiff. Id.
2. Placement in the Special Housing Unit
Plaintiff was designated to FCI II Butner in November 2007, and the declarant contacted
the Correctional Services Department there regarding plaintiff’s request for records pertaining to
his placement in the special housing unit on November 17, 2007. Second Sillah Decl. ¶ VII.
Twenty-two pages of records were located and deemed responsive to plaintiff’s request. Id. ¶¶
VII-VIII.
3. Transport on March 3, 2008
Regarding plaintiff’s request for information pertaining to his transport on March 3,
2008, the declarant contacted the Correctional Services Department at FCI II Butner. Second
Sillah Decl. ¶ X. The Department explained that it maintained no transportation logs, and,
therefore, “staff seating locations on the bus trips are not documented.” Id. ¶ XI. However, the
Department maintained a transportation drop file which would “include[] any memorandums
developed as a result of an injury during transport and any other notable occurrences during
transport.” Id. A review of the transportation drop file yielded no memoranda pertaining to the
March 3, 2008 incident to which plaintiff referred in his FOIA request. Id.
Because an inmate’s medical records “travel with him from institution-to-institution,
FCC Butner staff were unable to search for any medical reports concerning the March 3, 2008
alleged incident.” Id. ¶ XII. The declarant contacted the Medical Department at USP McCreary,
where plaintiff currently is incarcerated, and “requested any documentation of an alleged injury
sustained from restraints during a bus transport on March 3, 2008, or sometime shortly
8
thereafter, concerning [plaintiff].” Id. ¶ XIII. One page was located. Id. ¶ XIV.
The BOP released 154 pages of records, 22 of which were redacted. Second Sillah Decl.
¶ XV. No records were withheld in full. See id., Ex. C at 1. Plaintiff has raised no objection
with respect to the agency’s search for responsive records.
Based on the BOP’s memorandum and supporting declarations, the Court concludes that
the agency’s search for responsive records was reasonable under the circumstances.
D. Exemptions
Plaintiff devotes his entire opposition to the BOP’s untimely response to his FOIA
requests. Because he raises no objection to the BOP’s decisions to withhold certain information
under Exemptions 2, 5, 6 and 7(C), the Court may treat the BOP’s motion as conceded.
However, because plaintiff is proceeding pro se, the Court continues its review of the merits of
the BOP’s summary judgment motion.
Under the FOIA, an agency may withhold documents responsive to a FOIA request only
if they fall within one of nine enumerated statutory exemptions. See 5 U.S.C. § 552(b). An
agency must demonstrate that “each document that falls within the class requested either has
been produced, is unidentifiable, or is wholly [or partially] exempt from the [FOIA’s] inspection
requirements.” Goland v. Cent. Intelligence Agency, 607 F.2d 339, 352 (D.C. Cir. 1978); see
also Students Against Genocide v. Dep’t of State, 257 F.3d 828, 833 (D.C. Cir. 2001). “[W]hen
an agency seeks to withhold information, it must provide a relatively detailed justification,
specifically identifying the reasons why a particular exemption is relevant and correlating those
claims with the particular part of a withheld document to which they apply.” Morley v. Cent.
Intelligence Agency, 508 F.3d 1108, 1122 (D.C. Cir. 2007) (quoting King v. U.S. Dep’t of
9
Justice, 830 F.2d 210, 219 (D.C. Cir. 1987)) (internal quotation marks omitted). For example,
“[b]arren assertions that an exempting statute has been met cannot suffice to establish that fact.”
Founding Church of Scientology of Washington, D.C., Inc. v. Nat’l Sec. Agency, 610 F.2d 824,
831 (D.C. Cir. 1979). Nor can an agency meet its obligation simply by quoting the statutory
language of an exemption. See, e.g., Army Times Pub. Co. v. Dep’t of the Air Force, 998 F.2d
1067, 1070 (D.C. Cir. 1993) (remarking that affidavits “[p]arroting the case law” were
insufficient); Voinche v. Fed. Bureau of Investigation, 412 F. Supp. 2d 60, 69 (D.D.C. 2006)
(concluding that the FBI did not justify its decision to withhold information under Exemption
7(E) where the declaration “merely quote[d] the statutory language of Exemption (E)”); Scott v.
Cent. Intelligence Agency, 916 F. Supp. 42, 48 (D.D.C. 1996) (finding a declaration inadequate
because it failed to provide the date of the documents, the number of documents withheld, and
the nature and type of material contained in the documents).
In support of its motion, the BOP relies on the declaration of Alecia S. Sillah to explain
the agency’s decision to withhold certain information under Exemptions 2, 5, 6, and 7(C). See
Sillah Decl., Ex. D (“Vaughn index”). The Court has reviewed the declaration and Vaughn
index, and finds the agency’s submission inadequate. The Vaughn index dutifully lists each
document by number, offers a brief description of the nature of the document (for example,
“Inmate Telephone Call Monitoring Report”) and sets forth the exemption or exemptions under
information is redacted. The index falls short, however, both in its failure to discuss the nature
or type of information withheld and its inadequate explanation of the reasons for withholding
information under the claimed exemption. The accompanying declaration offers no additional
information to compensate for the Vaughn index’s deficiencies. Furthermore, based on the
10
current record, the Court is unable to determine whether any reasonably segregable portion of a
record has been provided to plaintiff after deletion of portions which are exempt.
III. CONCLUSION
The Court concludes that the BOP’s search for records responsive to plaintiff’s FOIA
requests was adequate, but that, based on the current record, it has not fulfilled its obligations
under the FOIA in any other respect. Accordingly, the Court will grant defendant’s motion in
part and deny it in part without prejudice. The BOP may file a renewed motion for summary
judgment based on additional undisputed facts or by offering additional legal arguments.
Plaintiff’s motions for summary judgment will be denied. An Order consistent with this
Memorandum Opinion is issued separately.
SIGNED: EMMET G. SULLIVAN
United States District Judge
DATED: July 26, 2010
11
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https://www.courtlistener.com/api/rest/v3/opinions/2665595/
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________________
)
OCEANA, INC., )
)
Plaintiff, )
)
v. ) Civil Action No. 08-318 (ESH)
)
GARY F. LOCKE et al., )
)
Defendants. )
__________________________________________)
MEMORANDUM OPINION
Oceana, Inc. has sued Gary F. Locke, 1 in his official capacity as Secretary of the United
States Department of Commerce; the National Oceanic and Atmospheric Administration
(“NOAA”); and the National Marine Fisheries Service (“NMFS”) 2 (collectively “the agency”)
for declaratory and injunctive relief related to the Secretary’s approval of the methodology
established to assess the amount and type of bycatch (i.e., fish that are harvested in a fishery but
not sold or kept for personal use) for the thirteen federal fisheries in the Northeast region.
Specifically, plaintiff contends that the standardized bycatch reporting methodology (“SBRM”)
developed by defendants violates the Magnuson-Stevens Fishery Conservation and Management
Act (“MSA”), 16 U.S.C. §§ 1801-1891d, because it: 1) grants Regional Administrators
discretion to avoid implementing the SBRM upon a finding that there are operational constraints
1
Pursuant to Federal Rule of Civil Procedure 25(d), if a public officer named as a party
to an action in his official capacity ceases to hold office, the Court will automatically substitute
that officer’s successor. Accordingly, the Court substitutes Gary F. Locke for Carlos M.
Gutierrez.
2
Both NOAA and NMFS are agencies of the Department of Commerce. (Compl. ¶¶ 23-
24.) NOAA has supervisory responsibility for NMFS, which has been delegated the primary
responsibility for managing United States marine fisheries through fishery management plans,
plan amendments, and regulations implementing those plans. (Id.)
1
that prevent its full execution; and 2) applies only to those species targeted by federal fisheries
and excludes other species that are part of the bycatch. (Mot. of Pl. Oceana for Summ. J. [“Pl.’s
Mot.”] at 18.) Plaintiff further alleges that the agency’s decision to approve the SBRM was
arbitrary and capricious because the agency failed to adequately respond to scientific evidence
and it ignored its own findings regarding issues of observer bias and precision. (Id. at 25.)
Finally, plaintiff contends that the agency’s decision to conduct an Environmental Assessment
(“EA”) as to the SBRM, which resulted in the issuance of a Finding of No Significant Impact
(“FONSI”), rather than an Environmental Impact Statement (“EIS”), violates the National
Environmental Policy Act (“NEPA”), 42 U.S.C. §§ 4321-4370h. (Id. at 34.) Accordingly,
plaintiff asks the Court to 1) declare the SBRM and the EA/FONSI in violation of the MSA,
NEPA, and the Administrative Procedure Act (“APA”), 5 U.S.C. § 706; 2) remand the SBRM
and the EA/FONSI to NMFS to develop a new SBRM and NEPA analysis that complies with the
Court’s order; and 3) award fees, expenses, and costs.
Before the Court are the parties’ cross-motions for summary judgment. Having
considered the voluminous administrative record, the parties’ briefs, and the applicable case law,
the Court will deny plaintiff’s motion for summary judgment and grant defendants’ motion for
summary judgment.
BACKGROUND
I. STATUTORY FRAMEWORK
A. The Magnuson-Stevens Fishery Conservation and Management Act
The MSA, passed in 1976, “provides the statutory framework for the protection and
management of the nation’s marine fishery resources.” Conservation Law Found. v. Evans, 209
2
F. Supp. 2d 1, 5 (D.D.C. 2001) (“CLF”); see also 16 U.S.C. § 1801(b). The Act created eight
Regional Fishery Management Councils 3 with “the authority and responsibility to govern
conservation and management of the fisheries under its geographical jurisdiction.” 4 CLF, 209 F.
Supp. 2d at 5. The Regional Councils are tasked with developing and implementing Fishery
Management Plans (“FMPs”) and amendments thereto. Id.; 16 U.S.C. § 1852(g)(3)(A). Each
FMP and FMP amendment is then recommended to and reviewed and evaluated by NMFS
and/or NOAA to determine whether it complies with the MSA 5 and other applicable law. 6 16
U.S.C. § 1854. FMPs, FMP amendments, and any necessary implementing regulations are
subject to public review and comment. Id. § 1854(a)(1), (b)(1). If the Secretary finds that the
plan complies with all applicable law, he or she may approve it or partially or completely
disapprove it, id. § 1854(a), and, to the extent it is approved, the FMP or FMP amendment is
then implemented and enforced by NMFS. Id. § 1854(c).
3
Regional Councils are “quasi-legislative bodies” (Defs.’ Mot. for Summ. J. & Mem. in
Opp’n to Pl.’s Mot. for Summ. J. [“Defs.’ Opp’n”] at 4) made up of “individuals who, by reason
of their occupational or other experience, scientific expertise, or training, are knowledgeable
regarding the conservation and management, or the commercial or recreational harvest, of the
fishery resources of the geographical area concerned.” 16 U.S.C. § 1852(b)(2)(A). The eight
councils are: the New England Council; the Mid-Atlantic Council; the South Atlantic Council;
the Caribbean Council; the Gulf Council; the Pacific Council; the North Pacific Council; and the
Western Pacific Council. Id. § 1852(a)(1)(A)-(H).
4
Two of the Regional Councils, the New England Council and the Mid-Atlantic Council,
have jurisdiction over the thirteen federal fisheries in the Northeast United States. (Compl. ¶
28); see also 16 U.S.C. § 1852(a)(1)(A)-(B).
5
The MSA sets forth fifteen “National Standards,” or requirements, for FMPs, 16 U.S.C.
§ 1853(a)(1)-(15), and the Secretary may not adopt an FMP recommended by a Regional
Council if it violates any of these provisions. See CLF, 209 F. Supp. 2d at 5-6. At issue in this
case is provision 11, which requires the establishment of an SBRM for each FMP. 16 U.S.C. §
1853(a)(11).
6
The approval of an FMP requires: (1) an initial review of the FMP, to ensure its
consistency with the MSA and other applicable law; (2) the publishing of the FMP in the Federal
Register, followed by a 60-day public comment period; and (3) the approval, disapproval, or
partial approval of the FMP within 30 days of the end of the comment period. 16 U.S.C. §
1854(a); see also CLF, 209 F. Supp. 2d at 5.
3
In 1996, Congress passed the Sustainable Fisheries Act (“SFA”), which amended the
MSA to require that all FMPs include a standardized reporting methodology “to assess the
amount and type of bycatch occurring in the fisher[ies],” as well as conservation and
management measures that minimize bycatch and the mortality of bycatch which cannot be
avoided. 7 16 U.S.C. § 1853(a)(11); Pub. L. No. 104-297 § 108(b), 110 Stat. 3559, 3574-75
(Oct. 11, 1996). 8 Following passage of the SFA, NMFS prepared guidelines, ultimately adopted
as a final rule, to assist Regional Councils in the development of FMPs. 63 Fed. Reg. 24,212
(May 1, 1998), codified in relevant part at 50 C.F.R. § 600.350. The guidelines state that “[a]
review and, where necessary, improvement of data collection methods, data sources, and
applications of data must be initiated for each fishery to determine . . . bycatch and bycatch
mortality . . . .” 50 C.F.R. § 600.350(d)(1).
B. National Environmental Policy Act
NEPA, 42 U.S.C. §§ 4321-4370f, “has twin aims” of “‘plac[ing] upon an agency the
obligation to consider every significant aspect of the environmental impact of a proposed
action’” and “ensur[ing] that the agency will inform the public that it has indeed considered
7
The MSA provision relevant to SBRMs states:
[a]ny fishery management plan which is prepared by any Council,
or by the Secretary, with respect to any fishery, shall . . . establish
a standardized reporting methodology to assess the amount and
type of bycatch occurring in the fishery, and include conservation
and management measures that, to the extent practicable and in the
following priority[:] (A) minimize bycatch; and (B) minimize the
mortality of bycatch which cannot be avoided.
16 U.S.C. § 1853(a)(11).
8
Congress further amended the MSA when it passed the Magnuson-Stevens Fishery
Conservation and Management Reauthorization Act of 2006. Pub. L. No. 109-479, 120 Stat.
3575 (2007). The 2006 act mandated the use of catch limits and other accountability measures
targeting overfishing. See 16 U.S.C. § 1853(a)(14)-(15).
4
environmental concerns in its decisionmaking process.” Balt. Gas & Elec. Co. v. Natural Res.
Def. Council, 462 U.S. 87, 97 (1983) (quoting Vermont Yankee Nuclear Power Corp. v. Natural
Res. Def. Council, 435 U.S. 519, 553 (1978)). The Act “d[oes] not require agencies to elevate
environmental concerns over other appropriate considerations,” but rather, it requires agencies
to “take a ‘hard look’ at the environmental consequences before taking a major action.” Id.; see
also Robertson v. Methow Valley Citizens Council, 490 U.S. 332, 350-51 (1989) (holding NEPA
does not impose “substantive environmental obligations” on agencies, but rather “prohibits
uninformed—rather than unwise—agency action”).
II. PRIOR LITIGATION
This case arises from two earlier challenges by plaintiff to the agency’s approval of FMPs
in the Northeast. In 2005, plaintiff filed parallel lawsuits, challenging Amendment 13 to the
Northeast Multispecies FMP, Oceana, Inc. v. Evans, No. 04-811, 2005 WL 555416 (D.D.C. Mar.
9, 2005) (“Oceana I”), 9 and Amendment 10 to the Atlantic Sea Scallop FMP, Oceana, Inc. v.
Evans, 384 F. Supp. 2d 203 (D.D.C. 2005) (“Oceana II”). In both cases, this Court granted
summary judgment to defendants on most of plaintiff’s claims. However, in Oceana I, plaintiff
argued, inter alia, that Amendment 13 did not establish an SBRM, despite endorsing an intended
level of bycatch oversight, because it failed to establish a mandatory level of oversight. 2005
WL 555416, at *39. The Court agreed, noting that the Amendment “d[id] not contain a
9
In a precursor to plaintiff’s 2005 challenges, Judge Kessler of this Court found in 2001
that an FMP amendment and “framework adjustment” setting forth certain bycatch reporting
provisions were insufficient to satisfy the requirements of the MSA. CLF, 209 F. Supp. 2d at 11-
13. The Court entered a remedial order setting a minimum level of observer coverage. Id. at 13;
see also Oceana I, 2005 WL 555416, at *37. NMFS subsequently promulgated Amendment 13,
which was the subject of plaintiff’s challenge in Oceana I. (Defs.’ Opp’n at 9); see also Oceana
I, 2005 WL 555416, at *38-39.
5
mandatory level of observer coverage” 10 and “d[id] not contain any new bycatch reporting
methodology.” Id. The Court further held that although the SBRM set forth the agency’s
intention to achieve a five-percent level of observer coverage, “an FMP that merely suggests a
hoped-for result, as opposed to ‘establish[ing]’ a particular standardized methodology, does not
measure up to [MSA’s] requirements.” Id. at *40 (quoting 16 U.S.C. § 1853(a)(11) (alteration in
original)). Specifically, the Court found that the “desire” of the agency to maintain a minimum
level of coverage was “ambiguous” and “optional” because the Amendment provided that the
coverage level “may be subject to change if the Secretary deems it proper.” Id. at *39. Further,
the Court held that the agency’s failure to respond to the Babcock Study commissioned by
Oceana regarding the precision of discard estimates constituted disregard of the “best scientific
information available” in violation of the MSA and the APA. Id. at *42; see also 16 U.S.C. §
1851(a)(2) (“[c]onservation and management measures shall be based upon the best scientific
information available”).
Similarly, in Oceana II, the Court held that Amendment 10 violated the MSA because it
“d[id] not set forth the substance of a reporting methodology for the scallop fishery except in a
vague and conclusory fashion” that gave the NMFS Regional Administrator “complete
discretion” regarding the implementation of bycatch reporting methods and standards. 384 F.
Supp. 2d at 232, 234; see also id. at 234 n.41 (criticizing amendment for leaving “all decisions”
regarding “method for determining observer concentration” to Regional Administrator). The
Court found that the Amendment did not establish any techniques or levels of accuracy and did
10
At-sea fishery observers (i.e., scientists who board commercial fishing vessels to
observe and record discards occurring on the trip) are an important source of information about
fishery bycatch. See Oceana, Inc. v. Locke, 674 F. Supp. 2d 39, 42 (D.D.C. 2009). In
developing an SBRM, one “key issue” is “how to allocate a limited number of observers on
fishing vessels to obtain statistically reliable data that estimates, as accurately as possible, the
amount of bycatch that occurs across the entire fleet.” (Defs.’ Opp’n at 1.)
6
not “target[] a specific level of observer coverage by area that would produce statistically reliable
estimates of bycatch.” Id. at 233. The Court also found that the agency, by remaining silent on
the issue, again failed to demonstrate that it had responded adequately to the “best scientific
information available” regarding bias and accuracy. Id. at 232. In both cases, the Court
remanded the bycatch portions of the two amendments to the agency for further action. Id. at
256; Oceana I, 2005 WL 555416, at *43.
III. FACTUAL AND PROCEDURAL BACKGROUND
After the issuance of Oceana I and II, NMFS set out to address the problems identified in
those decisions by establishing a comprehensive Northeast SBRM that would set bycatch
reporting and assessment standards for all thirteen federal fisheries in the Northeast region. See
73 Fed. Reg. 4,736, 4,737 (Jan. 28, 2008) (codified at 50 C.F.R. pt. 648) (noting that NMFS
undertook to “address all Northeast Region FMPs” and that amendment “covers 13 FMPs, 39
managed species, and 14 types of fishing gear”). The Northeast Region Omnibus SBRM
Amendment (“SBRM Amendment”) established an SBRM comprised of seven elements,
including: 1) bycatch reporting and monitoring mechanisms; 2) analytical techniques and
allocation of at-sea fisheries observers; 3) a SBRM performance standard; 4) a SBRM review
and reporting process; 5) framework adjustments and/or annual specification provisions; 6) a
prioritization process to be used when mandated observer coverage levels cannot be
implemented because of practical considerations such as budget constraints; and 7) provisions
for industry-funded and observer set-aside programs. (Administrative Record [“AR] 3953-54.)
The final SBRM Amendment is a 642-page document that extensively discusses each of
the above elements. (See AR 3239-80.) The Amendment was developed and finalized over a
two-year period using a process, provided for in the MSA, by which Regional Councils create
7
and approve an amendment, and they then pass it on for review and approval by NMFS. See 16
U.S.C. § 1852(h)(5) (for fisheries under its authority, Regional Council shall prepare and submit
FMPs and amendments to NMFS). Here, the SBRM Amendment was approved by the Mid-
Atlantic Council (AR 3027-29) and the New England Council in June 2007. (AR 3058.) NMFS
then made the SBRM Amendment available for public comment for a two-month period in July
2007. (AR 3076-77.) During that two-month period, NMFS also issued a proposed rule in
August to implement the SBRM Amendment and opened it for public comment until September
24, 2007. (AR 3085, 3111.) Plaintiff submitted comments on both the draft Amendment and the
proposed implementation rule. 11 (AR 3186-200.) The Lenfest Ocean Program also submitted
comments on the Amendment and the proposed rule, which consisted primarily of a report from
Dr. Murdoch K. McAllister entitled “Review of the Northeast Region Standardized Bycatch
Reporting Methodology” (“McAllister Report”). 12 (AR 3120-61.) Plaintiff’s comments also
referenced the McAllister Report and highlighted certain issues raised therein. (AR 3188-91.)
On October 18, 2007, the Science and Research Director of the New England Fisheries
Science Center (“NEFSC”), a part of NMFS, prepared an analysis of and response to the
McAllister Report for NMFS Regional Administrator Patricia Kurkul. (AR 3882-85.) The
NEFSC response to the McAllister Report specifically addressed Dr. McAllister’s concerns as to
11
Plaintiff also participated in public meetings and submitted a series of comment letters
throughout the two-year development and approval process. (Pl.’s Mot. at 4; see also AR 235,
380, 641, 3019.) In particular, plaintiff raised its concerns about observer-effect bias and the
need for a full EIS and studies to determine the level of precision and accuracy needed in data.
(Pl.’s Mot. at 4; see also AR 236, 237-38.)
12
The McAllister Report sought to provide an “independent scientific review of the
SBRM.” (AR 3122.) The Report addressed, inter alia, whether the SBRM would achieve
bycatch estimates with the expected precision, account for rare bycatch events, and consider the
change in fishing behavior caused by the presence of observers (i.e., the “observer effect”). (Id.
3122-23.) The Report specifically noted the problem of bias in discard estimates obtained from
observed ships. (Id. 3126.)
8
the agency’s selection of a “combined ratio method” as the bycatch estimator and the problem of
potential bias in data derived from at-sea observer coverage versus fishing vessel trip reports
(“FTVR”). (Id. 3882, 3883-84.) NEFSC “disagree[d]” that bias precluded the use of observer
data based on its “extensive experience” with those data sets, noting that vessels would avoid
fishing in a non-representative fashion because it could result in significant economic hardships
for them. (Id. 3884.) Although NEFSC acknowledged that the measures of accuracy of
observational data are incomplete, because the “truth” remains unknown, it found that any
potential bias in the data did not undermine the overall program. (Id.) In short, although “[t]he
McAllister report provide[d] a number of instances where further research can be directed,”
NEFSC concluded that “it d[id] not alter [its] conclusion that the SBRM is a scientifically-sound
process for implementing a continuously improving process of bycatch estimation.” (Id. 3885.)
NEFSC also indicated that it would “provide a more detailed response to the comments and
issues raised by Dr. McAllister for inclusion in the response to public comments in the preamble
to the final rule.” (Id.)
On October 22, 2007, Ms. Kukul sent a letter to the New England and Mid-Atlantic
Councils, informing them that NMFS had approved the SBRM Amendment. (AR 3916.) On
December 20, 2007, NEFSC provided a further response to the McAllister Report to Ms. Kukul
for inclusion in the response to the public comments section of the final rule. (AR 3919-28;
Defs.’ Opp’n at 12.) NMFS promulgated the final rule implementing the SBRM Amendment on
January 28, 2008. 73 Fed. Reg. 4,736 (Jan. 28, 2008). Plaintiff filed the instant action on
February 25, 2008.
9
ANALYSIS
I. STANDARD OF REVIEW
The appropriate standard of review of final agency decisions under the MSA is contained
in the APA. NMFS final decision must be upheld unless it is found to be arbitrary, capricious,
an abuse of discretion, or otherwise not in accordance with law. 16 U.S.C. § 1855(f)(1)(B)
(reviewing court may set aside challenged regulation or action based only on grounds specified
in 16 U.S.C. § 706(2)(A)-(D)). “The scope of review under the ‘arbitrary and capricious’
standard is narrow and a court is not to substitute its judgment for that of the agency.” Arent v.
Shalala, 70 F.3d 610, 616 (D.C. Cir. 1995). “Administrative actions are presumed valid and are
accorded greater deference; thus, the inquiry is only whether the Secretary’s decisions were
unreasonable, and ‘this court will not second guess an agency decision or question whether the
decision made was the best one.’” Oceana II, 384 F. Supp. 2d at 211-12 (quoting C&W Fish Co.
v. Fox, 931 F.2d 1556, 1565 (D.C. Cir. 1991)). The Court’s only task is to “determine whether
the [agency] has considered the relevant factors and articulated a rational connection between the
facts found and the choice made.” Balt. Gas & Elec. Co., 462 U.S. at 105.
“Moreover, the Court will not lightly depart from regulations promulgated by an agency
in order to achieve a statute’s goals.” Oceana II, 384 F. Supp. 2d at 212 (citing Continental Air
Lines, Inc. v. Dep’t of Transp., 843 F.2d 1444, 1451-52 (D.C. Cir. 1988) (“It therefore will not
do, when interpreting a statute embodying conflicting demands, for courts grandly to resort to a
single ‘broad purpose’ of a statute and then employ a judicially idealized ‘goal’ to drive the
interpretive process.”)). Because enforcement of the MSA involves the interpretation and
evaluation of highly technical scientific findings, it is “especially appropriate for the Court to
defer to the expertise and experience of those individuals and entities-the Secretary, the
10
Councils, and their advisors-whom the [MSA] charges with making difficult policy judgments
and choosing appropriate conservation and management measures based on their evaluations of
the relevant quantitative and qualitative factors.” Nat’l Fisheries Inst., Inc. v. Mosbacher, 732 F.
Supp. 210, 223 (D.D.C. 1990); see also Pittston Coal Group v. Sebben, 488 U.S. 105, 150 (1988)
(“[A]s an interpretive question becomes more technical, the expertise of the agency charged with
a statute’s administration becomes greater and deferring to its construction rather than importing
our own becomes more appropriate.”)
Similarly, under NEPA, “[t]he role of the courts is simply to ensure that the agency has
adequately considered and disclosed the environmental impact of its actions and that its decision
is not arbitrary or capricious.” Balt. Gas & Elec. Co., 462 U.S. at 97-98; see also Nevada v.
Dep’t of Energy, 457 F.3d 78, 87-88 (D.C. Cir. 2006) (applying APA’s arbitrary and capricious
standard “to review both the agency’s procedural compliance with NEPA and the adequacy of an
EIS”). “[O]nce an agency has made a decision subject to NEPA’s procedural requirements, the
only role for a court is to insure that the agency has considered the environmental consequences;
it cannot ‘interject itself within the area of discretion of the executive as to the choice of the
action to be taken.’” Strycker’s Bay Neighborhood Council, Inc. v. Karlen, 444 U.S. 223, 227-
28 (1980) (quoting Kleppe v. Sierra Club, 427 U.S. 390, 410 n.21 (1976) (“Neither [NEPA] nor
its legislative history contemplates that a court should substitute its judgment for that of the
agency as to the environmental consequences of its actions.”)).
II. SUFFICIENCY OF THE SBRM AMENDMENT UNDER THE MSA
The MSA requires NMFS to “establish a standardized reporting methodology to assess
the amount and type of bycatch occurring in the fishery.” 16 U.S.C. § 1853(a)(11). Oceana
11
argues that the SBRM Amendment fails to establish such a methodology because it creates a
“loophole” that allows the NMFS Regional Administrator to avoid applying the minimum
acceptable level of observer coverage under the SBRM in any year “in which external
operational constraints would prevent NMFS from fully implementing the required at-sea
observer coverage levels,” but instead to consult with Regional Councils as to the appropriate
allocation of resources. (AR 3274-75; Pl.’s Mot. at 19-22.) Oceana further contends that the
SBRM Amendment violates the MSA because the performance standard established in the
Amendment does not apply to species that are not federally managed, although these species
constitute a part of the fishery bycatch. (Pl.’s Mot. at 22-25.)
A. The SBRM Amendment’s Prioritization Process
As noted, the MSA requires NMFS to “establish a standardized reporting methodology to
assess the amount and type of bycatch occurring in the fishery, and include conservation and
management measures that . . . minimize bycatch [and] minimize the mortality of bycatch which
cannot be avoided.” 16 U.S.C. § 1853(a)(11). In an effort to fulfill this requirement after
Oceana I and II, the SBRM Amendment establishes a 30 percent CV performance standard. 13
(AR 3273; Defs.’ Opp’n at 23.) The standard means that “[e]ach year, the Regional
13
“CV” stands for “coefficient of variation.” (AR 3884.) The SBRM defines “CV” as
a standard measure of precision, calculated as the ratio of the
square root of the variance of the bycatch estimate (i.e., the
standard error) to the bycatch estimate itself. The higher the CV,
the larger the standard error is relative to the estimate. A lower CV
reflects a smaller standard error relative to the estimate. A 0-
percent CV means there is no variance in the sampling distribution.
Alternatively, CVs of 100 percent or higher indicate that there is
considerable variance in the estimate.
(Id.)
12
Administrator and the Science and Research Director shall allocate sufficient at-sea observer
coverage to the applicable fisheries of the Northeast Region in order to achieve a level of
precision (measured as the CV) no greater than 30 percent for each applicable species and/or
species group.” (AR 3273.) The SBRM Amendment sets forth a detailed methodology by
which the Regional Administrator can estimate the number of observer days needed to achieve
the 30 percent standard and allocate observers among vessels to reach that benchmark. (Pl.’s
Mot. at 20; AR 3429-34, 3444-57, 3465-66, 3483.)
The SBRM Amendment also provides that in a year in which “external operational
constraints” prevent NMFS from “fully implementing the required at-sea observer coverage
levels,” the Regional Administrator will consult with the Regional Councils “to determine the
most appropriate prioritization for how the available resources should be allocated.” (AR 3954;
see also AR 3465-66.) The SBRM Amendment calls for the Regional Administrator to provide
the Regional Councils with data and a recommendation for prioritization that takes into account a
variety of factors, including:
[m]eeting the immediate and anticipated data needs for upcoming
stock assessments; legal mandates of the agency under other
applicable laws, such as the Endangered Species Act or Marine
Mammal Protection Act; meeting the data needs of upcoming
fishery management actions, taking into account the status of each
fishery resource; improving the quality of discard data across all
fishing modes; and/or any other criteria identified by NMFS and/or
the Councils.
(AR 3465-66.) Plaintiff characterizes this prioritization process as a “loophole” that NMFS has
used to “ignore the established methodology.” (Pl.’s Mot. at 20-21.) Specifically, plaintiff
contends that in 2008 and 2009, NMFS cited funding shortfalls as “external operational
constraints” to avoid allocating the number of observer coverage days needed to reach the 30
percent CV performance standard. (Id. at 21.) Plaintiff equates the prioritization “loophole”
13
with the 5 percent “observer goal” rejected by the Court in Oceana I and II, in that the SBRM
Amendment’s prioritization process means that the 30 percent CV performance standard is
necessarily not mandatory. (Id.) See also Oceana I, 2005 WL 555416, at *39 (finding that
Amendment 13 “d[id] not contain a mandatory level of observer coverage” or “contain any new
bycatch reporting methodology”). Plaintiff also maintains that the prioritization process is an ad
hoc approach to bycatch reporting that “starts afresh year after year guided by no generalized
method established in the fishery management plan” and reduces the Regional Councils to
“consultants” to the Regional Administrator. (Mem. of Pl. Oceana in Supp. of Its Mot. for
Summ. J. & In Opp’n to Defs.’ Mot. for Summ. J. [“Pl.’s Reply”] at 5-6.)
The Court cannot accept plaintiff’s depiction of the SBRM Amendment’s prioritization
process as “functionally the same” as that which the Court rejected in Oceana I and II. In those
cases, the Court’s fundamental problem with the amendments at issue was that they contained no
mandatory bycatch reporting standards or procedural provisions. See, e.g., Oceana II, 384 F.
Supp. 2d at 232 (Amendment 10 “fail[ed] to establish a bycatch reporting methodology, but
instead gives complete discretion to the Regional Administrator”); id. at 233 (Amendment did
not “set forth . . . techniques” or “target[] a specific level of observer coverage by area that
would produce statistically reliable estimates of bycatch”); id. at 234 (Amendment did not
indicate “how the Regional Administrator should determine the ‘distribution [of sea sampled
trips] by gear and area’” (alteration in original)); Oceana I, 2005 WL 555416, at *39 (noting that
Amendment 13 contained “among its ‘approved measures’ no specific mention of bycatch
reporting”); id. at *40 (Amendment “merely suggest[ed] a hoped-for result, as opposed to
‘establish[ing]’ a particularized methodology” (alteration in original)); id. at *43 (Amendment
“does not mandate a ‘standardized reporting methodology’”). By contrast, the SBRM
14
Amendment states that it will “ensure” that the data collected is sufficient to produce a CV of no
more than 30 percent. (AR 3273.) It then sets forth procedures by which at-sea observers are to
be allocated to meet the 30 percent standard. (AR 3437, 3953-54.) These procedures “provide
decisionmakers and the public with a program of what actually will be done to improve bycatch
reporting,” Oceana II, 384 F. Supp. 2d at 234, unlike the amendments rejected by the Court in
Oceana I and II.
The prioritization process established by the SBRM Amendment to address budget
shortfalls and other “external operating constraints” does not give “complete discretion” to the
Regional Administrator to determine what, if any, bycatch reporting methodology should be
used. (See AR 3465-66.) Instead, the prioritization procedures govern the Regional
Administrator’s allocation of observers in the event that he or she cannot follow the SBRM
Amendment mandate regarding the level of coverage. The Regional Administrator must start by
identifying the allocation of observer days needed to meet the 30 percent CV standard and then
note the “coverage levels that would be available if the resource shortfall were allocated
proportionately across all applicable fisheries.” (Id. 3465.) Thereafter the Regional
Administrator is to recommend alterations to that proportional distribution based on a series of
factors identified in the SBRM Amendment, such as the need to comply with the Marine
Mammal Protection Act and the Endangered Species Act. (Id.) The Regional Councils “may
choose to accept the proposed observer coverage allocation or to recommend revisions or
additional considerations for the prioritized observer allocations ultimately adopted and
implemented” by the Regional Administrator. (AR 3954.)
Unlike Amendment 10 in Oceana II, this procedure does not link the number of
observers to a “funding mechanism” without consideration of the adequacy of the coverage. See
15
384 F. Supp. 2d at 232. Rather, it establishes an adequate level of coverage based on scientific
evidence, independent of financial or other considerations, but it goes on to provide a
contingency plan in the event that practical limitations, beyond NMFS’ control, prevent the
agency from meeting the CV standard. (AR 3465, 3953-54.)
The MSA requirement that the FMP establish a standardized bycatch reporting
methodology does not mean that the agency may not deviate from the standardized methodology
regardless of the external factors that impact the agency. 14 Accordingly, the Court concludes
that the SBRM Amendment sufficiently satisfies the MSA’s bycatch reporting requirement. The
prioritization procedures do not do away with the methodology established by the SBRM
Amendment, which is not optional and may not be discarded because NMFS decides it does not
want to use it. (See AR 2089 (“[t]he methodology contemplated under the preferred alternatives
of the Amendment Document is nondiscretionary”); AR 3274 (prioritization process used only
“[i]n any year in which external operational constraints would prevent NMFS from fully
implementing the required at-sea observer coverage levels”) (emphases added); AR 3756 (“The
performance standard is not proposed to serve as a mere target, but is an objective measure of the
level of observer coverage necessary to achieve the level of precision specified in the
14
Oceana argues that the MSA does not include an “escape clause provision” that permits
the agency to establish reporting on an ad hoc basis each year, but rather mandates that the
agency “establish a standardized bycatch reporting methodology.” (Pl.’s Reply at 6.) The Court
agrees that the MSA does not allow the agency to develop an FMP that leaves the SBRM open to
revision at the agency’s whim or makes the use of the methodology optional, such that the
agency could decide one year not to implement the observer program at all. See Oceana I, 2005
WL 555416, at *40. Indeed, this Court’s critique of Amendment 13 in Oceana I focused largely
on the language in the Amendment that indicated “only an ‘intent’ to implement an adequate
program,” rather than an obligation. Id. However, the SBRM Amendment establishes a
mandatory level of observer coverage, and the agency has no discretion to change that level.
(AR 3274.) Only when outside factors prevent the agency from proceeding as it is obligated to
do by the SBRM Amendment do the prioritization procedures take effect, and then, those
procedures are only in effect until the next year, when the default 30 percent CV standard applies
again. (Id.)
16
amendment.”).) Rather, the SBRM Amendment requires the agency to use the reporting
methodology each year, unless something “external,” or outside the agency’s control, prevents it
from doing so in a given year. (AR 3465.) Even then, changes to the number of observer days
are keyed to the level needed to meet the established bycatch reporting standard of 30 percent,
deviating only based on the external constraints and other specified factors. (AR 3954.) To the
extent plaintiff takes issue with the type of prioritization procedures included in the amendment,
as opposed to other approaches 15 that might have been adopted, the Court finds that NMFS’
decision to prioritize coverage as described in the SBRM Amendment, allowing Regional
Councils and the Secretary to make decisions based on current needs and priorities, does not
violate the MSA.
B. Application of Performance Standard to Select Bycatch Species
Plaintiff also attacks the SBRM Amendment because it “excludes all non-federally
managed species from its methodology” and “restricts its 30 percent CV performance standard to
federally managed species.” (Pl.’s Mot. at 18, 22.) Specifically, plaintiff takes issue with
NMFS’ decision 16 not to consider non-federally managed species in designing and developing
15
In a September 24, 2007 letter to Regional Administrator Patricia Kurkul, plaintiff
proposed alternative approaches for dealing with budget shortfalls, such as requiring fishing
vessels to supplement federal funding so that the SBRM-required levels could still be
maintained, cutting the budget allocations pro rata across all fishing modes, or ranking fishing
modes by some standard of priority and requiring that the observer needs be fully met for each
mode in descending priority rank until the money runs out. (AR 3193.)
16
In the section discussing the 30 percent CV performance standard, the SBRM
Amendment states:
Because the explicit inclusion of additional, non-FMP managed
species (other than those required under the law), is not necessary
to ensure that data on the discards of these species is collected and
available for review and/or use in stock assessments, and is beyond
the scope required for the SBRM Amendment, the need to
explicitly consider non-managed species in the design and
17
certain aspects of the SBRM Amendment, despite the MSA’s mandate that the agency develop a
methodology to assess the amount and type of all “bycatch.” (See id.; AR 3470.) See also 16
U.S.C. § 1853(a)(11) (mandating the establishment of a “standardized [bycatch] reporting
methodology” that includes conservation and management measures that” minimize bycatch and
bycatch mortality “to the extent practicable”).
An NMFS analysis of bycatch data from 2004 revealed that observers reported discards
of 211 unique species, 59 of which are federally managed under an FMP for the Mid-Atlantic
and/or New England regions or by federal statute (i.e., the Marine Mammal Protection Act and
the Endangered Species Act). (Id. 3468-69.) These 59 species constituted the vast majority
(84.4 percent by weight) of the discarded bycatch in 2004. (Id.) The remaining 152 species,
comprising 15.4 percent of the 2004 bycatch, are either unregulated or are regulated only at the
state level. (Id.) Importantly, as demonstrated by the data from 2004, fishery observers collect
data regarding all discarded species, whether federally managed or not. (Id. 3470 (“Observers
are trained and expected to record information regarding 611 species . . . and observers do so for
both discards and landed catch.”).) However, for purposes of developing the 30 percent CV
performance standard in the SBRM Amendment and allocating observer days to ensure sufficient
bycatch reporting, NMFS decided that it did not need to take into consideration non-federally
managed species. (Id. 3469-70; see also Defs.’ Opp’n at 27.) Put another way, NMFS collects
data regarding all bycatch species, whether federally regulated or not, but the allocation of
observers to comply with the 30 percent performance standard is “crafted around” only federally
managed species, meaning the precision of the data collected on non-federally managed species
development of the SBRM was eliminated from further
consideration, other than to continue to ensure that all species
(managed and nonmanaged) encountered by observed fishing
vessels are reported either as landings or discards. (AR 3470.)
18
is not regulated in the same way as it is for managed species. (AR 3959; see also id. 3458 (CV
standard “addresses the precision of the estimates, not the accuracy of the estimates”).)
Plaintiff argues that to comply with the MSA’s requirement that FMPs assess “bycatch,”
NMFS must apply the 30 percent CV performance standard to all bycatch species in determining
the number and allocation of observer days, because the statutory definition of bycatch does not
distinguish between federally managed and unmanaged species. (Pl.’s Mot. at 23 (citing 16
C.F.R. § 1802(2).) The Court agrees that the MSA demands assessment of the bycatch of all
species, not just those species that are federally managed—but this is satisfied by the
requirement that at-sea observers compile data on all bycatch observed. However, the statute is
silent as to the method(s) to be used for bycatch assessment, and it includes no requirement that
all species of bycatch be estimated 17 with the same degree of precision and accuracy. It is
therefore not improper to adopt, for example, a 30 percent CV performance standard—which
itself permits a certain level of imprecision in reporting—but to limit its application to the bulk,
in terms of weight, of bycatch. Both the CV standard chosen and its application are designed to
estimate bycatch by capturing the vast majority of animals caught while allowing some level of
estimation error. The assessment of some species more precisely than others does not, as
plaintiff suggests, “exclude” certain types of bycatch from the SBRM; rather, it measures those
species differently. 18
17
The MSA does not preclude NMFS from adopting various techniques designed to
estimate the amount of bycatch. Indeed, the purpose of the SBRM is to estimate the bycatch in
federal fisheries, because reporting all bycatch at every fishery is not possible. (See AR 3244
(“[A]n SBRM can be viewed as the combination of sampling design, data collection procedures,
and analyses used to estimate bycatch in multiple fisheries.”); 3959.)
18
Plaintiff argues that the agency’s establishment of the 30 percent CV performance
standard for bycatch data collection acknowledged “an inadequacy in its [earlier] bycatch
collection program, which did not establish or comply with a performance standard.” (Pl.’s
Reply at 10.) Plaintiffs contend that the failure to apply that standard to all bycatch perpetuates
19
In short, the MSA requires NMFS to assess bycatch at federal fisheries, but it gives the
agency discretion to adopt appropriate assessment methods. The Court therefore concludes that
the decision to allocate observers to ensure that the 30 percent CV performance standard is met
with respect to most, but not all, bycatch species, while still estimating all bycatch, does not
violate the MSA.
III. SUFFICIENCY OF THE SBRM AMENDMENT UNDER THE APA
The APA obligates a reviewing court to set aside and hold unlawful any agency “action,
findings, and conclusions found to be . . . arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). Oceana contends that the agency
violated the APA by failing to adequately address 1) the concerns raised by the McAllister
Report and 2) the statistical findings and best available science on the issue of bias. (Pl.’s Mot.
at 25.)
A. NMFS Response to the McAllister Report
In response to the NMFS request for comments on the Final Draft of the SBRM
Amendment (AR 3076), the Lenfest Ocean Program commissioned the McAllister Report, a 39-
page independent review of the SBRM draft by a fisheries science expert. The report was sent to
the NMFS Regional Administrator on September 24, 2007, the last day of the comment period.
(Pl.’s Mot. at 6; AR 3120.) On October 2, agency officials conducted a conference concerning
the deficiency of the earlier program. (Id.) The Court disagrees. As discussed, the problem with
the earlier FMPs was that they failed to establish any methodology, not that the methodology
was inadequate. Oceana II, 384 F. Supp. 2d at 232 (Amendment 10 “does not set forth the
substance of a reporting methodology”); Oceana I, 2005 WL 555416, at *43 (Amendment 13
“does not mandate a ‘standardized reporting methodology”). In contrast to these earlier FMPs,
the SBRM Amendment establishes a mandatory reporting methodology that allocates at-sea
observers based on a precision level as applied to federally managed species. Once the observers
are allocated, they report on all bycatch, not just federally managed species, as required by the
MSA. (AR 3459.)
20
the agency’s response to the report. (AR 3212.) NEFSC agreed to prepare a decision
memorandum, 19 “sufficient to allow the Regional Administrator to move forward with a
recommended decision on the SBRM Amendment” by the October 22, 2007 deadline, and a
more detailed response shortly after the decision date to include in the preamble to the final rule.
(AR 3213.) NEFSC submitted its four-page summary response on October 18. 20 (AR 3882.)
The response concluded that while the agency would incorporate some of Dr. McAllister’s
suggestions “into the evolution of the SBRM,” his “critique d[id] not provide a sufficient basis to
disapprove the SBRM Amendment.” (Id. at 3882-83) The NMFS Assistant Administrator
approved the SBRM Amendment on October 22. (Pl.’s Mot. at 6-7; AR 3882-85, 3887.)
On December 20, 2007, NEFSC submitted a second, more detailed, 10-page response to
the McAllister Report (AR 3919-28), which was then included in the Notice of Final Rule that
was released by the agency on January 28, 2008. (Id. 3962-66.) The second NEFSC response
“provided additional technical justification for the approaches that have been taken and
summarized additional work that has been conducted since the September 2007 report by Dr.
McAllister.” (Id. 3919.) The response went on to reference the working papers regarding
discard estimation prepared for a Groundfish Assessment Review Meeting (“GARM”) 21 that
19
The decision memorandum was to “clearly identify[] the major comments raised by
members of the public on the amendment and include[] an assessment of the significance of
those comments and whether any, including the technical comments identified in the McAllister
Report, [we]re substantial enough to warrant disapproval of part or all of the SBRM
Amendment.” (AR 3212.)
20
The agency’s responses to comments other than Dr. McAllister’s were submitted on
October 15, 2007. (AR 3221-38.)
21
On October 29, NEFSC began GARM III, the third in a series of periodic regional
scientific peer reviews designed to provide benchmark assessments for the groundfish stocks
managed by the NEFMP. (See AR 1079, 4770.) Working papers were drafted in anticipation of
the October 29 GARM meeting, at least two of which concerned the topic of discard estimation,
which was the subject of the McAllister Report. (See id. 4713, 4750.) The four sessions of
GARM III took place between October 2007 and August 2008. (Id. 4770.) The first meeting
21
took place on October 29 and noted that “[s]everal of the validation issues highlighted by Dr.
McAllister were examined” at that meeting. (See id. 3924-26.) The response also stated that as a
result of recommendations in the McAllister Report, the agency conducted simulation tests of
“alternative estimators,” the results of which were also discussed at the GARM. (Id. 3925.) The
response concluded, consistent with the NEFSC summary response submitted on October 18,
that while the agency acknowledged the utility of Dr. McAllister’s comments and suggestions, it
continued to support the approach taken in the SBRM Amendment. (Id. 3919.)
Oceana now argues that NMFS “relegated its substantive review of the McAllister
[R]eport to the GARM [meeting], held one week after the agency approved the SBRM
Amendment.” (Pl.’s Mot. at 26.) As such, plaintiff maintains that the agency’s December 20,
2007 response to the McAllister Report was an arbitrary and capricious “post hoc” justification
of its approval of the SBRM. (Id.) In support of this argument, plaintiff cites Brookings
Municipal Telephone Company v. FCC, 822 F.2d 1153 (D.C. Cir. 1987), where the D.C. Circuit
required an agency to “demonstrate a ‘rational connection between the facts found and the choice
made,’” id. at 1165 (quoting Farmers Union Cent. Exch., Inc. v. FERC, 734 F.2d 1486, 1499
(D.C. Cir. 1984)), but cautioned that “[p]ost hoc rationalizations advanced to remedy
inadequacies in the agency’s record or its explanation are bootless.” Id.
Plaintiff’s citation to Brookings, is, however, inapposite. Brookings (and Motor Vehicle
Manufacturers Association of the United States, Inc. v. State Farm Mutual Automobile Insurance
Company, 463 U.S. 29 (1983), upon which Brookings relies) involved instances where the
agency’s attorneys attempted to justify the agency’s actions with rationales that had not been
formulated or articulated at the time the agency had decided to act. See State Farm, 463 U.S. at
took place between October 29 and November 2, 2007, and reviewed seven types of data inputs
(landings, discards, tagging, fishery independent and dependent surveys, ecosystem, and
recreational). (Id.)
22
49-50 (dismissing arguments in support of agency’s position in court briefs because “the[y]
[we]re not the agency’s reasons for” its decision); Brookings, 822 F.2d at 1170 (dismissing
arguments “posed for the first time in the [agency’s] briefs to this court” as “no[] excuse [for]
fail[ing] to consider significant alternatives at the agency level”). As the Supreme Court noted,
“[i]t is well-established that an agency’s action must be upheld, if at all, on the basis articulated
by the agency itself.” State Farm, 463 U.S. at 50; see also Grand Canyon Air Tour Coal. v.
FAA, 154 F.3d 455, 469 (D.C. Cir 1998) (“[W]e may consider only the regulatory rationale
actually offered by the agency during the development of the regulation, and not the post-hoc
rationalizations of its lawyers.”).
Here, NMFS did not ignore the McAllister Report during the SBRM Amendment
approval process, only to manufacture reasons for rejecting the report during the pendency of
this litigation. Rather, the agency concluded that the McAllister Report did not provide a
sufficient basis for disapproval of the SBRM Amendment. (AR 3882; 3890.) The agency
submitted a four-page memorandum supporting that conclusion to the Regional Administrator,
discussing Dr. McAllister’s points and stating its disagreement with some of his positions. (See,
e.g., id. 3884 (noting that NEFSC “disagree[s] with Dr. McAllister that the levels of bias inherent
in the data preclude their use in the proposed SBRM” and explaining that “multiple lines of
evidence used in the SBRM suggest that any potential bias that may exist in our observer data
does not impugn the overall program”).) 22 The memorandum demonstrates that NMFS
22
Plaintiff argues that the October 18 NEFSC memorandum is little more than “sweeping
generalizations” that “made no point of contact with Dr. McAllister’s discussion, did not
acknowledge the flaws he identified, and did not consider the solutions that he offered.” (Pl.’s
Reply at 17.) The October 18 memorandum belies these claims. For example, the agency
clearly acknowledges the two major critiques of the McAllister Report—namely, the use of the
combined ratio estimator (as opposed to alternative estimators) and the use of at-sea observer
data (as opposed to fishing vessel trip reports). (AR 3882.) The memorandum also states that:
1) at Dr. McAllister’s suggestion, the agency ran “simulation tests of alternative estimators” and
23
“considered the relevant factors and articulated a rational connection between the facts found”
and its choice to approve the SBRM Amendment despite Dr. McAllister’s critique. Balt. Gas &
Elec. Co., 462 U.S. at 105.
The NEFSC’s supplementation of its October 18 memorandum after the agency approved
the SBRM Amendment, but prior to the release of the final rule, does not constitute post hoc
rationalization in violation of the APA. The December 20 memorandum simply supplements the
agency’s October 18 conclusion that the McAllister Report does not provide a basis for
disapproving the SBRM Amendment and that the methods used in the SBRM are well-
supported. 23 (Compare AR 3882-84 (confirming SBRM Amendment use of combined ration
estimator and at-sea observer data) with id. 3921-25 (discussing use of combined ratio estimator
and potential bias in at-sea observer data); see also id. 3925-26 (discussing results of simulations
and studies referenced in October 18 memorandum).) It underscores and explicates the agency’s
that the “initial findings support the use of the discard to total kept ratio and the simple
expansion method;” 2) the agency “conducted studies to estimate total landings from the
observed sample data, and found good agreement for the methods used in the SBRM;” 3) the
agency rejects Dr. McAllister’s proposed estimator because the estimator is but one component
of the overall SBRM and switching out the combined ratio estimator “would not change the
fundamental process proposed in the SBRM Amendment to allocate observer coverage;” and 4)
the agency disagrees with Dr. McAllister’s conclusion that the bias in the data sets preclude their
use in the SBRM Amendments “[b]ased on [the agency’s] extensive experience with these data
sets.” (AR 3882-84.) The agency clearly reviewed the McAllister Report and responded to its
criticisms, which is what the APA demands. See Balt. Gas & Elec. Co., 462 U.S. at 105.
23
Plaintiff seizes on the agency’s reliance on the GARM working papers in the
December 20 memorandum as evidence that NMFS only substantively considered the McAllister
Report at the GARM meeting, which took place one week after the agency’s October 22
approval of the SBRM. Yet, the record is clear that the agency took steps to review (AR 3212-
13) and respond to (AR 3882-85) the McAllister Report within three weeks of receiving it—and
four days before approving the SBRM Amendment. That the McAllister Report was discussed
more fully at GARM III, and information prepared for the meeting used to supplement the
agency’s October 18 findings, does not suggest that NMFS relegated substantive review of the
Report until after the approval of the SBRM Amendment. Rather, it lends credence to the
agency’s claims that it “took Dr. McAllister’s comments seriously and fully considered them,”
even after it had issued preliminary findings and approved the SBRM Amendment. (Defs.’ Mot.
at 22.)
24
reasons for the decision; it does not create new reasons. 24
In sum, the Court finds that NMFS adequately considered the McAllister Report during
the rulemaking process and sufficiently explained its decision to approve the SBRM Amendment
despite the report’s criticisms. 25 It therefore concludes that the agency did not act arbitrarily or
capriciously in violation of the APA.
B. NMFS Consideration of and Response to Comments Regarding Bias
Plaintiff also argues that NMFS violated the APA because it failed to adequately consider
bias in developing the SBRM Amendment. (Pl.’s Mot. at 27.) The SBRM Amendment
acknowledges the importance of “[e]liminating potential sources of bias” in order to “improve[]
the accuracy of the results.” (AR 3383, 3541.) However, plaintiff maintains that despite the
effect of bias on the results of the SBRM, the agency “never explain[s] what level of bias it
24
But even if the Court were to conclude that the agency failed to adequately consider the
McAllister Report prior to its decision to approve the SBRM Amendment (which it does not),
any such failure did not affect the outcome of the agency’s decision, because the December 20
memorandum, like the October 18 memorandum, clearly supports SBRM approval. Therefore,
any arguable error would be harmless and would not warrant remand of the SBRM Amendment
to the agency. See PDK Labs. Inc. v. DEA, 362 F.3d 786, 799 (D.C. Cir. 2004) (“If the agency’s
mistake did not affect the outcome, if it did not prejudice the petitioner, it would be senseless to
vacate and remand for reconsideration.”)
25
In its Reply, plaintiff also argues that NMFS “predetermined” the outcome of its
response to the McAllister Report before fully reviewing it, citing the minutes from the October
2, 2007 conference call. (Pl.’s Reply at 13-14.) During the call, Ms. Kurkul asked whether “any
[of the critiques in the McAllister Report] are sufficiently serious to indicate that a different
approach to the design of the SBRM is necessary or warranted.” (AR 3212.) An NEFSC staff
member responded that “a different approach would not be necessary, and that, while many of
the issues raised by McAllister are relevant to the analyses supporting the SBRM, none rise to
the level of a fatal flaw that would require the SBRM Amendment to be disapproved.” (Id.)
This exchange does not suggest that the agency “approached its consideration of the McAllister
Report having already decided that nothing in the report would influence its final decision on the
SBRM Amendment.” (Pl.’s Reply at 14.) Rather, the minutes clearly state that the NEFSC staff
had already “had an opportunity to review and consider the issues raised in the McAllister
Report” and that the purpose of the call was “to brief Regional Office staff on the significance
and implications of the issues raised in the report.” (AR 3212.) Therefore, contrary to plaintiff’s
contention, the record does not support the inference that the agency had decided to ignore the
McAllister Report before reading or considering it.
25
would find unacceptable.” 26 (Pl.’s Mot. at 28.) Further, although the McAllister Report
highlighted the lack of a standard to evaluate bias (see AR 3132 (describing SBRM
Amendment’s evaluation of bias without objective quantitative basis to judge bias as “rather
arbitrary”)), the agency failed to adequately respond to this portion of the Report. Oceana also
claims that NMFS “failed to rationally respond to Dr. McAllister’s critique that bias seriously
compromised the SBRM.” (Pl.’s Mot. at 29.) Such disregard for Dr. McAllister’s significant
critique of the SBRM Amendment, plaintiff argues, demonstrates that NMFS’ decision to
approve the SBRM Amendment was arbitrary and capricious. (Id.)
“[A]n agency rule [is] arbitrary and capricious if the agency has . . . entirely failed to
consider an important aspect of the problem [or] offered an explanation for its decision that runs
counter to the evidence before the agency.” State Farm, 463 U.S. at 43. “The agency ‘need not
address every comment, but it must respond in a reasoned manner to those that raise significant
problems.’” City of Waukesha v. EPA, 320 F.3d 228, 257-58 (D.C. Cir. 2003) (quoting Reytblatt
v. Nuclear Regulatory Comm’n, 105 F.3d 715, 722 (D.C. Cir. 1997). “Nevertheless, ‘[t]he
failure to respond to comments is significant only insofar as it demonstrates that the agency’s
decision was not based on a consideration of the relevant factors.’” Id. (quoting Texas Mun.
Power Agency v. EPA, 89 F.3d 858, 876 (D.C. Cir. 1996)); see also Am. Iron & Steel Inst. V.
EPA, 115 F.3d 979, 1005 (D.C. Cir. 1997).
26
Defendant objects to plaintiff’s argument regarding the agency’s failure to respond to
Dr. McAllister’s comment regarding the lack of an objective bias standard, claiming that this
argument is vague and was not included in the complaint. (Defs.’ Opp’n at 14.) Plaintiff’s
amended complaint alleges that McAllister Report and Oceana’s own letter to the agency
“identified numerous technical flaws” in the SBRM Amendment, but does not cite the absence of
an objective bias standard specifically. (Am. Compl. ¶ 65.) However, because the Court
concludes that NMFS sufficiently considered the issue of bias and adequately responded to Dr.
McAllister’s critiques, it need not resolve this objection.
26
The record belies plaintiff’s argument that NMFS failed to consider the issue of bias in
developing and approving the SBRM Amendment. Indeed, the SBRM includes numerous
discussions of bias and the steps taken to minimize it, including an entire chapter (Chapter 5)
devoted to the topics of sampling design, precision, and accuracy. (See, e.g., AR 3245
(“Analyses were performed to evaluate potential sources of bias in the 2004 NEFOP data in
order to characterize the accuracy of the data. In general, there was no evidence of a systematic
bias in the amount of kept pounds, trip duration, or area fished between NEFOP and FVTR data,
indicating that the data are sufficiently accurate.”); 3272 (“The Northeast Region SBRM shall
employ sampling designs developed to minimize bias to the maximum extent practicable.”);
3364 (“As with shore-based intercept sampling, the method for assigning samplers to ride aboard
head/party boats helps to ensure each vessel trip has an equal probability of being sampled and
minimize sampling bias and increase precision.”); 3383 (“Later sections of this chapter address
the statistical properties of the estimators, and provide evidence that there is very little bias
associated with the data collected by the at-sea observers.”); 3400 (“In general, the ratio estimate
has a bias of order 1/n (Cochran 1963). For moderate and large sample sizes, the bias is
negligible.”); 3411-13 (“An examination of the distribution of these differences (Appendix B,
Figures B-8 and B-9), by species group, indicates no evidence of systematic bias and general
symmetry in the pattern of positive and negative differences.”); 3656 (discussing tests conducted
to “to address the potential sources of bias by comparing measures of performance for vessels
with and without observers present”); 3584-90 (rebutting arguments by Babcock et al. regarding
bias and discussing tests conducted to address potential sources of bias in the Northeast Fisheries
Observer (Sea Sampling) Program)).
27
In response to the McAllister Report’s specific criticisms regarding bias in the SBRM,
the October 18, 2007 NEFSC memorandum states that the agency “disagree[s] with Dr.
McAllister that the levels of bias inherent in the data preclude their use in the proposed SBRM”
based on its “extensive experience with these data sets.” (AR 3884.) The agency cites “multiple
lines of evidence used in the SBRM” that suggest that “any potential bias that may exist in [the]
observer data does not impugn the overall program.” (Id.) NEFSC also notes that the “proposed
SBRM analyses were reviewed and accepted by a peer-review panel . . . comprising members of
the Scientific and Statistical Committees of the New England and Mid-Atlantic Fishery
Management Councils,” 27 which “concluded that the SBRM represented a reasonable and
scientifically sound approach.” (Id. 3885.) The agency further discussed the issue of bias in
response to questions raised in the McAllister Report in the December 20, 2007 memorandum.
(Id. 3924-3925.) Finally, the agency devoted three-and-a-half pages of the Notice of Final Rule
to a summary of the McAllister Report and a response to various issues raised therein. 28
27
Plaintiff argues that material in the record created before the McAllister Report was
submitted (which includes portions of the SBRM Amendment and the review of the Amendment
by the Regional Councils) cannot be counted as a “response” to the issues raised in the Report.
(See Pl.’s Reply at 22.) However, the Court notes that “‘[an agency’s] failure to respond to
comments is significant only insofar as it demonstrates that the agency’s decision was not based
on a consideration of the relevant factors.” City of Waukesha, 320 F.3d at 258. The record is
replete with discussions of the potential problem of bias, indicating that the agency considered a
variety of factors related to this issue before and after it received the McAllister Report. The
record thus suggests that any failure of the agency to address a particular critique in the Report is
not significant, given its extensive attention to the issue of bias.
28
Plaintiff argues that the agency’s response to Dr. McAllister’s comments contained in
the Notice of Final Rule is a post hoc rationalization, because it was drafted and released after
the agency’s decision to approve the SBRM Amendment. (Pl.’s Reply at 23-24.) As discussed,
the Court must look to the “regulatory rationale actually offered by the agency during the
development of the regulation.” Grand Canyon Air Tour Coal., 154 F.3d at 469. The fact that
the agency’s formal response to the McAllister Report was issued after the SBRM Amendment
was approved is not dispositive of whether the response is post hoc. Indeed, the response cites to
analyses contained in the SBRM Amendment, as well as studies also cited in the SBRM
Amendment. (Compare, e.g., AR 3964 (responding to McAllister Report critique of estimators
28
It is clear that the agency devoted extensive time and resources, including expert review,
to the potential problem of bias. Any failure on the part of the agency to respond specifically to
a particular comment or criticism contained in the 39-page McAllister Report is, in light of the
agency’s overall consideration of the topic of bias, insignificant. City of Waukesha, 320 F.3d at
257-58. To the extent that Dr. McAllister disagrees with the agency’s conclusions regarding
bias, “[w]hen specialists express conflicting views, an agency must have discretion to rely on the
reasonable opinions of its own qualified experts even if, as an original matter, a court might find
contrary views more persuasive.” Marsh v. Or. Natural Res. Council, 490 U.S. 360, 378 (1989);
see also Oceana I, 2005 WL 55416, at *16 (“It is simply not the Court’s role to interject itself
into this extremely technical scientific debate; indeed, this is precisely the type of issue in which
the Court should properly defer to Defendants’ expertise.”) Given the agency’s extensive
consideration of the issue of bias generally, as well as its many responses to the critiques
contained in the McAllister Report, the Court concludes that NMFS did not act arbitrarily or
capriciously in approving the SBRM.
C. NMFS Consideration of and Response to Comments Regarding Adequacy of
Precision Standard for Rarely Encountered Species
Plaintiff also argues that NMFS acted arbitrarily and capriciously in adopting a 30
percent CV performance level and in failing to respond to Dr. McAllister’s contention that such a
standard is inadequate for rarely encountered species and will result in substantial cumulative
error over time. (Pl.’s Mot. at 31-34.) In his report, Dr. McAllister argued that the “one-shoe
used in SBRM Amendment by citing studies by Pikitch, Stratoudakis , and others, concluding
that such estimators are adequate) with AR 3397 (SBRM Amendment discussion of bias, citing
same studies).) These studies are also included in earlier drafts of the SBRM Amendment. (See,
e.g., id. 456.) The record therefore supports the conclusion that the justifications offered by
NMFS in its response to the McAllister Report in the Notice of Final Rule are the same
rationales the agency actually relied on in developing and approving the Amendment, not post
hoc rationalizations created after the fact.
29
size fits all approach” regarding the performance standard “is inadequately justified and
inappropriate for the vast majority of fishing mode-protected species combinations.” (AR 3156.)
However, he notes that “[w]hether it would be an overall better approach to tailor bycatch
estimators to each particular species-fishing mode combination is a difficult issue” and “would
require a lot more work than the preparation of an SBRM like the present one that applies a
single bycatch estimation method to all instances.” (Id.)
In response to Dr. McAllister’s critique, NMFS stated in the Notice of Final Rule that
The SBRM addresses discarding issues for the entire range of
fishing activities in the Northeast. This synoptic approach requires
careful attention to the limitations and availability of data to
estimate discards and provides a representative methodology to
apply consistently across all Northeast Region fisheries. The
inclusion of all species and all fisheries precluded a detailed case-
by-case treatment of the best estimators in favor of a standardized
approach to provide reasonable results across the full range of
Northeast Region fisheries. The SBRM incorporates objective
approaches to reduce the estimation problem to a subset of cells
that are biologically important.
(Id. 3963 (emphasis added).) It further notes that “[t]he SBRM is fully consistent with the
limitations of the data necessary to support estimation of discards across a wide range of species
and fisheries.” (Id.) Moreover, the SBRM Amendment itself addresses the topic of using
alternate CV levels, both within and outside the 20 to 30 percent range. (AR 3474.) The
Amendment specifically states that “[a]lthough briefly considered by the Councils early in the
process to develop this amendment, establishing separate and distinct CV levels for each
particular combination of fishing mode and species was not pursued further.” (Id.) The
Amendment explains this decision by noting that “there was no scientific justification for
choosing a CV level outside the range of 20-30 percent recommended in NMFS (2004)” and that
the “approach was not pursued further due to a lack of information necessary to make informed
30
decisions regarding the cell-by-cell CVs.” (Id.) Finally, there are numerous examples in the
record of the agency’s consideration of the 30 percent CV performance standard and the
scientific support for that level. (See, e.g., id. 0005 (listing fisheries managers and scientists
consulted regarding the methodological approach for determining bycatch); 72-74 (discussing
benefits of 20-30 percent CV standard); 350 (discussing possible CV alternatives, including
“[c]ell by cell CVs (determined individually)” and an “[a]cross the board 30% CV for all cells”).
The agency considered a variety of factors in settling on a uniform 30 percent CV level,
including whether to use different CV levels for different species. The Court finds that the
NMFS decision to use a 30 percent CV level, and its response to Dr. McAllister’s critique, is
reasonable in light of the relevant factors. See Balt. Gas & Elec. Co., 462 U.S. at 105 (court’s
only task is to “determine whether the agency has considered the relevant factors and articulated
a rational connection between the facts found and the choice made”); see also City of Waukesha,
320 F.3d at 258 (agency’s failure to respond directly to comments is significant only where
“agency’s decision was not based on a consideration of the relevant factors”). Dr. McAllister’s
disagreement with the agency’s conclusions does not provide a basis for finding NMFS’ actions
to be arbitrary and capricious, for NMFS has “discretion to rely on the reasonable opinions of its
own qualified experts.” Marsh, 490 U.S. at 378; see also Am. Trucking Ass’n, Inc., 283 F.3d at
362 (function of court is not to “resolve disagreement among the experts or to judge the merits of
competing expert views”). The various scientific and economic policy judgments made by
NMFS in adopting the SBRM Amendment and the 30 percent CV level are precisely the types of
decisions to which the Court must defer. See Mosbacher, 732 F. Supp. at 223. Indeed, even Dr.
McAllister noted that deciding whether to tailor the CV level to different species is a “difficult
issue.” (AR 3156.) The Court therefore concludes that NMFS did not act arbitrarily and
31
capriciously in deciding against such tailoring in favor of adopting the uniform standard
recommended by experts.
IV. DECISION TO PERFORM ENVIRONMENTAL ASSESSMENT AND TO ISSUE
FONSI
Oceana also challenges NMFS’ decision not to conduct an EIS at the outset of the
SBRM Amendment process, arguing that the available evidence demonstrates that the SBRM
Amendment will significantly impact the environment. (Pl.’s Mot. at 34.) Specifically, plaintiff
contends that the agency violated NEPA because it: 1) decided to issue a FONSI prior to
developing the EA; 2) failed to adequately consider the cumulative impacts of adopting the
SBRM; and 3) failed to consider meaningful alternatives to the “preferred” alternative in the EA.
(Id. at 35, 38, 41.)
A. Decision to Issue a FONSI
NEPA “requires preparation of an [EIS] whenever a proposed major federal action will
significantly affect the quality of the human environment.” Sierra Club v. Peterson, 717 F.2d
1409, 1413 (D.C. Cir. 1983) (citing 42 U.S.C. § 4332(2)(C)). “To determine the nature of the
environmental impact from a proposed action and whether an EIS will be required, federal
agencies prepare an environmental assessment.” Id. (citing 40 C.F.R. § 1501.4(b) & (c)). “If on
the basis o[f] the Environmental Assessment the agency finds that the proposed action will
produce ‘no significant impact’ on the environment, then an EIS need not be prepared.” Id. at
1412-13.
Plaintiff argues that over a year before it had completed an EA of the SBRM
Amendment, the agency decided that it would find that the Amendment would produce no
significant impact on the environment and that a further EIS would not be needed. (Pl.’s Mot. at
32
35.) Based on this premise, Oceana argues that NMSF predetermined the outcome of the EA
such that the resultant assessment was meaningless and the agency failed to perform its duty to
take a “hard look” at its actions in terms of their impact on the environment. (Id.) See also
Peterson, 717 F.2d at 1412 (agencies are required to take a “hard look” at the problem of
environmental impact). Plaintiff bases its allegation on various documents in the record,
including: 1) January 2006 agency meeting minutes stating that “the agency is under court order
to fix the defects in [the FMP Amendments reviewed in Oceana I and II and that] [a]s a result, a
very aggressive schedule for development and implementation is needed to be responsive to the
court” (AR 220); 2) February 2006 minutes noting that meeting participants “discussed that the
amendment should be designed as a technical assessment of bycatch monitoring and reporting
[and that a]s such, an EA should be sufficient” (AR 232); 3) a later statement in the February
2006 minutes notes that “[t]he NEPA process provides for an EA to be conducted first and if the
right conclusions cannot be achieved, then an EIS can be performed” (AR 232-33); 4) an April
2006 SBRM Amendment timeline indicating that the agency planned to “submit” the EA in
October 2006 and “[a]pprove Amendment/sign FONSI” in March 2007, but also noting that an
EA was only “likely, depending on range of potential management measures to be considered”
(AR 278-79); and 5) an April 2006 “outline” of the SBRM Amendment noting that Chapter 9 of
the SBRM Amendment would contain discussion of NEPA and would contain a “draft FONSI
statement.” (AR 305.) NMFS approved the EA and the FONSI a year and a half later in
October 2007. (AR 3239.)
The Court finds that these documents are insufficient to demonstrate that the agency
prejudged the outcome of the EA. 29 At most, these ambiguous statements suggest that NMFS
29
Plaintiff also argues that the agency’s submission of the SBRM Amendment for
approval at the same time as its submission of the EA (which was a part of the SBRM
33
expected that an EA would be sufficient given the anticipated nature of the SBRM Amendment,
but there is no evidence that it was prepared to ignore contrary findings or to avoid having to
conduct a proper EA in the first place. Plaintiff’s attempt to liken these documents to records in
cases where courts have concluded that agencies have prejudged the outcome of the EA is
unavailing. For instance, in Davis v. Mineta, 302 F.3d 1104 (10th Cir. 2004), the record showed
that the consultant hired by the agency to prepare the EA was contractually obligated “to prepare
a FONSI and to have it approved, signed and distributed by FHWA by a date certain.” Id. at
1112. In essence, the agency hired a consultant not to conduct an EA, but to prepare a FONSI.
NMFS’ proposed scheduling documents, however, do not suggest that the entity conducting the
EA was obligated to come to a certain conclusion. Similarly, in American Wildlands & Native
Ecosystems Council v. National Forest Service, No. 97-160, 1999 U.S. Dist. LEXIS 22243 (D.
Mont. 1999), the record contained a schedule for the proposed action that “presuppose[d] that no
[EIS] w[ould] be required.” Id. at *10. Another document, an interagency memorandum,
instructed the recipient to “[a]ssume that the amendment will not be significant, and that NEPA
alternatives will be limited to those that would mitigate impacts of proposed action (if any).” Id.
at *11. Another document stated that the proposed agency action “will be a non-significant
amendment.” Id. The court concluded that these documents indicated a “presumption that an
Amendment document) deprived the agency of the option of deciding to develop an EIS, since
the only option available to the agency if it did not approve the EA would be to disapprove the
Amendment and “start over from scratch.” (Pl.’s Reply at 30-31.) The Court fails to
comprehend the significance of the simultaneous submission of the EA and the Amendment. It
is not clear that the agency had anything more to lose by submitting the EA and the Amendment
at the same time, rather than submitting the EA first. A rejection of the Amendment on the
grounds that the agency desired an EIS would not have invalidated the rest of the Amendment,
requiring the agency, as plaintiff argues, to begin its development of the Amendment “from
scratch.” (Id. at 31.) Rather, NMFS would have been free to conduct an EIS and resubmit the
Amendment for approval upon completion of the EIS. To the extent that NMFS remained free to
approve or disapprove of the EA and conduct an EIS if it desired, its submission schedule fails to
demonstrate a prejudgment of the EA outcome.
34
[EIS] would not be called for under any circumstances.” Id. at *9. In contrast, the documents
cited by plaintiff explicitly note that an EA was only “likely” 30 (AR 278-79) and did not
foreclose the possibility of an EIS. 31 (Id. 232-33.) As such, the Court concludes that the agency
did not arbitrarily predetermine the outcome of its EA.
B. Consideration of Cumulative Effects and Meaningful Alternatives
Even if the documents cited by plaintiff were sufficient to indicate the agency’s
prejudgment of the EA (which they are not), “an agency’s intention or predisposition in drafting
an EA is irrelevant if the EA itself ultimately satisfies requirements of NEPA.” Surfrider Found.
v. Dalton, 989 F. Supp. 1309, 1320 (S.D. Cal. 1998). “A court reviews an agency’s FONSI . . .
under the [APA] and ‘cannot substitute [its] judgment for that of an agency if the agency’s
decision was fully informed and well considered.’” Mich. Gambling Opp’n v. Kempthorne, 525
F.3d 23, 29 (D.C. Cir. 2008) (quoting Cabinet Mountains Wilderness v. Peterson, 685 F.2d 678,
684 (D.C. Cir. 1982) (citations and quotation marks omitted)). “Cases in this circuit have
employed a four-part test to scrutinize an agency’s finding of ‘no significant impact.’” Peterson,
30
Other documents in the record also indicate that the agency did not foreclose the
possibility of an EIS until the EA was completed. (See, e.g., AR 221 (“Some discussion
occurred on the level of [NEPA] analysis needed and whether an [EA] or [EIS] would be
required. It was decided that an EA should suffice provided no significant impacts to the
environment could be demonstrated.”); id. 285 (“Another audience member asked if an [EIS]
would be required. Mr. Pentony responded by stating that the determination at present is that an
[EA] will be done first and if a [FONSI] cannot be supported, then an EIS will be developed per
the NEPA process.”).)
31
A third case cited by plaintiff, Sans Luis Valley Ecosystem v. U.S. Forest Service, No.
04-cv-01071, 2007 U.S. Dist. LEXIS 36242 (D. Colo. May 17, 2007), involved a draft EA that
initially stated that there was a “potentially significant effect to the scenic value of the area,” but
when a commenter noted that such language would require an EIS, the language was changed to
state that there “could be substantial effects on the scenic values within this viewshed.” Id. at
*34. The court also found evidence that the agency was concerned about approving its action
before certain appraisals expired, indicating the agency’s motive for avoiding an EIS. Id.
Plaintiff makes no such allegations here, and the record contains no suggestion that NMFS
altered or doctored its EA findings to avoid an EIS.
35
717 F.2d at 1413. “[T]he court reviews an agency’s finding of no significant impact to
determine whether:
First, the agency [has] accurately identified the relevant
environmental concern. Second, once the agency has identified the
problem it must have taken a ‘hard look’ at the problem in
preparing the EA. Third, if a finding of no significant impact is
made, the agency must be able to make a convincing case for its
finding. Last, if the agency does find an impact of true
significance, preparation of an EIS can be avoided only if the
agency finds that the changes or safeguards in the project
sufficiently reduce the impact to a minimum.
Grand Canyon Trust v. FAA, 290 F.3d 339, 340-41 (D.C. Cir. 2002) (quoting Sierra Club v. U.S.
Dep’t of Transp., 753 F.2d 120, 127 (D.C. Cir. 1985)).
The SBRM Amendment contains an eight-page EA that includes a detailed discussion of
the potential environmental effects of the SBRM Amendment. Plaintiff argues that the NMFS
EA is “skimpy.” (Pl.’s Reply at 32.) But “the length of an EA has no bearing on the necessity of
an EIS.” TOMAC, Taxpayers of Mich. Against Casinos v. Norton, 433 F.3d 852, 862 (D.C. Cir.
2006). “‘What ultimately determines whether an EIS rather than an EA is required is the scope
of the project itself, not the length of the agency’s report.’” Id. (quoting Heartwood, Inc. v. U.S.
Forest Serv., 380 F.3d 428, 434 (8th Cir. 2004)). “[T]he agency’s EA must give a realistic
evaluation of the total impacts and cannot isolate a proposed project, viewing it in a vacuum.”
Grand Canyon Trust, 290 F.3d at 342. To that end, plaintiff also maintains that the NMFS EA
“omit[s] an analysis of cumulative impacts and a meaningful consideration of alternatives.”
(Pl.’s Reply at 32.)
1. Cumulative Impact
“Cumulative impact is the impact on the environment which results from the incremental
impact of the action when added to other past, present, and reasonably foreseeable future actions
36
regardless of what agency (Federal or non-Federal) or person undertakes such other actions.” 40
C.F.R. § 1508.7. The D.C. Circuit has held that “‘meaningful cumulative impact analysis must
identify’ five things: ‘(1) the area in which the effects of the proposed project will be felt; (2) the
impacts that are expected in that area from the proposed project; (3) other actions—past, present,
and proposed, and reasonably foreseeable—that have had or are expected to have impacts in the
same area; (4) the impacts or expected impacts from these other actions; and (5) the overall
impact that can be expected if the individual impacts are allowed to accumulate.’” TOMAC, 433
F.3d at 864 (quoting Grand Canyon Trust, 290 F.3d at 345) (emphasis added).) Importantly,
“NEPA does not require federal agencies to examine every possible environmental consequence.
Detailed analysis is required only where impacts are likely.” Izaak Walton League of Am. v.
Marsh, 655 F.2d 346, 377 (D.C. Cir. 1981); see also id. (“Where adverse environmental impacts
are not likely, expensive and time-consuming studies are not necessary. So long as the
environmental impact statement identifies areas of uncertainty, the agency has fulfilled its
mission under NEPA.”).
Plaintiff argues that NMFS disingenuously and misleadingly characterized the SBRM as
“wholly administrative in nature.” (Pl.’s Mot. at 39 (citing AR 2618).) Rather, plaintiff
maintains that because the SBRM Amendment results in bycatch data, it will have a direct effect
on fishing levels and quotas set by the agency. (Id. at 40.) As such, plaintiff argues that the bias
in the Amendment will
result in the misallocation of observer coverage, resulting in too
much coverage in some areas and too little coverage in other areas,
and these misallocations may possibly cause the agency to invoke
its ‘external operational constraint’ loophole when a correct
allocation of the coverage might allow the agency to continue
following the SBRM.
(Id. at 41.)
37
The SBRM Amendment contains a section entitled “Summary Cumulative Effects
Associated With the Preferred Alternative,” which contains a three-page explanation of the
agency’s consideration of incremental impacts of the SBRM Amendment over time. (AR 3514-
16; see also id. 3501-12 (describing “consequences” of SBRM Amendment generally).) NMFS
states that because
the actions being considered in this amendment focus solely on the
administrative processes through which data and information on
bycatch occurring in Northeast Region fisheries are collected,
analyzed, and reported to fishery scientists and managers . . . it is
not possible to conduct what is generally considered a traditional
cumulative effects assessment for this action.
(Id. 3514.) The section goes on to state that none of the administrative aspects of the SBRM
“intended to improve the effectiveness and the transparency of the Northeast Region
SBRM” is “associated with impacts to any fishing areas or living marine resources within the
Northeast Region that could be distinguished from the no action baseline.” (Id. 3514-15.) It
then notes that any possible “downstream” impacts of the Amendment, which is “focused on
establishing a procedural methodology rather than on implementing changes to fishing
operations,” are not reasonably foreseeable. (Id. 3515.) To the extent that the SBRM
Amendment results in bycatch data that necessitates changes to fishing operations, the agency
concluded that such changes would be subject to a separate NEPA process, geared toward the
specific impacts of those changes. (Id. 3516.)
The Court concludes that NMFS sufficiently considered the issue of cumulative effects
and concluded that any potential downstream impacts were not “reasonably foreseeable and
directly linked” to the Amendment. (Id. 3515). As such, the agency’s EA analysis was
sufficient under NEPA. See 40 C.F.R. § 1508.7 (cumulative impact is result of impact of action
when combined with “reasonably foreseeable” future actions); TOMAC, 433 F.3d at 863 (“all
38
that can reasonably be expected” of agency conducting NEPA analysis is to analyze “impacts
likely to occur”); Izaak Walton League of Am., 655 F.2d at 377. With respect to plaintiff’s
speculation as to the possible future impact of bias, the agency, relying on its “extensive
experience,” concluded that bias in the data does not preclude their use in the SBRM
Amendment. (AR 3884.) Because the agency has found that bias is not a problem, it need not to
consider it as part of its NEPA analysis. That plaintiff disagrees with NMFS that bias is not
likely to affect the operation of the SBRM Amendment is not a basis for this Court to conclude
that the agency’s analysis is deficient, as the agency is entitled to rely on its own expert findings.
Marsh, 490 U.S. at 378.
2. Meaningful Alternatives
Oceana also argues that “in its haste to issue a FONSI,” the agency failed to
“meaningfully consider alternatives to some of the key decisions in the SBRM Amendment.”
(Pl.’s Mot. at 41.) Specifically, plaintiff contends that with respect to SBRM Element 3
(selection of the performance standard) and Element 6 (the prioritization process), the agency
considered “only two alternatives: an illegal status quo and the agency’s preferred alternative.”
(Id.) Plaintiff maintains that limiting the discussion of alternatives in an EA to the status quo and
the proposed action is prohibited under NEPA. (Id.) See also 40 C.F.R. § 1508.9 (EA requires,
inter alia, “brief discussions” of “alternatives as required by section 102(2)(E) [and] of the
environmental impacts of the proposed action and alternatives”); see also 42 U.S.C. § 4332(E)
(agencies must “study, develop, and describe appropriate alternatives to recommended courses of
action in any proposal which involves unresolved conflicts concerning alternative uses of
available resources”). Oceana argues that it suggested several alternatives to the agency,
including different CV values or a different statistical metric for Element 3 and the use of
39
industry funding and different procedures to modify observer allocation for Element 6, but they
were not considered. (Pl.’s Mot. at 42-43.)
“[C]ourts apply a ‘rule of reason’ in assessing whether an agency considered a sufficient
range of alternatives.” Oceana I, 2005 WL 555416, at *7. “The range of options considered by
the agency is ‘bounded by some notion of feasibility,’ and a ‘detailed statement of alternatives
cannot be found wanting simply because the agency failed to include every alternative device
and thought conceivable by the mind of man.’” Id. (quoting Vermont Yankee Nuclear Power
Corp., 435 U.S. at 551). “Moreover, ‘[t]he goals of an action delimit the universe of the action’s
reasonable alternatives.’” Id. (quoting City of Alexandria v. Slater, 198 F.3d 862, 867 (D.C. Cir.
1999)). As such, “an agency need not consider options inconsistent with the action’s purpose.”
Id.
Here, the Court concludes that NMFS’ consideration of alternatives 32 in the EA was
sufficient to meet the requirements of NEPA. With respect to Element 3, the EA clearly states
32
The agency’s October 15, 2007 response to public comments on the SBRM
Amendment noted that
As described throughout the amendment (the Executive Summary
and chapters 6, 7, and 8), the alternatives considered by the
Councils were structured around seven specific elements that
together comprise the Northeast Region SBRM. Multiple
alternatives were developed and considered for each element and,
in some cases, various sub-options were also developed and
considered. As noted in Appendix E of the amendment, in
response to a similar comment received on the draft amendment,
the available permutations of the various alternatives considered in
this action exceeds 1,400 if the sub-options are not counted.
Accounting for the sub-options, the number of possible outcomes
exceeds 2,100 sets of management alternatives. In addition to the
sets of alternatives expressly analyzed in the EA, the Councils
considered, but ultimately rejected from detailed analysis, an
additional four distinct alternatives.
(AR 3232.) The Amendment itself also states:
40
that beyond just the “status quo” and the 30 percent CV level that was adopted, the Regional
Councils “considered an approach that would have attempted to establish a separate and distinct
CV level for each particular combination of fishing mode and species” as well as “whether an
alternative percentage (15 percent, 20 percent, 40 percent, etc.) should be selected instead.” (AR
3474.) The EA goes on to explain that there is a “lack of scientific justification for CV values
outside the range recommended [20-30 percent] by the National Working Group on Bycatch”
and “[e]ven within this range, there is little scientific justification for choosing one CV level
(e.g., 28 percent) over any other specific CV level (e.g., 27 percent).” (Id.) The EA then states
that separate CV levels for each fishing mode and/or species “was not pursued further due to
a lack of information necessary to make informed decisions regarding the cell-by-cell
CVs.” (Id.; see also id. 3960 (“In addition to the sets of alternatives expressly analyzed in the
EA, the Councils considered, but ultimately rejected, an additional four distinct alternatives.”)
The Court concludes that these “brief discussions” of alternatives considered and rejected
by the agency are adequate under NEPA. See 40 C.F.R. § 1508.9(b) (EA shall include “brief
discussions” of alternatives). Cf. 40 C.F.R. § 1502.14(a) (in completing EIS, “for alternatives
This amendment provides a range of possible outcomes as
alternative courses of action, but is organized for the sake of clarity
such that for each of seven relatively independent decision points
the status quo is compared to between one and three additional
alternatives (some alternatives include an additional one to three
options). Given the structure of the SBRM Amendment in
categorizing the actions under consideration, there are actually
1,464 distinctoutcomes possible for the SBRM to be adopted by
the Councils, ignoring sub-options within some of the alternatives.
Accounting for the sub-options, the number of different possible
outcomes climbs to 2,160.
(Id. 3759.)
41
which were eliminated from detailed study, [the agency need only] briefly discuss the reasons for
their having been eliminated,” as opposed to “rigorous” exploration and evaluation).
Similarly, the record is clear that the agency considered industry funding and other ways
to prioritize spending in the event of funding shortages. For example, the SBRM Amendment
includes “provisions for industry-funded observer programs.” (AR 3437; see also id. 3468
(describing provision in Amendment to allow “development of and/or modifications to an
industry-funded observer program, including observer set-aside provisions . . . through a
framework adjustment to the relevant FMP”); 3512 (discussing environmental consequences of
industry-funded observer programs).) The Amendment allows Regional Councils to establish
“either a requirement for industry-funded observers or an observer set-aside program” via this
mechanism. (Id. 3953.) NMFS also considered other types of prioritization such as those
suggested by plaintiff, but they were rejected because “the Councils recognized the importance
of retaining sufficient flexibility in the SBRM to adapt to changing conditions and priorities in
the fisheries.” (Id. 3958.) The agency further noted that “retaining some level of discretion in
allocating resources is necessary for the agency to adequately meet its obligations under other
laws in addition to the Magnuson-Stevens Act, such as the ESA and MMPA.” (Id.) To the
extent the agency concluded that a rigid system of prioritization was unreasonable and/or
inconsistent with the SBRM Amendment’s purpose, it need not have addressed that option in its
EA. See Oceana I, 2005 WL 555416, at *7; see also Citizens Against Burlington, Inc. v. Busey,
930 F.2d 198, 195 (D.C. Cir. 1991) (“CEQ regulations oblige agencies to discuss only
alternatives that are feasible, or (much the same thing) reasonable.”). Accordingly, the Court
finds that the agency meaningfully considered alternatives in developing the SBRM Amendment
and completing its EA.
42
CONCLUSION
The SBRM Amendment is a comprehensive, detailed document reflecting NMFS’ best
efforts to comply with this Court’s earlier orders. For the reasons set forth herein, the Court
concludes that the agency’s actions in developing and approving the Amendment were
reasonable and in accordance with the law. Accordingly, the Court will grant defendants’
motion for summary judgment, and it will deny plaintiff’s motion for summary judgment. A
separate Order accompanies this Memorandum Opinion.
/s/
ELLEN SEGAL HUVELLE
United States District Judge
DATE: July 23, 2010
43
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01-03-2023
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04-04-2014
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https://www.courtlistener.com/api/rest/v3/opinions/2665654/
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
___________________________________
)
EUGENE A. FISCHER, )
)
Plaintiff, )
)
v. ) Civil Action No. 07-2037 (ESH)
)
U.S. DEPARTMENT OF JUSTICE, )
)
Defendant. )
___________________________________ )
MEMORANDUM OPINION
Plaintiff, proceeding pro se, has brought this action under the Freedom of Information
Act (“FOIA”), 5 U.S.C. § 552, and the Privacy Act, 5 U.S.C. § 552a, to compel disclosure by the
Federal Bureau of Investigation (“FBI”) of records regarding his criminal case.1 Defendant
produced some responsive documents from its search of FBI Headquarters (“FBIHQ”), and the
Court granted summary judgment for defendant with respect to those records. Fischer v. Dep’t
of Justice, 596 F. Supp. 2d 34, 39-40 (D.D.C. 2009) (“Fischer II”). Since then, defendant has
searched the FBI’s Springfield, Illinois Field Office (“SIFO”) for responsive documents and has
produced additional records to plaintiff. Defendant now moves for summary judgment with
respect to those disclosures. For the reasons set forth below, the Court will grant defendant’s
motion.
1
Plaintiff originally sued the Department of Justice (“DOJ”), the FBI, and the Office of
Information and Privacy (“OIP”). Because the FBI and OIP are both components of DOJ, the
Court substituted DOJ as the sole defendant. See Fischer v. FBI, No. 07-CV-2037, 2008 WL
2248711, at *1 n.1 (D.D.C. May 29, 2008).
1
BACKGROUND
This case arises out of plaintiff’s requests under FOIA and the Privacy Act for FBI
records concerning his 1988 criminal conviction in the United States District Court for the
Southern District of Illinois. He submitted successive requests to SIFO in 1995 and 1996,
seeking to acquire information that “could help him to prove his actual innocence.” (Compl. ¶¶
6-7; Fischer II, 596 F. Supp. 2d at 40.) The details of plaintiff’s prior attempts to obtain
information and defendant’s responses are set out in this Court’s prior opinions in Fischer v.
FBI, No. 07-CV-2037, 2008 WL 2248711, at *1 n.1 (D.D.C. May 29, 2008) (“Fischer I”), and
Fischer II, 592 F. Supp. 2d at 40-42, so only those facts essential to the Court’s ruling on the
instant motion will be recounted here.
After affirming the FBI’s decision to withhold all records responsive to plaintiff’s request
in 1996, OIP reversed itself in 2006, prompting the FBI to renew its search for responsive
records. Fischer II, 596 F. Supp. 2d at 40. The FBI subsequently released some records to
plaintiff and withheld others. (Compl. ¶¶ 13-14.) Disputing both the adequacy of the search and
the decision to withhold certain records under FOIA and Privacy Act exemptions, plaintiff sued
to compel disclosure. (Id. ¶ 18.)
Because the FBI discovered that it had mistakenly limited its renewed search to the
records in FBIHQ, even though plaintiff had directed his original request to SIFO, defendant
moved for a three-month stay of these proceedings with regard to responsive nonpublic SIFO
records. (See Def.’s Mot. to Stay Proceedings and for Discl. Sched. [Dkt. 31].) On January 26,
2009, the Court granted the motion “to allow the [FBI] to complete its processing under [FOIA]
of the recently-discovered records located at its Springfield, Illinois Field Office.” (See Minute
Order, Jan. 26, 2009.) That same day, the Court issued its ruling in Fischer II, which was
2
limited to all responsive, nonexempt public records in SIFO’s files, but it did not address
responsive non-public files, which the FBI was still processing. 592 F. Supp. 2d at 42.
Since then, defendant has finished processing SIFO’s responsive nonpublic records,
yielding 1,904 pages of relevant documents of which it has released 1,615 pages to plaintiff.
(Def.’s Mot., Sixth Decl. of David M. Hardy [“Sixth Hardy Decl.”] ¶ 4.)2 The non-disclosed
portion comprises 248 pages withheld as duplicates and 41 pages withheld pursuant to statutory
exemptions. (Id.) The disclosed records are made up of 1,108 partially redacted pages and 597
fully released pages. (Id.) The parties have agreed, for the purpose of this litigation, to a 464-
page representative sample3 that includes, inter alia, memoranda, fax cover sheets, copies of
checks, handwritten interview notes, photo lineup notes, maps, telephone records, and
investigative reports. (Sixth Hardy Decl. ¶ 5.) Defendant argues that because “the FBI has
2
David M. Hardy is Section Chief of the Record/Information Dissemination Section,
Records Management Division, at FBIHQ. His initial Declaration was attached to defendant’s
February 14, 2008 Motion to Dismiss or, in the Alternative, Motion for Summary Judgment.
Defendant has submitted several other declarations by Hardy throughout this litigation, attaching
his sixth and most recent declaration to the instant motion.
Defendant includes codes with each withholding to indicate which FOIA exemptions are
claimed and the nature of the information withheld, and the Sixth Hardy Declaration includes an
index that explains those codes. (See Sixth Hardy Decl. ¶ 25.) The D.C. Circuit has approved
the use of such coded indices. See Keys v. Dep’t of Justice, 830 F.2d 337, 349-50 (D.C. Cir.
1987). Hardy’s sixth declaration also discusses in detail the types of information that were
redacted pursuant to each exemption. The declarations and the coded indices are adequate to
inform plaintiff of the nature of the information withheld and the reasons therefor and to permit
the Court to determine the applicability of each exemption claimed. Accordingly, the Sixth
Hardy Declaration meets defendant’s index requirements under Vaughn v. Rosen, 484 F.2d 820
(D.C. Cir. 1973).
3
“Representative sampling is an appropriate procedure to test an agency’s FOIA
exemption claims when a large number of documents are involved,” Bonner v. Dep’t of State,
928 F.2d 1148, 1151 (D.C. Cir. 1991), because it “allows the court and the parties to reduce a
voluminous FOIA exemption case to a manageable number of items that can be evaluated
individually through a Vaughn index or an in camera inspection. If the sample is well-chosen, a
court can, with some confidence, ‘extrapolate its conclusions from the representative sample to
the larger group of withheld materials.’” Id. (quoting Fensterwald v. CIA, 443 F. Supp. 667, 669
(D.D.C. 1977)); see also Meeropol v. Meese, 790 F.2d 942, 958 (D.C. Cir. 1986).
3
conducted a reasonable search of agency records, has disclosed all non-exempt responsive
records, and has not improperly withheld any responsive records from plaintiff,” no genuine
issue remains as to any material fact, and it is therefore entitled to summary judgment. (Def.’s
Mot. for Summary J. in Part [“Def.’s Mot.”] at 2; see Fed. R. Civ. P. 56(c)(2).)4
ANALYSIS
I. STANDARD OF REVIEW
The Court may grant a motion for summary judgment “if the pleadings, the discovery
and disclosure materials on file, and any affidavits show that there is no genuine issue as to any
material fact and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(c). The moving party bears the burden of demonstrating an absence of a genuine issue of
material fact in dispute. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Factual assertions
in the moving party’s affidavits may be accepted as true unless the opposing party submits his
own affidavits or declarations or documentary evidence to the contrary. Neal v. Kelly, 963 F.2d
453, 456 (D.C. Cir. 1992).
“FOIA cases typically and appropriately are decided on motions for summary judgment.”
Defenders of Wildlife v. U.S. Border Patrol 623 F. Supp. 2d 83, 87 (D.D.C. 2009) (citations
omitted). “In a FOIA case, summary judgment may be granted to the government if ‘the agency
proves that it has fully discharged its obligations under the FOIA, after the underlying facts and
the inferences to be drawn from them are construed in the light most favorable to the FOIA
4
Because plaintiff is proceeding pro se, the Court issued a Fox/Neal Order on December
14, 2009 to alert plaintiff that “the Court will accept as true any factual assertions contained in
affidavits, declarations or attachments submitted by the defendant in support of a motion for
summary judgment unless the plaintiff submits affidavits, declarations or documentary evidence
showing that the defendant’s assertions are untrue.” (See Order of Dec. 14, 2009 (citing Neal v.
Kelly, 963 F.2d 453, 456 (D.C. Cir. 1992)) [Dkt. 51]; see infra note 6.)
4
requester.’” Fischer II, 596 F. Supp. 2d at 42 (quoting Greenberg v. Dep’t of Treasury, 10 F.
Supp. 2d 3, 11 (D.D.C. 1998)). The requester may challenge such a showing by “set[ting] out
specific facts showing a genuine issue for trial,” Fed. R. Civ. P. 56(e), that would permit a
reasonable jury to find in his favor. Laningham v. U.S. Navy, 813 F.2d 1236, 1241 (D.C. Cir.
1987). However, agency affidavits “are afforded a presumption of good faith,” and an adequate
affidavit “can be rebutted only ‘with evidence that the agency’s search was not made in good
faith.’” Defenders of Wildlife v. Dep’t of Interior, 314 F. Supp. 2d 1, 8 (D.D.C. 2004) (quoting
Trans Union LLC v. Fed. Trade Comm’n, 141 F. Supp. 2d 62, 69 (D.D.C. 2001)). In other
words, a requester cannot rebut the good faith presumption through “‘purely speculative claims
about the existence and discoverability of other documents.’” SafeCard Servs., Inc. v. SEC, 926
F.2d 1197, 1200 (D.C. Cir. 1991) (quoting Ground Saucer Watch, Inc. v. CIA, 692 F.2d 770, 771
(D.C. Cir. 1981)). But “if the sufficiency of the agency’s identification or retrieval procedure is
genuinely in issue, summary judgment is not in order.” Weisberg v. Dep’t of Justice, 627 F.2d
365, 370 (D.C. Cir. 1980) (internal quotation marks omitted).
II. PRESUMPTION OF GOOD FAITH
Plaintiff argues that defendant’s past lapses in producing requested information
demonstrate a track record of bad faith that rebuts the presumption of good faith that would
ordinarily attach to the government’s affidavits. Plaintiff points to delays in document
production as evidence of bad faith, especially defendant’s failure to abide by the statutory
deadlines for timely action and the ten years that passed between his original FOIA request and
defendant’s change of its disclosure policies that enabled the FBI to release responsive records.
(Pl.’s Response to Def.’s Mot. [“Pl.’s Opp’n”] at 3-4.)
The Court rejects plaintiff’s arguments that defendant’s failure to produce documents
5
until after it changed its disclosure policies, or until after litigation commenced, evinces bad faith
or an inadequate search. “[I]n view of the well-publicized problems created by the . . . time
limits for processing FOIA requests and appeals, the [agency’s] delay alone cannot be said to
indicate an absence of good faith.” Goland v. CIA, 607 F.2d 339, 355 (D.C. Cir. 1978) (footnote
omitted).
Plaintiff also urges a finding of bad faith because of inconsistent reports by the FBI of
how many responsive files had been found. (See Pl.’s Opp’n at 4.) Notwithstanding plaintiff’s
point that “Hardy admitted that there was a mistake made . . . as to the number of [responsive]
files” (id.), mistakes do not imply bad faith. In fact, the agency’s cooperative behavior of
notifying the Court and plaintiff that it had discovered a mistake, if anything, shows good faith.
To be sure, defendant has not performed its duties under FOIA perfectly, but error-free
performance is not required. The particular lapses in defendant’s search for and production of
plaintiff’s requested records do not rise to the level of rebutting the presumption of good faith
that attaches to statements made by agency officials under penalty of perjury.
III. ADEQUACY OF SEARCH
Plaintiff contends that the FBI failed to conduct a reasonable and good faith search for
responsive documents. Given the lack of any specific showing of bad faith, the Court is not
persuaded.
An agency from which information has been requested must undertake a search that is
“reasonably calculated to uncover all relevant documents.” Weisberg v. Dep’t of Justice, 705
F.2d 1344, 1351 (D.C. Cir. 1983). “[T]he adequacy of a FOIA search is generally determined
not by the fruits of the search, but by the appropriateness of the methods used to carry out the
search.” Iturralde v. Comptroller of the Currency, 315 F.3d 311, 315 (D.C. Cir. 2003). The
6
Court applies a “‘reasonableness’ test to determine the ‘adequacy’ of search methodology,”
Campbell v. Dep’t of Justice, 164 F.3d 20, 27 (D.C. Cir. 1998), and requires a “reasonable and
systematic approach to locating the requested documents.” Ctr. for Pub. Integrity v. FCC, 505
F. Supp. 2d 106, 116 (D.D.C. 2007). “The agency must demonstrate that it ‘made a good faith
effort to conduct a search for the requested records, using methods which can be reasonably
expected to produce the information requested.’” Fischer II, 596 F. Supp. 2d at 42 (quoting
Oglesby v. Dep’t of the Army, 920 F.2d 57, 68 (D.C. Cir. 1990)).
Defendant properly relies upon a relatively detailed, non-conclusory declaration that
demonstrates the adequacy of the search. See Weisberg, 705 F.2d at 1351. As Hardy explains,
in processing FOIA and Privacy Act requests, the agency begins by searching its Central
Records System (“CRS”), a system that includes records of “administrative, applicant, criminal,
personnel, and other files compiled for law enforcement purposes.” (Sixth Hardy Decl. ¶ 8.)
The FBI also searched its Electronic Surveillance (“ELSUR”) indices, a separate system of
records that includes the names of individuals whose electronic and/or voice communications
have been intercepted. (Id. ¶¶ 14-15.) Hardy even explains the procedure agency employees
used to determine whether individuals with protected identities can be presumed dead in order to
disclose as much information as possible to a FOIA requester. (Id. ¶ 55 n.20.) Using these
systems, FBI employees located one file in SIFO, labeled 281B-SI-45838, that included 1,904
pages of documents related to plaintiff. (Id. ¶ 19; see also Fourth Decl. of David M. Hardy ¶¶ 5-
9.)
Plaintiff attacks the good faith of defendant’s search by identifying individual documents
that are allegedly responsive to his requests but which were not produced. (Pl.’s Opp’n at 3-5.)
However, whether the agency located all copies of the records sought is not dispositive, for an
7
agency’s search is not presumed unreasonable if it fails to find every possibly responsive
document. See Steinberg v. Dep’t of Justice, 23 F.3d 548, 551 (D.C. Cir. 1994) (explaining that
relevant question is not “whether there might exist any other documents possibly responsive to
the request, but rather whether the search for those documents was adequate.”). Even plaintiff’s
showing of specific responsive documents that exist and were not produced does not rebut the
presumption of good faith accorded to agency affidavits. See id. at 892 n.7. As the Court
concluded in Fischer II, when confronting a similar argument by plaintiff, “Plaintiff raises no
specific challenge to the FBI’s search methodology, but rather he questions the adequacy of the
FBI’s search based on the agency’s failure to locate additional records that he believes the
agency should have in its possession . . . . Plaintiff has failed to rebut the FBI’s showing of a
good faith search.” 596 F. Supp. 2d at 43.
Plaintiff now suggests that two unproduced documents, related to a seized property called
“the Bicycle Club,” represent more than an isolated omission by the FBI, and instead, they
indicate “that the process was defective.” (Pl.’s Opp’n at 6.) Plaintiff’s assertion of bad faith
based on the omission of the Bicycle Club documents relies on speculation that SIFO ever had
possession of these documents. See Accuracy in Media, Inc. v. NTSB, No. 03-CV-024, 2006 WL
826070, at *8 (D.D.C. March 29, 2006) (plaintiff’s showing of omitted documents “does not
mean that they exist now or that the agency has possession of them”). The assertion also
assumes that additional responsive documents, beyond those discovered by plaintiff, were not
produced. However, “speculation as to the existence of additional records . . . does not render
the searches inadequate.” Concepcion v. FBI, 606 F. Supp. 2d 14, 30 (D.D.C. 2009); see also
SafeCard Servs., 926 F.2d at 1201 (rejecting “mere speculation”); Oglesby, 920 F.2d at 67 n.13
(D.C. Cir. 1990) (rejecting “hypothetical assertions”).
8
Plaintiff’s arguments against the adequacy of the search fail to put “the sufficiency of the
agency’s identification or retrieval procedure . . . genuinely in issue.” Weisberg, 627 F.2d at
370. Accordingly, the Court concludes that defendant’s search was adequate.
IV. EXEMPTIONS
Defendant bases its withholdings on allowances for non-disclosure memorialized in
Privacy Act Exemption (j)(2), and FOIA Exemptions 1, 2, 3, 5, 6, 7(C), 7(D), 7(E), and 7(F).
See 5 U.S.C. § 552a(j)(2); id. § 552(b)(1)-(3), (5)-(6), (7)(C)-(7)(F). As explained below, either
plaintiff has conceded or defendant has sufficiently justified each of those exemptions.
A. Conceded Exemptions
Plaintiff’s opposition to the instant motion fails to address several of the asserted
exemptions. Specifically, he does not challenge the FBI’s redactions for which it asserts Privacy
Act Exemption (j)(2) and FOIA Exemptions 2, 3, 6, 7(C), and 7(E). Plaintiff also does not
address two of defendant’s three categories of withholdings under Exemption 7(D).5 “It is
therefore proper to treat defendant’s argument as conceded,” with regard to the exemptions and
categories not challenged by plaintiff.6 See Franklin v. Potter, 600 F. Supp. 2d 38, 60 (D.D.C.
2009) (citing cases).
Accepting the unchallenged exemptions as conceded, the Court need not address their
5
Defendant’s Vaughn index includes three categories of Exemption 7(D) withholdings.
(Sixth Hardy Decl. ¶ 25.) Category (b)(7)(D)-7, which plaintiff contests, applies to “Foreign
Government Agency Information.” (Id.) Categories (b)(7)(D)-4 and (b)(7)(D)-5, which plaintiff
does not contest, are titled “Names, Identifying Data and/or Information Provided by
Individual(s) Under an ‘Implied’ Assurance of Confidentiality” and “Persons Interviewed by the
FBI under an ‘Express’ Assurance of Confidentiality,” respectively. (Id.)
6
Notwithstanding the principle that “‘a document filed pro se is to be liberally
construed,’” Brown v. Dist. of Columbia, 514 F.3d 1279, 1283 (D.C. Cir. 2008) (quoting
Erickson v. Pardus, 551 U.S. 89, 94 (2007)), the Court will accept the unchallenged exemptions
asserted by the agency, because plaintiff was informed of the requirements of Fed. R. Civ. P. 56
in the Court’s Fox/Neal Order of December 14, 2009. See supra note 4.
9
applicability and will grant summary judgment for defendant with respect to all records withheld
or redacted under those exemptions.
B. FOIA Exemption 7(D)
Plaintiff only challenges one of defendant’s categories of Exemption 7(D) withholdings:
“(b)(7)(D)-7 Foreign Government Agency Information (Implied Confidentiality).” (Def.’s Mot.
at 35; Pl.’s Opp’n at 11; see supra note 5.) Plaintiff does not challenge the propriety of invoking
Exemption 7(D), but instead suggests that defendant could partially release documents that it has
wholly withheld in this category. Since the Court will analyze segregability separately (see
infra), there is no substantive challenge to the assertion of Exemption 7(D) for the Court to
address.
C. FOIA Exemption 7(F)
Plaintiff challenges the assertion of Exemption 7(F), which protects law enforcement
information that “could reasonably be expected to endanger the life or physical safety of any
individual.” 5 U.S.C. § 552(b)(7)(F), amended by OPEN Government Act of 2007, Pub. L. No.
110-175, 121 Stat. 2524 (1997). He argues that because he does not personally pose a threat to
any individual, no individual’s life or physical safety can be put at risk by releasing the records
as to which defendant asserts Exemption 7(F). Deferring to the agency’s assessment of the
potential dangers involved in disclosure, the Court finds plaintiff’s assurances insufficient to
compel disclosure of the Exemption 7(F) withholdings.
This exemption “affords broad protection to the identities of individuals mentioned in
law enforcement files,” Jimenez v. FBI, 938 F. Supp. 21, 30 (D.D.C. 1996), including any
individual “reasonably at risk of harm.” Miller v. Dep’t of Justice, 562 F. Supp. 2d 82, 124
(D.D.C. 2008) (quoting Long v. Dep’t of Justice, 450 F. Supp. 2d 42, 79 (D.D.C. 2006)). Courts
10
reviewing assertions of Exemption 7(F) “may inquire ‘whether there is some nexus between
disclosure and possible harm,’” but they defer, within limits, “to the agency’s assessment of
danger.” Id. (quoting Linn v. Dep’t of Justice, No. 92-CV-1406, 1995 WL 631847, at *8
(D.D.C. Aug. 22, 1995)).
Hardy’s declaration describes with sufficient particularity the government’s serious
concern that disclosure of certain information would “readily reveal the identities” of FBI
sources, in turn “plac[ing] them at great risk.” (Sixth Hardy Decl. ¶ 79.) He supports this
concern, in part, by citing reports of death threats. (Id.) Allegedly, these threats have come both
from plaintiff and from other individuals. (Id.) Plaintiff vehemently denies having ever made
any threats of violence to any person, and declares as much under penalty of perjury. (See Pl.’s
Opp’n, Decl. of Eugene A. Fischer ¶¶ 2-3.) However, even if plaintiff is correct, he does not
challenge Hardy’s assertion that other individuals have threatened the confidential sources in
question. Thus, the FBI’s assessment that public disclosure would put its sources’ safety at risk
suffices to justify the invocation of Exemption 7(F).
D. FOIA Exemption 1
The FBI has invoked FOIA Exemption 1, see 5 U.S.C. § 552(b)(1), to withhold material
pursuant to an executive order concerning classified national security information. (Def.’s Mot.
at 16.) See Exec. Order No. 12,958, 60 Fed. Reg. 19,825, Apr. 17, 1995 (“E.O. 12958”).
Plaintiff attacks the use of Exemption 1 on the ground that he “has no idea why information
concerning himself and this case are so classified.”7 (Pl.’s Opp’n at 9.) Based on defendant’s
explanation of how the materials are properly withheld under E.O. 12958 and what national
security interests defendant seeks to protect by withholding them, the Court concludes that
7
Plaintiff also claims that the withheld documents under Exemption 1 could have been
partially redacted. For analysis of defendant’s obligation with respect to reasonably segregable
information, see infra Part IV.F.
11
Exemption 1 was properly asserted.
Exemption 1 permits the withholding of records “specifically authorized under criteria
established by an Executive order to be kept secret in the interest of national defense or foreign
policy and . . . properly classified pursuant to such Executive order.” 5 U.S.C. § 552(b)(1).
While an agency’s declarations setting forth the reasons that information falls within this
exemption are entitled to substantial weight, they must nevertheless afford the requester an
ample opportunity to contest, and the court to review, the soundness of the withholding.
Campbell v. Dep’t of Justice, 164 F.3d at 30 (observing that “deference is not equivalent to
acquiescence”); Goldberg v. Dep’t of State, 818 F.2d 71, 76-77 (D.C. Cir. 1987) (noting that
Exemption 1 does not relieve the courts of their “independent responsibility” to review the
agency’s decision).
Defendant invokes E.O. 12958, which authorizes the classification of records that include
“intelligence activities and methods,” Exec. Order 12958 § 1.4(c), and “foreign relations or
foreign activities,” id. § 1.4(d), and asserts that the Executive Order protects documents that the
FBI has “marked at the ‘Secret’ level.” (Sixth Hardy Decl. ¶ 32.) These criteria and interests are
of the exact sort that FOIA seeks to exempt in § 552(b)(1). E.g., People for Am. Way Found. v.
Nat’l Sec. Agency, 462 F. Supp. 2d 21, 33 (D.D.C. 2006) (concluding that agency had properly
invoked Exemption 1 for records withheld pursuant to E.O. 12958).
As noted above, courts must afford agency declarations like those filed here “substantial
weight” because “the Executive departments responsible for national defense and foreign policy
matters have unique insights into what adverse affects [sic] might occur as a result of public
disclosures of a particular classified record.” Krikorian v. Dep’t of State, 984 F.2d 461, 464
(D.C. Cir. 1993) (quoting Military Audit Project v. Casey, 656 F.2d 724, 738 (D.C. Cir. 1981));
12
see Salisbury v. United States, 690 F.2d 966, 970 (D.C. Cir. 1982). If the agency’s declarations
“are neither contradicted by other record evidence nor contaminated by indications of bad faith,
the reviewing court should not ordinarily second-guess the agency’s judgment.” ACLU v. Dep’t
of Justice, 265 F. Supp. 2d 20, 27, 29 (D.D.C. 2003) (noting that the agency’s burden under
Exemption 1 is “not especially onerous”).
Hardy elaborates on the nature and uses of the information and the risks involved in its
disclosure with sufficient detail to persuade the Court that it is properly classified pursuant to
E.O. 12958. (Sixth Hardy Decl. ¶¶ 37, 39.) Hardy’s declaration describes “the context and
nature of the withheld information,” Campbell, 164 F.3d at 31, and the “justifications for non-
disclosure with reasonably specific detail, demonstrate[s] that the information withheld logically
falls within the claimed exemption, and [is] not controverted by either contrary evidence in the
record nor by evidence of agency bad faith.” Military Audit Project, 656 F.2d at 738 (citations
omitted).
Given the need for deference to agency affidavits, plaintiff’s bewilderment at the
classification falls far short of overcoming the FBI’s expert judgment that the disputed
information must be withheld pursuant to E.O. 12958 because it is reasonably connected to
national defense or foreign policy. The Court is “satisfied that proper procedures have been
followed and that the information logically falls into [Exemption 1], [so it] need not go further to
test the expertise of the agency.” Gardels v. CIA, 689 F.2d 1100, 1104 (D.C. Cir. 1982).
E. FOIA Exemption 5
Among the documents that defendant found in the FBI’s SIFO files were two drafts of a
settlement agreement, prepared by the U.S. Attorney’s Office for the Southern District of Illinois
for internal purposes. Plaintiff claims that the final settlement agreement was released to the
13
public and refers to him and his forfeited property. (Pl.’s Opp’n at 10.) Despite plaintiff’s
urging to release the draft, the Court agrees with defendant that the deliberative process privilege
of FOIA Exemption 5 shields it from release.
Exemption 5 “protects from disclosure ‘inter-agency or intra-agency memorandums or
letters which would not be available by law to a party other than an agency in litigation with the
agency.’” Dep’t of Interior v. Klamath Water Users Protective Ass’n, 532 U.S. 1, 8 (2001)
(quoting 5 U.S.C. § 552(b)(5)). “To qualify, a document must thus satisfy two conditions: its
source must be a Government agency, and it must fall within the ambit of a privilege against
discovery under judicial standards that would govern litigation against the agency that holds it.”
Id. The privileges that are incorporated into Exemption 5 include the deliberative process
privilege, the attorney work-product privilege, and the attorney-client communications privilege.
See NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 149 (1975).
Here, defendant asserts the deliberative process privilege. The deliberative process
privilege’s purpose is to “prevent injury to the quality of agency decisions.” NLRB, 421 U.S. at
151. The privilege applies to records that the government demonstrates to be both
“predecisional” – i.e., “generated before the adoption of an agency policy” – and “deliberative,”
– i.e., “reflect[ive of] the give-and-take of the consultative process.” Coastal States Gas Corp. v.
Dep’t of Energy, 617 F.2d 854, 866 (D.C. Cir. 1980). To demonstrate that a document is
predecisional, the burden is on the agency to “establish[] what deliberative process is involved,
and the role played by the documents in issue in the course of that process.” Id. at 868. The
“deliberative” requirement renders Exemption 5 inapplicable to purely factual materials, or
factual portions of otherwise deliberative documents. E.g., EPA v. Mink, 410 U.S. 73, 91 (1973);
Coastal States, 617 F.2d at 867.
14
Moreover, “[d]raft documents, by their very nature, are typically predecisional and
deliberative,” Exxon Corp. v. Dep’t of Energy, 585 F. Supp. 690, 698 (D.D.C. 1983), and these
documents’ role in the deliberative process are adequately described by Hardy. According to
Hardy, the drafts for which defendant asserts Exemption 5 were created for internal purposes
only. (Sixth Hardy Decl. ¶ 50.) Defendant has produced partially redacted copies to plaintiff,
and plaintiff concedes that he has access to the final settlement agreement, but plaintiff seeks
disclosure of the draft documents without redactions. (Pl.’s Opp’n at 10.) The redacted portions
of the draft documents differ from the publically released final settlement agreement. (Sixth
Hardy Decl. ¶ 50.)
Hardy expounds on the predecisional and deliberative attributes of the drafts: they were
part of the government’s negotiations and preparations for a final settlement agreement, and as a
result of their advisory nature their release could affect employees’ candor with their colleagues
on similar matters in the future. (Sixth Hardy Decl. ¶¶ 49-50.) The drafts originated from a
government agency – the U.S. Attorney’s Office. (Id. ¶ 50.) They are predecisional because, as
proposed terms for a document which the government would later sign (id.), they had a concrete
role within a decision-making process. Finally, the redacted terms composed advice and not
facts, thus constituting deliberative material. Given this description and the relevant law, the
Court concludes that the drafts were properly withheld.
F. Segregability
Agency defendants in FOIA cases always carry a burden of showing that withheld
documents contain no “reasonably segregable” factual information, 5 U.S.C. § 552(b), and
plaintiff suggests that defendant has not satisfied its burden here. (See, e.g., Pl.’s Opp’n at 9.)
FOIA requires that “even if some materials from the requested record are exempt from
15
disclosure, any ‘reasonably segregable’ information from those documents must be disclosed
after redaction of the exempt information,” Johnson v. Executive Office for U.S. Attorneys, 310
F.3d 771, 776 (D.C. Cir. 2002) (quoting 5 U.S.C. § 552(b)), “unless [the non-exempt portions]
are inextricably intertwined with exempt portions.” Mead Data Cent., Inc. v. Dep’t of the Air
Force, 566 F.2d 242, 260 (D.C. Cir. 1977).
To show that the agency met its segregability obligation, Hardy declares under penalty of
perjury that “[t]he FBI has processed and released all segregable information from the
documents responsive to plaintiff’s request” and that “[i]n the processing of the records
concerning plaintiff, the objective was to release as much segregable information as possible”
without revealing exempted information.8 (Sixth Hardy Decl. ¶¶ 71, 80; see also id. ¶¶ 21,
32(e), 55, 65.) Defendant’s conscientious efforts at segregation are manifest by the agency’s
disclosure to plaintiff of 1,108 partially redacted pages of records, compared with only 48 pages
withheld in full. (See Sixth Hardy Decl. ¶ 4.)
The exemptions at work here and defendant’s reasons for withholding implicate sensitive
information, the disclosure of which could jeopardize the identity of confidential sources, the
secrecy of investigatory and enforcement techniques, the privacy and safety of individuals, and
international law enforcement partnerships. Moreover, Hardy explains that the documents
include information “that is detailed and singular in nature,” such that even if the source’s name
is redacted one could nonetheless identify who the source was. (Sixth Hardy Decl. ¶¶ 73, 79.)
Therefore, and because “there is nothing in the record to indicate that such [withholdings] are
inappropriate,” the Court is inclined to accept as true Hardy’s assertions. See Judicial Watch,
Inc. v. Dep’t of Justice, No. 01-CV-639, 2006 WL 2038513, at *5-*6 (D.D.C. July 19, 2006)
8
The presumption of good faith is sustained by the Court’s prior conclusion in Fischer II
that defendant’s segregability analysis had been consistent with FOIA’s requirements. See 596
F. Supp. 2d at 44.
16
(rejecting plaintiff’s segregation claim where agency declaration “very clearly declare[d], under
penalty of perjury . . . that ‘all reasonably segregable information has been disclosed’”). Having
shown both the highly sensitive nature of the exempt information and that non-exempt
information is so intertwined with exempt information that the FBI could not release any
meaningful portion without disclosing exempt information, defendant has satisfied its
segregability burden.
V. MONEY DAMAGES
Plaintiff seeks unspecified money damages under the Privacy Act’s provision for civil
remedies. (See Pl.’s Opp’n at 12.) He specifically invokes the Act’s application of damages for
an agency’s failure “to maintain any record . . . with such accuracy, relevance, timeliness, and
completeness as is necessary to assure fairness in any determination,” 5 U.S.C. § 552a(g)(1)(C)
or “to comply with any other provision of [the Privacy Act], or any rule promulgated thereunder,
in such a way as to have an adverse effect on an individual.” Id. § 552a(g)(1)(D). Having
already found that defendant neither inappropriately withheld information nor acted in bad faith,
the Court must reject any claim for damages.
The Privacy Act requires agencies to ensure that all records “used by the agency in
making any determination about any individual” are maintained “with such accuracy, relevance,
timeliness, and completeness as is reasonably necessary to assure fairness to the individual in the
determination.” 5 U.S.C. § 552a(e)(5). Flagrant violations of the Privacy Act can entitle a
plaintiff to money damages under § 552a(g)(1). If the Court finds that the agency “acted in a
manner which was intentional or willful,” the United States is liable for “actual damages
sustained by the individual as a result of” the agency’s failure to properly maintain the record.
Id. § 552a(g)(4); see generally Doe v. United States, 821 F.2d 694, 697 n.8 (D.C. Cir. 1987). In
17
sum, to make out a claim for damages, a “plaintiff must allege: inaccurate records, agency intent,
proximate causation, and an adverse determination.” Toolasprashad v. Bureau of Prisons, 286
F.3d 576, 583 (D.C. Cir. 2002) (internal quotation marks omitted); see Deters v. U.S. Parole
Comm’n, 85 F.3d 655, 657 (D.C. Cir. 1996).
The Court has granted summary judgment to defendant with respect to the only
information the FBI has withheld pursuant to the Privacy Act, see supra Part IV.A, and without
any violation of the Privacy Act, no damages can be awarded. The Court has also found that –
despite the agency’s less-than-perfect search and production of documents – defendant acted in
good faith. (See supra Part II.) Aside from the already-established absence of intentionally or
willfully inappropriate withholdings, plaintiff does not claim to have suffered “actual damages”
as a consequence of any non-disclosure. A request for money damages cannot be granted where
plaintiff has neither pled nor proven those elements.
CONCLUSION
For the reasons stated herein the Court will grant defendant’s motion for summary
judgment in part. This judgment, together with the Court’s disposition in Fischer II, disposes of
all claims in the instant case. A separate Order accompanies this Memorandum Opinion.
/s/
ELLEN SEGAL HUVELLE
United States District Judge
Date: July 13, 2010
18
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01-03-2023
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04-04-2014
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https://www.courtlistener.com/api/rest/v3/opinions/2665660/
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________________
)
TIMOTHY MORROW, )
)
Plaintiff, )
)
v. ) Civil Action No. 09-555 (RBW)
)
UNITED STATES, et al., )
)
Defendants. )
__________________________________________)
Memorandum Opinion
Timothy Morrow, the pro se plaintiff in this civil case, seeks “damages[] in a[] sum
certain to be determined by the Court,” Complaint (“Compl.”) at 25, for the alleged “denial of
[his] right to due process of the tax law, administrative law, and record-keeping law of the
United States,” id. at 1, as well as for the defendants’ alleged “disregard of provisions of the tax
law of the United States and regulations promulgated thereunder,” id. at 2. Currently before the
Court is the defendant United States’ Motion to Dismiss pursuant to Federal Rules of Civil
Procedure 12(b)(1) and 12(b)(6), which the plaintiff opposes, Response to Motion to Dismiss
Complaint (“Pl.’s Opp’n”).1 For the reasons set forth below, the United States’ motion is granted
in part and denied in part, and the plaintiff is granted limited leave to amend his Complaint.
I. BACKGROUND
The plaintiff filed his twenty-seven count Complaint on March 23, 2009, naming the
“United States (Government),” the “IRS [Internal Revenue Service] Commissioner,” and
1
The Court also considered the following papers filed in connection with the United States’ motion: Memorandum
of Points and Authorities in Support of Defendant’s Motion to Dismiss Complaint (“Def.’s Mem.”). This document
is misnumbered, with the first and third pages both listed as page 3. The Court has therefore re-numbered the
memorandum so that the first page is page 1, with the following pages numbered in sequential order.
“Unknown agent(s)” as the defendants. Compl. at 1. The Complaint is one of many pro se tax
protest suits filed in this jurisdiction, asserting a variety of forms of misconduct by the Internal
Revenue Service (the “IRS”), see Bean v. United States, 538 F. Supp. 2d 220, 222 n.1 (D.D.C.
2008) (listing cases), and appears to be similar in many respects to the twenty-seven count
complaint dismissed by Judge Huvelle in Scott v. United States, 608 F. Supp. 2d 73 (D.D.C.
2009).
The alleged violations of the Internal Revenue Code (the “Code”) listed in the Complaint
fall broadly into two categories. Compl. at 8-24.2 Specifically, counts 1 through 18 are styled as
“Bivens/Denial of Due Process of Tax Law” claims,3 wherein the plaintiff contends that the
defendants violated or disregarded the following provisions of the Code and their associated
regulations4:
26 U.S.C. § 6001 and 26 C.F.R. § 1.6001-1(d), by failing to notify the
plaintiff of the requirement to keep records, make statements, or file returns
with respect to any tax imposed in the Code (Counts 1-2);
26 U.S.C. § 6020 and 26 C.F.R. § 301.6020-1, by failing to prepare or
subscribe any substitute returns in the name of the plaintiff (Counts 3-6);
2
At the outset, it is important for the Court to observe who the plaintiff is intending to sue, and on what basis. For
example, although the plaintiff names the “United States (Government),” the “IRS Commissioner,” and “Unknown
agent(s)” as the defendants in the caption of his Complaint, Compl. at 1, in the section of his Complaint describing
who the parties in the case are, the plaintiff states that the “[d]efendant is the United States of America[.]” Id. at 3.
Yet the Complaint makes repeated references to Bivens v. Six Unknown Named Agents of the Fed. Bureau of
Narcotics, 403 U.S. 388 (1971), e.g., Compl. at 1-2, 4, 6, 7, and the plaintiff later clarifies that “all counts brought
under Bivens are directed to individual officers and employees; and only Counts brought under 26 U.S.C. § 7433 are
directed at . . . the United States.” Pl.’s Opp’n at 2. Because the Court has an “obligation to construe pro se filings
liberally,” Toolasprashad v. Bureau of Prisons, 286 F.3d 576, 583 (D.C. Cir. 2002), the Court assumes that the
plaintiff brings counts 1 through 18 against the Commissioner of the IRS and the unknown agents of the IRS in their
individual capacities, and counts 19 through 27 against the United States.
3
See generally Bivens, 403 U.S. 388. There, the Supreme Court established that the victims of a constitutional
violation by a federal agent have a right to recover damages against the agent in federal court despite the absence of
any statute specifically conferring such a right. E.g., Hartman v. Moore, 547 U.S. 250, 255 n.2 (2006).
4
The plaintiff does not specify which editions of the United States Code and Code of Federal Regulations are cited
in his Complaint. The Court therefore assumes that citations to the United States Code are to the 2006 edition, and
citations to the Code of Federal Regulations refer to the 2009 edition.
2
26 U.S.C. § 6103 and 26 C.F.R. § 301.6103(c)-1, by failing to disclose
returns bearing the plaintiff’s name to the plaintiff or the plaintiff’s
representative, upon request (Counts 7-8);
26 U.S.C. § 6109 and 26 C.F.R. § 301.6109-1, by improperly requiring that
the plaintiff obtain and use a Social Security Number (Counts 9-10);
26 U.S.C. § 6201 and 27 C.F.R. Part 70, by failing to limit the plaintiff’s tax
assessments, or otherwise incorrectly or impermissibly assessing them and
refusing to correct them (Counts 11-13);
26 U.S.C. § 6203 and 26 C.F.R. § 301.6203-1, by failing to record or sign the
assessments, or furnish signed copies of the assessments to the plaintiff
(Counts 14-17); and
26 U.S.C. § 6211, by failing to promulgate regulations implementing the
portions of the Code defining the term deficiency (Count 18).
See generally Compl. at 8-20.
In addition, counts 19 through 27 are styled as “[26 U.S.C.] § 7433/disregard in
connection with collection,” where the plaintiff asserts that the defendants have violated or
disregarded the following sections of the Code:
26 U.S.C. § 6301, by failing to develop and implement procedures concerning
the review processes of the decisions to issue liens, levies, and the seizure of
property (Count 19);
26 U.S.C. § 6303, by failing to give notice to the plaintiff within sixty days
after making an assessment of the taxes owed (Count 20);
26 U.S.C. § 6304, by engaging in conduct that has the natural consequence to
harass, oppress, or abuse the plaintiff in connection with the collection of
unpaid tax (Count 21);
26 U.S.C. § 6320, by failing to afford the plaintiff a hearing where he could
raise the issue of underlying tax liability (Count 22);
26 U.S.C. § 6321, by asserting liens without first giving proper notice or
making a demand to the plaintiff (Count 23);
26 U.S.C. § 6751, by failing to verify in writing that a supervisor had
approved, in writing, any initial tax penalty determination (Count 24);
3
26 U.S.C. § 6322, by asserting liens for which no assessment was made in
accordance with 26 U.S.C. § 6203 and 26 C.F.R. § 301.6203-1 (Count 25);
26 U.S.C. § 6323, by failing to certify notice of liens under Montana state law
(Count 26); and
26 U.S.C. § 7213, by unlawfully disclosing the plaintiff’s tax return
information by filing notices of liens in stated amounts for which no record of
such assessments exist (Count 27).
See generally Compl. at 20-24.
As an attachment to his Complaint, the plaintiff has submitted a statement of facts.
Statement of Facts of Timothy Morrow (“Pl.’s Facts”). According to that document, beginning
in approximately 1988, the plaintiff has received over 100 correspondences and telephone
communications from unknown IRS agents, id. ¶¶ 1-2, which he states were “in an apparent
attempt to collect [alleged] past due taxes.” Id. ¶ 3 (alteration in original). The plaintiff also
claims that since approximately 1988 he has had at least three “face-to-face contacts with
Unknown IRS agent(s),” id. ¶ 4, and also since that time the IRS has “filed several liens and/or
levies against” him, resulting in the plaintiff being “forced to hire counsel to remove said liens
and/or levies in order to maintain a tolerable living standard.” Id. ¶ 5.
The United States has moved to dismiss this case, arguing that the Court lacks subject
matter jurisdiction over counts 1 through 19, 24, and 25 because those counts “are merely an
improper attempt to challenge the underlying tax liability” and “do not relate to collection
activities.” Def.’s. Mem. at 2. The United States also claims that the Court lacks subject matter
jurisdiction over counts 1 through 19, stating that a “Bivens cause of action is not available
against the United States, which has not waived its sovereign immunity for such claims.” Id. at
3. As to the remaining counts, 20 through 23, 26 and 27, the United States moves to dismiss
4
them pursuant to Federal Rule of Civil Procedure 12(b)(6), asserting that those counts “fail to
provide the necessary factual detail to state a claim.” Id. at 4.
II. STANDARDS OF REVIEW
A. Motion to Dismiss Under Rule 12(b)(1)
A motion for dismissal under 12(b)(1) “presents a threshold challenge to the court’s
jurisdiction . . . .” Haase v. Sessions, 835 F.2d 902, 906 (D.C. Cir. 1987); see also Grand Lodge
Fraternal Order of Police v. Ashcroft, 185 F. Supp. 2d 9, 13 (D.D.C. 2001) (noting a Rule
12(b)(1) motion imposes an affirmative obligation on the court to ensure it is acting within its
jurisdictional authority). Specifically, the Court should dismiss a claim if the Court “lack[s] . . .
subject matter jurisdiction[.]” Fed. R. Civ. P. 12(b)(1). Under Rule 12(b)(1), “it is presumed
that a cause lies outside [a federal courts’] limited jurisdiction,” Kokkonen v. Guardian Life Ins.
Co., 511 U.S 375, 377 (1994), and the plaintiff bears the burden of establishing the Court’s
jurisdiction by a preponderance of the evidence. See, e.g., Moore v. Bush, 535 F. Supp. 2d 46,
47 (D.D.C. 2008). In deciding a motion to dismiss based upon lack of subject matter
jurisdiction, a Court is not limited to the allegations set forth in the complaint, but “may consider
materials outside the pleadings . . . .” Jerome Stevens Pharms., Inc. v. FDA, 402 F.3d 1249,
1253 (D.C. Cir. 2005). And when reviewing a motion to dismiss pursuant to Rule 12(b)(1), the
Court is required to accept as true all factual allegations contained in the complaint. Leatherman
v. Tarrant County Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 164 (1993).
B. Motion to Dismiss Under Rule 12(b)(6)
On the other hand, a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6)
tests whether a complaint has properly stated a claim upon which relief may be granted.
Woodruff v. DiMario, 197 F.R.D. 191, 193 (D.D.C. 2000). For a complaint to survive a Rule
5
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), which is sufficient 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 (2007) (internal citations and quotations omitted). Although Rule 8(a) does
not require “detailed factual allegations,” a plaintiff is required to provide “more than an
unadorned, the-defendant-unlawfully-harmed-me accusation,” Ashcroft v. Iqbal, __ U.S. __, __,
129 S. Ct. 1937, 1949 (2009) (citing Twombly, 550 U.S. at 555) (internal quotations omitted).
In other words, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’” Id. (quoting Twombly, 550 U.S. at 570). A claim is
facially plausible “when the plaintiff pleads factual content that allows the court to draw [a]
reasonable inference that the defendant is liable for the misconduct alleged.” Id. (quoting
Twombly, 550 U.S. at 556). A complaint alleging facts that are “merely consistent with a
defendant’s liability . . . stops short of the line between possibility and plausibility of entitlement
to relief.” Id. (quoting Twombly 550 U.S. at 557) (internal quotation marks omitted).
In evaluating a Rule 12(b)(6) motion under this framework, “[t]he complaint must be
liberally construed in favor of the plaintiff, who must be granted the benefit of all inferences that
can be derived from the facts alleged,” Young v. Covington & Burling LLP, 689 F. Supp 2d 69,
76 (D.D.C. 2010) (quoting Schuler v. United States, 617 F.2d 605, 608 (D.C. Cir. 1979))
(internal quotation marks), and the Court “may consider only the facts alleged in the complaint,
any documents either attached to or incorporated in the complaint[,] and matters of which [the
Court] may take judicial notice,” E.E.O.C. v. St. Francis Xavier Parochial Sch., 117 F.3d 621,
624 (D.C. Cir. 1997) (footnote omitted). Although the Court must accept the plaintiffs’ factual
allegations as true, conclusory allegations are not entitled to an assumption of truth, and even
6
those allegations pled with factual support need only be accepted to the extent that “they
plausibly give rise to an entitlement to relief.” Iqbal, __ U.S. at __, 129 S. Ct. at 1949-50.
Where “more likely explanations” than those alleged by the plaintiff exist, the Court should be
wary of finding that the plaintiff’s allegations have sufficiently nudged the claims into the realm
of plausibility. See id. at 1951-52 (“As between that ‘obvious alternative explanation’ for the
arrests, and the purposeful, invidious discrimination respondent asks us to infer, discrimination is
not a plausible conclusion.” (quoting Twombly, 550 U.S. at 567)). If “the [C]ourt finds that the
plaintiffs have failed to allege all the material elements of their cause of action,” then the Court
may dismiss the complaint without prejudice, Taylor v. FDIC, 132 F.3d 753, 761 (D.C. Cir.
1997), or with prejudice, provided that the Court “determines that the allegation of other facts
consistent with the challenged pleading could not possibly cure the deficiency,” Firestone v.
Firestone, 76 F.3d 1205, 1209 (D.C. Cir. 1996) (internal quotation marks and citations omitted).
III. LEGAL ANALYSIS
A. Subject Matter Jurisdiction Under Rule 12(b)(1)
1. Counts 1-18
The plaintiff admits that counts 1 through 18 are Bivens claims brought against
“individual officers and employees” of the United States. Pl.’s Opp’n at 2; see Compl. at 4. The
United States, likely construing these particular claims as directed against the federal
government as a whole, has moved to dismiss pursuant to Rule 12(b)(1), contending that a
“Bivens cause of action is not available against the Unites States, which has not waived its
sovereign immunity for such claims.” Def.’s Mem. at 3.5 But in this context, Rule 12(b)(1) is
not the appropriate vehicle to dismiss the plaintiff’s Bivens claims. Dismissal under Rule
5
The United States incorrectly characterizes Count 19 as a Bivens claim, Def.’s Mem. at 3, as this count is clearly
pled as an alleged violation of 26 U.S.C. § 7433. Compl. at 20.
7
12(b)(1) is appropriate only where the Court lacks the “statutory or constitutional power to
adjudicate [a] case,” Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 89 (1998), which is
distinguishable from a dismissal under Federal Rule of Civil Procedure 12(b)(6), which
constitutes “a ruling on the merits with res judicata effect,” Haase, 835 F.2d at 906. Indeed, the
Court has jurisdiction where “the right of the [plaintiff] to recover under [the] complaint will be
sustained if the Constitution and laws of the United States are given one construction and will be
defeated if they are given another.” Steel Co., 523 U.S. at 89 (quoting Bell v. Hood, 327 U.S.
678, 685 (1946)). Here, for instance, the United States does not assert that the Court lacks the
power to adjudicate claims that arise out of alleged constitutional violations committed by the
IRS Commissioner and unknown IRS agents, nor could it. E.g., Schweiker v. Chilicky, 487 U.S.
412, 421 (1988) (“Bivens actions for money damages against federal officers have subsequently
been permitted under § 1331 for violations of the Due Process Clause of the Fifth Amendment . .
. .” (internal quotation marks omitted)). Rather, the United States argues that “Bivens does not
permit an implied . . . cause of action (even with respect to private defendants) where the alleged
cause of action relates to tax collection because adequate statutory remedies exist.” Def.’s Mem.
at 3 n.1. Thus, the issue is not whether the Court has jurisdiction to entertain the plaintiff’s
Bivens claims, but whether the Court should dismiss the claims because a proper reading of
Bivens prevents the Court from granting the plaintiff the relief that he is seeking. The proper
rule for seeking such a dismissal is, of course, Federal Rule of Civil Procedure 12(b)(6), and not
Rule 12(b)(1). See Fed. R. Civ. P. 12(b)(6) (authorizing federal district courts to dismiss a
complaint for the “failure to state a claim upon which relief can be granted”); see also Kim v.
United States, 618 F. Supp. 2d 31, 38 (D.D.C. 2009) (“In essence, Defendants allege that
Plaintiffs have failed to state a claim for a Bivens action because no Bivens remedy exists for
8
Plaintiff’s alleged injuries. Such an argument is better understood as seeking dismissal under
Rule 12(b)(6), not Rule 12(b)(1).”).6 Accordingly, the United States’ motion to dismiss counts 1
through 18 for lack of subject matter jurisdiction is denied.
That is not the end of the Court’s analysis, however, because the identities of the specific
individual defendants the plaintiff intends to sue remains unclear. Although the plaintiff seeks to
bring counts 1-18 against the “IRS Commissioner” and “Unknown agent(s),” Compl. at 1, the
plaintiff never identifies these parties by name. And because the plaintiff is alleging interactions
with the IRS that have been going on from “approximately . . . 1988 to the present,” Pl.’s Facts
¶¶ 1-2, 4-5, and as there have surely been numerous individuals serving in those positions over
the past twenty-two years, there is no way for the Court (let alone the United States) to discern
the particular individuals that are the subject of the plaintiff’s Bivens claims.
The Court finds that the sensible approach in this situation is to allow the plaintiff leave
to amend counts 1 through 18 of the Complaint. This is in keeping with the guidance in this
jurisdiction that “[p]ro se litigants are afforded more latitude than litigants represented by
counsel to correct defects in . . . pleadings,” Moore v. Agency for Int’l Dev., 994 F.2d 874, 876
(D.C. Cir. 1993), as well as the Federal Rules of Civil Procedure, which provide that the Court
may grant the plaintiff leave to amend a complaint, Fed. R. Civ. P. 15(a). In amending these
counts, the Court fully expects that the plaintiff will follow the pleading guidance recently set
forth by the Supreme Court in Twombly, 550 U.S. 544, and Iqbal, 129 S. Ct. 1937, and
6
While the Court agrees that it may be proper to construe a motion to dismiss for lack of subject matter jurisdiction
under Rule 12(b)(1) as a motion to dismiss for failure to state a claim under Rule 12(b)(6) where it would not
prejudice the plaintiff, see Kim, 618 F. Supp. 2d at 38 n.7, doing so would be inappropriate in this case because it
would unfairly prejudice the plaintiff. The plaintiff was not put on notice that the United States would be moving to
dismiss counts 1 through 18 under Rule 12(b)(6), and in his response, the plaintiff asserts that the United States
knows “full well that all Counts brought under Bivens are directed to individual officers and employees; and only
counts brought under 26 U.S.C. § 7433 are directed” at the United States. See Pl.’s Opp’n at 2.
9
otherwise abide by the applicable provisions of the Federal Rules of Civil Procedure. As the
District of Columbia Circuit has observed, proceeding pro se “does not constitute a license . . . to
ignore the Federal Rules of Civil Procedure.” Moore, 994 F.2d at 876 (internal quotations and
citations omitted). Accordingly, the defendants’ motion to dismiss counts 1 through 18 of the
Complaint is denied without prejudice, and the plaintiff is granted limited leave to re-file the
Complaint amending these counts by the date specified in the Order that accompanies this
opinion.
2. Counts 19, 24 and 25
The United States also moves to dismiss counts 19, 24, and 25 under Rule 12(b)(1)
because the allegations asserted in these claims “involve non-collection activities” and are
therefore “not cognizant” under 26 U.S.C. § 7433. Def.’s Mem. at 3. These counts are pled as
violations of § 7433, which the plaintiff claims are “directed at” the United States. Pl.’s Opp’n at
2. However, it is well settled that the United States is immune from suit unless Congress has
expressly provided consent to be sued; that is, when Congress has waived the United States’
sovereign immunity. E.g., FDIC v. Meyer, 510 U.S. 471, 475 (1994) (“Absent a waiver,
sovereign immunity shields the Federal Government and its agencies from suit. Sovereign
immunity is jurisdictional in nature.”) (internal citations omitted). If the United States has not
consented to be sued, sovereign immunity requires the Court to dismiss the claims for lack of
jurisdiction. First Va. Bank v. Randolph, 110 F.3d 75, 77 (D.C. Cir. 1997).
Here, as a basis for invoking the jurisdiction of this Court, the plaintiff relies on the
Administrative Procedure Act (the “APA”), 5 U.S.C. §§ 704-706 (2006), the Federal Records
Act, 44 U.S.C. §§ 3101-3107 (2006), the National Archives Act, 44 U.S.C. §§ 2901-2910
(2006), Bivens, and 26 U.S.C. § 7433. See Compl. at 3-5. But as other members of this Court
10
have determined, neither the APA, the Federal Records Act, nor the National Archives Act
waive sovereign immunity with respect to claims against the United States for monetary
damages.7 Consistent with these decisions, the Court finds that it lacks subject matter
jurisdiction to consider damages claims against the United States brought under these three
statutes.
Similarly, “Bivens by its very nature is a private damages action against individual
federal employees for violating a citizen’s constitutional rights,” and “is not waiver of sovereign
immunity for actions against the United States.” Scinto v. Fed. Bureau of Prisons, 608 F. Supp.
2d 4, 8 (D.D.C. 2009) (emphasis added); see Cooper v. Johnson, 652 F. Supp. 2d 33, 39 (D.D.C.
2009) (Walton, J.) (“The United States has not waived its sovereign immunity for constitutional
tort claims[.]” (citing Meyer, 510 U.S. at 477)). Thus, whether the plaintiff can proceed against
the United States with counts 19, 24, and 25 depends upon the extent sovereign immunity has
been waived by 26 U.S.C. § 7433.
Section 7433(a) effected a limited waiver of the United States’ sovereign immunity,
allowing suits for damages if the IRS or its agents have intentionally, recklessly, or negligently
disregarded any provisions of the Code “in connection with any collection of Federal tax . . . .”
26 U.S.C. § 7433(a). But, as observed by Judge Collyer, § 7433 waives sovereign immunity
7
See Pragovich v. United States, 602 F. Supp. 2d 194, 195 (D.D.C. 2009) (Robertson, J.) (“This court does not
have jurisdiction to hear claims for money damages under the [APA] . . . . There is no waiver for sovereign
immunity for a damages claim in the Federal Records Act or in the National Archives Act.”) (internal citation
omitted); Pollinger v. United States, 539 F. Supp. 2d 242, 254 (D.D.C. 2008) (Kollar-Kotelly, J.) (finding no waiver
of sovereign immunity under the APA for suits for monetary damages); Buaiz v. United States, 471 F. Supp. 2d 129,
138 (D.D.C. 2007) (Collyer, J.) (finding no waiver of sovereign immunity under the APA for suits seeking monetary
damages); Spahr v. United States, 501 F. Supp. 2d 92, 95 n.2 (D.D.C. 2007) (Huvelle, J.) (finding that neither the
Federal Records Act nor the National Archives Act contain a waiver of sovereign immunity); Whittington v. United
States, No. 1:06-1591, 2007 WL 495803, at *1 (D.D.C. Feb. 12, 2007) (Leon, J.) (agreeing that the court lacks
jurisdiction to consider damages claims under the APA, the Federal Records Act, and the National Archives Act);
Holt v. Davidson, 441 F. Supp. 2d 92, 96 (D.D.C. 2006) (Urbina, J.) (finding no waiver of sovereign immunity
under the APA for suits for money damages); Ross v. United States, 460 F. Supp. 2d 139, 148-49 (D.D.C. 2006)
(Bates, J.) (finding no waiver of sovereign immunity for damages claim brought under the APA, the National
Archives Act, and the Federal Records Act).
11
only insofar as it pertains to tax collection activities, and does not provide a cause of action for
wrongful tax assessment or other actions not specifically related to the collection of federal tax.
Buaiz, 471 F. Supp. 2d at 135-37; see also Ramer v. United States, 620 F. Supp. 2d 90, 97
(D.D.C. 2009) (Walton, J.) (citing other cases from the District Court for the District of
Columbia that have narrowly construed § 7433). The various circuit courts that have considered
the same issue have also concluded that the waiver of sovereign immunity in § 7433 is limited to
tax collection activities. Miller v. United States, 66 F.3d 220, 222-23 (9th Cir. 1995); Shaw v.
United States, 20 F.3d 182, 184 (5th Cir. 1994); Gonsalves v. IRS, 975 F.2d 13, 16 (1st Cir.
1992); see also Henry v. United States, 276 F. App’x 503, 505 (7th Cir. 2008) (“[A] taxpayer can
recover only for improper tax collection, not for an incorrect assessment of tax liability.”);
Judicial Watch, Inc. v. Rossotti, 317 F.3d 401, 411 (4th Cir. 2003) (“To be sure, § 7433 provides
for a ‘civil action’ only for damages arising from the ‘collection’ of taxes, not for damages
arising from the investigation and determination of tax liability.”). Accordingly, the Court
agrees that § 7433 only waives sovereign immunity insofar as a claim against the United States
relates to tax collection activities.
In the context of what is alleged this case, counts 19, 24, and 25 are therefore dismissed
because the Court lacks subject matter jurisdiction to consider them. In count 19, the plaintiff
alleges that the defendants failed to develop and implement procedures for the supervisory
review and certification of decisions to issue liens and levies. Compl. at 20-21. But this claim
clearly relates to the alleged failure to promulgate regulations and procedures and is therefore
outside of § 7433’s tax collection activities sovereign immunity waiver. See Scott 608 F. Supp.
2d at 80 (dismissing similar count). Count 24 alleges that a supervisor failed to provide written
authorization of any penalty determination. Compl. at 23. However this also implicates duties
12
performed by the IRS in the course of rendering tax assessments, and falls outside the sovereign
immunity waiver in § 7433. Finally, count 25 alleges that the defendants “asserted liens for
which no assessment was made in accordance with” 26 U.S.C. § 6203 and 26 C.F.R. § 301.6203-
1. Compl. at 23. This count plainly refers to the process of assessing a tax obligation and not
anything related to tax collection. As with counts 19 and 24, the Court lacks subject matter
jurisdiction over count 25 because it falls outside the sovereign immunity waiver of § 7433.
B. Failure to State a Claim Under 12(b)(6)
The United States moves to dismiss the remaining counts, 20 through 23, 26, and 27, for
failure to state a claim under Rule 12(b)(6), asserting that these counts “merely restate[] the
statutory language and allege[] no facts to support a claim for damages.” Def.’s Mem. at 4. The
plaintiff responds that “it is legally absurd” for the United States to make this argument, when it
is “presumed to know the law” and should therefore be aware of the basis of his claims. See
Pl.’s Opp’n at 5-6. Upon reviewing the specific claims, however, it is clear that the plaintiff’s
claims fall short of the minimum pleadings standards imposed by the Supreme Court in
Twombly and Iqbal.
Counts 20 and 23, for example, allege that the defendants failed to give the plaintiff
notice within sixty days of making a tax assessment and also that the defendants asserted liens
against him without providing proper notice. Compl. at 22-23. Neither of these counts,
however, provides any factual basis to support the claim, such as the specific tax years at issue,
the nature of the particular assessments or liens, or whether the plaintiff even requested notice in
the first place. Id. Instead, the plaintiff merely re-states the statutory language from the
provisions of the Code he is citing, and contends the defendants “disregarded” those provisions.
Id. Similarly, in count 22, the plaintiff claims that the defendants “disregard[ed]” 26 U.S.C. §
13
6320 by failing to afford the plaintiff a hearing where he could challenge the underlying tax
liability. Compl. at 22-23. But the plaintiff does not allege that he properly requested a hearing,
as required by statute, see 26 U.S.C. § 6320(b)(1). Therefore, because counts 20, 22, and 23
contain only “[t]hreadbare recitals of the elements of a cause of action, supported by mere
conclusory statements,” Iqbal, __ U.S. at __, 129 S. Ct. at 1949, they are dismissed for failure to
state a claim.
Count 21 contains the sort of “formulaic recitation of elements of a cause of action”
proscribed by the Supreme Court in Twombly. Specifically, the plaintiff alleges that the
defendants engaged in conduct “the natural consequence of which is to harass, oppress, or abuse
any person in connection with the collection of any unpaid tax.” Compl. at 22. This is merely
quoting from the language of 26 U.S.C. § 6304(b), and even when read in conjunction with the
plaintiff’s statement of facts, at no point does the plaintiff describe where or when the defendants
“harass[ed], oppress[ed], or abuse[d]” him “in connection with collection of any unpaid tax.”
Compl. at 22. And assuming that the more than 100 phone calls and letters the plaintiff received
from the IRS over the course of more than two decades is true, Pl.’s Facts ¶¶ 1-2, the “reasonable
inference,” Iqbal, __ U.S. at __, 129 S. Ct. at 1949, the Court draws is that these were instances
of IRS agents performing their official duties rather than “conduct the natural consequences of
which is to harass, oppress, or abuse” the plaintiff. Compl. at 22. Accordingly, the plaintiff’s
allegations are not enough to “nudge[] [his] claim[] across the line from conceivable to
plausible,” Twombly 550 U.S. at 570, and count 21 is therefore dismissed for failure to state a
claim.
Count 26 alleges that the defendants failed to certify the plaintiff’s liens pursuant to
Montana state law. Compl. at 23-24. However this claim lacks merit because the plaintiff failed
14
to identify what, if anything, was improper about the notice of the lien, and in any event “[i]t is
well settled that the form and content of a notice of federal tax lien are controlled by federal, not
state, law.” Spahr, 501 F. Supp. 2d at 98; see also 26 U.S.C. § 6323(f)(3) (“The form and
content of [a notice of federal tax liens] shall be prescribed by the Secretary [of the Treasury].
Such notice shall be valid notwithstanding any other provision of law regarding the form or
content of a notice of lien.”). Count 26 is therefore dismissed for failure to state a claim.
Finally, in count 27, the plaintiff alleges that the defendants unlawfully disclosed his tax
return information and were “unable or unwilling to produce the records of assessment required
to legally authorize the disclosures.” Compl. at 24. However this count is also devoid of factual
support, and the particular section of the Code relied upon by the plaintiff, 26 U.S.C. § 7213, is
actually a criminal provision that does not provide for a private right of action and is therefore
unenforceable through a civil action. See Stewart v. United States, 578 F. Supp. 2d 30, 35-36
(D.D.C. 2008) (relying on a similar rationale in dismissing allegation made under a different
criminal provision of the Code). Accordingly count 27 is dismissed for failure to state a claim.
CONCLUSION
For the reasons set forth above, the United States’ motion to dismiss is granted in part
and denied in part.8
SO ORDERED this 12th day of July, 2010.
/s/
REGGIE B. WALTON
United States District Judge
8
An Order consistent with the Court’s ruling accompanies this Memorandum Opinion.
15
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01-03-2023
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04-04-2014
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https://www.courtlistener.com/api/rest/v3/opinions/2366299/
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(2008)
Alan STEIN, Karen Stein, Plaintiffs,
v.
PARADIGM MIRSOL, LLC, Defendant.
No. 2:07-cv-71-FtM-29DNF.
United States District Court, M.D. Florida, Fort Myers Division.
February 7, 2008.
OPINION AND ORDER
JOHN E. STEELE, District Judge.
This matter comes before the Court on the parties' cross-motions for summary judgment (Docs.# 10, # 33). The parties subsequently filed responses in opposition, affidavits, a reply, and supplemental authority. (Docs.## 14, 15, 19, 21, 26, 32, 35.)
The parties agreed in the Joint Pre-Trial Statement that there are no disputed issues of fact. (Doc. # 38, p. 3.) At issue is whether defendant was required to comply with the reporting and disclosure requirements of the Interstate Land Sales Full Disclosure Act, 15 U.S.C. § 1701 et seq. (ILSFDA).
I.
The agreed facts are as follows: On or about March 9, 2005, plaintiffs Alan Stein and Karen Stein (the Steins or plaintiffs) entered into an Agreement for Purchase and Sale of Real Estate (Doc. # 1-2) with defendant Paradigm Mirasol, LLC (Paradigm or defendant) for the purchase of a condominium described as Unit 507, Mirasol I, at Miromar Lakes. On or about April 1, 2005, an addendum was added, and on or about May 18, 2006, a second addendum was added. These documents collectively are referred to as the "Agreement." Pursuant to the Agreement, the Steins paid Paradigm $179,180 in deposits and $26,190 for optional upgrades requested by the Steins. As allowed in the Agreement, $89,590 of this money is being held in escrow by Miromar Title Company; $89,590 of the money was used in the construction of the condominium; and $26,190 of the money was used in purchasing and installing the requested upgrades. In the Second Addendum to the Agreement the Steins agreed that the $26,190 for upgrades was non-refundable and would not be returned for any reason.
On January 16, 2007, the Steins provided written notice to Paradigm that they were terminating the Agreement and demanding the return of their deposits. The Steins asserted that termination was permissible and the return of the deposits was required because Paradigm had not complied with the ILSFDA.
Construction of the condominium was completed within two years of the date of the Agreement. A Certificate of Occupancy was issued on February 7, 2007, and Paradigm provided the Steins with notice of the issuance of the Certificate of Occupancy on February 8, 2007. Paradigm was ready, willing and able to close on the condominium after February 7, 2007, and attempted to schedule a closing date for February 20, 2007. The Steins did not close on the condominium.
II.
Plaintiffs filed a two-count Complaint (Doc. # 1). Count One alleges that defendant violated the ILSFDA; Count Two alleges a state law claim of conversion for failing to return the deposits. Defendant filed a Counterclaim (Doc. # 13) alleging breach of contract for failing to close on the Agreement after issuance of the Certificate of Occupancy.
Paradigm agrees that it did not provide the Steins with a Property Report that met the requirements of 15 U.S.C. § 1707, but asserts that the sale of the condominium was exempt from the provisions of the ILSFDA. The parties agree that if the Agreement is not exempt from the reporting and registration requirements of the ILSFDA, (1) the Steins were entitled to terminate the Agreement on January 16, 2007; and (2) the Steins are entitled to a return of the deposits in the amount of $179,180 (the parties dispute whether the $26,190 for upgrades should be returned). The parties further agree that if the Agreement is exempt from the reporting and registration requirements of ILSFDA, (1) Paradigm has not breached the Agreement, (2) the Steins' failure to close on the condominium is a breach of the Agreement, and (3) Paradigm is entitled to retain the deposits in the amount of $179,180 as liquidated damages, plus the $26,190 as agreed damages for the upgrades.
III.
The ILSFDA is an anti-fraud statute that uses disclosure as its primary tool to protect purchasers from unscrupulous sales of undeveloped home sites. Winter v. Hoilingsworth Props., Inc., 777 F.2d 1444, 1446-47 (11th Cir.1985). Section 1703(a) makes it unlawful to sell "any lot not exempt under section 1702" unless the seller complies with the provisions of the ILSFDA, including disclosure of a Property Report prior to the purchaser signing a contract. Selling a condominium unit falls within the definition of selling a "lot" within the meaning of the ILSFDA. Winter, 111 F.2d at 1449. The sale of a condominium will be exempt from the ILSFDA, however, if the sale is "under a contract obligating the seller ... to erect [a condominium] thereon within a period of two years." Section 1702(a)(2).[1] The parties dispute whether the Agreement constitutes a contract "obligating" the seller to erect a condominium on the lot within two years.[2]
The interpretation of a federal statute, particularly a statute with nationwide application, is governed by federal law. See, e.g., In re Prudential of Fla. Leasing, Inc., 478 F.3d 1291, 1298 (11th Cir.2007); Reed v. Heil Co., 206 F.3d 1055, 1059 (11th Cir.2000). Additionally, state law governing contract interpretation and enforcement will impact whether a given contract "obligates" the seller to build the condominium. While the Court looks to Florida law as to the effect of the Agreement, state law does not control the interpretation of the ILSFDA. Harvey v. Lake Buena Vista Resort, LLC, 6:07-cv-1641-Orl-DAB, 2008 WL 254131, *3 n. 2 (M.D.Fla.2008).
While the ILSFDA defines some terms, 15 U.S.C. § 1701, and regulations under the statute define other terms, 24 C.F.R. § 1710.1 (2007), neither defines "obligating" or "obligates." In 1979 the Secretary published an interpretive rule entitled "Guidelines for Exemptions Available Under the Interstate Land Sales Full Disclosure Act," 44 Fed.Reg. 24010 (1979). This was superceded by another version in 1984, 49 Fed.Reg. 31375 (1984), but this was removed on March 27, 1996, as part of a streamlining process. 61 Fed.Reg. 13596 (1996). The information was moved to the HUD website, where it is now available as "Supplemental Information to Part 1710: Guidelines for Exemptions Available Under the Interstate Land Sales Full Disclosure Act." wvw.hud.gov/offices/hsg/sfh/ ils/ilsexemp.cfm.
The Guidelines state that it is intended to clarify HUD polices and positions with regard to the statutory exemptions, and that it is an interpretive rule and not a substantive regulation. 61 Fed. Reg. 13596, 13601 (1996). As an interpretive agency rule, the Guidelines are entitled to some deference. Reno v. Koray, 515 U.S. 50, 59, 115 S. Ct. 2021, 132 L. Ed. 2d 46 (1995). In pertinent part, these Guidelines now provide:
HUD's interpretation of what constitutes an obligation to construct a building relies on general principles of contract law. Provisions for ... remedies clauses are matters to be decided by the parties to the contract under the laws of the jurisdiction in which the construction project is located. However, such clauses may not alter the obligation of the seller to build....
The contract must not allow nonperformance by the seller at the seller's discretion. Contracts that permit the seller to breach virtually at will are viewed as unenforceable because the construction obligation is not an obligation in reality. Thus, for example, a clause that provides for a refund of the buyer's deposit if the seller is unable to close for reasons normally within the seller's control is not acceptable for use under this exemption. Similarly, contracts that directly or indirectly waive the buyer's right to specific performance are treated as lacking a realistic obligation to construct. HUD's position is not that a right to specific performance of construction must be expressed in the contract, but that any such right that purchasers have must not be negated. For example, a contract that provides for a refund or a damage action as the buyer's sole remedy would not be acceptable.
Contract provisions which allow for nonperformance or for delays of construction completion beyond the two-year period are acceptable if such provisions are legally recognized as defenses to contract actions in the jurisdiction where the building is being erected. For example, provisions to allow time extensions for events or occurrences such as acts of God, casualty losses or material shortages are generally permissible....
Although the factual circumstances upon which nonperformance of a delay in performance is based may vary from transaction to transaction, as a general rule delay or nonperformance must be based on grounds cognizable in contract law such as impossibility or frustration and on events which are beyond the seller's reasonable control.
The Court concludes that a contract "obligates" the completion of a condominium within two years when that commitment to do so is real and not illusory. Another court has referred to this concept as a time commitment that "unequivocally requires" timely construction, or as a "true obligation" or an "unwavering obligation." Fortunato v. Windjammer Homebuilders, Inc., 8:04-cv-165-T-26MSS, 2006 WL 208777, *3 (M.D.Fla.2006) (J. Lazzara). To "obligate" the timely completion does not require that the contract be unconditional, so long as the condition(s) does not render the apparent obligation illusory. A two-year completion provision is not required to be an unconditional guarantee which imposes strict liability for noncompliance. Atteberry v. Maumelle Co., 60 F.3d 415, 420 (8th Cir.1995) ("It is immediately apparent that while these guidelines say that the seller's obligation to build must be specific, they do not say, or even hint, that the obligation must be unconditional. Neither, of course, does the statute.") Such a strict liability for completion is not necessary to prevent the fraud against which the ILSFDA was intended to guard. The Court therefore rejects plaintiffs' argument that any condition on performance renders an agreement illusory. (Doc. # 10, pp. 2-3.)
Thus, the Court agrees only in part with statements in Samara Dev. Corp. v. Marlow, 556 So. 2d 1097 (Fla.1990). The Court agrees that the obligation to complete construction within two years must not be illusory. Id. at 1099. The Court also agrees with the specific holding of Samara that a limited remedy of specific performance or return of deposits renders the contract illusory. The Court does not agree, however, with dicta stating "[I]n order for the sale of a condominium in Florida to be exempt from the provisions of the [ILSFDA], the contract must unconditionally obligate the developer to complete construction within two years and must not limit the purchaser's remedies of specific performance or damages." Id. at 1098. The idea that performance must be unconditional and that no limitations on remedies are acceptable was apparently influenced by language in the 1979 version of the Guidelines stating that "any conditions which qualify the obligation to complete a building within two years nullify the applicability of the exception." 44 Fed.Reg. 24,010, 24,012 (1979). While Samara quoted this language, 556 So. 2d at 1099, it failed to note the next paragraph of those Guidelines, which stated: "However, contract provisions which provide for delays of construction completion dates beyond the two-year period are acceptable if such delays are legally supportable in the jurisdiction where the building is being erected as an impossibility of performance for reasons beyond the control of the developer. Provisions to allow time extensions for such things as acts of God or material shortages are generally permissible."
IV.
The issue becomes whether the Agreement has a real obligation to complete the condominium within two years, or whether its other provisions render that apparent obligation illusory. Two areas of the Agreement are pertinent: The provision which excludes certain delays from the two year period, and the limitations on the damages available to the buyers.
A.
The Agreement makes time of the essence, providing that "[t]ime is of the essence to this Agreement and specifically each and every paragraph, without limitation, in which a time period is involved." (Id. at p. 6.) The Agreement then excludes certain delays from the two year time of completion:
Construction of the condominium unit will be complete and ready for possession within two (2) years from the execution of this Purchase Agreement in compliance with the Interstate Land Sales Full Disclosure Act; provided, however, that Seller shall not be responsible for any delay caused by acts of God, weather conditions, restrictions imposed by any governmental agency, labor strikes, material shortages or other delays beyond the control of the Seller and the completion and occupancy date shall be extended accordingly.
(Doc. # 1-2, p. 7.) Plaintiffs argue that the "provided, however" language following the two year requirement results in a contract which does not actually obligate Paradigm to complete the condominium within two years. (Doc. # 10, p. 3.) Defendant responds that a force majeure clause is permitted under Florida law and does not undermine the obligation to complete the condominium within two years. (Doc. # 14, pp. 5-12.)
The Court rejects defendant's argument that because a force majeure clause is lawful in Florida such a clause does not take a contract outside the scope of the exemption. (Doc. # 14, pp. 6-7.) The issue is not whether such clauses are lawful in Florida; they generally are. The issue is whether this enforceable clause so undermines the two-year requirement that it renders the provision illusory or not a real obligation.
The provision in the Agreement provides that the two year period is extended "for any delay caused by acts of God, weather conditions, restrictions imposed by any governmental agency, labor strikes, material shortages or other delays beyond the control of the Seller ...." Not all of these delay exclusions render the completion time illusory. For example, delay for acts of God has a well established and limited definition that does not render the Agreement illusory.[3] The other exclusions, however, are broad enough to seriously undermine the obligation to complete the condominium within two years. This provision does not limit the permissible delays to those justifiable under an impossibility of performance[4], but allows exclusions for far less compelling reasons, culminating in the catchall "other delays beyond the control of the Seller." Thus, this clause is unlike those in the two cases cited by defendant which arguably found similar clauses permissible. In Hardwick Props., Inc. v. Newbern, 711 So. 2d 35 (Fla. 1st DCA 1998), review denied, 727 So. 2d 908 (Fla.1998), the provision required that all excusable delays must qualify under impossibility principles. Similarly, the provision in Schatz v. Jockey Club Phase III, Ltd., 604 F. Supp. 537, 541 (S.D.Fla.1985) required that the delay caused by conditions beyond the control of the seller be "legally supportable under Florida law as impossible of performance."
In the Agreement in this case, none of the exclusions are required to satisfy impossibility standards, and the catchall "other delays beyond the control of the Seller" is certainly broad enough to allow the Seller to excuse completion on a wide variety of events.[5] The Court concludes that the provision in the Agreement extending the completion period for delays not qualifying under Florida's impossibility of performance principles renders the obligation to complete the condominium within two years illusory. Therefore the Agreement is not exempt from the ILSFDA because it does not "obligate" completion of the condominium within two years.
B.
Plaintiffs also argue that the limitation to direct and actual damages renders the two year commitment in the Agreement illusory. (Doc. # 10, pp. 3-4.) Under the "Default" section, the Agreement provided:
If Seller should default in the performance of any of the obligations to be performed by Seller pursuant to this Agreement, Buyer shall notify Seller of such default, and Seller will have ten (10) days after receipt of said notice within which to fulfill Seller's obligations. If, for any reason other than Seller's failure to make Seller's title marketable, Seller fails to perform this Agreement and Buyer is not in default of this Agreement, Buyer may seek specific performance or elect to terminate this Agreement by written notice to Seller, in which event the deposit shall be returned to Buyer upon demand, with any interest accrued thereon, and Buyer may commence an action to recover only actual and direct damages (out-of-pocket amounts actually paid by Buyer to third parties). Under no circumstances may Buyer seek or be entitled to recover any special, consequential, punitive, speculative or indirect damages, all of which Buyer specifically waives, from Seller for any breach by Seller of its obligation, under this Agreement or any representation, warranty or covenant of Seller hereunder.
(Id. at p. 6, emphasis added.) The Agreement thus allows the buyers to seek specific performance, or elect to terminate the Agreement and obtain their deposit with any accrued interest, or to seek actual and direct (out of pocket) damages, but not special, consequential, punitive, speculative, or indirect damages. Such a waiver provision is valid in Florida. Ament v. One Las Olas, Ltd., 898 So. 2d 147, 150-51 (Fla. 4th DCA 2005).
The Court rejects plaintiffs' argument that any limitation on a right to seek damages renders the Agreement illusory. The limitation against speculative damages does not render the two-year completion requirement illusory because speculative damages are not recoverable. AR Holland Inc. v. Wendco Corp., 884 So. 2d 1006 (Fla. 1st DCA 2004). The limitation against punitive damages does not render the two-year completion requirement illusory because punitive damages are not recoverable for mere breach of contract, Ferguson Transp., Inc. v. North Am. Van Lines, Inc., 687 So. 2d 821 (Fla. 1996).
The restriction on special damages is a different matter. "Special damages" "are damages that do not follow by implication of law merely upon proof of the breach." Land Title of Cent. Fla., LLC v. Jimenez, 946 So. 2d 90, 93 (Fla. 5th DCA 2006). Special damages can have particular importance in real estate matters in Florida, since Florida's real estate market has long been subject to fluctuations which makes the prediction of losses difficult if not impossible. Hutchison v. Tompkins, 259 So. 2d 129, 132 (Fla.1972). Thus in Florida one of the available types of special damages where the seller breaches a residential sales contract is "benefit of the bargain" damages for any increase between the purchase price and the fair market value after seller's breach. Coppola Enters., Inc. v. Alfone, 531 So. 2d 334 (Fla. 1988); Seaside Community Dev. Corp. v. Edwards, 573 So. 2d 142 (Fla. 1st DCA 1991). Thus, precluding a buyer from seeking special damages can greatly impact the amount of damages available to a buyer, at least in certain cycles of Florida's real estate market. The Court concludes that precluding the availability of such special damages in all situations so undermines the remedy as to render the Agreement illusory under the ILSFDA.
The Court takes a different approach than did Hardwick Props., Inc. v. Newbern, 711 So. 2d 35 (Fla. 1st DCA 1998), review denied, 727 So. 2d 908 (Fla.1998). In that decision the Florida Court of Appeals held that a provision which precluded special and consequential damages did not necessarily render the contract illusory, and remanded for factual findings by the trial court as to the amount of general damages recoverable and whether those damages were so insubstantial under the circumstances as to render the obligation illusory. The difficulty with this approach is that identical contract provisions may be illusory at one point in time in Contract A and not illusory months later in Contract B, depending upon the facts existing at the time of breach. For a national program such as the ILSFDA, this is untenable. Indeed, such an interpretation would encourage the type of speculating by developers the ILSFDA was intended to reduce, further undermining any true obligation to construct the condominium within two years.
V.
Because the Agreement is not exempt from the ILSFDA reporting requirements and it is undisputed that Paradigm did not provide the required Property Report, the Court finds plaintiffs were entitled to terminate the Agreement on January 16, 2007, and are entitled to the return of the deposits in the amount of $179,180.00. The parties dispute whether plaintiffs are entitled to the return of the $26,190.00 paid for option upgrades. This is based on the Second Addendum to the Agreement in which the Steins agreed that the $26,190 for upgrades was non-refundable and would not be returned for any reason. Where the contract is properly revoked, as here, and the condominium is in the same condition, as here, a purchaser is "entitled to all money paid by him or her under such contract or agreement." 15 U.S.C. § 1703(e). See also Engle Homes, Inc. v. Krasna, 766 So. 2d 311, 313 (Fla. 4th DCA 2000). Additionally, since the Agreement is unlawful under the ILSFDA, the Second Addendum provision is not enforceable as contrary to public policy. Plaintiffs are entitled to a refund of the $26,190.00.
VI.
As to the conversion count, plaintiffs assert that Paradigm's retention of the deposit and upgrade funds was done with malice and disregard for plaintiffs' rights because of their failure to comply with ILSFDA. (Doc. # 10, p. 5.) Conversion is "an act of dominion wrongfully asserted over, and inconsistent with, another's possessory rights in personal property." Joseph v. Chanin, 940 So. 2d 483, 486 (Fla. 4th DCA 2006) (citations omitted). Money is subject to conversion. All Cargo Transp., Inc. v. Florida East Coast Ry. Co., 355 So. 2d 178, 179 (Fla. 3d DCA 1978). In this case, the funds were used and kept in accordance with the Agreement to escrow the deposit, maintain the funds, and to otherwise apply the funds towards construction or upgrades. The parties agree that plaintiffs are not entitled to damages under their theory of conversion. (Doc. # 38, ¶ 19.) Damages are an element of a conversion claim, and without damages there can be no cause of action. Therefore, judgment will be entered in favor of defendant as to Count II.
Accordingly, it is hereby
ORDERED AND ADJUDGED:
1. Plaintiffs' Motion for Summary Judgment (Doc. # 10) is GRANTED as to Count I and the Court finds that defendant is not exempt from its reporting obligations under ILSFDA; and GRANTED as to the Counterclaim for Breach of Contract (Doc. # 13, pp. 4-6).
2. Defendant's Dispositive Motion for Summary Judgment (Doc. # 33) is GRANTED as to Count II and is otherwise DENIED.
3. The Clerk is directed to enter judgment in favor of plaintiffs and against defendant as follows: Plaintiffs were entitled to terminate the Agreement on January 16, 2007, and are entitled to the return of $179,180.00 in deposits and $26,190.00 paid for option upgrades, including pre-judgment interest accrued thereon through February 7, 2008. Judgment shall enter in favor of defendant as to Count II, and plaintiff shall take nothing.
4. The Clerk is further directed to terminate all pending motions and remaining deadlines as moot, including the Final Pretrial Conference scheduled for Tuesday, February 19, 2008, and to close the file.
DONE AND ORDERED.
NOTES
[1] 15 U.S.C. § 1702(a)(2) provides:
Unless the method of disposition is adopted for the purpose of evasion of this chapter, the provisions of this chapter shall not apply to
...
(2) the sale or lease of any improved land on which there is a residential, commercial, condominium, or industrial building, or the sale or lease of land under a contract obligating the seller or lessor to erect such a building thereon within a period of two years.
[2] The parties do not dispute that defendant did in fact erect the condominium within the two year period. The dispute is whether the Agreement obligated defendant to do so.
[3] Florida Power Corp. v. City of Tallahassee, 154 Fla. 638, 18 So. 2d 671, 675 (1944) ("An act of God, such as will excuse nonperformance of a legal contract, must be an act or occurrence so extraordinary and unprecedented that human foresight could not foresee or guard against it, and the effect of which could not be prevented or avoided by the exercise of reasonable prudence, diligence, and care or by the use of those means which the situation of the party renders it reasonable that he should employ.").
[4] Impossibility of performance is employed with great caution, and if knowledge of the facts making performance impossible was available to the promisor or was foreseeable, the promisor cannot invoke them as a defense to nonperformance. American Aviation, Inc. v. Aero-Flight Serv., Inc., 712 So. 2d 809, 810 (Fla. 4th DCA 1998); Cook v. Deltona Corp., 753 F.2d 1552, 1558 (11th Cir.1985).
[5] For example, excessive rain has been found to be a condition beyond a developer's control excusing timely performance, Devco Dev. Corp. v. Hooker Homes, Inc., 518 So. 2d 922 (Fla. 2d DCA 1987), as has a heart attack of the president of the developer-corporation, Camacho Enters., Inc. v. Better Constr., Inc., 343 So. 2d 1296 (Fla. 3d DCA 1977).
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514 F. Supp. 2d 70 (2007)
Michael Jack STEPHENS and Kellie Dawn Clark, Plaintiffs,
v.
UNITED STATES, et al., Defendants.
Civil Action No. 07-1162 (ESH).
United States District Court, District of Columbia.
September 28, 2007.
*71 Michael Jack Stephens, Bloomingdale, GA, Pro se.
Kellie Dawn Clark, Bloomindale, GA, Pro se.
Pat S. Genis, U.S. Department of Justice, Ben Franklin Station, Washington, DC, for Defendants.
MEMORANDUM OPINION AND ORDER
ELLEN SEGAL HUVELLE, District Judge.
Plaintiffs Michael Jack Stephens and Kellie Dawn Clark have filed a pro se complaint in which they allege that the Internal Revenue Service ("IRS") and its employees have violated a laundry list of statutes, regulations, constitutional provisions, and IRS policies. Plaintiffs seek damages and costs, termination and criminal prosecution of named IRS employees, and an apology. Defendants have moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6),[1] and *72 for the reasons set forth herein, the motion will be granted.
BACKGROUND
The IRS assessed taxes against the K & M Trucking Company for two periods in 2004 in the amounts of $550 and $412.50, plus penalties and interest (Pl.'s Ex. A & B.) On January 28, 2006, the IRS issued a notice of levy on Clark's bank, First Chatham Bank, for $950.47. (Pl.'s Ex. D.) $85.50 was seized from Clark's account. (Compl. at 1.C.)
Plaintiffs filed a complaint with this Court on June 29, 2007. Their complaint lists 32 boilerplate "counts," each of which references a statutory, regulatory or constitutional provision, and then states, without further explication, that: "[a]ll person's[,] principal[s], officers, agents and employees of the internal revenue service, in connection with the collection of this alleged tax liability, did willfully, recklessly, intentionally, and with malice by reason of negligence disregard above named section." The gravamen of plaintiffs' complaint may be gleaned from its introduction and the opposition to the motion to dismiss. Plaintiffs allege (1) that the tax assessment was inaccurate (Compl. at 20.); (2) that the assessments against K & M Trucking Co. were "illegal" because they were based upon false entries made by IRS employees (Compl.1.E.); (3) that the notice of levy was improperly issued against Clark because she is not a coowner of the company (Compl. at I.E.); and (4) that the levy was improperly issued without prior notice and the opportunity to be heard. (Opp'n at 4-5.)
Plaintiffs seek over $1 million in damages under 26 U.S.C. §§ 7433, 7432 and 7431 for unauthorized collection, failure to release liens, and unauthorized disclosure of return information; costs and fees under 26 U.S.C. § 7430; review of jeopardy levy or assessment procedures under 26 U.S.C. § 7429; termination of I.R.S. employees under 26 U.S.C. §§ 7214 and 7804; and the prosecution of IRS employees under 18 U.S.C. § 872.
ANALYSIS
I. Lack of Jurisdiction
As a preliminary matter, plaintiffs have failed to establish this Court's subject matter jurisdiction over their claims relating to the legality and accuracy of the tax assessment.[2] The burden of establishing jurisdiction lies with the plaintiff. E.g., Martens v. United States, No. 05-1805, 2007 WL 2007580, at *1 (D.D.C. July 6, 2007). Jurisdiction must be established by a preponderance of the evidence. E.g., id.
It is axiomatic that "federal courts lack subject matter jurisdiction over suits against the United States in the absence of a waiver." Buaiz v. United States, 471 F. Supp. 2d 129, 134 (D.D.C. 2007). Plaintiffs devote a significant part of their complaint to challenging the calculation of their tax assessment and to proving their allegations that IRS employees have tampered with their records. (Compl. at 10-20.) However, plaintiffs do *73 not allege that they have either filed a claim for refund or fully paid their federal taxes. Under 26 U.S.C. § 7422, "[n]o suit or proceeding shall be maintained in any court for recovery of an internal revenue tax alleged to have been erroneously or illegally assessed or collected . . . until a claim for refund or credit has been duly filed. . . ." 26 U.S.C. § 7422(a). Because plaintiffs have not completed these prerequisites, sovereign immunity has not been waived, and this Court lacks jurisdiction to consider plaintiffs' assessment claims. Counts 2, 3, and 15, which reference statutes relating to assessment procedures, are therefore dismissed with prejudice.
II. Failure to State a Claim
Plaintiffs' remaining allegations relate to allegedly improper collection activities. This Court has jurisdiction over these claims under 26 U.S.C. § 7433. See 26 U.S.C. § 7433(a); Buaiz, 471 F. Supp. 2d at 135. However, plaintiffs' improper collection claims will be dismissed for failure to state a claim upon which relief can be granted. In deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court must construe the complaint in the light most favorable to the plaintiff and give the plaintiff the benefit of all inferences. See Barr v. Clinton, 370 F.3d 1196, 1199 (D.C.Cir.2004). Additionally, the pleadings of pro se plaintiffs must be construed liberally. E.g., Lindsey v. United States, 448 F. Supp. 2d 37, 44-45 (D.D.C.2006); Haines v. Kerner, 404 U.S. 519, 520, 92 S. Ct. 594, 30 L. Ed. 2d 652 (1972). The Court "may only consider the facts alleged in the complaint, documents attached as exhibits or incorporated by reference in the complaint, and matters about which the Court may take judicial notice." Gustave-Schmidt v. Chao, 226 F. Supp. 2d 191, 196 (D.D.C.2002). Although a plaintiff need not provide "detailed factual allegations," it is "a plaintiffs obligation to provide the `grounds of his entitle[ment] to relief. . . .'" Martens, 2007 WL 2007580 at *1 (quoting Bell Atl. Corp. v. Twombly, ___ U.S. ___ - ___, 127 S. Ct. 1955, 1964-65, 167 L. Ed. 2d 929 (2007) (alteration in original)). This obligation "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. (quoting Twombly, 127 S.Ct. at 1965). "The court need not accept as true inferences unsupported by facts set out in the complaint or legal conclusions east as factual allegations." Id.
Plaintiffs allege that the IRS's assertion of a levy against Clark was improper because, she is not a co-owner of the K & M Trucking Company. They maintain that while K & M was formerly run as a partnership, Stephens now runs K & M as a sole proprietor. The IRS's records do not reflect this change. (Def.'s Ex. 1.) According to the documentation defendants provided, Clark remains a general partner of K & M, and as such is liable for the debts of the partnership. See United States v. Galletti, 541 U.S. 114, 116, 124 S. Ct. 1548, 158 L. Ed. 2d 279 (2004); McCaughey v. Murphy, 225 Ga.App. 874, 485 S.E.2d 511, 515 (1997). Plaintiffs challenge the accuracy of the IRS files, but offer no evidence to support "a claim to relief that is plausible on its face" and "above the speculative level." Twombly, 127 S.Ct. at 1960.
Plaintiffs also allege that the IRS failed to provide Clark with notice and a hearing prior to the imposition of the levy. See 26 U.S.C. § 6330. In order to make out a claim pursuant to 26 U.S.C. § 7433, plaintiffs must allege not only that an employee of the IRS disregarded a provision of this title, but also that they did so recklessly, intentionally, or negligently. See 26 U.S.C. § 6330(a)(3)(B). Plaintiffs *74 have alleged no facts in support of their claim that any arguable failure to comply with § 6330 was intentional, reckless, or negligent. Rather, they merely offer "a formulaic recitation of the elements of [the] cause of action," which is insufficient to survive a motion to dismiss. Twombly, 127 S.Ct. at 1960. Because plaintiffs have asserted no viable claims based on improper collection, Counts 1, 4-6, 11, 12, 14, and 18, which reference the statutory provisions addressing the imposition of levies, are dismissed.
Plaintiffs' remaining counts are entirely devoid of supporting factual allegations. Counts 10 and 17 allege violations associated with the imposition of tax liens, however, nowhere in the complaint do plaintiffs allege that any lien was asserted against them. Counts 13, 16, 24, and 25 merely refer to various statutes governing the operation of the IRS without providing any factual support for the alleged violation. Counts 19-21, 28, 29, and 32 allege violations of several federal statutes, including, inter alia, the Federal Records Act and the Paperwork Reduction Act, but no explanation is given as to how these statutes are pertinent to this case.[3] Counts 7-9 reference IRS service policies, which provide no basis for a cause of action under § 7433. 26 U.S.C. § 7433(a) (providing for a civil action for damages when an IRS employee disregards "any provision of this title or any regulation promulgated under this title. . . ."). Similarly, Counts 22, 23, "30 and 31 reference criminal statutes, which clearly do not provide plaintiffs with any private right of action to support their civil suit, see e.g., Andrews v. Heaton, 483 F.3d 1070, 1076 (10th., Cir.2007), nor do Counts 26 and 27, which reference Article I, Section 8, Clause 16 and the Thirteenth Amendment to the Constitution. See e.g., Judicial Watch v. Rossotti, 317 F.3d 401, 409 (4th Cir.2003). Because plaintiffs have failed to state a claim for relief in any of these counts, they are dismissed.
CONCLUSION
For the foregoing reasons, the defendants' motion to dismiss [Dkt. 9] is GRANTED, and it is hereby ORDERED that this case be dismissed. Plaintiffs' § 7433 claims are dismissed without prejudice and plaintiffs' remaining claims are dismissed with prejudice.
This is a final appealable order. See Fed. R.App. P. 4(a).
NOTES
[1] Defendants also move the Court to dismiss this case for insufficient service of process. However, because the Court lacks subject matter jurisdiction and plaintiffs have failed to state a claim, it is unnecessary to consider any other grounds for dismissal.
[2] The subject matter jurisdiction of the Court is constitutionally limited, and the Court has an obligation under these constitutional limits to address its jurisdiction to hear a case, raising the issue sua sponte if necessary." Sharp v. Rosa Mexicano, D.C., LLC, 496 F. Supp. 2d 93, 97 (D.D.C.2007) (citing Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 119 S. Ct. 1563, 143 L. Ed. 2d 760 (1999)); Watts v. SEC, 482 F.3d 501, 505 (D.C.Cir. 2007).
[3] A common strategy in the pro se tax cases that have flooded this Court is to include references to unspecified provisions of the Federal Records Act and the National Archives Act in the "jurisdiction" section of the complaint. Wesselman v. United States, 501 F. Supp. 2d 98, 101 n. 2 (D.D.C.2007). Here plaintiffs are following the crowd and have added counts asserting a substantive violation of these statutes.
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This is a personal injury suit. At the time of his injury plaintiff was employed by defendants as a carpenter, or carpenter's helper. Defendants, desiring to demonstrate to retail dealers in Ford automobiles the operation of certain machinery which should be used in the repair of Ford cars in a first class shop, erected what defendants termed a model shop. This model shop consisted only of frame work of wood, not enclosed. It was eighteen feet long and sixteen feet wide and consisted of three 2 × 6 uprights on each side. From the floor to the joists was twelve feet. Slightly above the joists and extending lengthwise of this frame was a line shaft on which wooden pulleys were placed which by means of a belt were set in motion by the machinery placed upon the floor below. The wooden pulleys were *Page 622
about four feet in diameter, were in two parts bolted together, and weighed eighty pounds each.
At the time of the injury, February 5, 1920, plaintiff had been working for defendant O'Maley as a carpenter, or carpenter's helper, for about two years. On the day the pulleys were placed on the line shaft, or the day following, plaintiff was called from some other work on which he was engaged and directed by the foreman, Guyunn to aid the carpenter, Dixon, in taking down one of the pulleys.
In order to do this there had been nailed a 2x6 stringer on the uprights on each side of the model shop, about seven feet above the floor, then placed two 2 × 12 planks crosswise of the shop, with their ends resting on the stringers nailed to the uprights, in the same manner as when the pulleys first were put in place. Plaintiff and Dixon got upon the planks, or both upon the same plank, and while unbolting and removing the pulley, one of the 2x6 stringers which had been nailed to the uprights, and upon which one end of the scaffold plank rested, broke and both plaintiff and Dixon were precipitated to the floor and one-half of the pulley which had been released from the bolts fell, striking plaintiff upon his right leg, ankle and foot, severely injuring him.
The second amended petition, on which the cause went to trial, charges negligence in the following particulars:
(a) In failing to have the scaffold well and safely supported, and that the same was of insufficient width and not sufficiently secured to insure the safety of persons working thereon.
(b) That the floor board of the scaffold upon which plaintiff and Dixon were standing while at work was of insufficient strength and size to support them in safety and that this fact was known to defendants, or by the exercise of ordinary care could have been known to them.
(c) That defendants carelessly and negligently ordered plaintiff to go upon the scaffold, knowing the same to be of insufficient strength. *Page 623
(d) The adoption and use of an unsafe method by which plaintiff was required to do his work, when a safer method for doing the same was at hand.
The amended answer was, first, a general denial and, as special defenses, charged contributory negligence and assumption of risk, and that the injury was caused by negligence of a fellow servant. The reply was a general denial. Upon the pleadings thus made the cause went to trial to a jury. The verdict was for plaintiff in the sum of $4500 and defendant appeals.
Defendants' first assignment of error is directed to instruction No. 1, given at the request of plaintiff, in that it tells the jury that if they find that the stringer which supported one end of the scaffold board on which plaintiff stood was insufficient in strength and size, and that by reason of such insufficiency it was reasonably likely to break and that defendants and their employee Guyunn knew, or by the exercise of ordinary care might have known that the scaffold or stringer was so insufficient in strength and size, and reasonably likely to break and fall, they should find for plaintiff.
Defendants urge that there is no testimony in the case to support the charge that defendants, or their foreman Guyunn, knew, or by the exercise of ordinary care might have known that the stringer was reasonably likely to break.
Plaintiff undertakes to meet this objection by referring to the provisions of section 6802, Revised Statutes 1919:
"All scaffolds or structures used in or for the erection, repairing or taking down of any kind of building shall be well and safely supported, and of sufficient width, and so secured as to insure the safety of persons working thereon, or passing under or about the same, against the falling thereof, or the falling of such materials or articles as may be used, placed or deposited thereon."
The parties hereto are agreed that if the structure in controversy is "any kind of a building" within the *Page 624
meaning of the statute, the controversy on this point is determined. Webster defines the word building as follows: "As now generally used, a fabric or edifice, framed or constructed, designed to stand more or less permanently, and covering a space of land for use as a dwelling, storehouse, factory, shelter for beasts, or some other useful purpose." The word structure is given as a synonym.
In Forbes v. Dunnavant, 198 Mo. 193, 95 S.W. 934, the court in applying this statute, held that it was not intended to inure to the benefit of workingmen engaged in the erection of a scaffold, but for others who might use it after it was constructed, and where a servant was negligent in selecting timber to be used in a scaffold, thus causing an injury to a fellow servant, the master was not held liable.
The testimony shows that while the structure in question was not a building within the sense of being a dwelling, storehouse, or shelter for beasts, it is properly included within the term "other useful purpose." It is in evidence that the structure was intended to be used as a model repair shop, a structure intended for some useful purpose, and in this respect it was a building, within the meaning of the statute.
Defendants contend the statute does not apply because plaintiff aided in the construction of the scaffold. The evidence shows that the scaffold which broke and caused the injury is not the one that was constructed and used when the pulleys were put in place, though similarly constructed, and of the same kind of timbers.
The obvious purpose of the scaffold which broke and caused the injury was for the use of employees in removing one of the wooden pulleys above referred to, and we hold it was a scaffold or structure within the meaning of the statute. [Most v. Goebel Const. Co., 199 Mo. App. 336, 203 S.W. 474.]
There was testimony introduced to the effect that plaintiff had no part in the construction of the scaffold and, therefore, even in the face of evidence to the contrary, that question was one of fact for the jury's determination *Page 625
and was properly included in the instructions. With this holding as to the application of section 6802, it follows that the fact that the scaffold broke and plaintiff was injured made a prima-facie case for the jury, and it is unnecessary to discuss further the collateral arguments presented by counsel on this point.
For a second assignment of error defendants declare that the giving of instruction No. 1 referring to two defenses pleaded by defendants and omitting the third was error because such instruction tended to confuse the jury, did not declare the law and was inconsistent with defendants' instruction No. 14. Said instruction told the jury if they found defendants were negligent "then you will find for the plaintiff unless you find that he was guilty of contributory negligence, or assumed risk, as set forth in other instructions."
The complaint is that the instruction which purported to cover the whole case and directs a verdict failed to include defendants' plea that the injuries, if any, were caused by negligence of a fellow servant. Instruction No. 14 for defendants covered this defense and, for that reason defendants urge the two instructions are confusing to the jury in this: That in plaintiff's instruction No. 1, the jury are told that present negligence of defendant and absent contributory negligence and assumed risk on the part of plaintiff, the verdict should be for plaintiff, while instruction No. 14 for defendants introduces another element, to-wit, that the injuries, if any, were caused by negligence of a fellow servant and that this element must be found absent to entitle plaintiff to a judgment.
The general rule applicable to an instruction which purports to cover the whole case and directs a verdict is so exhaustively discussed in State ex rel. v. Ellison, et al., 272 Mo. l.c. 587, that a quotation therefrom is appropriate:
"Our rule is, that if the instruction for the plaintiff purports to cover the whole case and directs a verdict, then if it be found that such an instruction has omitted *Page 626
a necessary element requisite to the right of plaintiff to recover, then such omission is not, and cannot be cured by an instruction given for the defendant . . ."
This issue is governed by the rulings made in that case, and it remains only for us to determine whether the question of negligence of a fellow servant is "a necessary element" of plaintiff's right to recover. Negligence of a fellow workman is an affirmative defense and before it can defeat plaintiff's recover, must be specially pleaded and proved. It is not an element of plaintiff's case and therefore need not be included in the instruction which purports to cover the entire case and directs a verdict. [Meily v. Railroad, 215 Mo. 567, l.c. 587 et seq.] Neither of the pleaded defenses referred to in the instruction was a necessary element in plaintiff's right to recover, and in so including them the instruction went farther than was necessary under the rule above quoted. The fact that another affirmative defense pleaded was not therein mentioned does not render the instruction erroneous. The question was fully covered in defendants' instruction No. 14. [Meily v. Railroad, supra; Colburn v. Krenning, 220 S.W. 934; Grote v. Hussman, 223 S.W. l.c. 132.] We fail to see in the situation in this case any deviation from the rule announced by this court in Schinogle v. Baughman, 223 S.W. 897, 900, where it is said:
"It is further said that said instruction fails to include the pleaded defense of contributory negligence. But contributory negligence was submitted to the jury in two of defendants' instructions, hence no complaint can be urged on that ground." (Citing cases.)
We rule against defendants' contention on this point. The negligence relied on by plaintiff is failure of defendants to furnish him a safe appliance with which to work, and in such case the fellow servant rule does not apply. The jury having found that defendants were negligent, under that theory of the case, the verdict would seem to have been responsive, and to have disposed of all defenses pleaded. *Page 627
The defendants also object that plaintiff's injuries were caused by his own negligence, or by the negligence of a fellow servant, and urge that in either case, plaintiff is precluded from recovery.
It is sufficient answer to that contention to say that these were questions of fact and not of law, and as they were properly submitted to the jury in instructions, the verdict will not be disturbed for that reason.
Another objection is that the court erred in refusing defendants' instruction No. 2, because there was no evidence in the case that defendants negligently adopted an unsafe method of removing the pulley. Their statement is argumentative and reflects defendants' idea of the value of the testimony on that point. The record shows there was testimony to the effect that another method than the one adopted might have been used, to-wit, the use of a pulley attached to the joist. This testimony being in the record, the question of whether the method used was negligent was properly left to the jury's wise determination. And while this testimony may not have been conclusive that the method used was more dangerous than the use of a pulley and, therefore, negligent, it was testimony from which the jury might reasonably infer defendants' negligence in adopting it. We therefore hold that the court did not err in refusing to give defendants' instruction No. 2, as follows:
"The court instructs the jury that there is no evidence in this case that defendants negligently adopted an unsafe method of removing the pulley from the shaft mentioned in evidence."
The fifth and last assignment of error is directed to the refusal of the court to discharge the jury because of alleged prejudice injected into the case by the line of examination conducted by plaintiff's counsel. This objection is based upon the fact of record that counsel for plaintiff, on direct examination, asked plaintiff:
"Q. What Doctor waited on you?" To which plaintiff replied, "Doctor Pittam. "Q. Was he your doctor? *Page 628
A. No, sir. "Q. Who furnished him? A. The insurance company, I believe."
While this court does not desire to be understood as sanctioning the introduction in evidence of improper matter, yet we think in this instance the court cured any prejudicial effect which may have been wrought by the questions and answers, by promptly striking out the answers upon objection of defendants in which the court was asked to strike out the question and answer and to direct the jury to disregard it. After the court had sustained the objection and had stricken out the evidence and directed the jury to disregard it, defendants then asked that the jury be discharged, upon the ground that the tendency of the question and evidence was to cause a larger verdict to be rendered than otherwise might have been awarded. In this instance the objection was not made until after the answer was given. There is no claim that the verdict is excessive, and under these circumstances the judgment ought not to be reversed.
There is reference in defendants' brief to the effect that the jury awarded plaintiff the "outrageous sum of $4500 damages, notwithstanding appellant paid respondent his regular salary of $27 per week for five months after his injury, though no service was rendered during that time." This statement is made as a matter of argument that the jury should have been discharged, rather than as a direct objection for a reduction of the amount of the verdict, and the question therefore will not be discussed.
We fail to find any reversible error in the record. The judgment is affirmed.
All concur. *Page 629
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(“l
FILED
UNITED STATES DISTRICT COURT AUU l 3 2{)§@
FOR THE DISTRICT OF COLUMBIA
Cz‘:::t ::,e:i,:;':;:;::,ici S:z“:;,:::;t
Dilio Antonio Escarria-l\/Iontano,
Plaintiff,
v. civil A¢ti@n NO. h ida `('i
United States of America el al.,
g/\}\/\_/&/\J\J\y&/
Defendants.
MEMORANDUM OPINION AND ORDER
This matter, brought pro se by a federal prisoner, is before the Court on its initial review
of the complaint and application for leave to proceed informal pauperis. Pursuant to 28 U.S.C.
§ l9l5A, the Court is required to screen a prisoner’s complaint and dismiss it or any portion
thereof upon a determination that the complaint fails to state a claim upon which relief can be
granted. For the following reasons, the Court will dismiss the complaint against all of the named
defendants except the United States.
Plaintiff sues the United States and Attorney General Eric Holder, Jr., the Department of
the Navy and Defense Secretary Robert l\/I. Gates, the Bureau of Prisons and Director Harley G.
Lappin‘, the Department of Health and Human Services and Surgeon General Regina Benjamin,
and the "Judiciary Branch" under Bivens v. Six Unknown Named Agenls of F ederal Bureau of
Narc403 U.S. 388 (l97l), and the Torture Victim Protection Act of 1991 , 28 U.S.C.
§ 1350. Plaintiff fails to provide any notice ofa claim against the judiciary See Compl. 11 8
(stating that "[d]efendants, Judiciary Branch, and John Glover Roberts, Jr - Chief justice of USA
‘ Plaintiff mistakenly lists this defendant as Harry G. Lappin.
and addition to certain types of subject matter with residual grant or exclusive jurisdictional
authority to decide civil and criminal actions. . . ."); idjl 52 (accusing the judiciary branch of
"using Constitutional Avoidance for the United States relating to having a Trial-By-Jury of the
Plaintiff" s Columbian National Peers . . . .").
In addition, this Court has a "duty . . . to stop insubstantial Bivens actions in their tracks
and get rid ofthem." Simpkins v. District ofColunzbz`a Governmenf, 108 F.3d 366, 370 (D.C.
Cir. l997) (citations omitted). A federal official may be held personally liable under Bivens only
for unconstitutional conduct in which he was personally and directly involved. Cameron v.
Tlzornburgh, 983 F.2d 253, 258 (D.C. Cir. l993). Plaintiff has stated no facts supporting claims
against the high-level agency officials in their personal capacities, see Compl. H1[4-7, and the
claims against them in their official capacities are in essence against the United States. See
Kentucky v. Graham, 473 U.S. l59, 166 (l985). Accordingly, it is
ORDERED that pursuant to 28 U.S.C. § l9l 5A(b)(l), the complaint against the Judiciary
Branch and defendants Eric H. Holder, Robert M. Gates, Harley G. Lappin and Regina Benjamin
in their individual capacities is DISl\/IISSED; and it is
FURTHER ORDERED that the Clerk shall terminate the dismissed defendants, open this
civil action as brought only against the United States and randomly assign it to a district judge for
further proceedings. A separate Order granting plaintiffs motion to proceed z`nforma pauperis
will issue contemporaneously.
wl 4:»-
United §tates District Judge
Date: August /7 ,2010
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/fl
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
FILED
ERNEST MATTHEW GREELY-BEY, 1 1 2010
Clvrk. u.s. oasm @.
Petitioner, blm Dlsit:!tict sta
v. Civil Action No.
10 1349
S.T. WAINRIGHT,
Respondent.
MEMORANDUM OPINION
This matter comes before the Court on petitioner’s application to proceed in forma
pauperis and pro se petition for a writ of habeas corpus.
On June 22, 2010 in the Superior Court of the District of Columbia, the petitioner was
sentenced to a terrn of 28 months’ incarceration followed by a 36-month tenn of supervised
release. The sentence allegedly exceeded the applicable sentencing guidelines by 16 months, and
the petitioner challenges the sentence on several grounds.
By motion in the Superior Court under D.C. Code § 23-110, a District of Columbia Code
offender may seek "to vacate, set aside, or correct the sentence" if "(l) the sentence was imposed
in violation of the Constitution of the United States or the laws of the District of Columbia, (2)
the court was without jurisdiction to impose the sentence, (3) the sentence was in excess of the
maximum authorized by law, (4) the sentence is otherwise subject to collateral attack[.]" D.C.
Code § 23-1 lO(a). ln relevant part, D.C. Code § 23-1 10 provides:
[An] application for a writ of habeas corpus in behalf of a prisoner
who is authorized to apply for relief by motion pursuant to this
section shall not be entertained by . . . any Fea'eral . . . court if it
appears . . . that the Superior Court has denied him relief, unless it
also appears that the remedy by motion is inadequate or ineffective to
test the legality of his detention.
D.C. Code § 23-1 lO(g) (emphasis added). "Section 23-110 has been found to be adequate and
effective because it is coextensive with habeas corpus." Saleh v. Braxton, 788 F. Supp. 1232
(D.D.C. l992). lt is settled that "a District of Columbia prisoner has no recourse to a federal
judicial forum unless the local remedy is ‘inadequate or ineffective to test the legality of his
detention"’ Byrd v. Hena’erson, 119 F.3d 34, 36-37 (D.C. Cir. 1997) (internal footnote omitted);
Garris v. Lindsay, 794 F.Zd 722, 726 (D.C. Cir.), cert. a'enz`ed, 479 U.S. 993 (1986).
Accordingly, the Court will dismiss the petition without prejudice. An Order consistent
with this Memorandum Opinion will be issued separately on this date.
Date: 7/£//0 United states District 125
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In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 13-1938
520 SOUTH MICHIGAN AVENUE ASSOCIATES,
LIMITED, d/b/a The Congress Plaza Hotel &
Convention Center, and Congress Plaza Hotel LLC,
Plaintiff-Appellant,
v.
UNITE HERE LOCAL 1,
Defendant-Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:10-cv-01422 — John J. Tharp, Jr., Judge.
____________________
ARGUED APRIL 17, 2014 — DECIDED JULY 29, 2014
____________________
Before MANION, SYKES, and TINDER, Circuit Judges.
TINDER, Circuit Judge. The Congress Plaza Hotel appeals
the dismissal of its lawsuit, on summary judgment, alleging
that the Unite Here Local 1 Union has engaged in unfair la-
bor practices during its historically long-running strike
2 No. 13-1938
against the Hotel. 1 The strike began back in 2003, but appar-
ently escalated in 2008, when the Union pursued a new and
more aggressive strategy. It began engaging in secondary
activity—i.e., targeting organizations that had made ar-
rangements to reserve large blocks of rooms or space at the
Hotel, in the hopes that they would cancel their plans and
thus pressure the Hotel to end the strike. The Union would
send delegations, consisting of striking Hotel workers and
Union staff in groups of between two and ten people, to the
stores and offices of these potential Hotel patrons. Delegates
were instructed to impress upon the decision-makers of
these organizations, both orally and through written materi-
als, the Union’s position in the strike and its disapproval of
the target organization’s plans to use the Hotel. The conduct
of these delegates is the focal point of this case.
The Hotel claims that the Union delegations crossed the
line into unlawful secondary labor activity, in violation of 29
U.S.C. § 187(a) and 29 U.S.C. § 158(b)(4)(ii)(B). It claims that,
instead of utilizing persuasion, the Union coerced the Ho-
tel’s customers into cancelling their agreements to book
rooms at the Congress. Although the strike eventually ended
on May 29, 2013, the Hotel seeks damages for past activity
under Section 187(b). At the close of discovery, the district
court granted the Union summary judgment, on the ground
1 This is the third appeal to this court that has originated from the dis-
pute between the Congress Hotel and its striking employees. See 520 S.
Mich. Ave. Assocs., Ltd. v. Shannon, 549 F.3d 1119 (7th Cir. 2008); 520 S.
Mich. Ave. Assocs., Ltd. v. Devine, 433 F.3d 961 (7th Cir. 2006). However,
this case presents an entirely separate set of legal and factual issues.
No. 13-1938 3
that the Union’s conduct was not coercive, and that barring
it as a matter of federal labor law would raise important free
speech concerns. We now reverse the district court’s decision
in part, and remand for a trial regarding whether certain of
the defendant’s actions were coercive, whether any such co-
ercive conduct damaged the Hotel, and if so, to what extent.
I. Background
Because this case comes to us on summary judgment, we
will recite the facts the Hotel has put into the record, resolv-
ing every reasonable factual dispute between the parties in
its favor. See Griffin v. City of Milwaukee, 74 F.3d 824, 826–27
(7th Cir. 1996). We do not vouch for their ultimate truth or
accuracy.
A. The Alleged Secondary Activity
The Hotel has accused the Union of unfair labor practices
with regards to the following potential customers. We begin
with the allegations we consider most likely to be actionable:
1. American Tango Institute (ATI)
ATI contracted with the Hotel in 2010 to host its tango
festival that August. According to ATI president Netza Rol-
dan, the organization is a “very small, nonprofit organiza-
tion” that uses the tango festival as its “annual fundraiser
event.” Union officials responded to ATI’s plans by sending
Roldan a letter on May 7 requesting that he cancel ATI’s
plans with the Hotel. It also began contacting him by fax,
mail, and telephone. According to Roldan’s testimony, the
Union left telephone messages and sent emails every ten
minutes for one hour on the morning of May 11, 2010, and
also made three or four calls to his personal phone. Roldan
soon learned that the Union had called and emailed ATI’s
4 No. 13-1938
artistic director, Jorge Torres, to inform him of the Union’s
opposition to ATI’s booking, even though Torres played no
part in that decision. Roldan sent contemporaneous emails
to the Hotel complaining about the Union’s repeated con-
tacts.
Although Roldan initially called Union officials and told
them he did not want to communicate with them any fur-
ther, the delegations persisted in setting up a meeting at
ATI’s headquarters in Chicago. The delegation, consisting of
between seven and nine people, had notified Roldan in ad-
vance that it was coming. Roldan testified that at this meet-
ing Union delegates threatened to visit ATI affiliates “and go
to their houses or companies” in order to add pressure. They
also allegedly threatened to picket the tango festival itself.
Roldan earlier noted that Union boycott coordinator Jessica
Lawlor had registered to attend the festival on the ATI web
site, and he had no reason to think she intended to be a
good-faith participant. Roldan further testified that this first
meeting was sufficiently heated that he told his assistant to
be prepared to call the police. The Union members then left
and the police were not called. 2
After this first meeting, Union delegates entered ATI’s of-
fice, which was located on the third floor of an office build-
ing that was secured by electronic lock, and left literature
behind on two occasions. On a third occasion they left litera-
ture in the lobby of the building. Roldan testified that no Un-
2A few weeks after the first meeting with the Union delegation, ATI’s
web site was hacked and infected with a virus of unknown origin. How-
ever, Roldan did not assert that he suspected the Union of a cyber attack.
No. 13-1938 5
ion representative was given permission to enter the build-
ing to drop literature. Union members also apparently post-
ed a letter on Roldan’s office door demanding that ATI can-
cel its reservations with the Hotel.
About two weeks after the first meeting, Roldan ar-
ranged a second face-to-face discussion with a Union delega-
tion, but he remained firm that he did not want to change
ATI’s room reservations. He testified that the delegation
threatened to “have people in [the festival] and talking to
our guests” about the strike. Even after this second meeting,
the Union continued to contact ATI. Roldan testified that he
felt “harassed” and “pressed” to cancel the arrangements
with the Hotel, and that he was concerned that the Union
would picket the festival and harass its participants, along
with ATI’s members, clients, sponsors and employees, such
as Jorge Torres.
Roldan and ATI’s board thereafter decided to cancel the
contract with the Hotel, even though the organization did
not have an alternate site ready. ATI eventually moved the
festival to a smaller venue in a different part of the city on
short notice. Roldan testified that ATI “had to change the
whole concept of the event” due to the change. The new
venue was not a hotel, which meant that participants had to
lodge away from the festival. This inconvenience allegedly
harmed the event’s attendance. As a result, ATI lost approx-
imately $20,000 and had to revise its marketing materials to
reflect the change in hotels. Roldan estimated that ATI also
lost about $40,000 in expected revenue due to a decrease in
participation. The organization also reportedly suffered a
60% drop in membership following the incident.
6 No. 13-1938
2. International Housewares Association (IHA)
IHA contracted with the Hotel for four years’ worth of
room blocks, from 2008 to 2011, for its annual trade show. In
early 2009, Union representative Jessica Lawlor phoned IHA
vice president Mia Rampersad to tell her that the IHA
should not book rooms at the Hotel. Rampersad testified
that Union delegations entered IHA’s offices in Illinois and
threatened to picket the IHA trade show, although the word
“picket” may not have been used. Union phone bankers also
began calling affiliated retailers and prospective attendees of
the trade show, asking them to put pressure on IHA to can-
cel its plans with the Hotel.
Lawlor testified that, during one visit to IHA offices, one
Union delegate walked past IHA security to tell IHA presi-
dent Phil Brandl “shame on you” while he was in a meeting.
IHA officials advised its security not to let in the Union del-
egations. Rampersad and IHA vice president of finance
Dean Kurtis both testified that they were concerned that the
Union might attempt to picket the trade show or even board
IHA busses used to take attendees to the event. However,
they could not recall any Union member making a specific
threat to target the busses or the trade show.
In February of 2009, a Union delegation, numbering three
or four members, went to IHA’s offices without an appoint-
ment. The delegates were asked to leave when they reached
the reception area, but refused to do so. Kurtis then called
the police. Although the delegation eventually left, a smaller
delegation of “one or two” Union representatives returned
No. 13-1938 7
later that day. IHA’s president, Phil Brandl, decided to meet
them in the basement cafeteria of the building.
IHA soon became aware of reports that the Union was
contacting and visiting IHA’s board members, retailers, and
exhibitors’ offices in Chicago; exhibitors complained that
they were being harassed. Rampersad testified that she
likewise felt harassed into cancelling IHA’s plans with the
Hotel, rather than persuaded to adopt the Union’s position.
On February 10 she sent an email to other decision-makers at
IHA stating that the Union’s conduct was “bordering on
harassment.” According to Rampersad, the Union soon
opened up two additional fronts in its battle to have IHA
cancel its patronage of the Hotel.
a) Rick Bayless, Celebrity Chef
As part of its efforts, the Union contacted Rick Bayless, a
famous chef and owner of two Chicago restaurants, the
Frontera Grill and Topolobampo. Bayless was scheduled to
conduct a cooking demonstration at the IHA trade show.
Rampersad was informed that the Union was leafleting in
front of one of Bayless’s restaurants. The manager of the
Frontera Grill, Jennifer Fite, testified that she saw two people
handing out fliers inside the restaurant. Lawlor testified that
the Union delegated at the restaurants three times, attempt-
ing to meet with Bayless directly, before sending a fourth
delegation to distribute the fliers.
The fliers contained four bullet points of information
quoting apparent citations from government health inspec-
tions of the two restaurants. The quotes were accurate and
were found in publicly available reports, but the fliers did
not note that the restaurants passed the inspections despite
8 No. 13-1938
the quoted observations. The fliers also did not reference the
labor dispute, except by including the address of a Union-
sponsored web site, www.PresidentPicketsCongress.org.
b) IHA Affiliates and RSNA
The Union also allegedly visited several IHA affiliates,
including Walgreens, Macy’s, and Ace Hardware stores, all
located in Chicago. IHA also learned that the Union visited
the headquarters of the Radiological Society of North Amer-
ica (RSNA), an unrelated group that was also a prospective
customer of the Hotel. One Union delegate, Jennifer Blatz,
testified that a delegation boarded RSNA busses to distrib-
ute leaflets about the strike. She also testified that a delega-
tion entered a Macy’s store attempting to see the General
Manager; she conceded that management “may” have
threatened to have the delegation arrested for trespassing.
Rampersad was informed by an RSNA official that six Union
officials entered its offices and walked into department
meetings shouting an RSNA’s official’s name. Rampersad
testified that she was aware of the Union’s activities at an
Ace Hardware and RSNA by the time IHA decided to switch
hotels, but she and Kurtis conceded that they were not
aware of activities at Macy’s, Walgreens, or other affiliates at
that time.
By February 18, IHA decided to cancel its pending block
reservations with the Hotel. That still left 100 rooms already
reserved by individuals in advance of the 2009 trade show.
Jessica Lawlor advised Rampersad by phone that the Un-
ion’s activities “would not stop” until IHA completely disas-
sociated itself from the Hotel.
No. 13-1938 9
3. Reed Exhibitions/Chicago Comic and Entertainment Expo
Reed Exhibitions reserved a block of rooms with the Ho-
tel for the April 2010 Chicago Comic and Entertainment Ex-
po. Ron Zobel and Lance Fensterman were responsible for
obtaining lodging for the event. Fensterman testified that the
Hotel’s low rate was a central motivating factor in the deci-
sion to book there, because many of the Expo’s attendees
would be paying out of pocket, rather than having their ex-
penses covered by an employer. Two months after making
the reservation, the Expo’s organizers were told that affiliat-
ed retailers were being picketed at their places of business—
i.e., comic book stores.
In late 2009, the Union sent delegations to nine comic
book stores, according to the testimony of Union organizer
Jessica Lawlor. The Union apparently was following Fen-
sterman’s own visits to the stores and confronting him at
each stop. Fensterman testified that he specifically remem-
bered the Union’s activities at two comic book stores: Chal-
lengers Comics and Graham Crackers Comics, both in Chi-
cago. At one store Fensterman noticed as many as ten Union
members, four or five of whom were carrying two-foot by
one-foot signs. Fensterman testified that the Union members
were polite and non-disruptive, and the comic book stores
were open to the public. But he also characterized their visits
as “incredibly uncomfortable,” and sent an email to Zobel in
December of 2009, stating, “I want to drop this contract
[with the Hotel]. I had strikers at all of my retail visits in
Chicago this week.” The delegations made clear that they
would continue following Fensterman until he canceled the
Hotel reservation. Fensterman testified that the delegations
10 No. 13-1938
to the comic book stores “sen[d] a message that doing busi-
ness with [Reed Exhibitions] can be damaging to your busi-
ness.”
Zobel wrote to the Hotel management in February of
2010 to explain the decision to cancel the block reservation,
noting that the Expo’s attendees and exhibitors were subject
to “physical[] target[ing] and picket[ing].” The letter cited
the strike as one of two reasons that Reed Exhibitions termi-
nated the contract (the other being a lack of expected guest
room usage).
4. NeoCon/Merchandise Mart Properties (MMP)
MMP reserved room blocks with the Hotel for its 2009
and 2010 NeoCon trade show. Chris Kennedy is the presi-
dent of MMP and was allegedly considering a run for the
United States Senate at the time. Union delegations visited
NeoCon exhibitors with leaflets urging them to call Kennedy
through the main number at MMP, even though, aside from
being president, he had no role in contracting with the Ho-
tel. Union delegations met once with Kari O’Shea, who was
in charge of the Hotel reservation, without an appointment
and visited numerous exhibitors. They may also have inad-
vertently visited the homes (rather than the business ad-
dresses) of certain targets. Kennedy at one point allegedly
engaged in a screaming match with a Union official over the
phone. Eventually MMP canceled its reservation.
5. America’s Next Top Model (ANTM)
Ansia Production contracted with the Hotel for meeting
space to conduct a casting call in September 2008 for its reali-
ty show, America’s Next Top Model. The Union soon sent
out emails to sympathetic recipients asking them to call and
No. 13-1938 11
email one of the show’s corporate sponsors. At one point a
Union organizer sent an email to supporters observing that
one of their targets had a full voicemail, but he nevertheless
urged that the email’s recipients continue to call the number.
According to Lawlor’s testimony, the Union’s policy was for
members to call a target only once. Two days before the
scheduled casting call, ANTM canceled its arrangement with
the Hotel.
6. WordCamp Chicago
In February of 2010, WordCamp Chicago, a non-profit,
scheduled its bloggers conference at the Hotel for that June.
Within a week the room block reservation was canceled, al-
legedly because its lead organizer, Lisa Sabin-Wilson, was
“email-bombed” by Union activists. However, during her
testimony Ms. Sabin-Wilson was able to discuss only one or
two emails from the Union, along with numerous Twitter
messages and social media postings. She also alleged that
the Union had obtained WordCamp’s registrant and sponsor
lists and had begun emailing individuals and threatening
protests and bad publicity if the event were held as sched-
uled. Ms. Sabin-Wilson stated in her cancellation email to the
Hotel that the conference location would have to change so
that “our attendees and sponsors stop being harassed.” She
complained that her organization was “not comfortable with
the union pressure” and that such pressure “persisted all
week long” prior to her decision to move the conference.
7. Midwest Clinic
The Midwest Clinic is a nonprofit organization that had
contracted with the Hotel from 1995 to 2008 to provide over-
flow housing and meeting space for its annual conference of
12 No. 13-1938
school band and orchestra directors. Kelly Jocius became the
Clinic’s executive director in 1997. In 2003, at the beginning
of the strike, Jocius met with a Union representative at his
office. The meeting was “confrontational,” but Jocius re-
mained committed to staying with the Hotel.
Sometime between 2004 and 2006, Jocius met Teran
Loeppke, a boycott coordinator for the Union, in a social ca-
pacity. Jocius testified that, once Loeppke learned that he
was associated with the Clinic, the two “spoke on the phone
and after that he came to the office maybe three times. I
don't know.” He testified that he and Loeppke “rais[ed] our
voices” in disagreement during one such phone conversa-
tion. When Loeppke visited the Clinic’s office, Jocius in-
formed him that he was not welcome there: “[a]t that point I
refused to meet with him and my coworkers would stop him
at the door." It is not clear from the record how Loeppke re-
sponded to Jocius’s refusal to meet with him. Jocius added
that Loeppke’s visits were "unannounced" and that this "of-
fended" him because they occurred during the Clinic’s “bus-
iest time of the year.”
In 2008, the Union began contacting the Clinic’s board
members, clinicians, directors, trustees, and staffers, includ-
ing some at their home phones. Jocius testified that these
contacts came “in waves.” But he went on to explain, “I
don't think any board member heard from [the Union] more
than twice, maybe three times at the most." Jocius testified
that he was not surprised by the calls because the board
members "are public figures." He further stated that board
members "didn't complain [about the Union contacts]. They
just called to let me know” they were occurring. Jocius also
No. 13-1938 13
received three separate letters from the Union, each request-
ing that the Clinic cease doing business with the Hotel.
The Clinic cancelled its arrangement with the Hotel in
2009. Jocius could not positively identify why the change
was made, but observed that the Union’s activities “might
have been a concern.” He also stated that decision-makers at
the Clinic wondered whether “we want[ed] to continue us-
ing a hotel that has a strike taking place.”
8. Chicago Film Festival
On June 6, 2005, at least a few years before the Union be-
gan delegating at neutral businesses, the Hotel offered Cin-
ema/Chicago approximately 100 room nights (eight rooms a
night for approximately two weeks) free of charge, in ex-
change for advertising during the organization’s main event,
the 41st Chicago International Film Festival. Shortly thereaf-
ter “The Alliance for Justice at the Congress Hotel,” an um-
brella group of organizations that included the Union, sent a
letter to the management of the film festival stating that “[i]t
is not unlikely that strikers and supporters might be present
outside the Chicago Theater on Oct. 6 during the opening
gala in order to publicize this injustice with leaflets and
bullhorns.” Similar letters were sent to actress Susan Saran-
don and the late film critic Roger Ebert, who were expected
to attend the event. The festival canceled its reservations. It
informed the Alliance in a September 29, 2005, letter that
“[b]ased on your letter and our concern for the Festival, we
are canceling our reservations at the Congress Plaza Hotel.”
The letter noted the “great expens[e]” the festival endured in
declining to take advantage of rooms it did not have to pay
for.
14 No. 13-1938
The Managing Director of Cinema/Chicago, Sophia
Wang Boccio, testified that the decision to reject the 100
room nights was “totally a reaction to something that might
be bad happening to the opening night.” She also offered
that the Union’s actions could bring “embarrassment to the
Film Festival” during its opening gala. But Boccio later spec-
ulated that any protest would be “more embarrassing to the
star[s]” appearing at the gala than for regular attendees, who
would spend most of their time in the theater.
9. The National Center for Agricultural Utilization Research
(AgLab)
The National Center for Agricultural Utilization Research
(AgLab) contracted to hold a conference at the Hotel in April
2005. The subject of the conference was animal gastrointesti-
nal function, and the relevance of that detail will, unfortu-
nately, soon become apparent. The Union responded in Feb-
ruary by sending AgLab a “cow pie valentine”—a heart-
shaped candy box containing cow manure. The poor recep-
tionist at AgLab’s office in Peoria, Illinois, was handed the
box. AgLab employees attempted to return the “valentine,”
but the Union declined to accept it. Although AgLab did not
cancel its block reservation, the Hotel alleges that conference
attendees rented less than approximately 75% of its reserved
rooms for the conference, which represents, again allegedly,
a below-average yield. The Hotel attributes that low rate to
the manure incident. The actual delivery of the box in Feb-
ruary of 2005 occurred more than five years before the Hotel
brought suit in March of 2010, although AgLab’s April 2005
conference at the Hotel occurred less than five years before
the case was brought.
No. 13-1938 15
B. District Court Proceedings
The district court granted summary judgment to the Un-
ion on all issues. 520 S. Mich. Ave. Assocs. Ltd. v. Unite Here
Local 1, 939 F. Supp. 2d 863, 865 (N.D. Ill. 2013). In general, it
held that the Hotel could not show that the Union engaged
in any conduct more coercive than peaceful handbilling and
persuading managers of secondary businesses not to con-
tract with the Hotel. Id. at 875. The Supreme Court has held
that such conduct is not an unfair labor practice and is
squarely protected under the First Amendment. See DeBarto-
lo Corp. v. Fla. Gulf Coast Bldg. & Constr. Trades Council, 485
U.S. 568 (1988).
As to America’s Next Top Model, the NeoCon Conven-
tion, WordCamp Chicago, and the Midwest Clinic, the dis-
trict court held that the Union had simply engaged in pro-
tected speech, attempting to persuade the decision-makers
of these groups not to contract with the Hotel. The delega-
tions may have been brusque, or the conversations heated,
the district court reasoned, but all of the conduct alleged
against the Union as to those four entities fell well within the
protections of the First Amendment and federal labor law.
Even taking every fact alleged by the Hotel as true, the Un-
ion’s conduct was not threatening or coercive. 939 F. Supp.
2d at 877–78; 881–83.
The Hotel’s accusations regarding the AgLab “cow pie
valentine” incident had already been dismissed by an earlier
district court ruling that held the conduct underlying the
claim was time-barred. The Union sent the foul package in
February of 2005, which meant that the five-year statute of
limitations had already run by the time the Hotel sued in
March of 2010. The Hotel then amended its complaint to re-
16 No. 13-1938
plead the AgLab allegations, and the district court did not
rule on that issue again until the Union moved for summary
judgment on all counts. The district court then held, for the
second time, that the claim was untimely, for the reasons
stated in the original order to dismiss. Id. at 876.
As to the American Tango Institute, the court discounted
the Hotel’s evidence of the Union’s entrance onto ATI’s
premises, and other allegedly aggressive behavior, because
ATI officials “scheduled a second meeting after [the alleged-
ly hostile behavior], which undermines claims that [ATI]
was coerced or threatened.” Id. at 883. The court went on to
hold that “[t]he Union activity at issue here—its letters,
emails, phone calls, and meetings—themselves had no coer-
cive effect on ATI as far as the evidence shows.” Id. It also
reasoned that ATI’s financial and membership losses alleg-
edly caused by changing its accommodations did not pro-
vide evidence of coercion. “At most,” the district court con-
cluded, “it can be inferred that the Union persuaded ATI to
make the change that led to its financial loss—and thus ATI
lost money not for defying the Union (‘coercion’) but for co-
operating with it.” Id.
With regard to IHA, the district court conceded that the
physical entrance of Union delegates into its office space
without consent rendered the legality of the Union’s conduct
a “closer question.” Id. at 878. But it noted that “the IHA
president subsequently met with the Union delegates volun-
tarily, on IHA property” before cancelling the arrangement
with the Hotel. Id. at 879. The court therefore held that the
Hotel “would be unable to prove … that the potentially
threatening or coercive activity, rather than simply persua-
sion, directed at the IHA caused” it to cancel the booking. Id.
No. 13-1938 17
The court also ruled that, even though the fliers directed
at celebrity chef Rick Bayless did not reference the Union’s
labor dispute with the Hotel, they were nevertheless protect-
ed by the First Amendment as true and accurate information
about his restaurants. The court observed that handing out
the leaflets outside of Bayless’s restaurants was core First
Amendment activity. Id. at 879–80.
As for the Union delegations to IHA’s exhibitors and af-
filiates, the court found that the Hotel’s case suffered from
“a similar lack of evidence of threats or coercion as to most
of the delegations who visited IHA exhibitors or other affili-
ates, to the extent that the IHA decision-makers knew about
these contacts before deciding to cancel the Hotel contract.”
Id. at 879. In other words, because IHA decision-makers at
the time were unaware of the Union’s visits to most of its af-
filiates, those activities could not have coerced the IHA’s de-
cision not to book rooms at the Hotel.
Finally, regarding the Chicago Film Festival, the court
held that the threat to use a bullhorn at the protests was pro-
tected by the First Amendment because any excessive noise
would be subject to the city’s time, place, and manner re-
strictions. The court concluded that “[t]here is no evidence in
the record here as to whether the (hypothetical) bullhorn
would have exceeded permissible levels” of noise. Id. at 877.
II. Discussion
The standard of review plays a particularly crucial role in
this case. “We review the grant of summary judgment de
novo, applying the same standards as the district court and
viewing the record and all reasonable inferences to be drawn
from it in the light most favorable to the non-moving party.”
18 No. 13-1938
Griffin, 74 F.3d at 826–27. “Summary judgment is appropri-
ate only if there is no genuine issue of material fact and the
moving party is entitled to judgment as a matter of law.” Id.
at 827; see Fed. R. Civ. P. 56.
To defeat summary judgment, “[t]he nonmovant must
articulate specific facts demonstrating that a genuine issue
exists for trial.” Griffin, 74 F.3d at 826–27. A disputed issue is
“genuine” where a reasonable jury could render a verdict for
the non-moving party “‘if the record at trial were identical to
the record compiled in the summary judgment proceeding.’”
CSX Transp., Inc. v. Chi. and Nw. Transp. Co., Inc., 62 F.3d 185,
188 (7th Cir. 1995) (quoting Russell v. Acme-Evans Co., 51 F.3d
64, 70 (7th Cir. 1995)).
A. The Law of Secondary Labor Activity
The Hotel alleges that the Union engaged in unfair labor
practices prohibited under federal law. See 29 U.S.C. § 187.
Specifically, the Union allegedly violated 29 U.S.C.
§158(b)(4)(ii)(B), which bars certain labor activity against a
secondary target. That provision is part of “Congress’ strik-
ing of the delicate balance between union freedom of expres-
sion and the ability of neutral employers, employees, and
consumers to remain free from coerced participation in in-
dustrial strife.” NLRB v. Retail Store Emp. Union, Local 1001,
447 U.S. 607, 617–18 (1980) (Safeco) (Blackmun, J., concurring
in part). The statute makes it unlawful for a union “to
threaten, coerce, or restrain any person engaged in com-
merce” where “an object thereof is … forcing or requiring
any person to cease … doing business with another person.”
29 U.S.C. §158(b)(4)(ii)(B). The statute explicitly states that
this prohibition does not apply to “any primary strike or
primary picketing.” Id. Section 158(b)(4) contains a proviso
No. 13-1938 19
noting that the above section does not “prohibit publicity,
other than picketing, for the purpose of truthfully advising
the public … that a product or products are produced by an
employer with whom the labor organization has a primary
dispute.” In other words, striking against an employer en-
gaged in a labor dispute with a union is acceptable, as is
publicizing such a strike. But coercion against neutral parties
is forbidden.
The Supreme Court has held that courts should exercise
“caution” in interpreting the phrase “to threaten, coerce, or
restrain,” and not give the phrase a “broad sweep.” NLRB v.
Drivers, Chauffeurs, Helpers, Local Union No. 639, 362 U.S. 274,
290 (1960). In narrowing the text of the statute, the Supreme
Court has held that the primary evils it was meant to target
are secondary boycotts and some forms of picketing. Picket-
ing “that reasonably can be expected to threaten neutral par-
ties with ruin or substantial loss” can constitute an unfair
labor practice because it is coercive. Safeco, 447 U.S. at 614
(1980). However, the Court has also held that “picketing
[that] is employed only to persuade customers not to buy [a]
struck product” is permitted. NLRB v. Fruit & Vegetable Pack-
ers & Warehousemen, Local 760, 377 U.S. 58, 72 (1964) (Tree
Fruits). Therefore, to be unlawful, picketing must threaten
neutral parties with substantial loss or ruin, beyond the costs
from customers who are persuaded to side with the union
and avoid a particular product of an employer involved in
the strike.
The Court has contrasted unlawful secondary picketing
with peaceful handbilling at the entrance of a secondary
business, which is lawful. See DeBartolo Corp., 485 U.S. at
583–84 (The statute does not “proscribe peaceful handbilling,
20 No. 13-1938
unaccompanied by picketing, urging a consumer boycott of
a neutral employer.”). In so ruling, the Court relied heavily
on the constitutional avoidance canon, holding that the stat-
ute should not be interpreted as to restrict First Amendment
liberties. Id. at 575–88 (interpreting the statute so as to “not
interfere with the constitutional right of free speech”). This
interpretation is particularly important because a strike is
typically a matter of public concern and therefore subject to
a high degree of First Amendment protection.
The DeBartolo Court carefully distinguished between
handbilling and picketing. “The loss of customers because
they read a handbill urging them not to patronize a business,
and not because they are intimidated by a line of picketers, is
the result of mere persuasion.” Id. at 580. The Court noted
that handbilling involves “no violence, picketing, or patrol-
ling and only an attempt to persuade customers not to
shop.” Id. at 578. Such violence, picketing, or patrolling
against neutral actors in a labor dispute is not protected un-
der federal law or the First Amendment.
The Supreme Court has also declined to find an unfair
labor practice in a case in which the National Labor Rela-
tions Board had found that up to five union members visited
managers of various stores in person and informed them of
the union’s plans to handbill outside stores that carried cer-
tain products from an employer subjected to a strike. NLRB
v. Servette, Inc., 377 U.S. 46, 51 (1964); see Teamsters Local 848,
133 NLRB 1501, 1504 (1961), pet. for rev. granted sub nom. Ser-
vette, Inc. v. NLRB, 310 F.2d 659 (9th Cir. 1962), rev’d, 377 U.S.
46. The Supreme Court did not discuss the in-person nature
of the visits in its opinion; but, in any event, we find the
proposition the Union derives from this case to be uncontro-
No. 13-1938 21
versial: that a union delegation generally may enter upon
private property, even without prior permission, at least
once for the purpose of informing and persuading a deci-
sion-maker of a neutral entity not to do business with a
struck employer.
Although broad picketing or boycotting of a neutral enti-
ty is the paradigmatic case of coercive secondary activity, it
is not the only behavior prohibited under the statute. As the
district court in this case observed, “other secondary conduct
can violate the law. The restriction on secondary activity is
‘keyed to the coercive nature of the conduct, whether it be
picketing or otherwise.’” 520 S. Mich. Ave. Assocs., 939 F.
Supp. 2d at 874 (quoting Tree Fruits, 377 U.S. at 68). In a
sense, then, secondary picketing is one end of a spectrum—
the prohibited end—with handbilling on the other, permis-
sible end.
To put the matter simply, and perhaps too simply, the
central question in this case is therefore whether the Union’s
conduct in this case is coercive, as in the sense of a boycott or
picket, or persuasive, as in the case of handbilling outside an
establishment. Of course, reality is not so easily divided into
two neat categories, and we may find that certain aspects of
the Union’s conduct could be persuasive or coercive in ways
that distinguish it from both handbilling and picketing.
Other courts have noted that a defining characteristic of
picketing is that it creates a physical barrier between a busi-
ness and potential customers, thereby “keeping employees
away from work or keeping customers away from the em-
ployer’s business.” Kentov v. Sheet Metal Workers’ Intern.
Ass’n Local 15, 418 F.3d 1259, 1265 (11th Cir. 2005) (quotation
and citation omitted). By contrast, peaceable activity that
22 No. 13-1938
does not create a barrier between customers and the busi-
ness is typically permitted. Sheet Metal Workers’ Intern. Ass’n,
Local 15 v. NLRB, 491 F.3d 429, 438 (D.C. Cir. 2007) (finding a
mock funeral at a hospital was not coercive because the Un-
ion “did not physically or verbally interfere with or confront
Hospital patrons coming and going; nor … did the mock fu-
neral participants ‘patrol’ the area in the sense of creating a
symbolic barrier to those who would enter the Hospital.”).
The conduct alleged in this case is not satisfactorily de-
scribed as either picketing or handbilling. On the one hand,
the delegates often took written materials with them, includ-
ing handbills and leaflets. Then again, some of the conduct
the Hotel describes—drawing every reasonable inference in
its favor—is similar to picketing. For example, the Union fol-
lowed one target, Mr. Fensterman, from one comic book
store to the next, with some of the delegates holding signs as
they stood inside.
Many of the Union’s other activities are disturbingly sim-
ilar to trespass and harassment. According to the Hotel and
deposition testimony, the Union delegates entered business
offices through locked doors, and repeatedly entered office
or store space without permission, in one case even after po-
lice were called. In the case of the IHA, they further threat-
ened that they would trespass onto busses or the trade show.
Jessica Lawlor went so far as to register for ATI’s tango fes-
tival, thus corroborating Roldan’s testimony that the Union
threatened to ruin that event. Union representatives called
targets at home, and repeatedly visited affiliates of targeted
neutrals at their places of businesses even after they were
clearly informed that their targets were unpersuaded.
No. 13-1938 23
We will discuss each particular allegation of coercion in
further detail, but this discussion suffices to explain why we
choose to see the Union’s actions primarily through the lens
of picketing, trespass, and harassment. To be clear, we are
not suggesting that the Union committed trespass, harass-
ment, or any other crime or tort; rather, we are using those
categories as descriptive devices to gauge the level of coer-
cion the Union may have placed upon neutral organizations.
The question then becomes whether trespassing and har-
assment could count as coercive behavior under federal la-
bor law. We concede that the Union is permitted some initial
entry onto private property so it may convey its views to the
decision-makers of a secondary organization. See Servette,
377 U.S. at 51. But, even in the context of primary picketing,
at some point the trespass becomes unprotected. See Sears,
Roebuck & Co. v. San Diego Cnty. Dist. Council of Carpenters,
436 U.S. 180, 205 (1978) (“[T]here are unquestionably exam-
ples of trespassory union activity in which the question
whether it is protected is fairly debatable.”); Lechmere, Inc. v.
NLRB, 502 U.S. 527, 535 (1992) (“[T]respasses of nonemploy-
ee union organizers are ‘far more likely to be unprotected
than protected.’”) (quoting Sears, 436 U.S. at 205); Cynthia L.
Estlund, The Ossification of American Labor Law, 102 Colum. L.
Rev. 1527, 1573–74 (2002) (“[S]tates are largely free to enforce
general laws against violence, intimidation, and trespass in
the context of labor disputes.”). And the Supreme Court has
made clear that federal labor law “does not require that [an]
employer permit the use of its facilities for organization
when other means are readily available.” NLRB v. Babcock &
Wilcox Co., 351 U.S. 105, 114 (1956).
24 No. 13-1938
The same is true of harassment, which relies on the inter-
fering manner of communication, not its content, to accom-
plish its aims. The Union is alleged to have continued con-
tacting targets even after they had made clear that they were
not willing to receive delegations. Some of these contacts
were physical invasions of private property, as discussed
above. But the allegedly frequent and repetitive phone calls
(including some to people’s homes) and the threats to dis-
rupt events, such as the IHA trade show, the ATI tango fes-
tival, or Rick Bayless’s restaurants, also support an inference
that the Union did not intend to persuade but to force neu-
trals to take sides in its dispute with the Hotel. In another
labor context, this court has held that unions are not permit-
ted to employ harassment to achieve their ends. See NLRB v.
Burkart Foam, Inc., 848 F.2d 825, 833 (7th Cir. 1988) (“Unions
may not seek information [from an employer] merely for the
purpose of harassing employees.”). Although it would typi-
cally require significant harassment to coerce an organiza-
tion to make a decision against its better judgment, several
of the Union’s targets, such as ATI, are small, non-profit or-
ganizations that rely heavily on volunteers or donations.
Harassment, if severe enough, could rise to the level of coer-
cive behavior under Section 158(b).
Putting the matter succinctly, we hold that a union may
be liable under § 158(b)(4)(ii)(B) for unlawfully coercing a
secondary to cease doing business with the struck employer
if the union’s conduct amounts to harassment or involves
repeated trespass or both. Granted, trespass and harassment
of a secondary organization’s members differ from picketing
in one central way that supports the Union’s position. They
do not create a symbolic barrier between a business and its
customers in the way a picket line does. But such conduct
No. 13-1938 25
may nevertheless significantly disrupt a business and pose a
substantial threat to an organization’s finances. Indeed, tres-
pass and harassment may be more coercive than picketing in
one important sense. Picketing generally occurs outside a
place of business—perhaps on a sidewalk, or on the periph-
ery of the neutral’s establishment. The Union here is accused
in several instances of barging into offices, bypassing securi-
ty, following certain targets around stores, and shouting at
employees. This is the sort of conduct that can—and did—
get the police called in to intervene. The Union’s alleged
conduct easily could have been as disruptive of a neutral or-
ganization’s property, privacy, and business operations as
any picket line. Instead of creating a barrier between cus-
tomers and the business, the Union infiltrated their neutral
targets and disturbed them from the inside. That behavior, if
proven, can be deemed coercive. It is also important to point
out that Section 158(b) does not merely bar coercion that is
actually exerted; it also does not permit the Union “to
threaten” a neutral with unlawful secondary activity.
Another important point is that the conduct alleged by
the Hotel was generally targeted at employees, not custom-
ers passing by, as in handbilling. A fellow appeals court ap-
proved of a “mock funeral” a union held outside its employ-
er hospital in part because the presentation was “addressed
solely to customers,” not employees of the neutral entity.
Sheet Metal Workers, 491 F.3d at 438. To be clear, the Union’s
actions do not implicate Section 158(b)(4)(i)(B)’s ban on in-
ducing secondary employees to strike. But its alleged deci-
sion to repeatedly target secondary employees indicates an
intent not to persuade, but simply to interfere.
26 No. 13-1938
Certainly, a single trespass or isolated instance of har-
assment likely would not threaten “ruin or substantial loss,”
in much the same way that a picket against one struck good
would likely not coerce a store owner. But repeated, sus-
tained trespass or harassment, when used as a labor tactic,
seeks to compel a certain result instead of fostering persua-
sion or communication. The Supreme Court has clearly indi-
cated that coercive, as opposed to persuasive, conduct is the
hallmark of unlawful labor activity.
Again, we must make clear that the Hotel need not show
that the Union is criminally or civilly liable for trespass or
harassment in order to prevail. The Union’s conduct need
not be illegal outside the secondary boycott context. After
all, primary picketing—against the employer whose em-
ployees are striking—is permitted under federal labor law.
What 29 U.S.C. § 158 makes unlawful is secondary picket-
ing—that is, picketing against neutral organizations. Such
conduct impermissibly widens a labor dispute to the detri-
ment of the entire economy, and coerces uninvolved entities
to take sides. Because the conduct here is concededly di-
rected at secondary actors, it may potentially fall under the
ambit of Section 158(b) if it is substantially similar to picket-
ing and sufficiently coercive. We will later discuss in detail
why at least some of the Union’s conduct meets that test.
B. Free Speech Concerns
Although some of the Union’s conduct may qualify as
secondary picketing, the Supreme Court has cautioned us to
be especially careful not to label expressive union conduct as
coercive if such an interpretation could interfere or limit free
speech. It is undisputed that the Union delegations all at-
tempted to communicate a message on a topic of public con-
No. 13-1938 27
cern. According to the Hotel, however, they went further,
and engaged in conduct that rendered their activities unpro-
tected and illegal. We conclude that prohibiting some of the
Union’s conduct under the federal labor laws would pose no
greater obstacle to free speech than that posed by ordinary
trespass and harassment laws. Our decision breaks no new
ground in First Amendment law, and does not require invo-
cation of the constitutional avoidance canon.
It is important to note that the Supreme Court has al-
ready held that “[s]econdary boycotts and picketing by labor
unions may be prohibited,” because of “the strong govern-
mental interest in certain forms of economic regulation, even
though such regulation may have an incidental effect on
rights of speech and association.” NAACP v. Claiborne Hard-
ware Co., 458 U.S. 886, 912 (1982). This is true even though
the Court has observed that “picketing is a mixture of con-
duct and communication” that contains expressive elements.
DeBartolo Corp., 485 U.S. at 580 (citation and quotation marks
omitted). And, as we have seen, Congress has long prohibit-
ed secondary boycotts and picketing. To the extent that the
Union’s conduct in this case is equivalent to secondary pick-
eting, and inflicts the same type of economic harm, it too
may be prohibited without doing any harm to First
Amendment liberties.
But even aside from the ban on secondary picketing, we
find that some of the Union’s alleged conduct is not protect-
ed speech. The leading case on the clash between the First
Amendment and the property right to exclude trespassers is
Lloyd Corp. v. Tanner, 407 U.S. 551 (1972). In Lloyd Corp. the
Supreme Court held that, under the federal constitution, a
private owner of a shopping center could enforce a policy
28 No. 13-1938
against handbilling inside the center even though it was
largely open to public shoppers. The Court has applied that
principle to the labor context, holding that union picketers
“did not have a First Amendment right to enter [a] shopping
center for the purpose of advertising their strike against” one
of the stores contained within it. Hudgens v. NLRB, 424 U.S.
507, 520–21 (1976). In Hudgens the Court emphasized that
“the constitutional guarantee of free expression has no part
to play in a case such as this.” Id. at 521.
The next question is whether the Union’s allegedly har-
assing conduct may reasonably be deemed protected under
the First Amendment. We hold that it is not. Various forms
of harassment are banned under state and federal law. See
Gresham v. Peterson, 225 F.3d 899, 908–09 (7th Cir. 2000) (up-
holding statute banning aggressive panhandling because it
“would prohibit the type of harassing behavior that gov-
ernments routinely outlaw[,]” such as “‘repeated or continu-
ing harassment of another person that would cause a rea-
sonable person to feel terrorized, frightened, intimidated, or
threatened’”) (quoting Ind. Code § 35-45-10-1). Such laws
unquestionably serve important state and public interests.
Important First Amendment interests are not threatened
in this case because the Hotel’s complaint is narrowly tai-
lored to address the Union’s conduct—visiting offices, mak-
ing phone calls to decision-makers (sometimes at home), car-
rying signs—without reference to the content of its message.
The Second Circuit upheld a state telephone harassment
statute on the grounds that it “regulates conduct, not mere
speech. What is proscribed is the making of a telephone call,
with the requisite intent and in the specified manner.” Gorm-
ley v. Dir., Conn. State Dep’t of Prob., 632 F.2d 938, 941–42 (2d
No. 13-1938 29
Cir. 1980). The Ninth Circuit just recently used that same ra-
tionale to uphold the federal anti-stalking statute, 18 U.S.C. §
2261A, against constitutional challenge. The court held that
the statute targeted speech only incidentally, and principally
“proscribes harassing and intimidating conduct.” United
States v. Osinger, 753 F.3d 939, 944 (9th Cir. 2014). The Eighth
Circuit has reached the same conclusion. United States v. Pe-
trovic, 701 F.3d 849, 856 (8th Cir. 2012). Prohibiting the Un-
ion’s conduct here likewise will limit speech only in the most
incidental way, while serving a significant governmental in-
terest in preserving labor peace. See R.A.V. v. City of St. Paul,
Minn., 505 U.S. 377, 390 (1992) (“Where the government does
not target conduct on the basis of its expressive content, acts
are not shielded from regulation merely because they ex-
press a[n] … idea or philosophy.”).
There is another reason why some of the Union’s alleged
harassment merits less First Amendment protection. The
Union is accused of transmitting its messages to an unwill-
ing, captive audience. Even with regards to handbilling, the
Supreme Court has “spoke[n] of a right to distribute litera-
ture only to one willing to receive it.” Frisby v. Schultz, 487
U.S. 474, 485 (1988) (internal quotation marks omitted). Alt-
hough the Supreme Court has expressed greatest concern
with unwanted messages within a listener’s own home, id. at
484 (“the home is different”), it stands to reason that First
Amendment liberties are less fundamental when the speaker
is cornering an unwilling audience in a private office space.
See Madsen v. Women’s Health Ctr., Inc., 512 U.S. 753, 781
(1994) (Stevens, J., concurring in part) (The First Amendment
does not provide “an unqualified constitutional right to fol-
low and harass an unwilling listener.”). It is hard to imagine,
for example, that the publicly observable images of nudity
30 No. 13-1938
permitted in Erznoznik v. City of Jacksonville, 422 U.S. 205
(1975), would receive similar protection within a workplace
setting. The freedom of an unwilling listener to avert one’s
eyes or ears is considerably lessened when she is required to
be on the job, or to check her phone messages. First
Amendment freedoms would therefore not be significantly
chilled by a ruling that the Union harassed an essentially
captive audience.
The precedent cited by the Union underscores this point.
In Watchtower Bible & Tract Soc’y of N.Y., Inc. v. Vill. of Strat-
ton, 536 U.S. 150, 168 (2002), the Court invalidated an ordi-
nance prohibiting canvassing “in and upon” private proper-
ty prior to obtaining a permit, but it based that decision in
part on the fact that the ordinance already provided protec-
tion to unwilling listeners by allowing them to obtain “No
Solicitation” signs that canvassers would be required to re-
spect. The same is true of Martin v. City of Struthers, Ohio, 319
U.S. 141, 148 (1943) (approving of a “regulation … which
would make it an offense for any person to ring the bell of a
householder who has appropriately indicated that he is un-
willing to be disturbed.”). Indeed, the Martin Court recog-
nized that “[t]raditionally the American law punishes per-
sons who enter onto the property of another after having
been warned by the owner to keep off.” Id. at 147. The Union
also cites Sorrell v. IMS Health Inc., 131 S. Ct. 2653, 2670
(2011), but that decision again reaffirms the principle in-
voked by the Hotel. See id. (striking down ban on pharma-
ceutical marketing in part because “[d]octors who wish to
forgo detailing altogether are free to give ‘No Solicitation’ or
‘No Detailing’ instructions … at their places of work.”). The
Hotel is simply asking that the Union respect its customers’
freedom to be left alone to conduct their business.
No. 13-1938 31
Finally, we think that Servette gives the Union ample
breathing room to express its views by permitting delegates
to approach and talk to decision-makers of neutral business-
es, even if they are initially uninvited. But once that deci-
sion-maker says that she is not interested, and that the Un-
ion delegates are no longer welcome, the Union’s free speech
interests start to wane, and the property and privacy rights
of the neutral target become dispositive. Certainly, when the
police are called to haul the delegates away, it should be
clear that the Union’s attempts to persuade have been re-
buffed. And sneaking past a locked office door without
permission is a sure sign that one is doing more than simply
exercising his First Amendment rights. The constitutional
avoidance canon cannot save the Union here.
In sum, we conclude that, if the Hotel can provide evi-
dence permitting a reasonable inference that the Union es-
sentially committed trespass or harassed secondary organi-
zations, or threatened to do the same, and thereby coerced
them to cease their business with the Hotel, summary judg-
ment would be inappropriate in this case. We now must turn
to whether the Hotel has met that burden.
C. Application to this Case
To defeat summary judgment, the Hotel must create a
reasonable dispute of fact as to each element of their claim. It
must provide evidence, first, that the Union coerced at least
one neutral target. This means that the decision-makers of
the target must have felt that their only choice was to accede
to the Union’s demands or else face substantial loss or ruin.
DeBartolo Corp., 485 U.S. at 580. But it also requires that the
decision maker’s belief be objectively reasonable—i.e., that
an ordinary person in the decision maker’s position would
32 No. 13-1938
have felt coerced. Second, the Hotel must show that the Un-
ion used coercion with the intent of forcing the neutral entity
not to do business with the Hotel. See Int’l Union of Operating
Engineers, Local 150 v. NLRB, 47 F.3d 218, 223 (7th Cir. 1995).
Third, the Hotel must prove that the targeted neutral ceased
or reduced its business with the Hotel. Fourth, that decision
must have been caused by the coercive conduct. And finally,
the Hotel must prove that it was damaged by the neutral’s
decision.
We now examine each of the nine incidents identified by
the Hotel to see if a reasonable jury, drawing every inference
in its favor, could find all of the above elements met.
1. Partial summary judgment is appropriate.
The district court properly granted summary judgment
on claims regarding the “cow pie valentine” allegedly sent to
AgLab. Even if the claim was not untimely—and we do not
decide that question—the Hotel cannot prove damages be-
cause AgLab did not cancel its room block order. It does not
even attempt to establish that the under-75% yield on
AgLab’s room reservation was significantly below normal,
or due to the Union’s cow pie tactic. It points to no testimony
from any person who stayed at a different hotel because of
the incident. Moreover, the cow pie valentine implicates
concerns regarding symbolic speech. See Texas v. Johnson, 491
U.S. 397, 406 (1989). The Supreme Court has already em-
ployed the constitutional avoidance canon to steer a wide
berth away from any First Amendment concerns. DeBartolo
Corp., 485 U.S. at 575-88. We must do the same in this case.
Similarly, no reasonable jury could conclude that the Un-
ion’s threat to demonstrate using “leaflets and bullhorns” at
No. 13-1938 33
the Chicago Film Festival was coercive. The district court
correctly held that “[t]here is no evidence in the record here
as to whether the (hypothetical) bullhorn would have ex-
ceeded permissible levels” of noise under state and local
law. 939 F. Supp. 2d at 877. Although we must make every
reasonable inference in favor of the Hotel, it has pointed to
no evidence by which we may infer that the Union would
have disrupted the film festival. “Speculation is insufficient
to withstand summary judgment.” Ortiz v. John O. Butler Co.,
94 F.3d 1121, 1127 (7th Cir. 1996). The Alliance’s letter to the
film festival’s organizers does not state or imply that any
protestors would violate the applicable time, place, and
manner restrictions. And the Hotel can point to no external
evidence to support that inference. It is important to note
that the incident with the film festival occurred in 2005, be-
fore the Union apparently switched its tactics and began
sending delegations to neutral entities. Thus, we cannot as-
sociate the Union’s threatened protest at the film festival
with any of its later, more aggressive methods. The Hotel
has failed to meet its burden to adduce evidence sufficient to
create a question of material fact as to the potential disrup-
tion the Union might have caused.
It is true that bullhorns and other noise-making instru-
ments can be disruptive in various contexts. If the Union
had, for example, threatened to protest inside the theater
during the opening gala, or if the film festival had been held
outside, so that noise from bullhorns easily could have ru-
ined the experience for moviegoers, those facts would pre-
sent a different, and more compelling, case for the Hotel.
This would be especially true if the Union had threatened
simply to make loud noises during the festival, rather than
to amplify their speech through bullhorns, or if the Hotel
34 No. 13-1938
had documented any past examples of the Union engaging
in disruptive behavior with those devices. But the mere
statement that Union members will appear outside an event
with bullhorns falls short of what is required to defeat sum-
mary judgment.
The Hotel’s claim regarding the film festival must fail for
two additional reasons. The relevant decision-maker for the
film festival, Sophia Wang Boccio, could not affirmatively
state that her organization was coerced by the Union. To be
sure, the decision to pass up free hotel room days (in ex-
change for advertising) supports an inference that the festi-
val did so only under threat of an even greater financial loss.
But Boccio indicated that the decision to abandon the Hotel
was made to avoid embarrassment and bad publicity; she
did not recall that the organizers were concerned about an
out-of-control bullhorn ruining the opening night gala. She
did testify that the change was “totally a reaction to some-
thing that might be bad happening to the opening night.”
But there is no indication that she believed the event would
be illegally disrupted.
Moreover, as with the AgLab incident, we must be wary
of infringing on the Union’s First Amendment rights. Leaf-
lets and bullhorns are classic instruments of speech. See
Stokes v. City of Madison, 930 F.2d 1163, 1169 (7th Cir. 1991)
(holding that “amplified speech is a protected form of ex-
pression”); Schenck v. Pro-Choice Network of W. N.Y., 519 U.S.
357, 358 (1997) (“Leafletting and commenting on matters of
public concern are classic forms of speech that lie at the heart
of the First Amendment.”). We hesitate to restrict their use
solely based on the fear that they will be misused. Barring at
least some indication that the Union would exceed applica-
No. 13-1938 35
ble time, place, and manner restrictions, or else would pro-
ject their speech from some place other than a sidewalk or
other public forum, we must affirm the district court’s grant
of summary judgment on this point.
The district court also properly granted summary judg-
ment on allegations regarding the Midwest Clinic, the Neo-
Con Convention, WordCamp, and America’s Next Top
Model. The conduct the Hotel alleges in these instances can-
not amount to coercive pressure on par with picketing. We
can quickly dispose of the Hotel’s specific allegations re-
garding these four targets in turn.
The Union did not trespass on the Midwest Clinic’s
property or picket outside it. Union delegates did visit the
Clinic’s office at least three times during the Clinic’s busiest
season, but the Hotel failed to provide any detail about how
those meetings went. There is no evidence in the record to
suggest that delegates remained on the premises after being
asked to leave. Although repeated incursions inside an office
space could be deemed coercive, the Hotel points to no facts
indicating that these Union delegates ever set foot in the
Clinic’s office, as opposed to waiting outside and then leav-
ing once they were denied entry. More importantly, the
Clinic’s executive director, Kelly Jocius, does not even allege
that the Union’s secondary activity influenced the Clinic’s
decision not to use the Hotel. He testified that its leadership
was hesitant to frequent a hotel that was combatting a strike.
In other words, the Clinic’s decision-makers seem to have
been persuaded by the Union. The Hotel’s position was
therefore fatally deficient both in identifying the alleged co-
ercive behavior and in showing that the Clinic was in fact
motivated by that behavior when it decided to change its
36 No. 13-1938
reservation. Had Jocius’s testimony been clearer and more
supportive of the Hotel on either or both of these points, this
would be a different case.
Likewise, the Union’s conduct with regards to the Neo-
Con convention involved communication, as in peaceful
handbilling, not physical trespass or repeated patrolling or
harassment. Although some exhibitors were apparently
called at their homes, the Hotel has not demonstrated persis-
tent harassment of anyone associated with NeoCon. The del-
egates are not alleged to have overstayed their welcome,
snuck onto private property, or prompted a call to the police.
This conduct cannot reasonably be deemed coercive. Dis-
tributing fliers urging people to call MMP’s president Chris
Kennedy is a protected speech tactic, and is actually less
drastic than the concededly protected activity of distributing
handbills urging customers to boycott the NeoCon conven-
tion entirely.
As to WordCamp, the Union primarily used emails and
social messaging to get its point across. This communication
was much more similar to protected handbilling than picket-
ing. The Hotel alleges WordCamp’s lead organizer was
“email-bombed” by Union activists, but it points primarily
to Twitter messages and social media postings. These writ-
ings are pure, protected speech about a matter of public con-
cern. They also pose very little risk of harming an unwilling
or captive listener; after all, anyone can unsubscribe from
Twitter. Unlike an “email bomb,” which at least plausibly
could be disruptive of WordCamp’s activities, passive social
media postings are not coercive in this context. Although the
Union did allegedly contact WordCamp’s registrants and
sponsors, there is no evidence in the record indicating that
No. 13-1938 37
the Union did anything other than attempt to persuade these
individuals.
Finally, the Union used only phone calls and emails to
persuade a sponsor of America’s Next Top Model. The fact
that one target’s voicemail was full does not by itself create
the inference that the Union’s conduct was coercive or tan-
tamount to picketing. The Hotel does not even point to a
witness statement alleging that the reason the voicemail was
full is that the Union bombarded it with messages. In any
event, there is no reason to think that anyone was so flum-
moxed by the overflowing voicemail box that the show’s or-
ganizers felt coerced to cancel their contract with the Hotel.
2. A trial is necessary to resolve the remaining claims.
This court will reverse summary judgment, however, re-
garding the Union’s behavior toward ATI, IHA, and the
Comic Expo.
a. American Tango Institute (ATI)
Granting all reasonable inferences in favor of the Hotel, it
has demonstrated that the Union coerced ATI into abandon-
ing its business with the Hotel. There are two particularly
objectionable aspects to the Union’s alleged conduct. First,
even after ATI president Roldan had told the Union twice,
once by phone and also in a heated, in-person meeting, that
he was not persuaded to aid their cause, delegates apparent-
ly snuck into ATI’s offices unobserved and dropped litera-
ture in its offices on several occasions. President Netza Rol-
dan testified that the Union was not given permission to en-
ter the office, and would have had to circumvent an elec-
tronic lock in order to enter. The Union has not provided an
innocent alternative explanation as to how its personnel en-
38 No. 13-1938
tered ATI’s offices. 3 Instead of accepting that their attempts
at persuasion had failed, at least for the time being, the Un-
ion arguably trespassed multiple times.
Second, Roldan testified that the Union threatened to at-
tend the tango festival in order to disrupt it. This testimony
is corroborated by the fact that Union organizer Jessica Law-
lor registered to attend the event. Moreover, Union delegates
allegedly threatened to confront ATI affiliates “and go to
their houses or companies.” Even if Roldan’s testimony on
this point turns on his credibility, such determinations are
appropriate only at trial. If his testimony is true, the Union’s
threat could easily be deemed coercive.
Other circumstances support an inference of coercion.
Union representatives allegedly called Roldan frequently;
one morning he was called every ten minutes for an hour.
Although phone calls are rarely coercive by themselves,
their frequency could indicate to a reasonable fact-finder
that the Union was interested in harassing Roldan rather
than communicating with him. Finally, according to Roldan,
his first meeting with a Union delegation was particularly
contentious, and he considered calling the police. Neverthe-
less, the Union persisted in contacting Roldan and threaten-
ing further action until he relented.
3 At oral argument the Union speculated that a delegate may have en-
tered through the secured door as an authorized person was walking in
or out. However, this must have occurred multiple times to account for
each of the literature drops Roldan identifies. Moreover, this explanation
would still not make it reasonable for a delegate to assume she had per-
mission to enter the ATI’s offices, especially after Roldan had already
met with the Union and refused to change his position.
No. 13-1938 39
The district court failed to make all inferences in the Ho-
tel’s favor when it noted that “Roldan scheduled a second
meeting” with the Union, and held that this decision “un-
dermines claims that [ATI] was coerced or threatened.” That
is certainly a permissible inference to draw. But one could
just as easily conclude that Roldan was intimidated into
meeting the Union in order to stop the coercive behavior de-
scribed above.
Also aiding the Hotel’s case is evidence that ATI suffered
a substantial economic blow in changing its venue. Roldan
testified that ATI spent $20,000 in marketing and other ex-
penses relating to the change of venue, and lost as much as
$40,000 in revenue due to a drop in participation. He also
estimated that ATI lost up to 60% of its membership follow-
ing the switch. ATI was a small, non-profit organization, so
it was likely poorly situated to absorb such damage to its fi-
nances and membership. One might therefore infer that ATI
felt its only choice was either to accept that serious penalty
or else face an even more substantial loss—or possibly ru-
in—at the hands of the Union.
The district court disregarded this evidence, reasoning
that “[a]t most, it can be inferred that the Union persuaded
ATI to make the change that led to its financial loss.” 939 F.
Supp. 2d at 883. But there is very little evidence in the record
that ATI was persuaded to make such a costly, last-minute
change in its venue because of its newfound devotion to the
cause of organized labor. There is certainly not enough evi-
dence to preclude a reasonable inference to the contrary.
Roldan testified that he felt “harassed” and “pressed” to
cancel ATI’s arrangements with the Hotel. Those are not the
words of a convert. He also recorded such impressions in
40 No. 13-1938
contemporaneous email exchanges with the Hotel express-
ing concern about the Union’s behavior. A reasonable jury
could conclude that the substantial financial and member-
ship loss ATI suffered was a testament to the level of coer-
cion brought against it.
The Union certainly could dispute Roldan’s account;
perhaps he capitulated where a reasonable person would
have continued to firmly decline the Union’s messaging. But
that determination is a quintessential question of fact that
must be determined at trial. At the very least, the small size
and non-profit nature of the tango festival indicates that
Roldan’s concerns could have been justified.
b. International Housewares Association (IHA)
Likewise, the district court erred in dismissing the claims
regarding IHA. According to the Hotel’s substantiated accu-
sations, the Union made several unwanted appearances at
IHA offices, and at one point IHA called the police. 4 This fi-
nally convinced the delegation to leave, but another one
came back later the same day. Union boycott coordinator
Jessica Lawlor even testified that a delegate walked past se-
curity to shout “shame on you!” to IHA president Phil
Brandl. IHA vice presidents Rampersad and Kurtis both tes-
tified that they were concerned that the Union would picket
4 The Union contends that the Hotel has described the February 2009
visit only through hearsay. But Kurtis was present at the office and ob-
served the delegation at the reception area. He also was the one who
called the police. He was competent to testify about his observations of
the delegation’s conduct and whether the delegates were welcome to
stay.
No. 13-1938 41
the IHA’s trade show and occupy busses running to it. Alt-
hough they did not testify that a delegation explicitly threat-
ened to do this, Union delegate Jennifer Blatz testified that
the Union had boarded RSNA busses in order to leaflet peo-
ple heading to a function. 5 These facts could persuade a rea-
sonable fact-finder that the Union planned to do the same to
IHA.
As with ATI, the district court improperly weighed com-
peting factual inferences on this issue and chose in favor of
the Union. The district court correctly identified the Hotel’s
case on this point to be a “closer question,” but relied on the
fact that Phil Brandl eventually met with the Union “volun-
tarily” to draw the inference that the two sides were reason-
ing with each other. 939 F. Supp. 2d at 878–79. Again, that is
one inference that could be drawn. But these facts could also
support the inference that IHA was desperate for the coer-
cion to stop and tried to negotiate a surrender. Rampersad
herself testified that she felt harassed and pressured by the
Union, not persuaded. And the fact that the eventual meet-
ing with the Union was held in the basement cafeteria, not in
Phil Brandl’s office, could also support the inference that
IHA was eager to keep the Union at bay. The district court
itself observed that “Lawlor told Rampersand [sic] that the
5 The Union notes that the Hotel’s complaint originally included a claim
seeking damages for the Union’s alleged conduct toward RSNA, and
that the Hotel later dropped the claim from its amended complaint. But
the testimony regarding those delegations is surely probative of the Un-
ion’s common plan for pressuring neutral organizations to abandon the
Hotel. A fact-finder might credit Rampersad’s and Kurtis’s fears that the
Union would board IHA busses given that a Union delegate has admit-
ted that the Union did just that to the RSNA.
42 No. 13-1938
Union had gone to the offices of IHA members, retailers, a
trade publication, and a restaurant, and advised her that it
‘would not stop’ as long as the IHA had a contract with the
Hotel.” Id. at 867.
Rampersad’s testimony regarding the Union’s delega-
tions to IHA’s affiliates and RSNA further supports an infer-
ence in the Hotel’s favor. The Union argues that we should
ignore the evidence concerning the affiliates, in part because
IHA decision-makers were not aware of most of those activi-
ties at the time they decided to cancel their arrangements
with the Hotel. But Rampersad testified that she was aware
of two incidents—one at an Ace Hardware store and another
at RSNA—at the relevant time. 6 Moreover, the remaining
incidents may be admissible as evidence of the Union’s
common plan with regard to the neutral site visits. A ration-
al jury could conclude that Union delegates were instructed
to trespass, disrupt business, and harass decision-makers.
Specifically, an RSNA official told Rampersad that six Union
officials entered RSNA’s offices and walked into department
meetings shouting an RSNA’s official’s name. According to a
Union delegate, a delegation sent to Macy’s was threatened
with arrest by the store manager. This is an important point.
The Hotel’s case relies heavily on testimony of its erstwhile
customers; the fact that a Union delegate provided corrobo-
ration as to the Union’s conduct provides significant support
to the Hotel’s case.
6 The Hotel does not have to rely on hearsay to establish these facts.
Rampersad testified that she had heard reports about some of the Un-
ion’s delegations to the affiliates, and Blatz’s testimony supports the in-
ference that those reports were true.
No. 13-1938 43
Even more support for the Hotel comes from the Union’s
leafleting of Rick Bayless’s restaurant. The district court is
correct that the leaflets’ content was literally true and pro-
tected speech. The fliers do not imply that his restaurants
failed inspection, and they accurately quote from publicly
available health reports. The Supreme Court has warned us
to be wary of circumscribing protected speech in an effort to
prevent unlawful labor activity. See DeBartolo Corp., 485 U.S.
at 575–88.
The Hotel responds that the handbills did not reference
the dispute between the Union and the Hotel, and therefore
they had minimal communicative effect. One of the basic
aims of the ban on secondary boycotting is to prevent labor
disputes from spilling over into unrelated disputes, such as
the quality of Rick Bayless’s restaurants. On balance, though,
we agree with the Union that the act of passing out fliers
with truthful content would not in itself constitute an unfair
labor practice.
However, the district court overlooked the testimony of
Jennifer Fite, the manager of the Frontera Grill, who stated
that Union delegates handed out the leaflets inside the res-
taurant after they had made numerous failed attempts to see
Bayless himself. This conduct could support an inference
that the Union committed trespass and harassed him. There-
fore, although the content of the fliers is likely protected, the
alleged means of disseminating them was quite different
from traditional handbilling, which occurs outside the prem-
ises. Handing out leaflets inside a restaurant seems much
more like an attempt to interfere with patrons’ enjoyment of
the establishment than an effort to persuade them of a cause.
When combined with the fact that the fliers contained no in-
44 No. 13-1938
formation regarding the strike, aside from a single web ad-
dress, we conclude that the conduct alleged by the Hotel is
not necessarily protected as a matter of law. 7 Even if IHA
did not know that Fite had allegedly seen handbilling within
the restaurant, as opposed to in front of it, the Union’s al-
leged trespass helped it apply pressure to Bayless, and the
IHA was well aware that he was being pressured. In other
words, if the delegation had stayed outside the restaurant,
perhaps Bayless and his management would have found it
easier to ignore.
It is also important to point out that the Union’s visits to
IHA’s exhibitors and Bayless’s restaurants in a sense consti-
tute tertiary labor activity. That is, the Union allegedly visit-
ed the affiliates and the restaurants to pressure IHA to cease
doing business with the Hotel. The link between those affili-
ates and restaurants, on the one hand, and the actual strike
against the Hotel on the other, is extremely attenuated. The
Union’s strategy essentially widened the labor dispute to in-
clude affiliates of customers of the Hotel. This is exactly the
sort of scorched-earth strategy that Section 158(b)(4)(ii)(B)
7 It is true, as the Union points out, that the Hotel did not suggest, in op-
posing summary judgment, that the problem with the fliers was their
method of distribution. However, the Hotel did mention Fite’s observa-
tion of a delegation “within” the Frontera Grill in its Rule 56.1 statement
of material facts. It also mentioned in its response to summary judgment
that a delegation went to one of the restaurants “at least three times”
demanding to see Bayless, and were rebuffed. We therefore find that the
issue of the Union’s physical presence at the restaurant, despite man-
agement’s stated opposition, was adequately raised before the district
court, even if the Hotel omitted one important detail of its argument.
No. 13-1938 45
was designed to avoid. Neutrals with only the most distant
connection to a struck employer must not be reduced to col-
lateral damage in a bruising labor battle. Congress has de-
cided that the damage to the economy caused by such a
broadened conflict is unacceptable.
The Hotel has not pointed to specific financial damage
IHA suffered in changing its room booking plans. Therefore,
unlike the case of ATI, the Hotel may struggle to prove that
the Union threatened IHA with substantial loss or ruin. But
the trade show was IHA’s signature event, and a reasonable
fact-finder could conclude that its potential disruption, com-
bined with harassment of IHA’s affiliates and repeated in-
cursions into its offices, might have threatened substantial
loss or ruin to the organization. Such an inference may not
be correct, but the Hotel should have the opportunity to
prove this point at trial.
c. Reed Exhibitions/Chicago Comic and Entertain-
ment Expo
A reasonable jury could conclude that the Union har-
assed Lance Fensterman during nine visits to different comic
book stores. He testified that the Union delegates told him
they would continue to follow him from store to store until
he gave in to their demands. Although Fensterman observed
that the delegates were polite, and the comic book stores
were open to the public, the repetitive nature of these visits
could reasonably be considered a form of harassment. We
agree that union delegations may approach management
and decision-makers at secondary businesses, but they can-
not do so nine times, after they have already made their
point. Such conduct arguably crosses the line between com-
munication intended to persuade and picketing.
46 No. 13-1938
Fensterman testified that as many as ten delegates en-
tered the store at one time, and that sometimes they out-
numbered the patrons. Some of them carried small signs of
protest. That behavior appears awfully similar to a picket,
albeit one that travelled with Fensterman and stood inside
the stores. 8 It would be reasonable for a jury to conclude that
the Expo’s business would suffer substantial loss if many of
its affiliated stores were frequented by Union delegations
whenever Fensterman showed up.
It is true that apparently no store owner called the police,
and Fensterman seems to have awkwardly tolerated their
repeated presence, even though he felt “incredibly uncom-
fortable.” But a coercive effect may be inferred by both his
testimony and his contemporaneous email to fellow deci-
sion-maker Ron Zobel: “I want to drop this contract [with
the Hotel]. I had strikers at all of my retail visits in Chicago
this week.” This email causally links the decision to break
with the Hotel to the “strikers” at the comic book retailers.
Fensterman testified that the goal of the delegates was to
“sen[d] a message that doing business with [Reed Exhibi-
tions] can be damaging to your business.” The potential eco-
nomic loss Reed faced is highlighted by the fact that it fa-
vored the Hotel because of its low rates, which was im-
portant to making the Expo attractive to potential customers.
Again, it is plausible that the delegations’ presence was just
a minor annoyance, nothing more. But such theories are best
pursued at trial.
8 For the reasons we have explained, the fact the delegations went inside
the stores distinguishes these activities from bannering, whereby the Un-
ion may set up attended banners outside certain neutral targets.
No. 13-1938 47
We note that, like the IHA affiliates, the comic book re-
tailers visited by the Union were neither the primary em-
ployer (the Hotel), or a secondary organization (Reed Exhibi-
tions). Rather, they were arguably tertiary businesses whose
relationship to the Hotel was extremely attenuated. The Un-
ion put pressure on them so that they would place pressure
on Reed Exhibitions, who would in turn complain to the Ho-
tel. Again, federal labor law is designed to balance the Un-
ion’s legitimate right to publicize a strike with the danger of
economic harm to uninvolved neutrals. The Union’s alleged
conduct threatens that balance.
III. Conclusion
Stepping back from our extended discussion of the facts
of this case, we must note the common theme connecting the
Hotel’s claims regarding ATI, IHA and Reed Exhibitions. In
none of these instances were the relevant decision-makers
persuaded to join the Union’s cause. Each one testified that
he or she felt worried about what would happen to their or-
ganizations if they defied the Union. Federal labor law per-
mits unions to distribute handbills and leaflets at a second-
ary organization, even though that neutral entity may suffer
economic loss, because those efforts depend “entirely on the
persuasive force of the idea.” Safeco, 447 U.S. at 619 (Stevens,
J., concurring); see DeBartolo Corp., 485 U.S. at 580 (“The loss
of customers … is the result of mere persuasion.”). A neutral
suffers only if customers are persuaded. Here, the Union is
alleged to have skipped persuasion and instead simply inter-
fered with the inner workings of three neutral entities. That
is why this case must go to trial.
Having found that at least some of the Hotel’s accusa-
tions can go forward, we emphasize that the Hotel still bears
48 No. 13-1938
the burden of proving every element of its coercion claims. If
the Hotel can prove only that the Union engaged in protect-
ed First Amendment activity—not trespass, harassment, and
the like—the Union would be entitled to a judgment as a
matter of law. Similarly, if the Hotel fails to show that the
Union’s conduct was intentionally coercive, or causally re-
lated to the Hotel’s damages, it will not prevail as a matter of
fact. We do not think deciding factual issues related to coer-
cion will be difficult; trials routinely resolve questions of
whether certain conduct is threatening or extortionate. If this
case goes to a jury, the court may instruct based on the ele-
ments we have discussed. These and all related issues we
leave for the district court to resolve in the first instance. The
order granting the Union summary judgment is REVERSED,
and the case is REMANDED to the district court for further
proceedings consistent with this opinion.
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01-03-2023
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08-05-2014
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https://www.courtlistener.com/api/rest/v3/opinions/3524727/
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This is an original proceeding in prohibition. The relator is Roy B. Garvey, who is defendant in the criminal case of the State of Missouri v. Roy B. Garvey pending in Division No. 1 of the Circuit Court of Jackson County, Missouri. The respondent is judge of Division No. 1 of said circuit court. Relator stands charged with first degree murder alleged to have been committed on September 6, 1922. He seeks to prohibit respondent from entertaining jurisdiction and proceeding with the trial of said cause.
Relator was first proceeded against by indictment filed September 27, 1922. After numerous continuances, resettings and one change of venue, the case was dismissed on February 18, 1924. On May 28, 1924, the prosecuting attorney filed an information against relator, charging him with the same crime, upon which information defendant was arraigned, pleaded not guilty and the case was set for trial June 16, 1924, thereafter set for July 28, 1924, thereafter continued on defendant's application to September 8, 1924, thereafter reset for September 15, 1924, when relator filed application for change of venue from Judge Austin's division, which was Division No. 9 and designated as Criminal Division A, which change of venue was granted and the case transferred to Judge Buckner's division, which was Division No. 1 and designated as Criminal Division C. On September 16, 1924, relator filed application for a continuance, which was overruled, and the case set down for trial on the 22d day of September, 1924. On September 18, 1924, relator filed his petition here for writ *Page 399
of prohibition and assigned the following grounds:
1. That the Act of March 11, 1921, is unconstitutional and void, because,
(a) It contains more than one subject, in violation of Section 28 of Article IV of the Constitution of Missouri.
(b) It is a local or special law, in violation of Section 53 of Article IV of said Constitution.
(c) No notice of intention to apply for the passage of said bill was published, in violation of Section 54 of Article IV of said Constitution.
2. That the transfer of the case by Division No. 9 to Division No. 1 was in violation of court Rules 46 and 48 pertaining to criminal causes, and therefore void.
3. That the rule adopted by the circuit court on Jaunary 1, 1923, and the said rule thereafter adopted, are null and void and in direct conflict with said act of the Legislature.
4. That relator's application for continuance filed on September 16, 1924, was improperly overruled.
Preliminary writ was issued. Respondent's return denies the existence of the grounds specified and relator's right to the relief prayed, and sets up new matter mainly relating to additional court rules or orders. After issue joined by relator's reply, Hon. William C. Lucas was appointed by this court as special commissioner, who took and returned testimony on issues of fact.
Relator's claims will be considered in the order pleaded.
He first says that the Act of March 11, 1921, is unconstitutional and void, because it contains more than one subject, in violation of Section 28, Article IV of theTitle. Constitution, which provides that "no bill . . . shall contain more than one subject, which shall be clearly expressed in its title." It is uniformly held that this provision should be liberally construed; that the title need only indicate the general contents of the act; and if the contents of the act fairly relate to and have a natural connection with the subject expressed in *Page 400
the title they fall within the title. [State v. Mullinix,301 Mo. 385; Ex parte Harvey Karnstrom, 297 Mo. 384; State ex rel. v. Hackmann, 292 Mo. 27; State ex rel. McClintock v. Guinotte,275 Mo. 298; Coffey v. Carthage, 200 Mo. 616; 36 Cyc. 1017, 1028.]
The act in question consists of eleven sections found on pages 220 to 222 of the Laws of Missouri for the year 1921, and the title reads as follows:
"An Act in relation to the administration of justice in Jackson County; abolishing the criminal court of Jackson County and the office of judges and clerk thereof, abolishing the office of marshal of said county, and vesting the jurisdiction of said criminal court in the Circuit Court of Jackson County, and providing for the performance of the duties now performed by said clerk of the criminal court and said marshal of Jackson County."
This act relates to the "administration of justice in Jackson County." The act deals with this single, general subject. True, this subject is amplified, but it is singly and clearly expressed in the title. Every provision of the act fairly relates to and has a natural connection with the subject expressed in the title and therefore, falls within the title. There is no multiplicity. Moreover, the provisions enacted are all harmonious and compatible, and therefore not incongruous. Where the contents of the act are harmonious and have a natural connection with one subject singly and clearly expressed in the title, it is of no consequence that the General Assembly may not have fully legislated on the subject, that some provisions of the act are not specifically named in the title, or that by refinement of terminology the minutiae of the act itself can be separately catalogued. This point is ruled against relator.
Relator further says that the act is a local or special law, in violation of Section 53 of Article IV of the Constitution which provides that the General Assembly shall not pass anyLocal local or special law in some thirty-two specified cases.Law. This section has frequently been here for construction and the unvaried *Page 401
holding is that legislation authorized by the Constitution cannot be regarded as local or special, although its application is purely local. It is also held that whether an act be local or special must be determined by the generality with which it affects the people as a whole rather than the extent of the territory over which it operates, and if it affects equally all persons who come within its operation it cannot be local or special within the meaning of the Constitution. [State ex rel. Judah v. Fort, 210 Mo. 512; State v. Etchman, 189 Mo. 648; State ex rel. v. Yancy, 123 Mo. 391; State ex rel. v. Hughes,104 Mo. 459.]
Section 22 of Article VI of the Constitution provides that the circuit court shall have jurisdiction over all criminal cases not otherwise provided for by law; Section 24 of said Article VI provides that judicial circuits may be changed, enlarged, diminished or abolished, from time to time, as public convenience may require; and Section 4 of the Schedule provides that all criminal courts organized and existing under the laws of this State, and not specially provided for in this Constitution, shall continue to exist until otherwise provided by law. These provisions undoubtedly constitute an express grant to the Legislature of power to pass the Act of March 11, 1921, and the act having been passed in pursuance of such express grant of authority in the organic law, it cannot be regarded as local or special. Furthermore, the law affects all persons alike who come within its operation, and hence it is not local or special. Every citizen of the State is interested in the operation of this law because he does not know in what hour he may need its protection.
Having held that the Act of March 11, 1921, is not local or special, it follows that relator's contention that the act is in violation of Section 54, Article IV, of theNotice. Constitution, which requires that notice of intention to apply for the passage of a local or special bill must be published, is also without merit. *Page 402
Relator also says that the transfer of the case by Division No. 9 to Division No. 1 was in violation of court rules 46 and 48 pertaining to criminal cases and therefore void. In hisRules. return respondent pleads rules or orders subsequently made by the court in banc for the apportionment and dispatch of its business which he says should be considered and construed in connection with printed rules 46 and 48. In reply relator says that because these subsequent rules or orders had not all been spread on the clerk's permanent record when relator's petition was filed they should not be considered in this proceeding.
Relator errs, failing to observe the sound distinction that exists between rules framed to guide and govern litigants, and rules or orders made to aid the court in the apportionment and dispatch of its business. Formal promulgation should precede the effective date of the former, but such need does not exist nor does such legal requirement obtain as to the latter. [15 Corpus Juris, 911-13.] The latter class of court rules or orders made for the more convenient dispatch of the court's business is fully authorized by Sections 7 and 10 of the Act of March 11, 1921, and the answer to relator's objection is well expressed under similar conditions in State ex rel. v. District Court, 49 Mont. 158, 141 P. 151:
"The question has been removed from the realm of doubt or uncertainty by positive statutory enactment. The members of the Legislature must have appreciated fully that the matter of distributing the business of a court between the judges presiding therein is one of convenience; that so long as the business is efficiently and expeditiously transacted, no one is concerned as to the particular judge who sits in the trial of a given case; that, if a division of the business is actually made, and in point of volume of business the division is an equitable one, the purpose of the law is subserved, and the interest of the public fully satisfied. . . . Whether criminal cases shall be tried in one department or the other *Page 403
is a matter which cannot possibly interest anyone but the judges themselves."
The additional rules or orders made by the court in banc on October 5, 1923, on January 21, 1924, on September 6, 1924, and on September 13, 1924, of which relator complains are clearly of this kind and the well recognized principle of law that orders of court are not rendered invalid by the clerk's mere failure to transcribe his minutes on the permanent record until a subsequent date, is upheld by an unbroken line of authorities in this State. [Pelz v. Bollinger, 180 Mo. 252; Fontaine v. Hudson, 93 Mo. 62; Platte County v. Marshall, 10 Mo. 346.] The evidence taken and returned by the Commissioner discloses no effort to suppress or conceal any rule or order, nor does it appear that anyone was deceived or relator's rights prejudiced in any way through failure to print. These orders are properly before this court and are to be considered.
The court's order of September 13, 1924, supra, created Criminal Division C. The court's order of January 21, 1924, provided that "in event a change of venue is taken from any judge designated to try criminal causes, said causes shall be transferred to any other division designated by the court in banc for the trial of criminal causes." It was, therefore, entirely proper for Judge Austin on September 15, 1924, sitting in Division No. 9 (designated as Criminal Division A), to send the cause on change of venue to Division No. 1 (designated as Criminal Division C). Criminal Division C had been previously designated by the court in banc for the trial of criminal cases, and he had the right under the court's order to send the case of State v. Garvey to any division so designated. There is no merit in relator's contention that these rules or orders are null and void. However, without reference to these rules or orders of court, this transfer is upheld by statutory authority. [Secs. 2452, 2557, R.S. 1919, and Sec. 9 of Act of March 11, 1921, Laws 1921, p. 222.] *Page 404
Relator's last ground pleaded was that his application for a continuance was improperly overruled. Relator ignoresChange of this assignment on brief, and properly so, becauseVenue. even if well founded it would be mere error not cognizable in this proceeding.
Another point raised in briefs, though not an issue under the pleadings, may be here dealt with. At page 163, Record No. 800 (Abs. pp. 90-91) of the Circuit Court of JacksonFiling of County, being record of Division No. 8, alsoInformation. designated as Criminal Division No. A of said circuit court, the following entry appears under date of May 28, 1924:
"Now on this date comes the prosecuting attorney and in open court files the following information, to-wit: No. C-2303, State of Missouri v. Roy B. Garvey — murder, first degree."
From this record entry relator argues that the information was never filed in the Circuit Court of Jackson County, which is the 16th judicial circuit, and respondent is therefore without jurisdiction of the cause.
Section 3849, Revised Statutes 1919, among other things, provides:
"Informations may be filed by the prosecuting attorney as informant during term time, or with the clerk in vacation, of the court having jurisdiction of the offense specified therein."
In legal contemplation the presentation and delivery of an information to the court or officer is the filing which dates from its receipt by the clerk and lodgment in his office, and whether the information is filed in term or in vacation the place of deposit is the same, that is, with the clerk. [State v. Coleman, 186 Mo. 151; Baker v. Henry, 63 Mo. 517; State v. Grate,68 Mo. 22; State v. Derkum, 27 Mo. App. 628.] Lodgment with the clerk of the proper court is the essential thing. The records upon which relator relies show that William H. Harper, Circuit Clerk, was present in court when the information was filed, and the information was thereafter produced *Page 405
in his custody. From all the evidence we must conclude that the information was lodged with him as Clerk of the Circuit Court of Jackson County on May 28, 1924, and filed in the Circuit Court of Jackson County within the meaning of the statute.
Nor is the circuit court's jurisdiction impaired by the fact that this filing or deposit with the circuit clerk occurred in Criminal Division C, and that the circuit court's record so shows. Under Section 2454, Revised Statutes 1919, the court sits in division not only for the trial of causes, but for thetransaction of all other business not specified in the preceding sections, and such business though transacted in division is none the less transacted by the circuit court. Whatever virtue rests in a court record of the fact that the prosecuting attorney filed the information during term time fully appears in the above record No. 800 at page 163. Fully cognizant of its power so to do the circuit court in banc by printed Rule No. 49 provided for the filing of criminal causes as follows:
"All criminal causes hereafter instituted in the Circuit Court, whether by information or indictment, and all criminal causes appealed thereto, shall be filed in the division of the Circuit Court that is then Criminal Division A. Said Criminal Division A shall then proceed to make up the issues in such causes and set the same for trial at the earliest possible date."
This rule rests on the same statutory authority as printed Rules 18, 22 and 25 prescribing the duties of the presiding judge, defining the assignment division, and relating to the filing and assignment of causes. If the circuit court in banc had power to provide where all pleadings in cases on the general docket should be filed (Rule 25), and that the presiding judge should have charge of the general docket, sit in a division designated for convenience only as the assignment division and there make up the issues and set down causes for trial (Rules 18 and 22), it also had the power to except criminal causes therefrom, as it expressly did in Rule 18, and *Page 406
by Rule 49 direct that such causes be filed in Criminal Division A, that the issues be there made up and the causes set down for trial. Authorities cited by relator are not in point.
For the above reasons the preliminary rule is discharged and peremptory writ denied. All concur, except Walker, J. absent, and Graves, C.J., who dissents.
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01-03-2023
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07-05-2016
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https://www.courtlistener.com/api/rest/v3/opinions/4165837/
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Case: 16-20573 Document: 00513977725 Page: 1 Date Filed: 05/03/2017
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 16-20573 FILED
Summary Calendar May 3, 2017
Lyle W. Cayce
Clerk
LARRY ALLEN,
Plaintiff - Appellant
v.
HOUSTON INDEPENDENT SCHOOL DISTRICT,
Defendant - Appellee
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:14-CV-1717
Before STEWART, Chief Judge, and JOLLY and JONES, Circuit Judges.
PER CURIAM:*
This matter involves a lawsuit filed by Plaintiff Larry Allen against his
former employer, Defendant Houston Independent School District (HISD),
alleging violations of the Age Discrimination in Employment Act of 1967
(ADEA), Title VII of the Civil Rights Act of 1964, and the Texas Commission
on Human Rights Act (TCHRA). Allen appeals a final judgment entered by the
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
Case: 16-20573 Document: 00513977725 Page: 2 Date Filed: 05/03/2017
No. 16-20573
United States District Court for the Southern District of Texas, denying Allen
leave to amend his complaint to assert additional claims and granting
summary judgment in favor of HISD on his hostile work environment and
retaliation claims. For the reasons that follow, we AFFIRM.
I. Background
Larry Allen is an African American man over the age of fifty. He began
working in Senior Manager Support 1 in HISD’s Transportation Department in
November of 2010, under a “Non-Certified Administrator Performance
Contract.” On August 12, 2012, his supervisor, Nathan Graf, allegedly sent an
email to a number of Allen’s co-workers that incorrectly averred that Allen had
failed to complete a “high-priority” task.
Following that incident, Allen alleges that Graf began reassigning his
duties and responsibilities to younger HISD employees and harassing him by:
(1) allegedly distorting his face on an iPad and sharing that distorted photo
with others in the office, against his wishes; (2) remarking to another co-worker
that Allen was slow in getting around; and (3) making a comment about Allen’s
graying hair. On September 28 2012, Allen met with Graf’s supervisor, Leo
Bobadilla, to discuss his concerns—Allen contends that Bobadilla took no
action to restrain Graf’s behavior, which allegedly continued.
Next, on October 2, 2012, Graf issued Allen a “written reprimand,” which
included allegations regarding a bus stop assignment. According to Allen, he
sent both Graf and Bobadilla a letter to request that Graf cease harassing him
and creating a hostile work environment. Allen then claims to have met with
Graf and a human resources representative, Gary Estes, to discuss these
events. During this meeting, Graf allegedly said that he “knew how to
1 Allen’s precise job title is not consistently stated in the record and is therefore
unclear.
2
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No. 16-20573
discipline” Allen, but that he “did not know how to discipline” a white co-
worker, Mark Swackhamer, HISD Senior Manager of Vehicle Maintenance.
Allen took this comment to signify that Swackhamer had received preferential
treatment.
Allen then alleges that his work duties “continued to be removed and
reassigned” over the next four months, and complains that on December 21,
2012, Graf promoted two of Allen’s subordinates without Allen’s knowledge.
Allen then lodged a complaint with the “HISD Equal Opportunity Office,”
alleging age discrimination, race discrimination, and a hostile work
environment. According to Allen, he soon learned from a co-worker that his
position was being “eliminated,” and that his employment contract “would not
be renewed.” Graf reportedly decided to combine the positions of “Senior
Management Support” and “Senior Manager of Operations” around this time,
to “increase departmental efficiency.” He chose Chester Glaude, a forty-six
year-old African American male, for the new position, and he recommended
that Allen’s employment contract not be renewed. Allen attended an HISD
“conference for the record” on July 27, 2013, where he was officially informed
that his position had been eliminated and was offered the option of resigning
with severance pay in lieu of termination. Allen rejected that option, and HISD
terminated his employment a short time later.
Allen then filed a discrimination charge with the Equal Employment
Opportunity Commission (EEOC), wherein Allen claimed that HISD had
discriminated against him based on his age and race and retaliated against
him for complaining about that discrimination. Allen filed this action on June
19, 2014, after receiving notice of his right to sue from the EEOC. In his
Amended Complaint, Allen made claims for race discrimination under Title
VII, age discrimination under the ADEA and the TCHRA, hostile work
3
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No. 16-20573
environment under all three statutes, and retaliation under Title VII and the
TCHRA.
Defendant moved for summary judgment on Allen’s discrimination
claims, but not on the hostile work environment or retaliation claims. The
district court granted summary judgment on Allen’s discrimination claims, and
entered final judgment on February 11, 2016, mistakenly dismissing the case
as to all claims. Allen filed a motion for reconsideration on June 9, 2016, on the
grounds that the magistrate judge’s recommended order that the district court
ultimately adopted did not address his remaining claims. The district court
granted Allen’s motion for reconsideration on June 9, 2016, and, in the same
order, determined that HISD’s reply to that motion would constitute a second
motion for summary judgment as to the hostile work environment and
retaliation claims. The district court required Allen to respond no later than
July 7, 2016.
On June 16, 2016 Allen filed a motion for leave to amend his complaint
and attached the second amended complaint. The chief purpose of the second
amended complaint appears to have been the addition of claims under 42
U.S.C. §§ 1981 and 1983—for hostile work environment and retaliation. HISD
filed a response to this motion, arguing that leave should not be granted
because: (1) claims under these sections require a showing that the challenged
acts were undertaken pursuant to a government custom, policy, or practice,
and Allen’s choice to proffer these claims after depositions were taken and
discovery had closed—despite having “ample time” prior—makes it difficult for
HISD to explore that requirement via fact witnesses; (2) the factual basis for
Allen’s hostile work environment claim under § 1981 represented a “rehash” of
his previously dismissed ADEA claim; (3) the same evidentiary framework
applied to Allen’s Title VII claims for employment discrimination also governs
4
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No. 16-20573
§ 1981 claims, and because the Title VII claim based on the same predicate
facts was dismissed, the amendment to add the § 1981 claim was futile.
The district court held a hearing on both the motion for leave to amend
and for summary judgment on July 29, 2016, ruling from the bench on both
motions. First, the district court denied leave to amend on the basis of three
disfavored facts: (1) the length of time (exemplified here by the fact that there
had already been an amendment in August 2014, and the new motion did not
come until June 2016); (2) discovery had long closed; and (3) the motion came
only after a second motion for summary judgment to dispose of all the claims
already pleaded. The district court also noted that leave to amend was
unnecessary, because the elements of the proposed claims were before the court
in the claims already pleaded. 2 Second, the district court granted summary
judgment to HISD on the remaining hostile work environment and retaliation
claims contained in the First Amended Complaint.
The district court concluded that there was not sufficient evidence to
meet the standard applicable to hostile work environment claims under any
statute. In particular, it ruled that the totality of the circumstances revealed
only isolated, “occasional utterances that were viewed as offensive” and were
“not severe in any fashion,” and that there was no evidence raising any fact
issue as to interference with Allen’s work.
As to retaliation, the district court held that (1) Allen had made out a
prima facie case based on temporal proximity between the protected activity
and “the alleged transferring of responsibilities that led up to the
2The district court also noted that to the extent that the elements of the new claims
were not already before the court, they would still be precluded for the three reasons already
mentioned.
5
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No. 16-20573
termination,” 3 and that (2) HISD had presented sufficient evidence of
“legitimate non-retaliatory reasons” for failing to renew Allen’s contract—
specifically, that there was no further need for his position, given the
consolidation of that position with another to improve departmental efficiency.
The burden then shifted back to Allen to show evidence establishing a
genuine issue as to pretext—whether HISD would have taken the action but
for the protected conduct. The district court found Allen’s evidence insufficient
on this point, insofar as Allen could not: (1) present evidence that HISD
departed from the standard reorganization procedure in failing to renew
Allen’s contract, or that such a standard procedure existed at all; (2) present
evidence that the individual with whom Allen was replaced, Glaude—who was
only somewhat younger and was also African American—was so significantly
less qualified as to support an inference of pretext. Accordingly, the district
court granted summary judgment to HISD. Allen appeals the district court’s
denial of leave to amend and its grant of summary judgment on his retaliation
claims.
II. Standard of Review
This court reviews denial of a motion to amend for abuse of discretion.
Cambridge Toxicology Grp., Inc. v. Exnicios, 495 F.3d 169, 177 (5th Cir. 2007).
In the context of a motion seeking leave to amend, the court’s discretion is
limited insofar as Federal Rule of Civil Procedure 15(a) evinces a bias in favor
of leave to amend. Martin’s Herend Imports, Inc. v. Diamond & Gem Trading
U.S.A. Co., 195 F.3d 765, 770 (5th Cir. 1999). Indeed, the district court lacks
discretion to deny such a motion in the absence of a “‘substantial reason,’ such
3 In particular, the evidence the district court pointed to included (1) Allen’s
September 2012 complaint; (2) his March 23 EEO complaint; and (3) the reduction of job
responsibilities over the following four months, culminating in termination.
6
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No. 16-20573
as undue delay, bad faith, dilatory motive, or undue prejudice to the opposing
party.” Id. (quoting Dussouy v. Gulf Coast Inv. Corp., 660 F.2d 594, 597 (5th
Cir. 1981)).
This court reviews a district court’s grant of summary judgment de novo
under the standard applied by the district court. Sanders-Burns v. City of
Plano, 594 F.3d 366, 380 (5th Cir. 2010) (citing Riverwood Int’l Corp. v. Emp’rs
Ins. Of Wausau, 420 F.3d 378, 382 (5th Cir. 2005)). “The moving party is
entitled to judgment as a matter of law when the pleadings, answers to
interrogatories, admissions and affidavits on file indicate no genuine issue as
to any material fact.” Byers v. Dall. Morning News, Inc., 209 F.3d 419, 424 (5th
Cir. 2000).
III. Discussion
A.
Allen first challenges the district court’s ruling denying him leave to
amend his complaint. He contends that none of the grounds on which the
district court denied the motion can justify the denial. Allen argues that there
was no undue delay, since his decision to seek leave to amend “was a result of
the Court’s summary judgment dismissing [Allen’s] racial discrimination
claims and incorrectly dismissing his retaliation claim,” and the leave he
sought was to “expand his remaining claims’ legal theories” following summary
judgment. He argues that the closure of discovery cannot be a reason to deny
leave; since Title VII and § 1981 claims are governed by the same evidentiary
standard, the fact that he pleaded Title VII claims should have given notice of
possible § 1981 claims. He points out that the motion to amend post-dated
HISD’s second motion for summary judgment only because the district court
chose to consider HISD’s reply to the motion for reconsideration as a motion
for summary judgment. Lastly, he objects that, although the elements of a Title
7
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No. 16-20573
VII and § 1981 claim are concededly the same, the claims are legally distinct
and should not be treated as though they were equivalent. See e.g., Johnson v.
Ry. Express Agency, Inc., 421 U.S. 454, 460 (1975) (noting that “the remedies
under Title VII and under § 1981, although related, and although directed to
most of the same ends, are separate, distinct, and independent”).
We hold that the district court did not abuse its discretion in denying
Allen leave to amend his complaint. The district court properly considered the
combination of Allen’s delay in filing and the fact that discovery had closed as
factors weighing against granting leave to amend. For delay to form a basis for
denial of leave, that delay must be “undue, i.e. it must prejudice the nonmoving
party or impose unwarranted burdens on the court.” Mayeaux v. La. Health
Serv. & Indem. Co., 376 F.3d 420, 427 (5th Cir. 2004). The prejudice in this
case is derived from the fact that addition of discrimination claims under §
1981 and § 1983 imports a new element into the proceedings; namely, that a
state or state actor violated these sections pursuant to a “custom or policy.”
Jett v. Dall. Indep. Sch. Dist., 491 U.S. 701, 736 (1989). Had Allen moved for
leave to amend before or during discovery, rather than after its closure, HISD
would probably have explored issues related to this requirement by deposing
witnesses. That the late timing of the motion makes such exploration difficult
is prejudicial, and if the only way the court could alleviate that prejudice is by
reopening discovery, then that delay also places an unwarranted burden on the
court—especially when the court stood on the verge of resolving the
proceedings altogether. In sum, the district court explicitly provided a
substantial reason for denial of leave to amend and did not abuse its discretion
in doing so. See Martin’s Herend Imps., 195 F.3d at 770.
8
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No. 16-20573
B.
Allen next challenges the district court’s grant of summary judgment in
favor of HISD on his retaliation claims under Title VII and the TCHRA. In
particular, Allen argues that a dispute of material fact exists as to pretext
because: (1) there is a temporal relationship between the protected activity and
the ultimate termination; (2) HISD did not offer evidence of an increase of
efficiency after Allen’s termination; (3) a relevant comparator exists in the
experience of Aaron Hobbs, whose position was also terminated, allegedly
pursuant to a “reorganization”; (4) that Glaude was comparatively
inexperienced as concerned the managerial position he assumed in place of
Allen. 4
“The substantive law governing Title VII and TCHRA retaliation claims
is identical.” Gorman v. Verizon Wireless Tex., L.L.C., 753 F.3d 165, 170 (5th
Cir. 2014). Both statutes require a plaintiff to make out a prima facie case
showing that: (1) he engaged in a protected activity; (2) some adverse
employment action occurred; and (3) a causal link exists between the protected
activity and the adverse employment action. See id. Where a prima facie case
is established, and where the “retaliation claim . . . is premised on a pretextual
rationale for dismissal,” Royal v. CCC & R Tres Arboles, L.L.C., 736 F.3d 396,
400 (5th Cir. 2013), the claim is evaluated under a burden shifting framework:
“(1) first, the employee must demonstrate a prima facie case of retaliation; (2)
the burden then shifts to the employer, who must state a legitimate non-
retaliatory reason for the employment action; and (3) if that burden is satisfied,
4 Allen raises a number of arguments for the first time in his reply brief, including that HISD
lacked a legitimate business reason for separation and that, contrary to the district court’s
determination, Allen did make out a prima facie claim as to hostile work environment. As these
arguments were not raised in Allen’s opening brief, they are waived. See United States v. Jimenez, 509
F.3d 682, 693 n.10 (5th Cir. 2007) (“Issues not raised in an appellant’s initial brief . . . are deemed
waived.”).
9
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No. 16-20573
the burden then ultimately falls to the employee to establish that the
employer’s stated reason is actually a pretext for unlawful retaliation.” Id.; see
also McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802–05 (1973).
Importantly, once the defendant articulates a legitimate reason for the
allegedly problematic employment action, the inference of retaliation created
by the prima facie case disappears, and the plaintiff bears the burden of
proving that the articulated reason is pretextual by a preponderance of the
evidence. See Lawrence v. U.T. Med. Branch, 163 F.3d 309, 312 (5th Cir. 1999).
Allen identifies only two additional pieces of evidence in the record to
support the existence of a genuine issue as to pretext. 5 Both provide too weak
and speculative a basis to infer that Allen’s termination was carried out for a
retaliatory purpose. See McCoy v. City of Shreveport, 492 F.3d 551, 557 (5th
Cir. 2007) (noting that the plaintiff bears burden of proving that an employer’s
proffered reason is pretextual). First, Allen’s attempt to identify a relevant
comparator by which to establish a “standard reorganization procedure” from
which his termination deviated consists entirely of Allen’s depositional
reference to Aaron Hobbs’s experience. This perspective lacks independent
confirmation from Hobbs, and in any case, there is nothing in the record to
support that the one reorganization in the past to which Allen refers
established a “standard” for the future, such that a purported deviation from
that standard could be reliably assessed.
5 As recounted above, Allen argues that the temporal connection between the
termination and protected activity should weigh in his favor on this issue. But because the
district court already based its finding of a prima facie case on that ground, Allen must point
to additional facts to carry his burden at the pretext stage. See Lawrence, 163 F.3d at 312.
Allen’s additional argument that HISD’s failure to identify efficiency gains from the
reorganization it cites as the reason for terminating Allen must also fail. Such an argument
represents an impermissible attempt to shift the burden on the issue of pretext. See id.
10
Case: 16-20573 Document: 00513977725 Page: 11 Date Filed: 05/03/2017
No. 16-20573
Second, although there exists something of a disparity in educational
attainment between Allen and Glaude, Allen provides no significant evidence
that Glaude’s qualifications are so out of sync with the requirements of the new
position he was slated to assume as to raise an inference of pretext—especially
given evidence of Glaude’s extensive experience with HISD and the record
evidence as to his knowledge of the school district’s mode of operation. In sum,
the district court did not err in granting summary judgment to HISD on the
issue of pretext. See Sanders-Burns, 594 F.3d at 380.
IV. Conclusion
For the reasons stated, we AFFIRM the ruling of the district court as to
all issues.
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FILED
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA OCT 3 0 2009
Clerk, U.S. District and
Robert A. Reed, ) Bankruptcy Courts
)
Petitioner, )
0°
)
v. ) Civil Action No. v ~)(J' 53
.....
)
John Caulfield et al., )
)
Respondents. )
MEMORANDUM OPINION
This matter is before the Court on its initial review of the petition for a writ of habeas
corpus filed pro se and the accompanying application to proceed informa pauperis. The Court is
obligated either to issue the writ or to order the respondent to show cause why the writ should not
issue "unless it appears from the application that the applicant or person detained is not entitled
thereto." 28 U.S.C. § 2243. The Court will grant the in forma pauperis application and dismiss
the case.
Petitioner is a pretrial detainee at the District of Columbia's Correctional Treatment
Facility awaiting trial in the Superior Court of the District of Columbia on a charge of first-
degree child sex abuse. Pet. at 2. The gravamen of the petition challenges the criminal
prosecution. Specifically, petitioner claims that the prosecuting witness was coerced into
providing a statement, offers an alibi defense, questions the authority of the prosecuting attorney
and the arresting police officer, and challenges the Superior Court's jurisdiction. Pet. at 5-6. He
seeks "immediate release from unlawful confinement." Id. at 5.
"[ A] federal court may dismiss an action when there is a direct conflict between the
exercise of federal and state jurisdiction and considerations of comity and federalism dictate that
the federal court should defer to the state proceedings." Hoai v. Sun Refining and Marketing Co.,
Inc., 866 F.2d 1515, 1517 (D.C. Cir. 1989) (citing Younger v. Harris, 401 U.S. 37,43-45 (1971);
Pennzoil Co., v. Texaco, Inc., 481 U.S. 1,9-10 (1987)). Such is the case here because petitioner
will have the opportunity to litigate the underlying claims of this action in the pending criminal
proceeding in Superior Court. See Bridges v. Kelly, 84 F.3d 470, 476 (D.C. Cir. 1996) (finding
Younger doctrine applicable "when there are ongoing [judicial] state proceedings [that] implicate
important state interests [and] afford an adequate opportunity in which to raise the federal
claims"). Given "the fundamental policy against federal interference with state criminal
prosecutions" absent a showing of irreparable injury, Younger, 401 U.S. at 46, this Court--which
would necessarily have to reach the merits of the criminal prosecution to resolve the habeas
petition--will dismiss the case. I A separate Order accompanies this Memorandum Opinion.
G2----'. ~
United States District Juage
Date: October K, 2009
I Cf Younger, 401 U.S. at 49 ("[T]he injury that Harris faces is solely that incidental to
every criminal proceeding brought lawfully and in good faith ... and therefore under the settled
doctrine we have already described he is not entitled to equitable relief even if such statutes are
unconstitutional. ") (citation and internal quotation marks omitted).
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
____________________________________
)
PATRICK MAHONEY et al., )
)
Plaintiffs, )
)
v. ) Civil Action No. 09-105 (ESH)
)
DISTRICT OF COLUMBIA, et al., )
)
Defendants. )
____________________________________)
MEMORANDUM OPINION
Plaintiffs Reverend Patrick Mahoney, Kaitlin Mahoney Martinez, the Christian Defense
Coalition, Survivors of the Abortion Holocaust, and Cheryl Conrad bring this action against
defendants District of Columbia (“District”), Chief of the Metropolitan Police Department
(“MPD”) Cathy L. Lanier, and unidentified MPD officer “John Doe.”1 Plaintiffs allege that
defendants’ refusal to permit them to engage in “chalk art” demonstrations on the pavement of
the 1600 block of Pennsylvania Avenue in front of the White House violated the First, Fourth,
and Fifth Amendments to the U.S. Constitution; the Religious Freedom Restoration Act
(“RFRA”), 42 U.S.C. § 2000bb et seq.; and the District of Columbia First Amendment Rights
and Police Standards Act of 2004 (“FARPSA”), D.C. Law 15-352 (2005) (codified at D.C. Code
§ 5-331.01, et seq.). Before the Court is defendants’ motion to dismiss the complaint or, in the
alternative, for summary judgment and plaintiff’s opposition thereto. For the reasons set forth
below, defendants’ motion will be granted.
BACKGROUND
In late 2008, plaintiffs began preparations for a January 24, 2009 demonstration on the
1
Chief Lanier and John Doe are sued solely in their official capacities.
1
paved pedestrian promenade segment of the 1600 block of Pennsylvania Avenue, N.W., directly
between the White House and Lafayette Park (“the 1600 Block promenade”), to protest President
Obama’s position on abortion and to protest the anniversary of the Supreme Court’s decision in
Roe v. Wade, 410 U.S. 113 (1973). (See Am. Verified Compl. (“Compl.”) ¶¶ 51-55, 57-60 [Dkt.
14]; Pls.’ Mot. for TRO and Prelim. Inj. (“TRO Mot.”) [Dkt. 4], Decl. of Rev. Patrick Mahoney
(“Mahoney Decl.”), Attach. 1 (“1st Henderson Letter”) at 1; Defs.’ Mot. to Dismiss the
Complaint or, in the Alternative, for Summ. J. (“Mot.”) [Dkt. 17], Statement of Material Facts
(“Defs.’ SMF”) ¶ 1.) This particular portion of Pennsylvania Avenue is under the jurisdiction of
the District of Columbia, while the National Park Service (“NPS”) has jurisdiction over the
adjacent White House sidewalk and Lafayette Park. (NPS Opp’n to TRO Mot. (“NPS TRO
Opp’n”) [Dkt. 9] at 1.) In addition, NPS is responsible, pursuant to an agreement with the
District, for maintaining and repairing the 1600 Block promenade. (Id.; see also id., Decl. of
Ann Bowman Smith (“Smith Decl.”) ¶ 5 & Ex. B.)
I. APPLICABLE STATUTES AND REGULATIONS
In the District, expressive assemblies are regulated by the “First Amendment
Assemblies” subchapter of FARPSA and related regulations. See generally D.C. Code §§ 5-
331.01 to -331.17; D.C. Mun. Regs. tit. 24, §§ 705-706, 711-712. Section 5-331.03 of the D.C.
Code declares that it is the District’s policy to permit “First Amendment assemblies” – i.e., those
conducted for social, political, and religious expression – “on the streets, sidewalks, and other
public ways,” subject to “reasonable restrictions designed to protect . . . property . . . .” D.C.
Code § 5-331.03; see also id. § 5-331.02(1) (defining “First Amendment assembly”). Except in
three exempted situations, assembly organizers must give notice to the MPD and seek advance
approval for their event so that the District can coordinate the use of public spaces by multiple
2
groups and facilitate the allocation of police protection and other municipal assistance to
assembly participants. Id. § 5-331.05(b)-(d). However, it is not an offense to assemble without
having received advance approval. Id. § 5-331.05(a).
FARPSA requires the MPD to “recognize and implement” the policy announced in § 5-
331.03 “when enforcing any restrictions” on assemblies. Id. § 5-331.04(a). The MPD may
impose content-neutral “reasonable time, place, and manner restrictions” on expressive
assemblies in three ways: prior to an assembly through the approval of an assembly plan; during
an assembly for which no plan was approved; or during an assembly whose plan had previously
been approved subject to restrictions, provided that the additional restrictions satisfy one of three
specified criteria. Id. § 5-331.04(b) & (c).
Although the authority to grant an assembly plan is vested exclusively with the Chief of
Police or her designee, id. § 5-331.06(a)(1), the municipal regulations specify that assembly
plans shall be approved if nine enumerated conditions are satisfied. D.C. Mun. Regs., tit. 24, §
706.9 (“Regulation 706.9”). In addition, the exercise of assembly plan review and approval
authority is subject to timing and notice requirements. See D.C. Code. § 5-331.06(b) & (c). For
example, the Chief must provide a written rationale for any limitations on the approval of an
assembly plan which the applicant had previously indicated would be “objectionable.” Id. § 5-
331.06(c)(3). An applicant may appeal restrictions and denials of approval to the Mayor or his
designee, who must “expeditiously” issue a written ruling on the appeal before the assembly’s
planned date and time. Id. § 5-331.06(d).
II. PLAINTIFFS’ ASSEMBLY PLANS
On November 24, 2008, plaintiffs notified the MPD and the Department of the Interior
(“DOI”) by letter of their intent to protest the Roe decision on January 24, 2009, on the 1600
3
Block promenade. (See 1st Henderson Letter at 1; Compl. ¶¶ 83, 92, 94; Defs.’ SMF ¶ 1.) The
letter explained that plaintiffs planned “to create a variety of verbal and visual messages, by
making chalk drawings on the paved surface of Pennsylvania Avenue.”2 (1st Henderson Letter
at 2.) Plaintiffs’ letter was received by Commander James Crane of the MPD Special Operations
Division (“SOD”), whose duties and responsibilities include the issuance or denial of assembly
plan approvals pursuant to FARPSA (Defs.’ SMF ¶ 3), and by officials at the DOI, who
communicated the information to the NPS.3 (See Smith Decl. ¶ 6.)
On January 7, 2009, Commander Crane responded to plaintiff’s November 24 letter.
(See TRO Mot., Mahoney Decl., Attach. 4 (“Crane Letter”); see also Compl. ¶¶ 97-98.) Crane’s
letter articulated the MPD’s security concerns regarding the White House and requested
additional information that would help the MPD fashion a permit, such as the number of
anticipated participants, the starting and ending times of the demonstration, and whether
plaintiffs contemplated using any sound amplification or other equipment.4 (Crane Letter at 1-
2.) The letter was accompanied by a form entitled “Assembly Plan Notification/Application for
Approval of Assembly Plan.” (Id. at 2, 3 (attachment).) It also informed plaintiffs that chalking
the 1600 Block promenade and adjacent sidewalks would constitute defacement of public
property in violation of the District’s criminal defacement statute, D.C. Code § 22-3312.01, as
well as NPS regulations, and that the MPD did not intend “to issue a demonstration permit that
2
The letter also gave notice of an intended January 22, 2009 protest of the Roe decision
“by words and demonstration” in Lafayette Park. (1st Henderson Letter at 1.)
3
On December 10, 2008, plaintiffs met with NPS and U.S. Park Police representatives to
discuss the January 22 Lafayette Park plans, but no decision had yet been made regarding
plaintiffs’ request to conduct a chalking demonstration on January 24. (TRO Mot., Mahoney
Decl., Attach. 2 (“2nd Henderson Letter”) at 1.)
4
It is undisputed that plaintiffs’ planned demonstration, as reflected in their November 24
letter, was not subject to any of FARPSA’s exemptions from the advance approval requirement.
4
could be understood to exempt organizers or any other persons from the neutral application” of
the District’s defacement statute. (Id. at 2.)
On January 8, 2009, Margaret O’Dell, on behalf of the NPS, sent a letter to plaintiffs that
explained the agency’s jurisdiction over the White House sidewalk and its maintenance
responsibilities for the portion of Pennsylvania Avenue adjacent to the sidewalk. (NPS TRO
Opp’n., Ex. 1 (“O’Dell Letter”).) O’Dell expressed the agency’s view that chalking the grounds
directly in front of the White House would violate District law, as well as NPS regulations
prohibiting the defacement of “cultural . . . resources,” 36 C.F.R. § 2.1(a)(6), and of “real
property” on park lands under federal legislative jurisdiction. Id. § 2.31(a)(3) & (b). (See O’Dell
Letter at 2.) O’Dell’s letter also asserted that the prohibition on chalking was a reasonable time,
place, and manner regulation consistent with the First Amendment. (Id. at 1-2.)
On January 9, 2009, plaintiffs responded to the MPD by letter, citing the District’s past
sponsorship of chalk art events on public streets in other locations and characterizing as “patently
ridiculous” the refusal to permit chalking on the 1600 Block promenade. (TRO Mot., Mahoney
Decl., Attach. 5 (“3rd Henderson Letter”) at 4; Am. Comp. ¶ 106.) Plaintiffs’ letter demanded
that permission be granted for them to express their views “through the medium of sidewalk
chalk” or else they would initiate litigation to compel such permission. (3rd Henderson Letter at
4.)
On January 12, 2009, Commander Crane transmitted to plaintiffs an “Assembly Plan
Approval” that permitted the use of signs and banners but expressly withheld permission for
sidewalk chalking:
In accordance with the provisions of the First Amendment Assemblies Act of
2004, permission is hereby granted to Rev. Patrick Mahoney to conduct a First
Amendment Assembly on Saturday, January 24, 2009 from 0700 hours (assembly
time), [to] 1900 hours (disbanding time), consisting of no more than 5,000
5
persons. You are permitted to possess signs and banners. However, there is no
permission granted to use chalk or any other material to mark the surfaces of
Pennsylvania Ave., N.W.
(TRO Mot., Mahoney Decl., Attach. 6 (“Assembly Plan Approval”) at 2 (emphasis added).) The
Assembly Plan Approval also indicated that plaintiffs would need a U.S. Park Police permit in
order to make any use of the White House sidewalk or Lafayette Park. (Id.)
III. THE INSTANT ACTION
On January 16, 2009, plaintiffs initiated this action and moved for a temporary
restraining order (“TRO”) and preliminary injunction, seeking to stop the District and the MPD
from denying them permission to engage in “chalk art” as part of their approval to demonstrate
on January 24. On the evening of January 20, the day of the presidential inauguration,
defendants and the NPS, as amicus curiae, filed oppositions to plaintiffs’ motion. [Dkt. 8-9.]
After hearing argument on January 22, the Court denied injunctive relief on the grounds that
plaintiffs failed to establish a substantial likelihood of success on the merits. (See Jan. 22, 2009
Minute Order.)
On January 24, 2009, Mahoney and others went to the 1600 block of Pennsylvania
Avenue, N.W. with the intent to conduct their planned demonstration. (See Compl. ¶¶ 125-127.)
Commander Crane and other MPD officers were also present. (Id. ¶ 128.) Mahoney began to
chalk the pavement, but MPD directed him to cease doing so, took the chalk away from him, and
required him to identify himself. (Id. ¶¶ 132-134; Defs.’ SMF ¶ 8; see also Defs.’ Mot., Ex. A
(video recording of incident).) Mahoney was not taken into custody or charged with any offense.
On February 25, 2009, plaintiffs filed an amended verified complaint asserting six causes
of action. Plaintiffs’ first cause of action (“Count I”) contends that the District’s defacement
statute, on its face, violates the First Amendment’s Speech Clause. (Compl. ¶¶ 157-164.)
Plaintiffs’ second, third, fourth, and fifth causes of action assert that by threatening to apply the
6
defacement statute to plaintiffs’ activities, defendants violated plaintiffs’ rights under the First
Amendment’s Speech and Free Exercise Clauses (“Count II”), RFRA (“Count III”), FARPSA
(“Count IV”), and the equal protection component of the Fifth Amendment’s Due Process Clause
(“Count V”). (Id. ¶¶ 165-186.) Plaintiffs’ final cause of action alleges that the MPD’s efforts to
prevent Mahoney from chalking in front of the White House on January 24, 2009, violated his
rights under the First, Fourth, and Fifth Amendments as well as RFRA (“Count VI”). (Id. ¶¶
187-198.)
On March 17, defendants filed a motion to dismiss or, in the alternative, for summary
judgment. [Dkt. 17-19.] On April 16, plaintiffs filed their opposition [Dkt. 20], and defendants
filed their reply on May 5 [Dkt. 23]. On April 27, an annual “Chalk-In” event took place on H
Street, N.W., between 21st and 22nd Streets, in which participants chalked the streets and
sidewalks. (Pls.’ Mot. to Supplement Opp’n to Mot. (“Pl.’s Mot. to Supplement”) [Dkt. 24-25]
at 2-3.) On May 6, 2009, plaintiffs sought to supplement their opposition in response to the
Chalk-In event, and the Court granted the motion in light of defendants’ consent.
ANALYSIS
I. COUNTS I, II, AND IV: FREEDOM OF SPEECH CLAIMS
The central dispute in this action is whether the government may prevent plaintiffs from
chalking the 1600 Block promenade consistent with the Constitution. However, several
threshold issues are not disputed. First, the parties agree that defendants were acting under the
color of state law when they prevented plaintiffs from chalking. Second, the creation of words or
images through chalk or any other medium is an act of expression that implicates the First
Amendment. Third, the paved street of the 1600 Block promenade is public property that
constitutes a “quintessential public forum[]” where “the government may not prohibit all
7
communicative activity,” because “streets and parks . . . ‘have immemorially been held in trust
for the use of the public, and, time out of mind, have been used for purposes of assembly,
communicating thoughts between citizens, and discussing public questions.’” Perry Educ. Ass’n
v. Perry Local Educators’ Ass’n, 460 U.S. 37, 45 (1983) (quoting Hague v. CIO, 307 U.S. 496,
515 (1939) (Roberts, J., concurring)). Fourth, the government may “regulate competing uses of
public forums” by “impos[ing] a permit requirement on those wishing to hold a march, parade,
or rally.” Forsyth County v. Nationalist Movement, 505 U.S. 123, 130 (1992) (considering facial
challenge to county ordinance requiring permits for assemblies and parade).
“None of this leads, however, to the conclusion that [plaintiffs] had a constitutional right
to be free of all restraints.” Christian Knights of Ku Klux Klan Invisible Empire, Inc. v. District
of Columbia, 972 F.2d 365, 372 (D.C. Cir. 1992). “‘The privilege of a citizen of the United
States to use the streets and parks for communication of views on national questions may be
regulated in the interest of all,’” White House Vigil for the ERA Comm. v. Clark, 746 F.2d 1518,
1526 n.66 (D.C. Cir. 1984) (quoting Hague, 307 U.S. at 515 (Roberts, J., concurring)), and “[t]he
government is not precluded . . . from regulating expressive activities conducted on the White
House sidewalk,” id. at 1527 (emphasis omitted), the public promenade directly in front of it, or
any other public property. Although plaintiffs “may have First Amendment freedom to use [the
1600 Block promenade] for protected speech,” this right “is not accompanied by an unlimited
license” to speak in that traditional public forum through whatever medium and manner they see
fit, “any more than the right to address an audience from the platform of a public monument
would confer upon a speaker the freedom to paint a message on it, or to readorn with graffiti
property owned by the government . . . .” People for the Ethical Treatment of Animals v.
Giuliani (“PETA”), 105 F. Supp. 2d 294, 318 (S.D.N.Y. 2000); cf. United States v. Murtari, No.
8
07-CR-387, 2007 WL 3046746, at *5 (N.D.N.Y. Oct. 16, 2007) (noting that even though
property damage statute under which defendant was charged did not prohibit defacement, he was
not “free to write in chalk all over the federal plaza”). Moreover, neither the First Amendment
nor FARPSA grants plaintiffs an unlimited right to tangibly alter the appearance of public
property using chalk or any other medium, permanent or otherwise, nor does it require that this
particular street be available to serve as a writing tablet. See Christian Knights, 972 F.2d at 372
(“When it comes to use of a public forum such as a street, . . . speakers do not have a
constitutional right to convey their message whenever, wherever and however they please.”).
With these guiding principles in mind, the Court will now turn to plaintiffs’ facial and
as-applied challenges under the First Amendment and FARPSA.
A. Count I: Facial Challenge
Count I attacks the defacement statute, D.C. Code § 22-3312.01, as unconstitutional on
its face. Facial challenges are generally disfavored because they require courts to “‘formulate a
rule of constitutional law broader than is required by the precise facts to which it is to be
applied,’” and because they “threaten to short circuit the democratic process by preventing laws
embodying the will of the people from being implemented in a manner consistent with the
Constitution.” See Wash. State Grange v. Wash. State Republican Party, 128 S. Ct. 1184, 1191
(2008) (quoting Ashwander v. TVA, 297 U.S. 288, 347 (1936) (Brandeis, J., concurring)).
Because the doctrines governing facial challenges are complex, the Court notes the instructive
discussion offered by the Supreme Court in New York State Club Association, Inc. v. City of New
York:
Although . . . facial challenges are sometimes permissible and often have been
entertained, especially when speech protected by the First Amendment is at stake,
to prevail on a facial attack the plaintiff must demonstrate that the challenged law
either “could never be applied in a valid manner” or that even though it may be
9
validly applied to the plaintiff and others, it nevertheless is so broad that it “may
inhibit the constitutionally protected speech of third parties.” City Council of Los
Angeles v. Taxpayers for Vincent, 466 U.S. 789, 798 (1984). Properly
understood, the latter kind of facial challenge is an exception to ordinary standing
requirements, and is justified only by the recognition that free expression may be
inhibited almost as easily by the potential or threatened use of power as by the
actual exercise of that power. Thornhill v. Alabama, 310 U.S. 88, 97-98 (1940).
Both exceptions, however, are narrow ones: the first kind of facial challenge will
not succeed unless the court finds that “every application of the statute created an
impermissible risk of suppression of ideas,” Taxpayers for Vincent, [466 U.S. at
798 n.15], and the second kind of facial challenge will not succeed unless the
statute is “substantially” overbroad, which requires the court to find “a realistic
danger that the statute itself will significantly compromise recognized First
Amendment protections of parties not before the Court.” [Id. at 801.]
487 U.S. 1, 11 (1988) (citations omitted); accord Initiative and Referendum Institute v. U.S.
Postal Serv., 417 F.3d 1299, 1312 (D.C. Cir. 2005); Wash. State Grange, 128 S. Ct. at 1190 &
n.6.
Regardless of how plaintiffs attempt to cast their arguments, their facial attack on the
statute fails in light of the defacement statute’s text and applicable legal doctrines.
1. D.C. Code 22-3312.01
Section 22-3312.01, previously codified as § 22-3112.1, is part of the criminal code that
addresses “[t]respass” and “[i]njuries to [p]roperty.” See D.C. Code, tit. 22, ch. 33. The statute
provides that
[i]t shall be unlawful for any person or persons willfully and wantonly to
disfigure, cut, chip, or cover, rub with, or otherwise place filth or excrement of
any kind; to write, mark, or print obscene or indecent figures representing obscene
or [sic] objects upon; to write, mark, draw, or paint, without the consent of the
owner or proprietor thereof, or, in the case of public property, of the person
having charge, custody, or control thereof, any word, sign, or figure upon:
(1) Any property, public or private, building, statue, monument, office, public
passenger vehicle, mass transit equipment or facility, dwelling or structure of any
kind including those in the course of erection; or
(2) The doors, windows, steps, railing, fencing, balconies, balustrades, stairs,
porches, halls, walls, sides of any enclosure thereof, or any movable property.
10
D.C. Code § 22-3312.01. “Property” includes streets and sidewalks, see id. § 22-3312.05(9), and
the statute also applies to public property under federal jurisdiction. See United States v. Bohlke,
No. 87-M-1645, 116 Daily Wash. L. Rep 1697, 1700 (D.C. Super. Ct. July 14, 1988) (denying
motion to dismiss and convicting defendant, under statute’s previous codification at § 22-3112.1,
for defacing White House pillar); United States v. Frankel, 739 F. Supp. 629, 632 (D.D.C. 1990)
(denying motion to dismiss transfer to federal court of defendants’ prosecution for defacing U.S.
Capitol), sentences following plea aff’d sub nom. United States v. Mastropierro, 931 F.2d 905
(D.C. Cir. 1991). Violators face criminal penalties of up to 180 days’ imprisonment and a fine of
not less than $250 or more than $1000. D.C. Code § 22-3312.04.
2. Every application of the statute does not create an impermissible risk
of suppression.
Plaintiffs contend that the defacement statute operates as “a classic prior restraint on
speech” because some of its terms prohibit the writing, marking, drawing, or painting upon
“public properties, including streets and sidewalks, which constitute quintessential public
forums.” (Compl. ¶¶ 158-160.) They also contend that the MPD supposedly “ignores” the
constraints placed by Regulation 706.9 upon the MPD’s discretion to deny approval for assembly
plans, and as a result the defacement statute gives defendants “unbridled discretion” to regulate
speech because its terms do not specify when consent must be granted to write upon or mark
government property. (Id. ¶¶ 161-164.) Plaintiffs rely on cases such as Forsyth County, 505
U.S. 123; City of Lakewood v. Plain Dealer Publishing Co., 486 U.S. 750 (1988); and Thomas v.
Chicago Park District, 534 U.S. 316 (2002), each of which considered whether a licensing
regime (or other direct regulation of expression) gave government decisionmakers unlimited
discretion to restrict speech. (See Pls.’ Opp’n [Dkt. 20] at 5-9.) Such a regime would be
unconstitutional because it creates “an impermissible risk of suppression of ideas.” Taxpayers
11
for Vincent, 466 U.S. at 798 n.15 (citing prior restraint and licensing cases).
The defacement statute is not subject to attack under this theory because it is not
“unconstitutional in every conceivable application . . . .” Taxpayers for Vincent, 466 U.S. at 796.
Section 22-3312.01 is an exercise of the District’s legislative authority to protect property rights.
See Hannibal & St. J.R. Co. v. Husen, 95 U.S. 465, 470-71 (1877) (noting that state’s legislative
police power extends to “the protection of persons and property against noxious acts of other
persons, or such a use of property as is injurious to the property of others”). It is true that the law
implicates First Amendment interests because the statute’s terms make it unlawful “to write,
mark, draw, or paint . . . upon” public property – including traditional public forums such as
streets and sidewalks – without the government’s permission. But the law also prohibits
disfiguring, cutting, or chipping real or movable property, or covering such property with filth or
excrement, and these prohibitions are “perfectly reasonable” with respect to “most of the
publicly owned objects mentioned in” the statute. Taxpayers for Vincent, 466 U.S. at 801; cf.
Lederman v. Giuliani, No. 98-CV-2024, 2001 WL 902591, at *6-*7 (S.D.N.Y. Aug. 7, 2001)
(rejecting facial challenge to substantially identical New York defacement statute brought by
plaintiff who argued it was unconstitutional prohibition on chalking of public property).
Plaintiffs’ reliance upon Forsyth County and similar cases is therefore misplaced. See
also Taxpayers for Vincent, 466 U.S. at 798 & n.15 (distinguishing prior restraint and licensing
cases when considering facial challenge to city ordinance making it unlawful to “paint, mark or
write on, or post or otherwise affix, any hand-bill or sign to” public property). The statute is not
a licensing regime designed “to regulate speech per se,” but rather a trespass statute aimed at
conduct which the District may legitimately prohibit. Humanitarian Law Project v. Mukasey,
552 F.3d 916, 933 (9th Cir. 2009) (finding no threat of censorship where statute permitted
12
Secretary of State “to authorize the otherwise prohibited provision of ‘material support or
resources’ to a designated foreign terrorist organization,” where “material support” was not
equivalent to political expression or association). Even the licensing cases recognize that the
mere fact that a law gives the government some measure of discretion does not open that law to
facial challenge as a prior restraint. Plain Dealer, 486 U.S. at 759. Instead, it “must have a close
enough nexus to expression, or to conduct commonly associated with expression, to pose a real
and substantial threat of the identified censorship risks.” Id. Section 22-3312.01 lacks just such
a nexus.
First, the defacement statute “does not punish only [defacement] engaged in for the
purpose of expressing views.” United States v. O’Brien, 391 U.S. 367, 375 (1968). Instead, it
prohibits all intrusions upon another’s property, regardless of motivation, that tangibly alter the
appearance of the property. Plaintiffs have offered no authority to suggest that such intrusions
are historically associated with constitutionally privileged speech, and “it is an untenable
position that conduct such as vandalism is protected by the First Amendment merely because
those engaged in such conduct ‘intend[ ] thereby to express an idea.’” Riely v. Reno, 860 F.
Supp. 693, 702 (D. Ariz. 1994) (quoting Texas v. Johnson, 491 U.S. 397, 404 (1989)); see also
PETA, 105 F. Supp. 2d at 318; Wilson v. Johnson, 04-CV-059, 2005 WL 2417057, at *7 (E.D.
Tenn. Sept. 30, 2005) (“Plaintiff got caught defacing the doors and walls of two University
buildings, conduct that constitutes vandalism, and vandalism is not protected by the First
Amendment.”), aff’d, 247 F. App’x 620 (6th Cir. 2007).
Second, any burdens upon speech are independent of the expression’s content and
incidental to the statute’s legitimate purpose of protecting property. See Nat’l Paint & Coatings
Ass’n v. City of Chicago, 803 F. Supp. 135, 143 (N.D. Ill. 1992) (finding, for purposes of
13
interstate commerce analysis, that ordinance regulating possession of graffiti-type spray paints
and markers served legitimate local interest in “preserving property values, deterring illegal
activity and protecting the aesthetic character of the City’s neighborhoods from the devastation
of graffiti vandalism”). The statute’s narrow focus leaves many alternative forms of speech,
such as signs or banners, the use of natural or amplified sound, or any other medium that does
not require changing the appearance of another’s property by writing a message directly “upon”
it.
Because it is not true that § 22-3312.01 “could never be applied in a valid manner,”
Taxpayers for Vincent, 466 U.S. at 798, plaintiffs’ facial challenge under this theory fails as a
matter of law.
3. An overbreadth challenge is not appropriate.
The Court will also consider plaintiffs’ facial challenge to § 22-3312.01 as one brought
under the traditional formulation of the “overbreadth” doctrine, because the Supreme Court has
not always consistently described whether the rationale for permitting a facial attack upon a
licensor’s excess discretion is distinct from the rationale for permitting a facial overbreadth
challenge. Compare, e.g., Wash. State Grange, 128 S. Ct. at 1190 & n.6 (distinguishing facial
challenges based on theory that “the law is unconstitutional in all of its applications” from those
based on overbreadth), with Forsyth County, 505 U.S. at 129 (describing facial challenges to
licensing regimes as subset of overbreadth doctrine); see also Griffin v. Sec’y of Veterans Affairs,
288 F.3d 1309, 1320-21 (Fed. Cir. 2002) (discussing discrepancies in Supreme Court’s
discussion of overbreadth doctrine). To hold that § 22-3312.01 is invalid on its face “by reason
of the overbreadth doctrine,” the Court must conclude that “the trespass [statute], taken as a
whole, is substantially overbroad judged in relation to its plainly legitimate sweep.” Virginia v.
Hicks, 539 U.S. 113, 122 (2003); Broadrick v. Oklahoma, 413 U.S. 601, 615 (1973)
14
(“[P]articularly where conduct and not merely speech is involved, . . . the overbreadth of a statute
must not only be real, but substantial as well, judged in relation to the statute’s plainly legitimate
sweep.”). Such a finding would “suffice[] to invalidate all enforcement of [the] law, ‘until and
unless a limiting construction or partial invalidation so narrows it as to remove the seeming
threat or deterrence to constitutionally protected expression.’” Hicks, 539 U.S. at 118-19
(quoting Broadrick, 413 U.S. at 615).
“This is not, however, an appropriate case to entertain a facial challenge based on
overbreadth,” Taxpayers for Vincent, 466 U.S. at 801, because “the parties challenging the
statute are those who desire to engage in protected speech that the [supposedly] overbroad statute
purports to punish . . . .” Brockett v. Spokane Arcades, Inc., 472 U.S. 491, 504 (1985). “[T]he
overbreadth doctrine is essentially a jus tertii device; it evolved in order to permit one properly
charged under a statute to raise the First Amendment rights of others, not charged, whose
associational or expressive rights might be chilled by enforcement of overly broad legislation.”
Waters v. Barry, 711 F. Supp. 1125, 1133 (D.D.C. 1989); accord Hutchins v. District of
Columbia, 188 F.3d 531, 548 n.14 (D.C. Cir. 1999) (en banc) (“[A]n assertion of a facial
challenge under the First Amendment overbreadth doctrine . . . is really a standing exception . . .
for parties engaged in unprotected conduct to challenge applications of the statute against third
parties not before the court.” (emphasis added)). “[W]hen, as here, the plaintiffs are themselves
engaged in protected activity – when the challenged statute would have no greater impact upon
the rights of nonparties than it would have upon the rights of the parties before the Court – there
is no need to employ a traditional overbreadth analysis.” Waters, 711 F. Supp. at 1133.
Plaintiffs’ efforts to chalk on a public street already implicate those portions of § 22-
3312.01 that most directly raise First Amendment concerns, so there can be no basis to conclude
15
that the law “applies to any conduct more likely to be protected by the First Amendment than
[plaintiffs’] own [expressive activities].” Taxpayers for Vincent, 466 U.S. at 802. If the
defacement statute “may be validly applied to [plaintiffs], it can be validly applied to most if not
all of the [writing, marking, drawing, or painting upon public property done by] parties not
before the Court.” Id. There is thus no “realistic danger that the ordinance will significantly
compromise recognized First Amendment protections of individuals not before the Court,” id.,
“no want of a proper party to challenge the statute, [and] no concern that an attack on the statute
will be unduly delayed or protected speech discouraged.” Spokane Arcades, 472 U.S. at 502.
It is clear that plaintiffs’ facial challenge – whether based on a theory of unbridled
discretion or substantial overbreadth – must fail, and thus, Count I will be dismissed for failure to
stated a claim upon which relief can be granted.5
For all of these reasons, Count I will be dismissed as a matter of law.
B. As-Applied Challenges
Plaintiffs also bring “as-applied” challenges to defendants’ reliance upon the defacement
5
Assuming arguendo that an overbreadth challenge were appropriate here, which it is
not, such a challenge would fail for the reasons that the Supreme Court rejected a similar
overbreadth challenge to a local trespass law in Hicks. See 539 U.S. at 123-24 (holding that
trespass policy governing public housing development’s “privatized” public streets was not
facially overbroad, because policy applied to all individuals entering the development’s streets
and “not just to those who seek to engage in expression,” where Court had assumed arguendo
that streets remained public forums and that policy of banning individuals who lacked
“‘legitimate business or social purpose for being on the premises’” was unlawful grant of
unfettered discretion to housing development’s manager). As was the case with the “no-return”
policy in Hicks, the defacement statute here cannot be deemed substantially overbroad. Even if
the defacement statute unlawfully gave defendants unbridled discretion to grant or deny consent
to write upon or mark a public street, the statutory text plainly prohibits many other forms of
defacing conduct with respect to many other types of property without raising any First
Amendment concerns. “[J]udged in relation to its plainly legitimate sweep,” id. at 122, the
defacement statute is not substantially overbroad, and plaintiffs’ facial challenge would, if
permitted to proceed, fail. See also id. at 124 (“Rarely, if ever, will an overbreadth challenge
succeed against a law or regulation that is not specifically addressed to speech or to conduct
necessarily associated with speech (such as picketing or demonstrating).”).
16
statute to restrict plaintiffs’ ability to chalk the 1600 Block promenade.
1. Count II: First Amendment - Speech Clause
Count II alleges that defendants violated plaintiffs’ freedom of speech “[b]y threatening
to apply a provision of the criminal code of the District of Columbia” to their expressive
conduct. (Compl. ¶ 170.) “Plaintiffs acknowledge that the District may regulate all such
activities” enumerated in the defacement statute, “including chalk art, whether such a statute
exists or not.” (Opp’n at 9 n.2) They argue, however, that those laws are unconstitutional at
applied to them.6
With respect to any “as-applied” challenge, it is well settled that “[t]he permissible mode
of regulati[ng]” the use of a traditional public forum “is summarized under the familiar heading
‘time, place and manner.’” Christian Knights, 972 F.2d at 372; Mahoney v. U.S. Marshals Serv.,
454 F. Supp. 2d 21, 32 (D.D.C. 2006) (rejecting as-applied challenge, brought by Rev. Mahoney
and Christian Defense Coalition, to restriction as to where they could demonstrate outside the
Red Mass). “[R]easonable time, place, and manner regulations” are valid “as long as the
6
Plaintiffs appear to frame their “as-applied” challenge in terms of Forsyth County’s
requirement of “narrowly drawn, reasonable and definite standards.” 505 U.S. at 133. (See
Opp’n at 10.) This is not the standard for an as-applied challenge, and plaintiffs’ argument is
based on several incorrect premises, owing to plaintiffs’ erroneous conclusion that D.C. Code §
22-3312.01 is analogous to a licensing provision governed by Forsyth County and similar cases,
see supra Section III.A.1, as well as their misinterpretation of FARPSA and Regulation 706.9.
See infra Section III.B.2.
However, even if Forsyth County were applicable by virtue of the MPD’s reliance upon
the defacement statute when carrying out its duties under FARPSA, the purpose of objective
standards is to help ensure that a licensing scheme is valid on its face, because “without
standards to fetter the licensor’s discretion, the difficulties of proof and the case-by-case nature
of ‘as applied’ challenges render the licensor’s action in large measure effectively
unreviewable.” Plain Dealer, 486 U.S. at 757. Because the defacement statute is not
unconstitutional on its face, and because plaintiffs disavow any challenge to FARPSA’s facial
validity (Opp’n at 3), the Forsyth County considerations would not inform the Court’s analysis
of plaintiffs’ “as-applied” claims.
17
restrictions ‘are content-neutral, are narrowly tailored to serve a significant government interest,
and leave open ample alternative channels of communication.’” Lederman v. United States, 291
F.3d 36, 44 (D.C. Cir. 2002) (quoting United States v. Grace, 461 U.S. 171, 177 (1983)); White
House Vigil, 746 F.2d at 1527. The undisputed facts show that defendants’ reliance upon § 22-
3312.01 when imposing the chalking restriction constitutes just such a valid regulation of the
place (i.e., the promenade) and manner (i.e., writing directly upon the surface of the promenade)
of plaintiff’s speech.7 And thus, plaintiffs’ “as-applied” challenge fails.
a) Content-neutrality
“A regulation that serves purposes unrelated to the content of expression is deemed
neutral, even if it has an incidental effect on some speakers or messages but not others.
Government regulation of expressive activity is content neutral so long as it is ‘justified without
reference to the content of the regulated speech.’” Ward v. Rock Against Racism, 491 U.S. 781,
791-92 (1989) (quoting Clark v. Cmty. for Creative Non-Violence (“CCNV”), 468 U.S. 288, 293
(1984)) (first emphasis added); Emergency Coalition to Defend Educ. Travel v. U.S. Dep’t of the
7
Plaintiffs have submitted an affidavit by Rev. Mahoney, pursuant to Rule 56(f)(2),
asserting that they are “unable to present evidence essential to demonstrate a genuine issue as to
certain material facts,” because that evidence is in defendants’ possession. (Opp’n, Rule 56(f)
Aff. of Rev. Mahoney (“Rule 56(f) Aff.”) ¶ 6.) The affidavit seeks discovery relating to (1) the
District’s prior application of the defacement statute; (2) the type of substance used by
defendants to mark the White House pavement for the 2005 inaugural parade; (3) evidence of
prior attempts to clean chalk from the White House pavement; and (4) the District’s prior
approval or denial of chalking in locations other than the 1600 block of Pennsylvania Avenue,
including “all District streets and sidewalks.” (Id. ¶¶ 1-4.) For the reasons discussed herein, the
Court denies the request because the discovery sought is not relevant to the Court’s analysis of
the issues presented and therefore would not create triable issues of fact. See Brookens v. Solis,
616 F. Supp. 2d 81, 96-97 & n.16 (D.D.C. 2009). And even if the discovery sought was
arguably relevant, plaintiffs offer only “conclusory assertion[s] without any supporting facts”
regarding their belief that further discovery would create a triable issue. See Byrd v. E.P.A., 174
F.3d 239, 248 n.8 (D.C. Cir. 1999) (affirming grant of summary judgment for defendant and
finding no abuse of discretion in denying Rule 56(f) request for discovery where plaintiff had
“merely alleged that ‘there may well be knowledge on the part of [the defendant’s] employees or
undisclosed documents” that would create fact issues).
18
Treasury, 545 F.3d 4, 12 (D.C. Cir. 2008). “[W]hether a statute is content neutral or content
based is something that can be determined on the face of it; if the statute describes speech by
content then it is content based.” G.K. Ltd. Travel v. City of Lake Oswego, 436 F.3d 1064, 1071
(9th Cir. 2006). The defacement statute is content-neutral on its face, as its plain language
prohibits unauthorized property-altering conduct (such as chipping, writing, or covering with
filth) without reference to the conduct’s motivation. See O’Brien, 391 U.S. at 375.
Similarly, defendants’ refusal to let plaintiffs chalk the 1600 Block promenade was
content-neutral because it was justified without reference to the content of plaintiff’s speech.
After plaintiffs informed defendants of their intent to demonstrate against abortion and the Roe
decision (see 1st Henderson Letter at 1-2), the responses from both the MPD and NPS took issue
only with how chalking the promenade and the adjacent sidewalk would constitute defacement in
violation of § 22-3312.01 and analogous federal regulations. (See Crane Letter at 2; O’Dell
Letter at 1-2.) “This justification . . . ‘ha[s] nothing to do with content,’” Ward, 491 U.S. at 792
(quoting Boos v. Barry, 485 U.S. 312, 320 (1988) (O’Connor, J.)), and it does not “even
remotely suggest a hidden purpose to regulate speech because of a disagreement with appellants’
message.” Nat’l Org. for Women v. Operation Rescue, 37 F.3d 646, 655 (D.C. Cir. 1994).
Defendants’ invocation of the defacement statute when undertaking FARPSA’s undisputedly
constitutional approval process was consistent with FARPSA’s stated policy of permitting
“reasonable restrictions designed to protect . . . property . . . .” See D.C. Code § 5-331.03. The
content-neutral nature of defendants’ decision is also corroborated by the Assembly Approval
Plan issued by Commander Crane, which gave plaintiffs permission for a twelve-hour, 5,000-
person demonstration with signs and banners in the precise location that they requested. (See
Assembly Approval Plan at 2.) The approved assembly plan did not impose “any barrier to
19
delivering to the media, or to the public by other means, [plaintiffs’] intended message . . . .”
CCNV, 468 U.S. at 293.
Plaintiffs nonetheless argue that defendants selectively enforced the defacement statute
because they harbored content-discriminatory motives. (See Opp’n at 14; see also Compl. ¶
181.) Plaintiffs’ only basis for this contention is that defendants have previously permitted
others to chalk on public property in other parts of the District. The argument fails because
plaintiffs merely point to dissimilar incidents which do not support – and even undermine – the
argument that defendants applied the law in a content-based way.
First, the existence of other chalking events in other locations throughout the District,
such as the April 26 “Chalk-In” on H Street, has no bearing on defendants’ decision to prohibit
chalking on the 1600 Block promenade. (See Pls.’ Mot. to Supplement at 2-3.) “[T]he White
House area is a ‘unique situs’ for [F]irst [A]mendment activity,” White House Vigil, 746 F.2d at
1533 (quoting A Quaker Action Group v. Morton, 516 F.2d 717, 729 (D.C. Cir. 1975)), and
defendants have unique interests in the aesthetic maintenance of that area. Indeed, as defendants
represented during the TRO hearing, the parties “wouldn’t be here” if plaintiffs had sought to
engage in a chalk art demonstration in a different location. (Jan. 22, 2009 Hr’g Tr. on TRO Mot.
(“TRO Hr’g Tr.”) at 62:5-8.) They further offer unrebutted evidence that no proposed assembly
plan that contemplated “the marking of Pennsylvania Avenue in front of the White House, or the
adjoining sidewalks, with chalk or any other substance” has been approved under FARPSA.
(Defs.’ SMF ¶ 9.)8
8
The complaint does not allege anything to the contrary, and plaintiffs’ counsel conceded
during the TRO hearing that no one has ever received permission to chalk the 1600 Block
promenade. (See TRO Hr’g Tr. at 50:1-10.) In light of this concession, the Court rejects
plaintiffs’ belated and unsupported attempt to dispute this fact. (See Opp’n, Pls.’ Response to
Defs.’ SMF ¶ 9.) Moreover, plaintiffs cannot dispute this fact without any evidence, and
20
The Court also takes notice of the judicial opinions which show how the defacement
statute (when codified at § 22-3112.1) was previously used to prosecute conduct, whether
politically expressive or not, that tangibly altered the appearance of public property in the
District – including the White House. See Bohlke, 116 Daily Wash. L. Rep. at 1697 n.2
(prosecution for defacing White House pillar to protest government actions in Central America);
Frankel, 739 F. Supp. at 632 (prosecution for defacing U.S. capitol to protest condition of the
homeless); Craig v. United States, 523 A.2d 567, 567-68 (D.C. 1987) (prosecution for defacing
municipal bus stop passenger shelter with phrase “Fool’s Gold” and two dollar signs).
Second, the argument that defendants selectively enforced the statute against plaintiffs
because of their views is contradicted by plaintiffs’ allegation that on at least two occasions, the
MPD had advance knowledge of plaintiffs’ intent to demonstrate against abortion through chalk
art and nonetheless permitted plaintiffs to go forward. (See generally Compl. ¶ 56.) In 2004,
Rev. Mahoney, Kaitlin Martinez, and the Christian Defense Coalition allegedly held a chalk
demonstration near Constitution Avenue and 15th Street “in the personal physical presence of”
the previous MPD chief, “who allowed them to carry out the activity.” (Id. ¶ 56(a)(ii).) In 2007,
these same plaintiffs allegedly sought and received the MPD SOD’s advance approval for a
similar chalk art demonstration near George Washington University. (Id. ¶ 56(b)(iv) & (v).)
During that demonstration, members of the public objected to plaintiffs’ expression “and tried to
significantly, in their Rule 56(f) affidavit, they do not even suggest that further discovery might
aid them in filling this enormous evidentiary gap. Instead, they seek to learn about chalking in
locations other than in front of the White House. (See Rule 56(f) Aff. ¶ 4.)
It is also of no significance that uniformed Secret Service officers allegedly did not stop
plaintiffs from chalking on or near the 1600 Block promenade on one occasion in April 2006
(see Compl. ¶ 56(c)(v) & (vi)), since the Secret Service was not acting as defendants’ agent, and
its powers do not extend to granting permits to use the promenade. See generally 18 U.S.C. §
3056 (“Powers, authorities, and duties of United States Secret Service”).
21
have it stopped.” (Id. ¶ 56(b)(vi).) MPD SOD officers intervened, “confirmed that [plaintiffs]
were permitted to conduct the chalk art demonstration, and kept them from being molested while
they completed their demonstration.” (Id. ¶ 56(b)(vii).)
Even construing all the evidence in the light most favorable to plaintiffs, the Court must
conclude that “there is nothing to support the notion that defendants’ denial of [plaintiffs’]
application was neither content-neutral nor based on a desire to promote legitimate governmental
interests.” Bosscher v. Twp. of Algoma, 246 F. Supp. 2d 791, 800 (W.D. Mich. 2003) (granting
motion to dismiss First Amendment claim after rejecting argument that denial of construction
permit was content-based, where defendant’s planning commission had concluded that denial
would serve legitimate content-neutral “aesthetic concerns”).
b) Substantiality of governmental interest and narrow tailoring
Whether the defacement statute’s application to chalking is “narrowly tailored to serve a
significant governmental interest” is a determination of law for the Court. White House Vigil,
746 F.2d at 1528-29; accord Mesa v. White, 197 F.3d 1041, 1046 & n.5 (10th Cir. 1999) (citing
White House Vigil and noting that whether government “demonstrated that [its asserted interest]
is a significant government interest” “is a legal rather than factual question”). Defendants assert
a governmental interest in, among other things, “preserving the aesthetics . . . of the paved part of
Pennsylvania Avenue around the White House . . . .” (See Mot. at 14.) The Court agrees and
concludes that the restriction on chalking is a narrowly tailored means of advancing the
government’s significant interests, which are unrelated to the suppression of expression, in
keeping the 1600 Block promenade free of “visual clutter,” Taxpayers for Vincent, 466 U.S. at
808, and “conserving [District] property” through measures “designed to limit the wear and tear”
to which they are subjected. CCNV, 468 U.S. at 299; see also id. at 297 (“[the Court] think[s]”
22
the government “has a legitimate interest in ensuring that the National Parks are adequately
protected”).
There can be no doubt that “[t]he government has a substantial interest in the preservation
and enhancement of the human environment,” and “aesthetics are a proper focus of
governmental regulation.” White House Vigil, 746 F.2d at 1528. This includes maintaining
property held in trust for the public “in an attractive and intact condition.” CCNV, 468 U.S. at
296 (noting substantial governmental interest in “maintaining the parks in the heart of our
Capital in an attractive and intact condition”) (emphasis added). In some ways, “the
government’s relationship to things under its dominion and control is virtually identical to a
private owner’s property interest in the same kinds of things, and . . . [the government], ‘no less
than a private owner of property, has power to preserve the property under its control for the use
to which it is lawfully dedicated.’” Taxpayers for Vincent, 466 U.S. at 815 n.31 (quoting
Adderley v. Florida, 385 U.S. 39, 47 (1966)). The byways directly in front of the White House
are a “unique resource[] that the Federal Government holds in trust for the American people,”
CCNV, 468 U.S. at 290; see, e.g., White House Vigil, 746 F.2d 1518 (upholding restriction on
display of signs and placards within the “center zone” of the sidewalk outside the White House),
and the District has significant interests in preserving the promenade for use and enjoyment by
the public by “proscribing intrusive . . . formats for expression.” Taxpayers for Vincent, 466
U.S. at 806.
Plaintiffs do not appear to dispute defendants’ substantial interests in maintaining the
visual and structural integrity of the 1600 Block promenade. (See Opp’n at 14 n.3 (“Plaintiffs do
not contend that the District may not impose restrictions on expressive activity in furtherance of
the protection of public property.”).) Nor could they, given that the complaint acknowledges that
23
the promenade has been closed to vehicular traffic since the 1990s, that it was converted to a
pedestrian plaza, and that its paving, “sometimes referred to as ‘rustic paving,’ . . . constitutes an
aesthetically driven selection” of materials that “provide[s] a ‘colored’ street surface different
from typical asphalt surfaces.” (Compl. ¶¶ 87-91.) Instead, plaintiffs claim that no visible signs
of chalking or damage will result if they are permitted to chalk the promenade. To support this
claim, plaintiffs proffer that no such damage appeared after Rev. Mahoney marked a letter “P”
upon the surface on January 24, 2009, nor after the chalk was apparently removed. (Id. ¶¶ 143-
44; see also Opp’n at 15 & n.6.)
This argument is unpersuasive. The government’s interest in enforcing the defacement
statute to protect the 1600 Block promenade should “not be judged solely by reference to the
demonstration at hand” nor by reference to the harm caused (or not caused) by a single letter
written by a single demonstrator. CCNV, 468 U.S. at 296-97. Instead, “courts must look to what
would happen if every individual to which a restriction applies were freed of its limitations,”
Mahoney, 454 F. Supp. 2d at 35, and defendants were compelled to grant each and every request
to chalk the promenade. See Heffron v. Int’l Soc. for Krishna Consciousness, Inc., 452 U.S. 640,
654 (1981) (noting that “there would be a much larger threat to the State’s interest . . . if all other
religious, nonreligious, and noncommercial organizations could likewise” enjoy the place and
manner exemption sought by the plaintiffs). In addition, the significance of the interest “must be
assessed in light of the characteristic nature and function of the particular forum involved.” Id. at
651.
The area near the White House “attract[s] great numbers of visitors who come . . . to see
and experience” the president’s home. Heffron, 452 U.S. at 651 (contrasting commonplace
public streets with state fair). Access to this “unique situs for demonstration activity” is “scarce”
24
because of the many “competing applicants” who hope to use that space. Quaker Action Group,
516 F.2d at 727. “Absent the prohibition on [chalking], there would be other groups who would
demand permission to deliver an asserted message by [chalking the promenade]. Some of them
would surely have as credible a claim in this regard as do[] [plaintiffs], and the denial of
[permission] to still others would present difficult problems for the [MPD].” CCNV, 468 U.S. at
297; see also Mahoney, 454 F. Supp. 2d at 35.
Because permission to chalk “cannot be meaningfully limited to” plaintiffs, Heffron, 452
U.S. at 653, the likely widespread use of chalk art directly in front of the White House would
contribute to visual clutter, thereby undermining the District’s interest in maintaining an area of
singular national importance. See, e.g., Globe Newspaper Co. v. Beacon Hill Architectural
Comm’n, 100 F.3d 175, 183, 187 (1st Cir. 1996); One World One Family Now v. City and
County of Honolulu, 76 F.3d 1009, 1013 (9th Cir. 1996). In addition, basic principles of friction
and erosion suggest that frequent chalking and cleaning efforts would accelerate the “wear and
tear” inflicted upon the rustic paving’s surface. CCNV, 468 U.S. at 299.9
For similar reasons, the restriction on chalking upon the 1600 Block promenade is also
narrowly tailored to serve the government’s substantial interests, because it “target[s] and
[eliminates] no more than the exact source of the ‘evil’ [it seeks] to remedy.” Taxpayers for
Vincent, 466 U.S. at 808.10 “[I]t is the tangible medium of expressing the message” – i.e.,
9
Because courts have long recognized the government’s substantial interests in
promoting aesthetics through the visual and physical maintenance of public property, the Court
need not rely upon the factual assertions of amicus regarding the actual damage caused to the
promenade by chalk art and the power-washing methods used to remove chalk from the surface.
(See Smith Decl. ¶ 4.) Therefore, plaintiffs’ Rule 56(f) requests for discovery as to this issue are
irrelevant to the Court’s analysis.
10
A challenged time, place, or manner restriction need not be “the least restrictive”
method of furthering the government’s interest. Ward, 491 U.S. at 798.
25
chalking – “that has the adverse impact on the appearance of the landscape. . . . Here, the
substantive evil – visual [clutter] – is not merely a possible by-product of the activity, but is
created by the medium of expression itself. . . . [T]herefore, the application of the [restriction] in
this case responds precisely to the substantive problem which legitimately concerns the
[District]” and “curtails no more speech than is necessary to accomplish its purpose.” Id. at 810;
accord White House Vigil, 746 F.2d at 1536 n.112.
It is not for the Court to decide “how much protection the [promenade] require[s] or how
an acceptable level of preservation is to be attained.” CCNV, 468 U.S. at 299. “The validity of
[time, place, or manner] regulations does not turn on a judge’s agreement with the responsible
decisionmaker concerning the most appropriate method for promoting significant government
interests or the degree to which those interests should be promoted.” Ward, 491 U.S. at 800
(internal quotations omitted). Just as challenges to time, place, or manner decisions do not
permit the courts “to replace the Park Service as manager of” Lafayette Park, CCNV, 468 U.S. at
299, they do not permit this Court to replace defendants as stewards of the 1600 Block
promenade.
c) Availability of ample alternative channels of communication
Plaintiffs’ preferred medium may be to chalk the pavement, but “the First Amendment
does not guarantee the right to communicate one’s views at all times and places or in any manner
that may be desired.” Heffron, 452 U.S. at 647. What it requires is that a content-neutral
regulation, such as the chalking restriction, preserves the speaker’s access to ample alternative
channels of communication. That requirement was certainly met here.
“Plaintiffs have not been prohibited from directing their speech activity at a specific
audience at a specific time and place.” Mahoney, 454 F. Supp. 2d at 35. To the contrary, they
26
were given permission to speak through signs, banners, and a demonstration of up to 5,000
people, with no restriction upon their ability to speak aloud, in the very location and times they
wanted. Their only limitation was as to the medium they could use on the promenade, “but that
did not render the restriction a complete prohibition on speech.” Id.
Despite the chalking restriction, plaintiffs were free “to engage in a rich variety of
expressive activities,” such as picketing, marching, carrying signs, singing, shouting, chanting,
performing dramatic presentations, and appealing to passers-by. White House Vigil, 746 F.2d at
1528. “The content of the message they espouse is theirs and theirs alone; they may express
views and employ verbal formulae that would be punished as seditious libel, blasphemy or
obscenity in less free societies.” Id. “In short, the [restriction] leave[s] unaffected a multitude of
possibilities for meaningful protest” on the 1600 Block promenade. Id.; CCNV, 468 U.S. at 299
(finding that ample alternative channels remained for communicating intended political message
despite restrictions on sleeping in Lafayette Park).
In sum, the restriction upon plaintiffs’ ability to demonstrate was a content-neutral and
narrowly tailored means of furthering defendants’ significant aesthetic interests in avoiding
visual clutter and protecting property, while leaving open ample alternative channels for
plaintiffs to communicate their views about abortion. The Court therefore grants summary
judgment on Count II’s cause of action under the First Amendment’s Speech Clause.
2. Count IV: FARPSA
Count IV alleges that defendants violated FARPSA because they supposedly failed to
comply with Regulation 706.9 when invoking the defacement statute to justify denying plaintiffs
permission to chalk the promenade. (Compl. ¶¶ 179-182; see also Pls.’ Opp’n at 25.) Plaintiff’s
argument is without merit, for they misunderstand the MPD’s authority under FARSPA.
27
As declared in FARPSA, it is the District’s policy to permit expressive assemblies,
subject to reasonable restrictions designed to, inter alia, “protect . . . property . . . .” D.C. Code.
§ 5-331.03. The MPD “shall recognize and implement” this policy when enforcing restrictions
on assemblies, id. § 5-331.04(a) (emphasis added), which it can do by imposing reasonable
content-neutral time, place, or manner restrictions through the approval of an assembly plan. See
id. § 5-331.04(b)(1) & (c). Thus, by its plain text, FARPSA mandates that the MPD account for
the protection of property when imposing time, place, and manner restrictions during the
assembly approval process. Defendants’ reliance upon the defacement statute was wholly
consistent with this mandate.
Regulation 706.9 supplements FARPSA by specifying that proposed assembly plans
“shall be approved” if the Chief of Police concludes that nine enumerated criteria have been
satisfied. D.C. Mun. Reg., tit. 24, § 706.9(a)-(i). Put another way, the regulation sets forth nine
grounds for denying a proposed assembly plan. The last of the nine is the only one to directly
reference property interests. See id. § 706.9(i). It gives the Chief of Police discretion not to
approve an assembly plan if she concludes that the proposed event will “create a substantial
possibility of violent, disorderly conduct likely to endanger public safety or to result in
significant property damage.” Id.
Plaintiffs interpret FARPSA and Regulation 706.9 as prohibiting the MPD from
“imposing restrictions on speech in a public forum” in order to protect property unless there is a
chance of “significant property damage” as a result of “violent, disorderly conduct.” (Opp’n at
13 (emphasis added).) In keeping with his reading, plaintiffs contend that defendants could not
prohibit the use of chalk without justifying it by reference to a reasonable prediction of violence
that would cause significant property damage. (Id.) This is an incorrect reading of the statutory
28
regime, because plaintiffs erroneously conflate Regulation 706.9’s provisions for denying an
assembly plan with the rest of FARPSA’s provisions for restricting an assembly plan.
The statutory and regulatory texts clarify that “denials” and “restrictions” are distinct and
independent concepts. For example, the MPD must give written notice when denying an
assembly plan as well as when approving a plan “subject to time, place, or manner restrictions”
that are “objectionable to the applicant.” D.C. Code. § 5-331.06(c)(3); D.C. Mun. Reg., tit. 24, §
706.12. Similarly, the administrative review procedures contemplate appeals of denials, as well
as approvals subject to objectionable restrictions. D.C. Code § 5-331.06(d)(1); D.C. Mun. Reg.,
tit. 24, § 712.1. The MPD may also impose restrictions on an assembly as it occurs, even though
no plan for that event was ever submitted or approved. D.C. Code § 5-331.04(b)(3).
Plaintiffs argue that the restriction on chalking in this instance was an “effective denial”
because plaintiffs were prohibited from engaging in the only manner of speech that they wanted
to employ. (Opp’n at 2.) This blurring of concepts is inconsistent with FARPSA. A “First
Amendment assembly” is defined simply as any “a demonstration, rally, parade, march, picket
line, or other similar gathering conducted for the purpose of persons expressing their political,
social, or religious views.’” See D.C. Code § 5-331.02(1). For purposes of the statute, it is
irrelevant what particular medium of expression a demonstrator chooses to employ; an
“assembly” is still an “assembly.” The approval issued by Commander Crane did, in fact,
approve plaintiffs’ plan to hold an assembly, i.e., to hold a “gathering conducted for the purpose
of [plaintiffs] expressing their . . . religious views.” Id. The fact that this assembly was “subject
to time, place, or manner restrictions” that were “objectionable to the applicant[s],” id. § 5-
331.06(d)(1), does not mean that the MPD denied plaintiffs’ request for an assembly.
The Court concludes that FARPSA’s general policy, which includes the protection of
29
property, empowers the MPD to impose reasonable content-neutral restrictions that are far
broader than Regulation 706.9’s grounds for declining to approve an assembly. Defendants’
reliance upon the defacement statute was consistent with the MPD’s responsibility under
FARPSA to recognize and implement the District’s property-protective policy when imposing
restrictions through the approval of an assembly plan. Because defendants have not violated
FARPSA, Count IV fails as a matter of law.11
III. COUNTS II AND III: RELIGIOUS FREEDOM CLAIMS
A. Count II: First Amendment - Free Exercise Clause
Count II also alleges that defendants’ reliance upon the defacement statute violated
plaintiffs’ First Amendment right to the free exercise of religion. (Compl. ¶¶ 165-72.) Plaintiffs
assert that they are “compelled by the teaching of their Christian faith[] to conclude that the
status of legalized abortion in the United States[] puts their nation in defiance of God’s order for
liberty,” and that this conclusion motivates their social activism. (Id. ¶¶ 43, 45.)
The Supreme Court’s decision in Employment Division, Department of Human Resources
v. Smith, 494 U.S. 872 (1990), clarified that under the Free Exercise Clause, a neutral law of
11
Defendants also argue that plaintiffs may not sue for a violation of FARPSA because
the statute does not create a private right of action. (See Defs.’ Reply in Supp. of Mot. (“Reply”)
[Dkt. 23] at 13-14.) The Court agrees and concludes, in the alternative, that Count IV must be
dismissed on this ground. The most important consideration “is whether the legislature intended
to create a private right of action.” Dial A Car, Inc. v. Transp., Inc., 132 F.3d 743, 744 (D.C.
Cir. 1998) (holding that District statute did not create private right of action); Transamerica
Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 15-16 (1979) (“[W]hat must ultimately be
determined is whether [the legislature] intended to create the private remedy asserted . . . .”).
FARPSA’s legislative history indicates that the D.C. Council ultimately rejected a proposed
provision, § 5-321, that would have expressly provided a private right of action. (See Reply at
13; id., Attach. 1 at 9; id., Attach. 2 at 35-36; id., Attach. 3 at 9.) A private right of action for
statutory violations also appears inconsistent with the statutory scheme, which provides for direct
administrative review of the MPD’s denials of and modifications to assembly plan proposals.
D.C. Code. § 5-331.06(d). See Cort v. Ash, 422 U.S. 66, 78 (1975); accord Dial A Car, 132 F.3d
at 744 (applying Cort).
30
general applicability is not subject to heightened scrutiny. See, e.g., id. at 879 (“[T]he right of
free exercise does not relieve an individual of the obligation to comply with a ‘valid and neutral
law of general applicability on the ground that the law proscribes (or prescribes) conduct that his
religion prescribes (or proscribes).’” (quoting United States v. Lee, 455 U.S. 252, 263 n.3 (1982)
(Stevens, J. concurring in judgment)); Kaemmerling v. Lappin, 553 F.3d 669, 677 (D.C. Cir.
2008). Plaintiffs do not dispute that the defacement statute is facially neutral. (See Opp’n at 18.)
They do, however, contend that it is not generally applicable, because the statutory language
“permit[s] government officials to engage in selective enforcement of that law in a manner that
would burden only those engaging in specified conduct based on religious motivation, and
because [d]efendants have threatened to apply that law in precisely such a selective manner to
[p]laintiffs’ chalk art demonstration.” (Id. at 19.)
The principle of general applicability prevents the government from pursuing legitimate
interests in a manner that has the practical effect of imposing burdens primarily upon conduct
motivated by religious belief. See Church of the Lukumi Babalu Aye, Inc. v. City of Hialeah, 508
U.S. 520, 543 (1993); Am. Family Ass’n, Inc. v. F.C.C., 365 F.3d 1156, 1171 (D.C. Cir. 2004).
Heightened scrutiny of even a facially neutral law is appropriate if the law advances
governmental interests in a “substantial[ly]” “underinclusive” way that “fail[s] to prohibit
nonreligious conduct that endangers these interests in a similar or greater degree than [the
prohibited religiously motivated conduct] does.” Church of Lukumi, 508 U.S. at 543 (holding
that ordinances prohibiting ritual slaughter of animals were not of general applicability).
However, where a law does not have the effect of targeting religious speech “to an extreme
degree,” and it does not impose “extreme burdens [that] are not related to the legitimate
governmental interests served by the regulation,” then it does not run afoul of the general
31
applicability requirement. Am. Family Ass’n, 365 F.3d at 1171.
As discussed, the defacement statute rationally advances the District’s substantial
interests in promoting aesthetics and protecting property. It contains no exemptions that would
show nonreligious defacement more lenience than religiously motivated defacement. There is
also no evidence that any request to chalk the 1600 Block promenade, whether motivated by
secular or religious beliefs, has been granted under FARPSA. There is therefore no basis to
argue that the defacement statute has been selectively enforced to prohibit religiously motivated
defacement in the unique location of the White House area while letting nonreligious defacement
in the vicinity go unchallenged. If anything, defacement motivated by secular political purposes
in that area has been prosecuted, see Bohlke, 116 Daily Wash. L. Rep. at 1697 n.2, while Rev.
Mahoney has not even been charged. Accordingly, plaintiffs’ attack upon the general
applicability of § 22-3312.01 fails. As a result, although the statute incidentally affects
religiously motivated action, plaintiffs cannot raise any free exercise challenge to the law under
Smith’s general rule. See 494 U.S. at 878-81; see also Kaemmerling, 553 F.3d at 677.12
B. Count III: RFRA
Count III alleges that defendants violated plaintiffs’ rights under RFRA. (Compl. ¶¶ 173-
178.) RFRA was enacted as a congressional response to the Supreme Court’s decision in Smith,
and it “expressly adopted the compelling interest test,” rejected by Smith, “‘as set forth in
12
In the alternative, plaintiffs contend that because their claim involves religiously
motivated expression that implicates both the Free Exercise and Speech Clause, this action
presents a “hybrid situation” as discussed in Smith, 494 U.S. at 881-82 & n.1, such that § 22-
3312.01 would be subject to heightened scrutiny. (See Pls.’ Opp’n at 19-20.) Plaintiffs may not,
however, raise a “hybrid claim,” because they do not have an independently viable claim under
the Speech Clause. See Henderson v. Kennedy, 253 F.3d 12, 17 (D.C. Cir. 2001)) (“For this
argument to prevail, one would have to conclude that although the regulation does not violate the
Free Exercise Clause, and although they have no viable First Amendment claim against the
regulation, the combination of two untenable claims equals a tenable one. But in law as in
mathematics zero plus zero equals zero.” (citations omitted)).
32
Sherbert v. Verner, 374 U.S. 398 (1963) and Wisconsin v. Yoder, 406 U.S. 205 (1972).’”
Gonzales v. O Centro Espirita Beneficente Uniao do Vegetal, 546 U.S. 418, 431 (2006) (quoting
42 U.S.C. § 2000bb(b)(1)). Under RFRA, the government13 may not “substantially burden a
person’s exercise of religion” unless “it demonstrates that the application of the burden to the
person” is both “in furtherance of a compelling government interest” and “is the least restrictive
means of furthering that compelling government interest.” 42 U.S.C. § 2000bb-1; Boardley v.
U.S. Dep’t of Interior, 605 F. Supp. 2d 8, 14 (D.D.C. 2009).
RFRA defines “exercise of religion” to include “any exercise of religion, whether or not
compelled by, or central to, a system of religious belief.” 42 § 2000bb-2(4) (incorporating
definition found in § 2000cc-5(7)(A)). “A litigant’s claimed beliefs ‘must be sincere and the
practice[] at issue must be of a religious nature.’” Kaemmerling, 553 F.3d at 677 (quoting
Levitan v. Ashcroft, 281 F.3d 1313, 1320 (D.C. Cir. 2002)). “Because the burdened practice need
not be compelled by the adherent’s religion to merit statutory protection,” what matters is not
“the centrality of the particular activity to the adherent’s religion but rather . . . whether the
adherent’s sincere religious exercise is substantially burdened.” Id. A substantial burden exists
when government action puts “‘substantial pressure on an adherent to modify his behavior and to
violate his beliefs . . . .’” Id. (quoting Thomas v. Review Bd., 450 U.S. 707, 718 (1981). By
contrast, “[a]n inconsequential or de minimis burden on religious practice does not rise to this
level, nor does a burden on activity unimportant to the adherent’s religious scheme.” Id.
Plaintiffs argue that “the threat of enforcement of criminal sanctions under D.C. Code §
22-3312.01 as to [p]laintiffs’ planned chalk art demonstration imposed . . . ‘substantial pressure’
13
Although RFRA no longer applies to state governments, see City of Boerne v. Flores,
521 U.S. 507 (1997), it continues to apply to the District of Columbia. See 42 U.S.C. § 2000bb-
2(1) & (2).
33
on [p]laintiffs in deciding whether to follow through with their religious convictions on this
occasion.” (Pls.’ Opp’n at 22.) The Court accepts plaintiffs’ representations that they are
motivated by sincerely held religious beliefs to engage in the practice of “prayerfully
challeng[ing]” President Obama on the issue of abortion by “express[ing] prayers, thoughts,
views[,] and hopes” to him. (Compl. ¶¶ 54-55.) But plaintiffs do not allege that it is their
sincerely held religious belief that they should express those views to the president through the
specific medium of chalk or in the specific location of the 1600 Block promenade. (See
generally id. ¶¶ 38-45, 53-55.)
Rather, the complaint alleges that “many like-minded individuals” were going to be in the
District area on January 22, 2009 “to express continued opposition” to abortion on the
anniversary of the Roe decision, and that plaintiffs “decided to organize and conduct their chalk
art demonstration” “[w]ith that in mind . . . .” (Compl. ¶¶ 57-60.) Plaintiffs acknowledge that
chalk art is only “part of” their public religious and political expression. (Id. ¶ 56.) The
complaint further clarifies that plaintiffs do not exclusively associate the medium of chalk art
with their religious opposition to abortion, because they allegedly engaged in chalking
demonstrations in solidarity and support of “the persecuted members and adherents of Falun
Gong in Communist China.” (Id. ¶ 56(c)(iv).)
It is clear that these allegations are insufficient to support a claim that the restriction on
plaintiffs’ use of chalk pressured them “to modify [their] behavior and to violate [their] beliefs.”
Thomas, 450 U.S. at 718 (emphasis added). Rather, it only required that they modify their non-
religious choice of expressive medium or location. Compare Henderson v. Kennedy, 253 F.3d
12, 17 (D.C. Cir. 2001)) (finding no substantial burden in restriction upon plaintiffs’ ability to
sell T-shirts on National Mall, because plaintiffs “merely alleged that it is their vocation to
34
spread the gospel by ‘all available means’”), with O Centro, 546 U.S. at 427 (considering
substantial burden caused by federal ban on sacramental use of tea made from natural
hallucinogens), and Comanche Nation v. United States, No. 08-CV-849, 2008 WL 4426621, at
*17 (W.D. Okla. Sept. 23, 2008) (finding substantial burden where planned construction of
government facility would obstruct Native American plaintiffs’ view of religiously significant
landscape and thereby disrupt traditional religious practices). Plaintiffs remain free to act in
accordance with their beliefs. The chalking restriction is, “‘at most[,] a restriction on one of a
multitude of means’” that plaintiffs can use in order to engage in their practice of prayerful
challenge. Boardley, 605 F. Supp. 2d at 14 (quoting Henderson, 253 F.3d at 17). As such, it
does not substantially burden their exercise of religion, and Count III fails as a matter of law.
V. COUNT V: EQUAL PROTECTION CLAIM
Count V alleges that defendants violated plaintiffs’ equal protection rights under the Fifth
Amendment’s Due Process Clause. (Compl. ¶¶ 183-86.) Plaintiffs contend that in preventing
them from applying chalk to the pavement in front of the White House, the District treated them
differently than other “similarly situated” persons who have been permitted to chalk other
sideways or roadways located elsewhere in the District. (Pls.’ Opp’n at 25-26.) As already
noted, the area near the White House is a unique location for First Amendment activity, White
House Vigil, 746 F.2d at 1533, so the fact that defendants have permitted demonstrators to chalk
in other locations does not make them “similarly situated” to plaintiffs.
Permission to chalk on the 1600 Block promenade has not been granted under
FARPSA.14 (See Defs.’ SMF ¶ 9; TRO Hr’g Tr. at 50:1-10.) And it cannot be disputed that the
14
For this reason, plaintiffs cannot base their equal protection claim on the fact that the
District and the Armed Forces Inaugural Committee were permitted to mark the surface with
“some substance” in January 2005. (Pls.’ Opp’n at 27.) FARPSA did not go into effect until
35
defacement statute has, in fact, previously been applied to defacing conduct in that vicinity. See
Bohlke, 116 Daily Wash. L. Rep at 1700. Plaintiffs therefore cannot show that “anyone who was
similarly situated to them . . . was not similarly treated.” Mahoney, 454 F. Supp. 2d at 37
(granting summary judgment for defendants); see also News Am. Publ’g., Inc. v. FCC, 844 F.2d
800, 809 (D.C. Cir. 1988) (applying requirement that “government [must] afford similar
treatment to similarly situated persons” to Fifth Amendment equal protection claim of
discrimination on the basis of speech). Because there is no genuine issue of material fact,
defendants are entitled to summary judgment on Count V.
VI. COUNT VI: CLAIMS ARISING FROM THE JANUARY 24, 2009
DEMONSTRATION
Count VI alleges that an unidentified “John Doe” MPD officer violated Mahoney’s
constitutional and statutory rights when he stopped Mahoney from chalking the 1600 Block
promenade on January 24, 2009, required Mahoney to identify himself, and seized the chalk that
he was using. (Compl. ¶¶ 132-138, 187-98.) Because defendants properly relied upon the
defacement statute when imposing a reasonable place and manner restriction to restrict Mahoney
from chalking in front of the White House, the unidentified MPD officer’s efforts to prevent
Mahoney from violating those restrictions could not abridge Mahoney’s rights under the First
Amendment, Fifth Amendment, or RFRA. See, e.g., Mahoney, 454 F. Supp. 2d at 32-39
(granting summary judgment to defendants on claim by Rev. Mahoney and others that police
officers violated their rights under First Amendment, Fifth Amendment, and RFRA when
restricting or arresting them for seeking to demonstrate protests outside “controlled access area”
April 2005, and its assembly plan approval process did not exist during the 2005 Inauguration.
Moreover, the line that was drawn along Pennsylvania Avenue for the inaugural parade does not
constitute speech, which “requires both some intent to convey meaning and some meaningful
effect.” United States v. Grace, 778 F.2d 818, 821 (D.C. Cir. 1985).
36
near annual Red Mass ceremony). Moreover, even if it could be argued that the officer’s actions
constituted a search or seizure under the Fourth Amendment, which it cannot, the officer had
probable cause to take action after observing Mahoney chalking the promenade in violation of a
criminal defacement statute. See Atwater v. City of Lago Vista, 532 U.S. 318, 354 (2001) (“If an
officer has probable cause to believe that an individual has committed even a very minor
criminal offense in his presence, he may, without violating the Fourth Amendment, arrest the
offender.”). Mahoney therefore fails to state claims under the Constitution or RFRA, and Count
VI will be dismissed as a matter of law.
CONCLUSION
For the foregoing reasons, the Court grants defendants’ motion. A separate Order will
accompany this Memorandum Opinion.
/s/
ELLEN SEGAL HUVELLE
United States District Judge
Date: September 30, 2009
37
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
§
DEAN KEVIN LURIE, M.D., §
Plaintiff, §
§
v. § Civ. Action No. 06-1386 (RCL)
§
MID-ATLANTIC PERMANENTE §
MEDICAL GROUP, P.C. d/b/a § v
KAISER PERMANENTE, et al., § F l L E D
Defendants. § SEP 3 0 2009
§ tNANcYM/avenwnin»ncton,cuzm<
u.s. msta\ct count
MEMORANDUM OPINION
Before this Court is the plaintiff s motion to compel. On consideration of
the motion, the opposition, and the reply thereto, as well as the entire record in this
case, the motion to compel is granted in part and denied in part for the reasons set
forth below. Additionally, as a consequence of this decision, both the motions for
summary judgment are dismissed without prejudice to refile as stipulated in the
separate order that accompanies this memorandum opinion.
I. Introduction
Plaintiff, Dean Kevin Lurie, is a doctor who for some seventeen years was
employed by Mid-Atlantic Permanente Medical Group (MAPMG) and its
predecessor, here in Washington, D.C. and its Maryland suburbs. In October
2005, Dr. Lurie was fired from his position, for, as his employer alleges, falsifying
time records. Dr. Lurie, however, believed his dismissal was based on age
discrimination, and accordingly he submitted his claims to the Equal Employment
Oppoi'tunity Commission in late February 2006. By May 26, 2006, the findings of
the EEOC as well as notice of suit rights had been sent to both Dr. Lurie and the
attorneys for MAPMG. Dr. Lurie filed suit on August 4, 2006, alleging claims
under the Age Discrimination in Employment Act, ERISA, and state common law.
II. Motion to Compel
While the plaintiffs discovery requests are not a model of draftsmanship,
Dr. Lurie still raises several issues about document production that are critical to
resolve before dispositive motions can be properly addressed. Although not
properly identified by the plaintiffs’ motion to compel, as required by Local Rule
26.2(d), it seems that both parties agree that what is disputed is defendants’
compliance with the plaintiffs request for production # 30. Accordingly, the
Court limits its consideration to request for production # 30. Any other relief
sought by the motion to compel shall not be granted by this Court as the plaintiff
has failed to properly notify MAPMG so that it may respond and present the issue
to this Court for its consideration.
Request for production # 30 sought eleven different categories of written
policies and procedures of the defendant. In their response and objections, the
defendant identified certain policies it thought were responsive to the request and
lodged several objections as well. The defendant’s objections, as set forth in their
opposition to the motion to compel will be considered, and then the Court
addresses general and specific problems with MAPMG’S production. First
though, the Court addresses MAPMG’s argument that the motion to compel is
untimely.
Although MAPMG contends that Lurie’s motion to compel is untimely, it
cites no authority for its position that a motion to compel filed outside the
discovery period is untimely per se. Indeed, to the contrary, courts routinely
consider motions related to discovery, even though they are filed outside the
discovery period, especially where the time of filing of such a motion is
attributable, as it is here, to the parties’ attempted settlement of the discovery
dispute. See, e.g., McFaa’a’en v. Ballara', Spahr, Ana’rews, & Ingersoll, LLP, 243
F.R.D. l, ll (D.D.C. 2007) (noting that the federal rules contain no provision
regarding the time of filing for a motion to compel and suggesting that a per se
rule would create perverse incentives in discovery). As the Court considers the
time of filing attributable to the parties’ failure to settle the discovery dispute
within the discovery period, and thus timely, it will consider the motion to compel.
At the outset, the Court notes that a trial court is afforded substantial
discretion in handling discovery matters. Food Lz`on Inc. v. Uniled Fooa’ and
Comrnercz`al Workers In’tl Um`on, 103 F.3d 1007, 1012 (D.C. Cir. 1997) (citing
Brune v. IRS, 861 F.3d 1284, 1288 (D.C. Cir. 1988)). MAPMG also contends that
the policies Lurie seeks are not relevant to the issues to Lurie’s claims or defenses.
Opposz`tz'on at 3. Lurie, however, states that he needs the operative policies and
procedures in order to defend against MAPMG’s motion for summary judgment
on his wrongful discharge claim. MAPMG contests this assertion because it
believes that no Maryland or District of Columbia case has ever "premised a
39
wrongful discharge claim on an employer’s violation of its own policies. Opp’n
at 4. While one could certainly characterize such claims as claims for breach of
contract, and perhaps this should be the proper course, Lurie has cited two cases
(one from Maryland and one from the District) that strongly suggest that a
wrongful discharge claim can be based on an employer’s violation of its own
policies, even though it still would require a contractual obligation on the part of
the employer. Duncan v. Chz`ldren’s Nat’l Med. Ctr., 702 A.2d 207, 213 (D.C.
1997); Haselrig v. Publl`c Storage, Inc., 585 A.Zd 294 (Md. App. l99l). MAPMG
has not pointed to any other cases that affirmatively disclaim the viability of such
a theory. Additionally, the Court notes that relevance, as defined in Rule 26, is
broadly construed. As such the Court can neither say that such policies, as were
operative at the time of Lurie’s termination, would not be relevant to Lurie’s
defense or would preclude his making a claim in tort rather than contract nor that
they are not relevant as contemplated by Rule 26. See Pederson v. Preston, 250
F.R.D. 61, 64 (D.D.C. 2008) (Lamberth, C.J.). lt may be that the operative
policies completely preclude Lurie’s claims, as even the policies that predate his
termination by many years, as well as those after the fact, contain broad
disclaimers regarding the creation of contractual liability. But then again, they
may not.
For example, the plaintiff has attached a sampling of the defendant’s
production, and one of the iterations of the defendant’s "Progressive Discipline
a .»».~.»»,t~,.t....¢.»¢......».»>~.*...»..~t.\ .»...,....,., ..t..,.. . . ..
Policy" states on its first page that it was issued in July 2005, but on the remaining
three pages lists the date of the policy as July 2007. See MG0l642~MG0l645.
This certainly invites some confusion as to whether the operative policy at the
time of Lurie’s termination was indeed produced. And while that policy does
contain a disclaimer of contractual liability, if it was not in fact the operative
policy, the Court cannot decide whether or not Lurie’s claims can proceed. If the
operative policies are no longer in existence, the defendant shall notify the Court
in writing with an explanation as to why the operative policy and procedure has
not been preserved.
Finally, the Court turns to one specific issue. In request for production #
30(A) the plaintiff sought the defendant’s policies regarding the completion of
time records, to which the defendant answered that "there are no policies
specifically pertaining to how a physician is to fill out a time sheet." While there
may be no such policy that exists specifically for physicians, to the extent a policy
about filling out time sheets exists for employees generally, it shall be produced in
the form that was operative at the time of the defendant’s termination. If
physicians are exempted from such a policy, should it exist, any documentation
supporting the exemption shall be produced as well.
"l`o the extent that the defendant identified other policies and procedures
responsive to the plaintiffs request for production # 30, or identified policies it
said it would produce in response, if those policies have not been produced in the
form that was operative at the time of the plaintiffs terinination, they too shall be
produced.
Furthermore, as the purpose of granting this motion to compel is to allow
the Lurie to adequately raise a defense to MAPMG’S motion for summary
judgment, and this order might have some affect on Lurie’s motion for summary
judgment as well, all pending dispositive motions shall be dismissed without
prejudice to refile once compliance with this Court’s order has been met as
directed in the accompanying order.
A separate order shall issue this date.
September@, 2009
ga c. faa/ml
RoY%E C. LRMBERTH
Chief Judge
United States District Court
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COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 2-05-445-CV
KENNETH SMITH AND ALL OCCUPANTS APPELLANTS
V.
ANANIAS FREENEY AND KENNETH WATSON APPELLEES
----------
FROM COUNTY
COURT
AT LAW NO. 1 OF TARRANT COUNTY
----------
MEMORANDUM
OPINION
(footnote: 1)
AND JUDGMENT
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On April 24, 2006, we notified appellants that their brief had not been filed as required by T
EX.
R. A
PP.
P. 38.6(a). We stated we would dismiss the appeal for want of prosecution unless appellants or any party desiring to continue this appeal filed with the court within ten days a response showing grounds for continuing the appeal. We have not received any response.
Because appellants’ brief has not been filed, we dismiss the appeal for want of prosecution.
See
T
EX
. R. A
PP
. P. 38.8(a), 42.3(b).
Appellants shall pay all costs of this
appeal, for which let execution issue.
PER CURIAM
PANEL D: GARDNER, WALKER, and MCCOY, JJ.
DELIVERED: May 18, 2006
FOOTNOTES
1:See
Tex. R. App. P. 47.4.
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
TIG INSURANCE COMPANY, :
:
Plaintiff, : Civil Action No.: 08-0528 (RMU)
:
v. : Re Document Nos.: 11, 12, 13
:
FIREMEN’S INSURANCE COMPANY :
OF WASHINGTON, D.C., :
:
Defendant. :
MEMORANDUM OPINION
DENYING WITHOUT PREJUDICE THE PLAINTIFF’S MOTION TO SEAL; DENYING WITHOUT
PREJUDICE THE DEFENDANT’S MOTION TO COMPEL AND/OR FOR SANCTIONS
I. INTRODUCTION
This matter comes before the court on plaintiff TIG Insurance Company’s (“TIG” or “the
plaintiff”) motion for leave to file a summary judgment motion under seal, and defendant
Firemen’s Insurance Company of Washington, D.C.’s (“Firemen’s” or “the defendant”) motions
to compel and for sanctions. Because the plaintiff has failed to provide the court with sufficient
information to evaluate its motion for leave to file its summary judgment motion under seal, the
court denies that motion without prejudice. Noting that the discovery the defendant seeks may
reasonably have probative value, but further observing that the plaintiff failed to provide a
privilege log the court denies without prejudice the defendant’s motion to compel and/or for
sanctions.
II. FACTUAL & PROCEDURAL BACKGROUND
In August 2001 and again in March 2002, during the completion of Millennium Square
(the “Project”), a one million square foot mixed-use building located in Washington, D.C., the
residential portion of the Project experienced significant flooding. Compl. ¶¶ 6-7. Investigation
of the problem identified leaking from plumbing fittings and fixtures. Id. ¶ 8. At least eleven
residents of the Project filed lawsuits (the “Resident Lawsuits”) against 2200 M Street, LLC
(“2200 M Street”), a limited liability subsidiary of Millennium Partnership, LLP (“Millennum”)
and owner of the Project, in the Superior Court of the District of Columbia and in this court,
seeking compensation for the personal injury and property damage that resulted from the
flooding. Id. ¶ 9.
The Resident Lawsuits resulted in the following insurance coverage and liability actions:
2200 M Street sued a number of the entities responsible for the design and construction of the
Project in the Supreme Court of New York, id. ¶ 10; Millennium sued TIG, which participated in
an Ownership Controlled Insurance Program providing general liability insurance coverage to
Millennium and 2200 M Street, along with the contractors and sub-contractors participating in
the construction of the Project, id.; and Millennium sued Firemen’s, its comprehensive general
liability carrier, seeking to compel Firemen’s to provide Millennium a legal defense and
indemnify it for any losses, id.
The insurance coverage and liability actions against the plaintiff and the defendant were
resolved in accordance with a confidential Settlement Agreement and Release (the “Settlement
Agreement”). Id. ¶ 11. In the Settlement Agreement, the plaintiff assumed the defense of
Millennium, 2200 M Street and other related entities in the Resident Lawsuits, id. ¶ 12, and, the
defendant agreed to pay the plaintiff 25% of the attorney’s fees and expenses incurred in
defending ten of the Resident Lawsuits brought against Millennium, id. ¶ 13.
In March 2008, the plaintiff filed this suit for breach of contract and a declaratory
judgment to establish the defendant’s obligation to fund 25% of the legal fees and expenses
2
incurred in defending Millennium and 2200 M Street. Id. ¶ 1. On August 7, 2008, the defendant
propounded discovery on the plaintiff in the form of interrogatories and requests for production
of documents. Def.’s Mot. to Compel and/or For Sanctions (“Def.’s Mot.”) ¶ 3. Over the next
eleven months, the defendant sent numerous letters to the plaintiff requesting answers to the
interrogatories and the production of the requested documents, including the claim files and the
settlement agreements from the underlying litigation. Id. ¶ 5. The plaintiff informed the
defendant that it would not produce these documents, even though it had previously
acknowledged that such information was discoverable. Id. ¶ 6.
On September 25, 2009, the plaintiff responded to the defendant’s interrogatories and
requests for production of documents by producing the Settlement Agreement and 5,291 pages of
legal bills. Id. ¶ 7. The plaintiff did not, however, comply fully with the defendant’s requests,
claiming that a majority of the interrogatories and documents requested by the defendant were
irrelevant and implicated attorney-client privilege. Id.
On October 20, 2009, the plaintiffs filed a motion for leave to file a summary judgment
motion under seal and to place any future documents relating to the Settlement Agreement under
seal. See generally Pl.’s Mot. to Seal (“Pl.’s Mot.”). On October 23, 2009, the defendant filed a
motion to compel the plaintiff to provide full and complete responses to the interrogatories and
document requests and/or to sanction the plaintiff for failure to provide or participate in
discovery. See generally Def.’s Mot. With both motions now fully briefed, the court turns to the
parties’ arguments.
3
III. ANALYSIS
A. The Court Denies Without Prejudice the Plaintiff’s Motion to File Under Seal
The plaintiff moves for leave to file its summary judgment motion under seal and to place
any future filings which discuss or disclose any of the terms or conditions of the Settlement
Agreement under seal, citing as authority Federal Rule of Civil Procedure 7 and Local Civil Rule
5.1(j). Pl.’s Mot at 1. The plaintiff asserts that its motion for summary judgment should be
sealed because it discusses and attaches the terms of the confidential Settlement Agreement. Id.
Additionally, the plaintiff argues that a seal is necessary because the motion for summary
judgment will necessarily contain confidential information. Id. The defendant counters that the
plaintiff has not satisfied its burden, having failed to provide any support or citation to any
relevant authority. Def.’s Opp’n to Pl.’s Mot. (“Def.’s Opp’n”) at 1. Specifically, the defendant
asserts that the plaintiff’s motion merely cites to the instructions regarding the general form of
sealed pleadings and the procedure for placing a matter under seal, but provides no authority
relevant to whether its summary judgment motion ought to be sealed. Id.
When considering a motion to seal, the court begins with a “strong presumption in favor
of public access to judicial proceedings.” United States ex rel. Schweitzer v. Oce, N.V., 577 F.
Supp. 2d 169, 171 (D.D.C. 2008) (quoting Equal Employment Opportunity Comm’n v. Nat’l
Children’s Ctr., Inc., 98 F.3d 1406, 1409 (D.C. Cir. 1996)); see also In re Sealed Case, 237 F.3d
657, 666 (D.C. Cir. 2001) (citations omitted). Although strong, this presumption is not
irrebutable. The Supreme Court has stated that “[e]very court has supervisory power over its
own records and file, and access has been denied where court files might have become a vehicle
for improper purposes.” Nixon v. Warner Commc’ns, Inc., 435 U.S. 589, 589 (1978) (internal
citations omitted).
4
Whether the public should have access to judicial records and proceedings is a decision
“best left to the sound discretion of the trial court, discretion to be exercised in light of the
relevant facts and circumstances of the particular case.” Nixon, 435 U.S. at 599 (cited in United
States v. Hubbard, 650 F.2d 293, 316-17 (D.C. Cir. 1980)). To aid the court’s analysis, the D.C.
Circuit has established a six-factor balancing test for determining whether documents should be
sealed. These factors are:
(1) the need for public access to the documents at issue; (2) the extent to which
the public had access to the document prior to the sealing order; (3) the fact that a
party has objected to disclosure and the identity of that party; (4) the strength of
the property and privacy interests involved; (5) the possibility of prejudice to
those opposing disclosure; and (6) the purpose for which the documents were
introduced.
Johnson v. Greater Se. Cmty. Hosp., 951 F.2d 1268, 1277 n.14 (D.C. Cir. 1991) (citing Hubbard
650 F.2d at 317-22).
In the present case, the plaintiff’s motion simply asserts that the documents at issue
contain confidential information. Pl.’s Mot. at 1. Yet this assertion alone is not sufficient to
properly evaluate the instant motion under the six-part balancing test articulated by this Circuit.
See Johnstown Feed & Seed, Inc. v. Cont’l W. Ins. Co., 2009 WL 866828, at *2 (D. Colo. Mar.
26, 2009) (recognizing that a motion setting forth only that the documents at issue were
“confidential” and under the court’s protective order was not compelling enough to grant a
motion to seal). Accordingly, the court denies without prejudice the plaintiff’s motion for leave
to file its summary judgment motion under seal. See DBI Architects, P.C. v. Am. Express Travel
Related Servs. Co., 462 F. Supp. 2d 1, 7 (D.D.C. 2006) (denying a motion for leave to file under
seal because the movant failed to provide legal authority for its request); accord Interspan
Distrib. Corp. v. Liberty Ins. Underwriters, Inc., 2009 WL 2588733, at *1 (S.D. Tex. Aug. 21,
2009).
5
A. The Court Denies Without Prejudice the Defendant’s Motion
to Compel and/or For Sanctions
1. Legal Standard for a Motion to Compel
Federal Rule of Civil Procedure 26(b)(1) authorizes discovery “regarding any
nonprivileged matter that is relevant to any party’s claim or defense . . .” FED. R. CIV. P.
26(b)(1). The term relevance “is broadly construed, and “[r]elevant information need not be
admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of
admissible evidence.” Id.; Food Lion, Inc. v. United Food & Commercial Workers Int’l Union,
103 F.3d 1007, 1012 (D.C. Cir. 1997); see also Smith v. Schelinger, 513 F.2d 462, 473 n.37
(D.C. Cir 1975) (noting that “a party may discover information which is not admissible at trial if
such information will have some probable effect on the organization and presentation of the
moving party’s case”). Put another way, “[a] showing of relevance can be viewed as a showing
of need for the purpose of prosecuting or defending a specific pending civil action, [as] one is
presumed to have no need of a matter not relevant to the subject matter involved in the pending
action.” Friedman v. Bache Halsey Stuart Shields, Inc., 738 F.2d 1336, 1341 (D.C. Cir. 1984).
That said, relevancy does not encompass discovery of information with “no conceivable bearing
on the case.” Id. (citing 8 FED. PRAC. & PROD. 2 § 2008). A trial court enjoys considerable
discretion over discovery matters. Id.; United States v. Krizek, 192 F.3d 1024, 1029 (D.C. Cir.
1999).
2. The Court Orders the Plaintiff to Respond to the Defendant’s Discovery Requests
or to Provide a Privilege Log if Appropriate
The defendant seeks disclosure of the plaintiff’s claim files from each of the underlying
cases and information regarding the administration and handling of those suits, as well as
complete answers to the defendant’s interrogatories. Def.’s Mot. ¶ 4. The plaintiff argues that
6
these documents and information are neither relevant nor reasonably calculated to lead to the
discovery of admissible evidence because the defendant is not entitled to challenge the
reasonableness of the legal bills already paid. Pl.’s Opp’n to Def’s Mot. (Pl.’s Opp’n”) at 3.
Alternatively, the plaintiff argues that the defendant needs no additional factual information
beyond what has already been produced in order to evaluate the reasonableness of the legal bills.
Id. The plaintiff asserts that the production of the privileged communications requested by the
defendant may constitute an improper waiver of the attorney-client privilege. 1 Id. Finally, the
plaintiff argues that the defendant is not entitled to sanctions. Id.
The court notes at the outset that relevance is construed liberally, and there is no need to
assure that the information requested is itself admissible, merely that the discovery request is
reasonably calculated to lead to admissible evidence. See Food Lion, 103 F.3d at 1012. Courts
construe the scope of discovery liberally to ensure that litigation proceeds with “the fullest
possible knowledge of the issues and facts before trial,” Hickman v. Taylor, 329 U.S. 495, 501
(1947), and must balance the need for discovery against the burden imposed on the person
ordered to produce the documents. See Katz v. Batavia Marine & Sporting Supplies, Inc., 984
F.2d 422, 424 (Fed. Cir. 1993); Moore v. Hartman, 241 F.R.D. 59, 63 (D.D.C. 2007).
In applying these principles to the present case, the court is persuaded that the billing
documentation regarding the attorney’s fees charged in connection with the underlying cases is
relevant for purposes of Rule 26(b). This Circuit has established that even when attorney’s fees
1
The defendant’s requests include, but are not limited to:
Correspondence between [the plaintiff] and the attorneys defending the
underlying claims regarding the underlying bills and any nonpayment or
reduction[n] of the same . . . [a]ny litigation budgets or cost estimates prepared
by the attorneys defending the underlying litigation . . . [a]ny correspondence
between [the plaintiff] and the attorneys defending the underlying litigation
regarding billing practices, invoices, and payment of defense costs.
Def.’s Mot. ¶ 9.
7
are stipulated in an agreement, the trial court may still inquire into the reasonableness of the fees
claimed. 2 Ideal Elec. Sec. Co. v. Int’l Fid. Ins. Co., 129 F.3d 143, 150 (D.C. Cir. 1997).
Accordingly, despite the plaintiff’s argument that the information requested by the defendant is
not probative of any issue in this litigation, given that the present matter is centered around legal
bills, the discovery propounded on the plaintiff could reasonably result in the production of
admissible evidence pertaining to the reasonableness of the contested bills and is thus relevant.
See id. at 152. Therefore, the benefits gained by the defendant in having access to additional
facts and knowledge regarding the billing practices of the plaintiff outweigh the burden placed
on the plaintiff in gathering the requested information. 3 See Moore, 241 F.R.D. at 63-64
(explaining that any risk of duplicative discovery or burdensomeness is outweighed by the
benefits gained from providing the opportunity to seek relevant information and explore
potentially probative matters). In effect, the court is persuaded that in this case, any burden
placed on the plaintiff is outweighed by the risk of leaving probative matters unexplored. See id.
As for the plaintiff’s argument that some of the information requested is privileged, the
court notes that Rule 26(b)(5)(ii), requires that a party claiming such a privilege “describe the
nature of the documents, communications, or tangible things not produced or disclosed – and do
so in a manner that, without revealing information itself privileged or protected, will enable other
parties assess the claim.” FED. R. CIV. P. 26(b)(5)(ii). The court also recognizes that the plaintiff
did not prepare a privilege log. Def.’s Reply in Support of Def.’s Mot. (“Def.’s Reply”) ¶ 7.
2
The court notes the plaintiff’s contention that this is simply a contractual dispute regarding the
payment of a debt and, as such, it is immaterial that the underlying debt happens to be for
attorney’s fees. Pl.’s Opp’n at 5. The plaintiff does not, however, cite a single authority to
support this distinction.
3
Although the plaintiff alleges that the defendant’s discovery requests are “unduly burdensome”
and “overly broad,” it does not provide any explanation for the undue burden or over-broadness.
See Pl.’s Opp’n at 3.
8
Nevertheless, the court generally does not deem a party to have waived a privilege because it did
not provide an adequate privilege log. See Smith v. Café Asia, 256 F.R.D. 247, 251 (D.D.C.
2009) (citing United States v. Philip Morris Inc., 347 F.3d 951, 954 (D.C. Cir. 2003) (holding
that waiver because of failure to file a privilege log is a serious sanction most suitable for cases
of unjustified delay, inexcusable conduct and bad faith)).
In the present case, the plaintiff failed to provide a privilege log, asserting instead that the
defendant is “cognizant of the nature of the documents that the plaintiff seeks to protect from
disclosure.” Pl.’s Opp’n at 10. Yet the plaintiff’s statement does not satisfy Rule 26(b)(5)(ii),
since it does not provide any specific indication as to why providing the defendant with the
requested documents would violate the attorney-client privilege or would result in the waiver of
the privilege of its insured, Millennium. 4 Id. at 9. Accordingly, the court denies without
prejudice the defendant’s motion to compel discovery and orders the plaintiff to supply full and
complete answers to the interrogatories and to comply with all of the defendant’s document
requests or to provide a privilege log explaining why it is withholding specific documents or
information. Any document, or portion of a document, that the plaintiff withholds to maintain
privilege must be recorded in a privilege log, and adequate justification provided. 5 Because the
4
This Circuit narrowly defines privilege as “the communication from the client to the attorney and
protects only what the client says. It protects what the attorney says to the client only if it will
reveal what the client told the lawyer.” Athridge v. Aetna Cas. & Sur. Co., 184 F.R.D. 200, 209
(D.D.C. 1998). Moreover, the communication must be made “in confidence for the purpose of
obtaining legal advice from the lawyer.” Schefler v. United States, 702 F.2d 233, 245 (D.C. Cir.
1983).
5
It is worth noting that the court does not recognize an implicit attorney-client privilege in all
insured-insurer communications; instead, this privilege arises only when such communication is
for the purpose of pursuing legal representation or the procurement of legal advice. See Linde
Thomson Langworth Kohn & Van Dyke, P.C. v. RTC, 5 F.3d 1508, 1515 (D.C. Cir. 1993) (noting
that communication between the insurer and insured may be for a variety of reasons and only
communication pertaining to legal representation or the procurement of legal advice is afforded
attorney-client privilege). Accordingly, any privilege claimed by the plaintiff should adhere to
this standard.
9
court denies without prejudice the defendant’s motion to compel it also denies without prejudice
its motion for sanctions based on the same conduct.
IV. CONCLUSION
For the foregoing reasons, the court denies without the prejudice the plaintiff’s motion to
seal, denies without prejudice the defendant’s motion to compel discovery and denies without
prejudice the defendant’s motion for sanctions. An Order consistent with this Memorandum
Opinion is separately and contemporaneously issued this 22nd day of June, 2010.
RICARDO M. URBINA
United States District Judge
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UNITED STATES DISTRICT COURT
FILED
FOR THE DISTRICT OF COLUMBIA MAY - 5 2010
Clerk, U.S. District &Bankruptcy
Tyrone Briscoe, ) Courts for the District Of Columbia
)
Plaintiff, )
)
v. ) Civil Action No. 10 0710
)
Chief Judge Annice M. Wagner et aI., )
)
Defendants. )
MEMORANDUM OPINION
This action, brought pro se, is before the Court on its initial review of the complaint,
which is accompanied by an application to proceed in forma pauperis. The Court will grant the
application to proceed in forma pauperis and will dismiss the case pursuant to the screening
provisions of28 U.S.C. § 1915A(a). Under that statute, the Court is required to screen a
prisoner's complaint and dismiss it upon a determination that the complaint fails to state a claim
upon which relief can be granted. See 28 U.S.c. § 1915A(b)(1).
The plaintiff is a District of Columbia prisoner confined at the United States Penitentiary
McCreary in Pine Knot, Kentucky. Invoking 42 U.S.c. § 1983, the plaintiff sues former Chief
Judge Annice M. Wagner of the District of Columbia Court of Appeals, former Assistant United
States Attorney ("AU SA") John Fisher and AUSA James Sweeney, and attorneys Kenneth A.
Rosenau and Susan H. Rosenau, both of whom were appointed in 2001 to represent the plaintiff
in his criminal appeal before the D.C. Court of Appeals. See Complaint ("Compl.") Attachment
(Nov. 21,2001 Order). In the appointment order, Judge Wagner instructed the newly appointed
counsel to file a supplemental brief within 90 days to the plaintiff's pro se "motion ... to dismiss
his indictment and/or to be granted release on bail." Id.
3
The plaintiff sues Judge Wagner apparently for making the aforementioned appointment
of counsel against the plaintiffs wishes, see Compl. at 2-3, the AUSAs for allegedly failing to
respond to his pro se motion (brief), see id. at 2, and his appointed appellate counsel for allegedly
failing to supplement the issues he had raised in his earlier filing and for providing ineffective
assistance of counsel, see id. The plaintiff "is asking to be giving [sic] his pro se rights ... so he
can move to have his indictment dismiss[ ed]." ld. at 3. This court does not have authority to
review orders issued by the D.C. Court of Appeals and, thus, cannot direct the D.C. Court of
Appeals to restore the plaintiff s pro se status. See Fleming v. United States, 847 F. Supp. 170,
172 (D.D.C. 1994) (applying District o.fColumbia Court o.f Appeals v. Feldman, 460 U.S. 462,
482 (1983); Rooker v. Fidelity Trust Co., 263 U.S. 4l3, 415, 416 (1923». "Only the United
States Supreme Court has [the] power" to review the final judgment of a state or District of
Columbia court. ld.
As for the claim of ineffective assistance of appellate counsel, the plaintiff has not stated
that he moved in the D.C. Court of Appeals to recall the mandate, which is "the appropriate
vehicle for mounting a challenge to the effectiveness of appellate counsel." Williams v.
Martinez, 586 F.3d 995, 999 (D.C. Cir. 2009). This Court therefore is without jurisdiction to
entertain that claim via a writ of habeas corpus. See id. (concluding that this Court would have
jurisdiction over a "federal habeas petition asserting ineffective assistance of appellate counsel
after [the petitioner has] moved to recall the mandate in the D.C. Court of Appeals[.]"); 28
U.S.C. § 2254(b)(1)(A) ("An application for a writ of habeas corpus ... shall not be granted
unless it appears that . .. the applicant has exhausted the remedies available [in the local
courts].").
2
Finally, the claims against the AUSAs cannot be maintained because failing to respond to
the plaintiffs pro se filing does not state a claim upon which relief may be granted. Accordingly,
the complaint will be dismissed. I
~A,ti9
Un d States DIstnct Judge
Date: April .J-/, 2010
I A separate Order of dismissal accompanies this Memorandum Opinion.
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In the
United States Court of Appeals
For the Seventh Circuit
Nos. 12-2925 and 12-2981
ADT S ECURITY S ERVICES, INC. et al.,
Plaintiffs-Appellees,
v.
L ISLE-W OODRIDGE F IRE P ROTECTION D ISTRICT and
C HICAGO M ETROPOLITAN F IRE P REVENTION C OMPANY,
Defendants-Appellants,
and
D UP AGE P UBLIC S AFETY C OMMUNICATIONS,
Intervening-Appellant.
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 10 CV 04382—Milton I. Shadur, Judge.
A RGUED A PRIL 22, 2013—D ECIDED JULY 31, 2013
Before W OOD , T INDER, and H AMILTON, Circuit Judges.
H AMILTON, Circuit Judge. In this case we revisit factual
and legal issues concerning the Illinois law establishing
2 Nos. 12-2925 and 12-2981
fire protection districts and one district’s effort to shut
down the private market in fire alarm monitoring
services by substituting for it a less safe and less
reliable system operated by just one chosen vendor.
In 2009 the Lisle-Woodridge Fire Protection District
passed an ordinance under which it took over fire
alarm monitoring for all commercial properties in the
District. The private alarm companies that had previously
provided those services in the District sued, alleging
that the ordinance interfered with their business,
created an illegal monopoly for the District, violated
their constitutional rights, and exceeded the District’s
statutory powers. In an earlier appeal from the district
court’s first order permanently enjoining the District
from implementing the ordinance and granting sum-
mary judgment for the alarm companies, we affirmed
in part, reversed in part, and remanded, finding on
review of summary judgment that the District had the
authority to enforce parts of the 2009 ordinance. We
remanded for the district court to revise its permanent
injunction. ADT Security Svcs., Inc. v. Lisle-Woodridge Fire
Protection District, 672 F.3d 492 (7th Cir. 2012).
On remand the district court held a four-day evidentiary
hearing. The district court issued a modified permanent
injunction that was based on new factual findings that
are more detailed and differ somewhat from the limited
summary judgment record upon which we based our
2012 decision. The District now appeals from the
revised permanent injunction order with a long list of
objections, but it argues primarily that the revised perma-
nent injunction conflicts with our 2012 decision.
Nos. 12-2925 and 12-2981 3
In our 2012 decision, we preserved much of the
District’s authority to enforce its ordinance. But the
evidentiary hearing following our remand showed that
many material facts are actually different from what
we had to assume when we reviewed the grant of sum-
mary judgment, particularly with regard to the statutory
authority for and the motivation and efficacy of the Dis-
trict’s plan. We therefore find, with a few minor excep-
tions, that the modified permanent injunction was a
sound exercise of the district court’s discretion. We
affirm the injunction with a few modifications.
I. Factual and Procedural Background
A. The Parties and Alarm Signaling and Monitoring
Appellant Lisle-Woodridge Fire Protection District
(“the District”) is a specific type of municipal entity
established by the Illinois Fire Protection District Act (“the
Act”), 70 Ill. Comp. Stat. 705/1 et seq. The District pro-
vides fire protection services to residents in the villages
of Lisle and Woodridge, Illinois, and other unincorporated
parts of DuPage County. Under the Act, the District has
the power to set fire codes and to establish standards
for fire alarm and dispatching services. 70 Ill. Comp. Stat.
705/6(i), 705/11. The District funds its work through
taxes and is governed by a board of trustees. See 705/14.
The District does not receive fire alarms directly. Rather,
fire alarms within the District are received and dis-
patched by intervening appellant DuPage Public Safety
Communications, also known as “Du-Comm.” Du-Comm
4 Nos. 12-2925 and 12-2981
is an inter-governmental entity made up of 28 member
police and fire agencies in DuPage County, including
the District. Du-Comm provides emergency dispatch
services to those member agencies.
The plaintiff-appellees are private alarm companies
that provide alarm and monitoring services to com-
mercial properties in the District. For example, a ware-
house, office building, or apartment complex may
contract with an alarm company to install and monitor a
building-wide alarm system. That system receives a fire
alarm signal at the building’s main alarm board from
a smoke detector in the building and then transmits
that signal to the local dispatcher to send emergency
services. The alarm companies also provide monitoring
services: in addition to fire alarm signals, the
alarm boards also send “trouble” and “supervisory”
signals, which indicate to the alarm companies either
that the alarm board is not functioning or that someone
at the premises has interfered with the system (e.g., shut
off a water valve supplying the sprinkler system).
The alarm companies receive the signals at “Central
Stations,” which need not be geographically close to the
customer’s premises. Often an alarm company will have
one company-wide Central Station that it uses to
receive and send dispatch signals for all of its customers.
Prior to this litigation, the plaintiff alarm companies
provided alarm and monitoring services to their cus-
tomers as follows: smoke and fire detectors in a building
would send a signal to the alarm panel in the building,
the alarm panel’s communication device would send a
Nos. 12-2925 and 12-2981 5
signal to the alarm company’s Central Station, and an
operator at the Central Station would make a telephone
call to Du-Comm for dispatching. An alternative to this
“Central Station” model for fire alarm systems is the
“Remote Supervising Station” model in which fire alarm
and monitoring signals are transmitted from buildings
to a facility other than a Central Station, such as a munici-
pal dispatch board.
B. The 2009 Ordinance
In September 2009, the District passed an ordinance
that attempted to overhaul alarm signaling and
monitoring in the District. The ordinance required all
commercial property owners to terminate their contracts
with private alarm companies and instead to adopt and
pay for an alarm and monitoring system provided by
the District. Under the new system, alarm boards at
commercial properties would be equipped with wireless
transmitters owned by the District that would transmit
alarm, trouble, and supervisory signals to a receiving
unit located at the District’s Fire Station 3. The receiving
unit at Station 3 would automatically transmit the
signals to another receiving unit at Du-Comm, which
would then dispatch the relevant emergency response.
The District claimed that it switched to this system,
which the District deemed a Remote Supervising Station
system, because it was experiencing outages and other
problems with the plaintiffs’ private monitoring through
Central Stations, including that alarm notifications were
6 Nos. 12-2925 and 12-2981
delayed and trouble signals indicating outages did not
trigger prompt responses. DC-360 at 3; Freeman 265.1
District officials claimed that the new system would
provide two main advantages over the signaling and
monitoring provided by the private alarm companies:
(1) it was entirely wireless and automated, eliminating
the need for a human-operated telephone call from a
Central Station to Du-Comm and decreasing the time it
took to respond to alarms, and (2) it connected all
signals directly to the District’s own board, allowing
the District to monitor all signals and to ensure that
all outages were addressed.
The District took bids from several companies to set
up the system and provide the wireless transmitters. It
settled on a company called Chicago Metropolitan Fire
Prevention Company — also a defendant and appellant
here. Chicago Metro would supply the transmission
equipment: AES/Keltron-manufactured wireless radio
transmitters for all the properties, the District’s receiving
unit at Station 3, and the second receiving unit at Du-
Comm. (AES and Keltron radios are synonymous.
Coveny 367.) The District sent a notice to all commercial
property owners in the District, informing them that
1
References to the district court docket are noted “DC-[docket
number],” references to the Modified Permanent Injunction,
found in the Appellants’ appendices are noted “MPI [page
number],” and references to the transcript of the evidentiary
hearing held May 24-29, 2012 are noted “[Witness name] [page
number].” Those transcripts are docket numbers 343-45.
Nos. 12-2925 and 12-2981 7
the new ordinance had been adopted and that they
would now be charged $66 per month for the alarm
and monitoring services and for the radio transmitter
and its maintenance. The notice also boldly informed
subscribers: “If you are under contract for monitoring
with another vendor, our ordinance now supersedes
those contracts and makes them null and void.”
C. Proceedings Before the District Court
The alarm companies quickly filed suit in the Northern
District of Illinois, alleging that the ordinance violated
federal antitrust laws and federal constitutional
guarantees of equal protection, due process, and the
right to contract, and that the District did not have the
legal authority to enact the ordinance under the Illinois
Fire Protection District Act. On July 20, 2011, the District
Court granted the alarm companies’ motion for partial
summary judgment, and on August 16, 2011 entered a
permanent injunction enjoining the District from
enforcing and implementing the Ordinance. The
District and Chicago Metro appealed both the summary
judgment order and the permanent injunction.
D. This Court’s 2012 Opinion
On February 27, 2012, we issued an opinion (“ADT I”),
reversing in part and remanding for further proceedings.
See 672 F.3d 492 (7th Cir. 2012). We held that the District
was authorized under the Act to require buildings to be
8 Nos. 12-2925 and 12-2981
connected directly to its dispatching center and to
require that the transmission network be wireless, but
we found that the District was not authorized under
the Act to be the sole provider of the necessary equip-
ment. In essence, we found that the District had fairly
broad authority in its capacity as a fire safety regulator
but little if any authority to step in as a participant (or
the sole participant) in the competitive market for com-
mercial fire alarm signaling and monitoring services.
Looking first to the District’s authority under the Act,
we held that the Act permitted the District to require
property transmitters to connect directly to the District’s
own receiving board and to require that the transmission
system be wireless. Section 11 of the Act permits fire
protection districts to “adopt and enforce fire preven-
tion codes and standards parallel to national standards.”
70 Ill. Comp. Stat. 705/11. We interpreted “parallel” to
mean that the District could choose to require one ac-
ceptable option where national standards contemplated
several acceptable options. ADT I, 672 F.3d at 501.
In the fire protection world, national standards
include the National Fire Protection Association’s
“NFPA 72: National Fire Alarm and Signaling Code” (the
“Code”). The Code contemplates the use of either a
Remote Supervising Station system or a Central Station
system. See NFPA 72 § 8.2, 8.4 (2002).2 Given these options,
2
In our 2012 decision we used the 2010 version of the Code,
but as we will explain below, the 2002 version is the relevant
(continued...)
Nos. 12-2925 and 12-2981 9
we applied our interpretation of “parallel” to mean that
it was within the scope of the District’s authority under
the Act to require the use of a Remote Supervising
Station system to the exclusion of Central Stations. The
Code permitted the use of either Central Stations or a
Remote Supervising Station, and the District’s system was
a Remote Supervising System. We applied the same
interpretation of section 11 to the District’s wireless
requirement and found that it too was “parallel” to the
NFPA Code, which lists wireless radios as one
acceptable method of transmitting signals. See ADT I, 672
F.3d at 502, citing NFPA 72 § 26.6.2.4.1 (2010); see also
NFPA 72 § 8.5.2.4.1 (2002).
We affirmed the district court’s grant of summary
judgment to the extent it held that the District could not
anoint itself or its chosen vendor as the exclusive
provider of the wireless radio transmitters. We found
that the Code did not authorize districts to do so and
instead made property owners responsible for the equip-
ment at their property. ADT I, 672 F.3d at 503 (“The
District, by making itself the sole purveyor, installer,
inspector, tester, and maintainer of the necessary radio
transmitter equipment, has usurped responsibilities
the NFPA code accords to property owners.”).
We remanded to the district court for further proceed-
ings in light of these holdings and to address the issues
2
(...continued)
edition. The sections we relied on in ADT I are substantially
similar in the 2002 edition.
10 Nos. 12-2925 and 12-2981
remaining before the district court. We did not reach
all remaining issues, but we addressed several issues to
guide the district court in future proceedings. We noted
that the District would not likely have an “effective
monopoly” on monitoring and equipment if wireless
transmitters other than the District’s Keltron units
would be compatible with the system, which it seemed
to us was likely. We also noted that we interpreted the
Act as not permitting the District to charge service fees
to its residents beyond the taxes it is authorized to collect.
E. Proceedings on Remand
Upon remand, the district court held an evidentiary
hearing to resolve factual disputes relevant to modifying
the permanent injunction in light of our opinion. The
court heard four days of testimony. Plaintiffs’ witnesses
included Louis Fiore, a consultant on alarm monitoring
and a special expert to the NFPA, and Edward Bonifas,
vice president of plaintiff Alarm Detection Systems.
Defendants’ witnesses included Thomas Freeman, Chief
of the District, James French, the District’s Bureau Chief
for Fire Prevention, Lawrence Coveny of Chicago
Metro, and Brian Tegtmeyer, the executive director of Du-
Comm. Only Fiore was found to be an expert witness. See
Tr. 53, 138-39 (district court permitted Fiore to testify as
expert witness; plaintiffs’ counsel withdrew Bonifas as
opinion witness).3
3
Appellants argue that the district court abused its discretion
in treating Fiore as an expert because the alarm companies
(continued...)
Nos. 12-2925 and 12-2981 11
After the hearing the district court ordered the parties
to submit proposed findings of fact and proposals for
a modified permanent injunction. On July 6, 2012 — seven
days before the District’s submissions were due — the
District passed a new ordinance. DC-360 at 2; Joint Sepa-
rate App. 66-75. The new ordinance repealed the 2009
ordinance and replaced it with a modified set of require-
ments. Under the new 2012 ordinance, the District would
not own any transmitters and would permit property
owners to contract with private companies for alarm
transmission and monitoring and the necessary equip-
ment. But the signals would still need to be transmitted via
the District’s wireless network to the District’s receiver
at Station 3 to be transmitted to the receiver at Du-Comm.
Under this arrangement, the District would collect no
fees from property owners but Du-Comm would
(...continued)
did not provide an expert report prior to the hearing. See Fed.
R. Civ. P. 26(a)(2)(B). But appellants had received Fiore’s
affidavit over a month before the hearing, and it covered
substantially the same ground as his direct testimony. See DC-
287, Ex. 1. The purposes of Rule 26(a)(2) were satisfied because
the appellants had ample time to prepare for Fiore’s testimony
at the hearing and there was no showing of unfair surprise.
To the extent that there were any discrepancies between his
testimony and his affidavit, such differences were harmless.
See Banister v. Burton, 636 F.3d 828, 833 (7th Cir. 2011) (failure
to file 26(a)(2)(B) report was harmless where opposing party
was not surprised by the content of the testimony). The
district court did not abuse its discretion in allowing Fiore
to testify as an expert witness.
12 Nos. 12-2925 and 12-2981
collect fees on its behalf. The District argued before the
district court that the new ordinance mooted the con-
troversy; the plaintiff alarm companies disagreed.
F. Modified Permanent Injunction
On August 7, 2012, the District Court entered a
Modified Permanent Injunction Order and issued ac-
companying factual findings and conclusions of law.
The court adopted the alarm companies’ findings of
fact, conclusions of law, and proposed injunction provi-
sions. In essence, the Modified Permanent Injunction 4
required the District to permit the alarm companies
to receive and transmit signals directly from property
alarm boards (independently of the District) and to re-
transmit those signals to Du-Comm via Central Stations.
Specifically, the injunction barred the District from:
requiring that any fire signals be sent to Station 3
(instead it required that Station 3 be shut down), charging
residents for fire protection services (including any fees
charged by Du-Comm), selling or leasing fire alarm system
equipment, and prohibiting signals from properties from
being sent to Central Stations. The injunction required
the District: to allow alarm companies to use any technol-
ogy equivalent to wireless transmission and compliant
with the NFPA code, to adopt the most current version
of the NFPA code, to refund to property owners fees
4
We refer to the Modified Permanent Injunction simply as
the “injunction,” because it is the injunction we are reviewing
in this opinion.
Nos. 12-2925 and 12-2981 13
collected by the District since the 2009 ordinance took
effect, to direct Du-Comm to cooperate with the
alarm companies so it could receive wireless signals
directly from Central Stations, and to direct Du-Comm
to pre-populate its computer database with names and
addresses of the private alarm companies’ customers
to decrease response times.
The injunction also prohibited the District from
enforcing the new ordinance and redacted the 2009 ordi-
nance in accordance with its provisions. The district
court explained that, although many of the new
provisions of the injunction seem to conflict with ADT I,
that was because many of the factual assumptions that
we had to make in ADT I turned out to be unsupported
by the evidence presented at the hearing. The district
court issued a separate memorandum explaining why
the new ordinance did not moot the controversy.
The District and Chicago Metro appealed. 5 They each
point to many supposed flaws in the injunction and the
accompanying findings of fact and conclusions of law.
Most of their arguments do not persuade us. Rather, we
agree with the district court that the new ordinance did
5
The District also sought a stay of the injunction from this
Court, which we denied in part but granted to the extent that
the injunction required the District to refund the fees it
collected from resident subscribers. ADT Securities, Inc. v. Lisle-
Woodridge Fire Protection District, Order, No. 12-2925; 12-2981
(7th Cir. Sept. 11, 2012) (dismissing Nos. 12-2219 and 12-2220
as moot).
14 Nos. 12-2925 and 12-2981
not effectively moot this controversy. We also find no
clear error in the district court’s factual findings.
Instead, the facts found by the district court after the
evidentiary hearing persuade us that, while the legal
principles of ADT I still stand, given the actual facts
here, the new injunction sets appropriate boundaries
for the District and does not contravene ADT I in most of
the ways that the appellants argue. However, we
find that several parts of the injunction exceed the
proper scope of injunctions. We modify the injunction
by striking the portions requiring the District to refund
fees to subscribers and requiring the District to adopt
the most current versions of the NFPA code. We thus
affirm the injunction with a few modifications.
II. Discussion
The numerous arguments raised by the District and
Chicago Metro on appeal fall into several categories.
They argue that the injunction: (1) contravenes ADT I by
barring the District from enforcing its direct-connect
requirement, (2) exceeds the proper scope of injunctions
by binding a non-party (Du-Comm) and awarding relief
to non-parties (refunds to subscribers), and (3) ignores
the 2012 ordinance that supposedly mooted the contro-
versy or at least should have replaced the 2009 ordinance
in the district court’s analysis.
We have jurisdiction under 28 U.S.C. § 1292 to review
an appeal from an injunction. (Several claims remain
pending before the district court, so there has been no
Nos. 12-2925 and 12-2981 15
final judgment.) We review the district court’s factual
findings for clear error, its entry of the injunction for
abuse of discretion, and its legal conclusions de novo. See
Knapp v. Northwestern Univ., 101 F.3d 473, 478 (7th
Cir. 1996).
Based on the facts revealed at the evidentiary hearing,
we find that the injunction is generally appropriate
and not an abuse of discretion. When we first heard this
case in ADT I, we reviewed the district court’s grant
of summary judgment. We were required to view the
evidence and disputed facts in a light most favorable to
the District and Chicago Metro. But the evidentiary
hearing revealed many material facts to be quite
different in reality from the inferences we were
required to draw in the District’s favor in ADT I,
including such critical issues as the District’s motive in
enacting the ordinance, the efficacy of the new system,
and the District’s authority to implement the new sys-
tem. The District and Chicago Metro object to
many of these findings on appeal, but we reject
those arguments.
Based on these findings, we find that the major elements
of the injunction — shutting down the District’s Station 3
and permitting private Central Stations to receive and
transmit alarm signals — were well within the district
court’s discretion. Commercial properties in the District
must have some form of fire alarm monitoring, but the
District’s plans and requirements for such services
are beyond the District’s legal authority, so it was appro-
priate for the district court to require the District to
16 Nos. 12-2925 and 12-2981
permit private alarm companies to provide that essential
service. Moreover, the facts have revealed that the Dis-
trict’s system is less reliable and more dangerous than
the private alarm companies’ systems, does not comply
with NFPA standards, and interferes with the plaintiffs’
ability to serve their customers.
The 2012 ordinance did not remedy these ills so as
to render this dispute moot. It would have the effect of
continuing to block the alarm companies from
providing alarm monitoring services to customers in
the District. To the extent the injunction includes Du-
Comm even though it is not a party, we find that
the injunctive measures involving Du-Comm are appro-
priate because Du-Comm expressed its willingness
to cooperate in the ways required by the injunction. If Du-
Comm does not follow through, the district court may
need to determine Du-Comm’s exact status with respect
to the injunction, including whether it might be
deemed an agent of the District and already subject to
contempt powers, but we hope that will not be necessary.
Despite our approval of the core elements of the modified
injunction, we take issue with a few of its ancillary ele-
ments.
A. Mootness
We first address the threshold question of whether
the 2012 ordinance mooted this dispute. See Pakovich v.
Verizon LTD Plan, 653 F.3d 488, 492 (7th Cir. 2011). The
District argues that its eleventh-hour repeal of the 2009
ordinance and replacement of it with the new ordinance
Nos. 12-2925 and 12-2981 17
mooted the entire controversy. The District argues
both that the new ordinance rendered the modified
permanent injunction moot and that, at a minimum, the
district court erred by not analyzing the new ordinance
instead of the 2009 ordinance. We find that the 2012
ordinance does not moot the dispute over the
modified permanent injunction. The alarm companies
would still face a variety of injuries stemming from
the new ordinance.
The problem of mootness posed by a defendant’s change
in policy or practice poses a recurring problem when
injunctive relief is sought. “[T]he mere cessation of the
conduct sought to be enjoined does not moot a suit to
enjoin the conduct, lest dismissal of the suit leave the
defendant free to resume the conduct the next day.”
Chicago United Indus., Ltd. v. City of Chicago, 445 F.3d 940,
947 (7th Cir. 2006), citing Friends of the Earth, Inc. v. Laidlaw
Environmental Services (TOC), Inc., 528 U.S. 167, 189 (2000).
But a case may still be moot if there is no reasonable
expectation that the wrong will be repeated. Chicago
United Industries, 445 F.3d at 947-49 (finding it “highly
unlikely” that city would continue to deprive contractor
of fair hearing, but case was not moot with regard to
damages award).
Specifically, “[t]he complete repeal of a challenged law
renders a case moot, unless there is evidence creating a
reasonable expectation that the City will reenact the
ordinance or one substantially similar.” Fed’n of Adver.
Indus. Representatives, Inc. v. City of Chicago, 326 F.3d 924,
930 (7th Cir. 2003). We apply a rebuttable presumption
18 Nos. 12-2925 and 12-2981
that government actors will not repeat objectionable
behavior after an injunction is lifted. Id., citing City of
Mequite v. Aladdin’s Castle, Inc., 455 U.S. 283, 289 (1982)
(case not moot where possibility remained that city
would reenact previously enjoined ordinance language).
This presumption can be rebutted if a local government
reenacts provisions substantially similar to those
initially repealed. See 13C Charles Alan Wright & Arthur
R. Miller, et al., Fed. Prac. & Proc. § 3533.6 (3d ed.) (“repeal
followed by reenactment of provisions similar to those
repealed does not moot a continuing challenge”), citing
Fireman’s Fund Ins. Co. v. City of Lodi, 302 F.3d 928, 936 n.8
(9th Cir. 2002) (new ordinance and repeal of challenged
ordinance while appeals were pending did not moot
appeals where “core disputes between the parties
remain[ed]”).
Here, the new 2012 ordinance did not resolve the dis-
putes between the parties. Under the new ordinance,
alarm companies are permitted to receive alarm and
monitoring signals at Central Stations, but they must
transmit those signals to Station 3 via the District’s
wireless network so that the signals would then be sent
from Station 3 to Du-Comm for dispatching. The District
claims that the new ordinance removes the District
itself from the monitoring business and permits the
alarm companies to provide those services to customers
in the District. But the new ordinance keeps several
requirements from the original ordinance that would
continue to injure the alarm companies by effectively
blocking them from monitoring in the District or that
are beyond the District’s authority to impose.
Nos. 12-2925 and 12-2981 19
The first and most obvious is that the new ordinance
keeps Station 3 as a central part of the District’s
monitoring plan. Under the new ordinance, according to
the District, signals would be sent by Central Stations to
Station 3 and then transmitted to Du-Comm. As we
explain below, Station 3 does not meet the basic safety
requirements to function as an intermediary station
under the Code. The arrangement under the new
ordinance would place even more of the fire alarm sys-
tem’s essential connections at the unsupervised Station 3
without back-up equipment than the original ordinance
would have. This new requirement is not “parallel” to
the Code and therefore is not within the District’s
authority to require under the Act. See 70 Ill. Comp.
Stat. 705/11.
Second, to provide alarm monitoring and signaling,
the alarm companies must join the District’s wireless
network. This network is accessible with only one
specific type of transmitter, which is not the type the
alarm companies use. See Coveny 376, 439. Although
the alarm companies proposed using several other types
of radios in an attempt to work with the District’s
wireless requirement, none are compatible with the
type of network and receiver used at Station 3. Id. at 383-
385. In fact, the new ordinance specifically states that
alarm companies will have to transmit all their signals
to a “Keltron 703 Communications Board” to gain access
to the District’s system. This requirement means that
alarm companies must either replace all of their existing
equipment and transmission technology or they cannot
provide alarm monitoring services to customers in the
20 Nos. 12-2925 and 12-2981
District. See Coveny 439. Excluding alarm companies
from the monitoring business or making it unduly burden-
some for them to participate raises significant concerns
about the anti-competitive effects of this requirement, and
the new ordinance perpetuates rather than solves
this problem.
Third, although the new ordinance technically permits
the alarm companies to receive alarm signals at Central
Stations, it requires the alarm and monitoring signals
also to be sent simultaneously to the District’s Station 3.
Besides the fact that Station 3 does not comply with the
Code, this requirement is problematic because current
alarm transmitters for commercial properties generally
are incapable of sending two signals simultaneously
(i.e., one to the Central Station and one to Station 3).
Bonifas 180-81. Plaintiffs’ witness Bonifas stated that
such dual monitoring is “absolutely not” feasible, because
in the District “there is an installed population of alarm
panels already in place,” a few of which may have the
capability of adding equipment to allow two outputs,
but the “vast majority will not.” Id. He also explained
that, when the District said that dual monitoring was
possible, it used the example of Wal-Mart, which is a
proprietary system and “has control of the alarm equip-
ment that they buy,” and “can choose a product that
automatically has two outputs and hang two transmit-
ters on it and make it work.” Bonifas 180.
Without dual monitoring, alarm companies are effec-
tively precluded from monitoring their equipment
at protected properties because existing transmitters
Nos. 12-2925 and 12-2981 21
will be able to send only one signal and the new
ordinance requires that a signal be sent to Station 3. The
District’s solution for this under the new ordinance is
that the alarm companies would receive trouble and
supervisory signal notifications in batch emails from the
District. But this would not allow the companies to re-
spond properly to these signals. Bonifas described his
company’s procedures for servicing broken equipment
in response to trouble signals, and he explained that an
email-based system is not compatible with this because
emails will not populate the service logs for technicians
in the field. Bonifas 155-56; see also id. at 215-16
(“Email would not put the history into the computer
where we operate our entire 30,000 account base to our
service technicians and dispatch them and let them see
what has happened with the system.”); id. at 184
(“We wouldn’t be able to populate our service log
and make sure that people get out and restore it, as well
as the little tablet in the technician’s hands.”). Like
the wireless network requirement, this requirement
would effectively preclude the alarm companies from
providing monitoring services and raises serious con-
cerns about the anti-competitive effects of the new ordi-
nance.
Thus, there is a reasonable expectation both that the
alarm companies’ complaints will not be satisfied by
the new ordinance and that the new ordinance still
exceeds the scope of the District’s legal authority. The
2012 ordinance did not moot the dispute.
22 Nos. 12-2925 and 12-2981
B. Factual Findings
In ADT I, we reviewed a grant of summary judgment,
so the District benefitted from factual inferences in
its favor and an under-developed record, particularly
with regard to how the District’s plan would address
its concerns about the safety and efficacy of alarm moni-
toring in the District. See 672 F.3d at 496. But the
facts found at the evidentiary hearing cast the District’s
actions in a very different light. Specifically, we have
since learned that under the District’s monitoring,
building alarm boards were out of service at a higher
rate than under the alarm companies’ monitoring. Al-
though the District’s signals were responded to in a
shorter time than those sent from Central Stations, that
advantage easily could be achieved for signals sent
from Central Stations too. And the District’s wireless
network operated on a frequency less reliable than
typical fire alarm network frequencies.6 The district court
6
Other evidence that has come to our attention since ADT I
suggests that the District may have been motivated to adopt the
ordinance not only for the purported safety improvements,
but also for financial gain. A PowerPoint presentation to the
District’s Board proposing the ordinance noted the “revenue
stream” as an advantage of a “District-Owned Network,” and
emails from Keltron to a Municipal Alarm Board Forum
encouraged the District to adopt its own network because
“without the revenue being collected specifically from alarm
subscribers for receiving alarm service, municipalities will
be laying off dispatchers firemen inspectors and other people
(continued...)
Nos. 12-2925 and 12-2981 23
did not clearly err in adopting factual findings based
on these revelations. See MPI Factual Findings ¶¶ 53, 59-
60, 74-76.
1. System Reliability
Before the District took over all alarm monitoring
with the ordinance, the alarm companies received moni-
toring signals through Central Stations and would send
a technician out to assess and repair the alarm equip-
ment. Edward Bonifas, an executive of one of the
plaintiff alarm companies, described how his company
would respond to these signals: “Under trouble signal we
would first notify the client to let them know that the
system is in trouble. If they are under a service contract,
we would dispatch a service person to the building to
determine what the trouble is, make a repair to it and put
the system back to normal again.” Bonifas 155. He ex-
plained that “our service technicians, when they get to
the field, can review the history of the account right on
their PC or tablet while they are standing in the custom-
ers’ building, so they have full information for how the
system has operated.” Bonifas 184. Bonifas testified that
with these procedures, “the average percentage of unre-
stored signals and out-of-service accounts for fire alarm
6
(...continued)
[sic].” See DC-303, Ex. I at 36; Ex. M at 70. The email blames
the “central station industry” for these problems, claiming
that it “is on a mission to take away all municipal monitoring
and keep the revenue for themselves.” DC-303, Ex. M at 70.
24 Nos. 12-2925 and 12-2981
accounts in the District is at or under two percent,” accord-
ing to reports the company generates. Bonifas 161.
Testimony at the hearing revealed much higher out-of-
service rates with the District’s monitoring. Bonifas
testified that he analyzed hundreds of pages of unrestored
signals and out-of-service reports from Du-Comm.
He found that once the District’s system became opera-
tional, over 12 percent of accounts were out of service
at any point in time. Bonifas 185, 195. Under the
District’s system the District receives reports of outages
and trouble and supervisory signals from Du-Comm.
Records indicated that those reports had not been
checked or reviewed at all. Bonifas 204. The District’s
witnesses disputed this number, claiming that the
percent of outages was under 2 percent, Freeman 302-03,
but after hearing testimony from both sides, the district
court credited the testimony of the alarm companies in
its factual findings. MPI Factual Findings ¶ 53. That
finding was not clear error.
2. Response Times
One of the District’s stated aims in passing the 2009
ordinance was to shorten the response times — the time
from when “a detection system noticed a smoke or fire
condition to the time [the District was] notified” or dis-
patch services were sent. See Freeman 265. According to
Du-Comm, it could receive and dispatch alarms from
private Central Stations in less than 60 seconds, but
from Station 3 under the District’s system in less than
30 seconds. Tegtmeyer 466-67. The reason for this dif-
Nos. 12-2925 and 12-2981 25
ference was that all of the addresses and other necessary
dispatch information for the District’s subscribers
were “pre-populated” into Du-Comm’s computers. The
same information for the alarm companies’ customers
was not similarly pre-populated in Du-Comm’s comput-
ers. When pressed, though, Du-Comm’s executive director
testified that Du-Comm would be able to pre-populate its
database to include address and other information for the
alarm companies’ customers, which would then reduce the
average dispatch times for those alarms to less than 30
seconds, the same as if the alarm came in from the Dis-
trict’s Station 3. Tegtmeyer 496; see also id. at 466-67.
3. Radio Network Interference
The evidentiary hearing also revealed that the
District’s new wireless network operates on a less
reliable frequency than fire and safety signals usually do.
The FCC licenses two main types of private (i.e., not for
commercial purposes) radio frequencies: “Public Safety
Pool” and “Industrial/Business.” See 47 C.F.R. § 90.1.
The frequency the District uses to connect the Keltron
units at properties to Station 3 is an “Industrial/Business”
frequency. 7 The industrial/business frequency pool is
for commercial activities and other non-emergency ac-
7
We take judicial notice of the license for this frequency, call
number WQKZ720, which labels the radio service as “IG –
Industrial/Business Pool, Conventional.” Available at FCC
License Search, http://wireless2.fcc.gov/UlsApp/UlsSearch/
searchLicense.jsp (last visited July 29, 2013).
26 Nos. 12-2925 and 12-2981
tivities (such as the “operation of educational, philan-
thropic, or ecclesiastical institutions”). See 47 C.F.R. § 90.35.
This can include taxis, farmers, and other businesses.
See In re Replacement of Part 90 by Part 88 to Revise the
Private Land Mobile Radio Servs. & Modify the Policies
Governing Them & Examination of Exclusivity & Frequency
Assignments Policies of the Private Land Mobile Servs., 12
F.C.C. Rcd. 14307, 14317, 14328 (1997) (“Similarly, frequen-
cies initially set aside for taxicabs (Taxicab Radio Ser-
vice) could be used in rural areas by farmers or in the
operation of mines,” and describing industrial/business
pool as for where, for the most part, “radio is used to
support business operations”). In contrast, the public
safety pool is for police activities, life-support services,
and other activities involving important and emergency
functions, including fire protection. 47 C.F.R. § 90.20.
The alarm companies’ expert testified that the Indus-
trial/Business Pool is less reliable than the Public Safety
Pool because it is less secure and more susceptible to
interruptions: “So someone with a taxicab company that
you have no control over could be on this frequency, key
a microphone for several minutes, and knock out several
AES radios.” Fiore 519. See also In re Replacement of Part 90,
12 F.C.C. Rcd. at 14312 (describing purpose of Public
Safety Pool: “We considered these guidelines necessary
to prevent overcrowding and to maintain the integrity
of critical functions of the users included within
this pool.”).
Thus, the facts revealed by the evidentiary hearing
substantially alter our understanding of the factual back-
Nos. 12-2925 and 12-2981 27
ground of this case. We are no longer required to give
the District the benefit of favorable inferences required
by the summary judgment posture of ADT I, and we
now know more about the District’s motives for its new
monitoring plan and the shortcomings of that new plan
in terms of safety and reliability.
C. The Injunction Compliance with ADT I
Significant new facts were also presented at the eviden-
tiary hearing regarding our analysis in ADT I of the Dis-
trict’s statutory authority under the Act. We held that
the District had the regulatory authority to impose the
“direct connect” requirement — which we understood to
require that alarm signals be sent directly from properties
to a Remote Supervising Station, rather than through
the “middlemen” Central Stations. ADT I, 672 F.3d at
496, 501. We found that opting for a Remote Supervising
Station model instead of a Central Station model was
“parallel” to the NFPA code so that the District had the
authority under the Act to impose the requirement.
The evidentiary hearing after our remand, however,
revealed several facts that alter our analysis of the Dis-
trict’s authority to impose the “direct connect” require-
ment. These findings show that the District’s system is
in fact not any more “direct” than the pre-ordinance
private arrangements because it routes all signals through
Station 3, whereas the prior arrangement similarly
routed signals through Central Stations. Moreover,
Station 3 itself does not comply with national standards.
As actually implemented, therefore, the District’s
28 Nos. 12-2925 and 12-2981
“direct connect” requirement was not within its statutory
authority to impose regulations “parallel to national
standards.” See 70 Ill. Comp. Stat. 705/11. We therefore
find that the district court acted within its discretion in
enjoining the District from requiring all signals to route
through Station 3 rather than Central Stations.
1. Station 3 Not a Remote Supervising Station
First, our reasoning in ADT I rested on the under-
standing that the District’s Station 3 was the Remote
Supervising Station — the facility receiving signals
directly from protected properties with no intermediary
stop in between. But it turns out that Station 3 is not the
Remote Supervising Station. Du-Comm is the Remote
Supervising Station, and signals are transmitted first to
Station 3 before being sent on to Du-Comm. This means
that the District’s “direct connect” requirement is no
more “direct” than the pre-ordinance arrangements, as
both arrangements involved transmitting signals from
point A to B to C: A (property) to B (Station 3 or Central
Station) to C (Du-Comm). The District argues that the
transmission from Station 3 to Du-Comm is not a second
transmission but an “autotransmission” such that the
signal from the property should be understood to be
transmitted from Station 3 to Du-Comm automatically.
But this does not make the path from a protected
property to Du-Comm “direct,” as the signal is still trans-
mitted through Station 3, even if that happens automati-
cally when the system is working as it is supposed to.
Nos. 12-2925 and 12-2981 29
2. Station 3 Does Not Meet NFPA 72 Code Standards
In any event, Station 3 suffers from a second, more
fundamental problem that was revealed during the
evidentiary hearing. It does not conform to the
applicable Code at all. The parties dispute this
vigorously, beginning with which edition of the Code
to use. The District has adopted the 2002 edition of
NFPA 72, so we use that edition of the Code. (As we
explain below, the District is not obligated to adopt or
hold itself to a new edition.) Regardless, the 2002 and
later editions have nearly identical language (albeit
under different section numbers) in the relevant sections.
Compare NFPA 72 § 8.2, 8.4 (2002), with NFPA 72 § 26.3,
26.5 (2010).8
More fundamentally, the parties dispute how the
Code would characterize Station 3 and what require-
ments apply to it as a result. The alarm companies argue
that Station 3 should be considered a “subsidiary station”
under the Code, which the Code defines as a separate,
unsupervised station through which signals can be trans-
mitted to a supervising station. See NFPA 72 § 3.3.192
(2002). As a subsidiary station, Station 3 would be
subject to the Code’s safety, reliability, and security
standards for such a station. See NFPA 72 § 8.2.5.2 (2002).
The District and Chicago Metro argue that Station 3
is not a subsidiary station and is not subject to any
8
The parties submitted hard copies of the NFPA 72 standards,
which are not otherwise readily available. We include the
text of the relevant provisions in the Appendix.
30 Nos. 12-2925 and 12-2981
specific safety or reliability standards. They argue that
the requirements for subsidiary stations are in the
portion of the Code applicable to Central Stations, and
because the District operates a Remote Supervising
Station fire alarm system, those requirements cannot
apply to Station 3.9 They argue instead that Station 3 is
an “alternate location”:
Where permitted by the authority having jurisdic-
tion, fire alarm and supervisory signals shall be per-
mitted to be received at an alternate location
approved by the authority having jurisdiction.
NFPA 72 § 8.4.2.1.2.* (2002).
The term “alternate location” is not defined in the Code,
and the Code does not appear to articulate any require-
ments for “alternate locations.” We asked counsel for
the District during oral argument what requirements
such an alternate location would need to meet, and he
identified none. So the District’s apparent position is
that the Code considers Station 3 to be an “alternate
location” under section 8.4 and as such does not subject
it to any requirements for safety, security, and reliability.
We find the alarm companies’ position — that Station 3
is at least subject to the requirements of a “subsidiary
9
The Code includes separate sections governing Central
Station fire alarm systems and Remote Supervising Station
fire alarm systems: section 8.2 governs Central Stations while
section 8.4 governs Remote Supervising Stations. See NFPA 72
§ 8.2, 8.4 (2002).
Nos. 12-2925 and 12-2981 31
station” under chapter 8 — to be more persuasive than
the District’s position that the station is subject to no
requirements at all.
There are several problems with the District’s inter-
pretation. First, the section it cites as permitting
signals to be routed through an “alternate location”
actually refers to the destination location — the Remote
Supervising Station itself (like Du-Comm), not an inter-
mediary location such as Station 3. See NFPA 72 § 8.4.2.1
(2002) (permitting two options for facilities to serve as
the remote supervising station itself, including an “alter-
nate location”). Any facility serving as the destination
remote supervising station must meet substantive re-
quirements, including that the “remote supervising
station shall have not less than two trained and
competent persons on duty at the remote supervising
station at all times.” NFPA 72 § 8.4.3.5.1 (2002). This
section does not say that the District may designate an
“alternate location” as an intermediary station through
which to route signals before they arrive at the Remote
Supervising Station. In fact, nothing in section 8.4 contem-
plates that alarm signals under a remote supervising
system would be transmitted through an intermediary
station at all. Section 8.4 does contemplate retransmis-
sion in subsection 8.4.3.4, but that applies to transmis-
sions from the Remote Supervising Station to another
location. NFPA 72 § 8.4.4.1 (2002) (alarm signals shall
be immediately retransmitted if the Remote Supervising
Station is at a location other than the public fire services
communications center).
32 Nos. 12-2925 and 12-2981
Second, even if section 8.4’s reference to an “alternate
location” could refer to an intermediary station between
properties and the remote supervising station, it is
unlikely that such a station would not be subject to any
NFPA requirements. The reference note to that section
indicates: “A listed central station might be considered
an acceptable alternate location for receipt of fire alarm
and supervisory signals.” NFPA 72 § A8.4.2.1.2. (2002)
(Such an arrangement was precisely how the District
operated before the 2009 ordinance, with Central Stations
receiving alarm and supervisory signals.) The Code is
otherwise silent as to what an “alternate location” may
be or entail, but its only guidance indicates that the
Code contemplates that it could be a Central Station,
and Central Stations are held to higher standards than
subsidiary stations. Compare NFPA 72 § 8.2.5.2 et seq.
(2002) (listing requirements for subsidiary stations),
with § 8.2.6.2.1 (requirements for Central Stations, in-
cluding two supervising personnel at all times, which
match the personnel requirements for Remote Super-
vising Stations under section 8.4.3.5.1). Thus, on our
reading, section 8.4 does not contemplate an intermediary
station at all, but rather transmission from properties
directly to a supervised station (either a Central Station
or another location meeting the personnel requirements
of section 8.4.3.5.1).
Third, the District’s position seems implausible, as we
doubt that the Code would permit a fire district to do
what the District has attempted to do here: reroute trans-
missions to a receiver in an unsupervised room with
no back-up equipment and no mechanism in place to
Nos. 12-2925 and 12-2981 33
restore signal transmission quickly if there are technical
problems. Chicago Metro’s witness Larry Coveny testified
that if the receiver at Station 3 stopped functioning, the
following steps would have to be taken to repair it: Du-
Comm would have to receive a signal that it was down,
Du-Comm would then call the District, someone at the
District would then call Chicago Metro, and Chicago
Metro would then send someone out to fix the head-end
unit. Coveny 453. This process could likely take several
hours, which we doubt the Code should be interpreted
to permit, since it requires subsidiary stations under
section 8.2 to have redundant equipment functioning
as back-up within 90 seconds. See NFPA 72 § 8.2.5.2.3.
In contrast, the alarm companies’ argument that Station
3 is a “subsidiary station” and must meet the applicable
requirements is a more sensible reading. A “subsidiary
station” is defined as
a normally unattended location that is remote from
the supervising station and is linked by a communica-
tions channel(s) to the supervising station. Intercon-
nection of signals on one or more transmission chan-
nels from protected premises with a communications
channel(s) to the supervising station is performed
at this location.
NFPA 72 § 3.3.192 (2002).
This describes Station 3 in all material respects: it is
unattended, remote from the remote supervising station
(Du-Comm), linked by a communications channel (the
wireless radio network) to Du-Comm, and connects
signals from properties to Du-Comm. The Code defines
34 Nos. 12-2925 and 12-2981
a “supervising station” as “a facility that receives signals
and at which personnel are in attendance at all times to
respond to these signals.” NFPA 72 § 3.3.193 (2002).
We recognize that the requirements for subsidiary
stations are found in section 8.2, which applies to
Central Station fire alarm systems, but this seems the
best fit for Station 3, as section 8.4 does not contemplate
an intermediary station at all.
Thus, either the Code does not contemplate an inter-
mediary retransmitting station at all, or such a station is
a “subsidiary station” and must meet the requirements
of section 8.2.5. We think the latter is the better reading.
So did the alarm companies’ expert, Louis Fiore, who
helped write the Code. He said that “when we wrote 8.4,
we didn’t envision this configuration” (referring to an
intermediary station between properties and the Remote
Supervising Station), but that he would instead apply
the requirements for a subsidiary station from section 8.2
to such a station. See Fiore 109.
As the district court correctly found, Station 3 does
not meet the requirements of section 8.2.5.2 (including
subsection 8.2.5.2.3). It does not have the necessary equip-
ment for a backup channel to be “operational within
90 seconds,” § 8.2.5.2.3, and it does not meet the inde-
pendent certification requirements of “UL 827,” see
§ 8.2.5.2, which require redundant equipment and chan-
nels. Station 3 is not certified by UL 827 and there is only
one receiving unit at Station 3. Coveny 453 (only one
receiving unit at Station 3); Fiore 126-27 (no evidence
that Station 3 meets NFPA Code).
Nos. 12-2925 and 12-2981 35
Thus, the evidentiary hearing revealed that Station 3
does not meet the Code standards, leaving plaintiffs’
Central Stations as the only Code-compliant means of
transmitting alarm signals from properties in the
District to Du-Comm. In light of these facts, the district
court acted within its discretion to require the District
to shut down Station 3. Because the Code requires com-
mercial properties to have fire alarm monitoring, and
the injunction put Station 3 out of commission, only
Central Stations are currently a viable option for alarm
monitoring in the District. The injunction therefore ap-
propriately required the District to permit signals to
be sent to Central Stations so that fire alarm monitoring
in the District would remain compliant with the
NFPA Code.
D. Injunction as Applied to Du-Comm
The injunction also includes provisions requiring the
District to enlist Du-Comm’s cooperation in enabling
Central Stations to monitor. First, in light of the district
court’s finding that Station 3 was not in compliance with
the Code and that the District must therefore permit
Central Stations to transmit and monitor alarm signals,
the district court enjoined the District to:
direct DuComm to cooperate as reasonably required
by the Alarm Companies to implement a procedure
so that central stations can automatically retransmit
fire alarm signals to the DuComm SIS computer and,
to the extent that DuComm upgrades its CAD system
36 Nos. 12-2925 and 12-2981
to receive fire alarm signals through NLETS, ASAP
to PSAP transmissions.
MPI ¶ 5.
Second, given that fire alarm signals received from
Central Stations would take 30 seconds longer to
dispatch than those received from Station 3, but only
because the relevant addresses were not pre-populated
in Du-Comm’s computers, the district court also
ordered the District to:
direct DuComm to cooperate as reasonably required
by the Alarm Companies in the implementation of a
procedure to populate the DuComm CAD system
with the necessary information about the Commercial
Accounts to reduce the time lag in dispatching emer-
gency vehicles and fire trucks, consistent with the
method now being employed by DuComm for the
District’s Commercial Accounts.
MPI ¶ 4.
Appellants and intervenor Du-Comm argue that
these provisions of the injunction improperly bind Du-
Comm, which is not a party to the suit. Federal Rule of
Civil Procedure 65 permits courts to enjoin a party’s
“officers, agents, servants, employees, and attorneys” and
“other persons who are in active concert or participa-
tion” with a party or its officers or agents, so long as
those persons have received actual notice of the injunc-
tion. Fed. R. Civ. Proc. 65(d)(2)(B)-(C). The parties dispute
both whether Du-Comm is an “agent” of the District, given
that it is governed and directed by a board made up of
Nos. 12-2925 and 12-2981 37
representatives from its member agencies, including the
District, see Tegtmeyer 501; Freeman 277-78, and whether
it received sufficient notice of the injunction. District
courts have broad discretion to enjoin third parties who
receive appropriate notice of the court’s injunctive
order. H-D Michigan, LLC v. Hellenic Duty Free Shops S.A.,
694 F.3d 827, 842 (7th Cir. 2012).
As interesting as the problem of the precise legal status
of Du-Comm may be, the injunction does not apply
directly to Du-Comm. It directs the District to “direct Du-
Comm to cooperate.” And Du-Comm’s executive
director Brian Tegtmeyer testified that Du-Comm is able
to cooperate with the District in the ways described by
those paragraphs. At the evidentiary hearing, he testified
about Du-Comm’s ability to pre-populate its computer
with the addresses and information of the alarm com-
panies’ customers. In response to a question asking “if
the alarm companies gave you the same data and you
assign a position for each of those commercial accounts,
you could input it into the same computer, correct?”
Tegtmeyer answered, “I could input the same information
into the computer, the dispatch computer.” Tegtmeyer 496;
see also id. at 489-90 (answering yes, that Du-Comm
could prepopulate if Central Stations gave the informa-
tion, but that “we have never discussed the methodol-
ogy” and “we haven’t done it,” but that Du-Comm
would not need any more equipment to do it).
As to the fifth paragraph, although Du-Comm does not
yet have the capacity to receive the specific type of con-
nection that the alarm companies’ expert testified
38 Nos. 12-2925 and 12-2981
would allow Central Stations to transmit signals directly
to Du-Comm’s computer, the expert testified that
enabling Du-Comm’s computer to do so would involve
a software change that would be an “easy fix.” Fiore 122.
We read paragraphs four and five of the injunction
as imposing a direct obligation on only the District, but
with the understanding that Du-Comm appears ready
to cooperate with the District in carrying out the require-
ments of those paragraphs. If Du-Comm refuses the
requests of its member agency, the District, the district
court may need to consider (a) whether the existing
injunction supports holding Du-Comm in contempt
under Rule 65, particularly whether Du-Comm is an
“agent” of the District and whether Du-Comm
received sufficient notice of the injunction for it to be
bound directly by the injunction, or (b) whether to
consider modifying the injunction after appropriate
proceedings so as to remove any arguable uncertainty.
See Fed. R. Civ. P. 65(d)(2)(B); see also Lake Shore Asset
Management Ltd. v. Commodity Futures Trading Comm’n,
511 F.3d 762, 767 (7th Cir. 2007) (Rule 65’s notice require-
ment means party’s agent falls under Rule 65(d)(2)(B)
or (C) only after the agent in question “is given notice
and an opportunity to be heard,” including the oppor-
tunity to present evidence on the question of its
relation to the party). Although Du-Comm certainly
now has notice of the injunction and has had the oppor-
tunity to dispute its relationship to the District in
this appeal, we need not resolve here whether that meets
Rule 65’s requirements, nor whether Du-Comm is an
agent of the District.
Nos. 12-2925 and 12-2981 39
Unless and until Du-Comm changes its mind about pre-
populating its databases or reprogramming its computer
so Central Stations can automatically transmit signals
there, we need not address those issues. Certainly, the
evidence appears undisputed that these are steps
that would enhance safety by improving response
time and transmission reliability, and we have difficulty
imagining why Du-Comm would resist such improve-
ments. Given Tegtmeyer’s testimony about Du-Comm’s
ability to cooperate on these safety measures, we would
be surprised if Du-Comm chose to contest further the
agency and notice issues under Rule 65. If it does,
the district court can take appropriate steps to ensure
compliance with its injunction.
E. The New Ordinance
For the reasons above, we find that the injunction
appropriately prohibits the District from enacting the
basic components of its monitoring plan in light of the
facts found at the evidentiary hearing because the
District lacks the legal authority to enact its plan. The
District now claims that its 2012 ordinance avoids the
problems posed by its 2009 ordinance and that the in-
junction improperly disregarded it. Rather than
analyzing the new ordinance in light of ADT I and the
evidentiary hearings, the district court enjoined the
District from enforcing the new ordinance and modified
the original ordinance by redacting it to conform with
ADT I and its new factual findings. MPI ¶¶ 20, 1. We
can understand the district court’s reluctance to
40 Nos. 12-2925 and 12-2981
undertake the task of modifying its work on the injunc-
tion to account for the District’s last-second effort to
avoid further litigation. The District passed the new
ordinance just days before its proposed findings and
conclusions and supporting memoranda for the modified
preliminary injunction and summary judgment were due.
But although the 2012 ordinance did not moot the
controversy, it did replace the 2009 ordinance, so the
2012 ordinance is the relevant District action for the
purposes of our analysis and we will directly review its
legality. This keeps the courts from standing on
the shaky ground of requiring the District to revive its
already-repealed ordinance. See, e.g., De Soto Sec. Co. v.
C.I.R., 235 F.2d 409, 411 (7th Cir. 1956) (“The courts can
only interpret congressional acts. They cannot legislate.”).
We find that the following portions of the new
ordinance must be struck to conform it to our opinion
today and in ADT I:
< In section 2.3, the last sentence shall be struck:
“The District shall, however, maintain the Commu-
nications Board for purposes of receiving and
relaying to Du-Comm, Generated Signals transmit-
ted from Affected Properties via networks main-
tained by Licensed Alarm companies, as contem-
plated by the provisions of this Ordinance.”
This sentence conflicts with paragraph 7 of the injunc-
tion, which requires the District to shut down its alarm
board at Station 3. Because we agree with the district
court that Station 3 does not comply with the relevant
portions of the Code, the new ordinance cannot permit
Nos. 12-2925 and 12-2981 41
Station 3 to continue operating, and this sentence must
be struck.
< Section 2.4 shall be redacted as follows:
The Owners of all Affected Properties, on or before
the date for compliance set forth in Section 4.1
hereof, shall engage a Licensed Alarm Company
of the Owner’s choice to provide a wireless radio
connection capable of instantly transmitting all
Generated Signals directly to the Communications
Board maintained by the District for purposes of
receiving, identifying and instantly transmitting
said Generated Signals by wireless radio direct
connection to Du-Comm. Said Generated Signals
shall be delivered directly to the District’s Commu-
nications Board by the Owner’s alarm company by
the method contemplated by Section 3.1 hereof, or
by such alternate method as may be approved by
the Chief of the District’s Fire Prevention Bureau
(“Bureau Chief”) upon application as provided in
Section 3.2, which said approval shall not be
unnecessarily withheld.
All Affected Properties shall be equipped with
wireless radio transmitters capable of sending
Generated Signals through a Licensed Alarm
Company’s wireless radio network, as set forth in
Section 3.1 hereof, which network shall be directly
connected to the District’s Communications Board.
Said wireless transmitters shall each have at least
60 hours of secondary power.
The District cannot require the alarm companies to
transmit signals through a wireless network “directly
42 Nos. 12-2925 and 12-2981
connected to the District’s Communications Board”
because Station 3 does not comply with the Code. The
District also cannot require alarm companies to use its
wireless radio network exclusively, as that network relies
on the receiver at Station 3. Moreover, the District’s
wireless network is compatible with only one type of
wireless radio transmitter. See Coveny at 376, 439. As we
discussed above, requiring a specific type of transmitter
raises substantial antitrust issues. But because we find
that the District can no longer operate Station 3 or
require signals to be transmitted through it, we need not
resolve that issue now.
< Section 2.5 is struck in its entirety, as the District
is not permitted to operate its “Communications
Board,” i.e., Station 3.
< Section 2.6 is struck.
To the extent that the fees Du-Comm assesses are
derivative fees that the District would not have the author-
ity to assess on its own, and because the District cannot
assess fees for fire alarm signaling and monitoring, Du-
Comm cannot assess such fees on the District’s behalf.
See ADT I, 672 F.3d at 504-05.
< In section 3.1, all text following “All Generated
Signals shall be transmitted through a wireless
radio network operated and maintained by a
Licensed Alarm Company,” is struck.
The District cannot require the alarm companies to
connect to Station 3, which renders the rest of the
language about access to the board and applications
for such access superfluous.
Nos. 12-2925 and 12-2981 43
< Section 3.2 is struck in its entirety.
No approval process is necessary because the District
is not permitted to require direct connection to the
board at Station 3 or to Du-Comm.
Given the severability clause in section 8.1, all other
portions of the new ordinance may remain. They need
not be struck, though many will likely be rendered some-
what irrelevant given what remains of the ordinance.
Substantively, the essence of what remains is that com-
mercial property owners are required to use wireless
transmission through private alarm companies.
F. Remaining Issues
We have rejected the District’s and Chicago Metro’s
primary arguments about the district court’s compliance
with ADT I, Du-Comm’s involvement, and the new
ordinance. In addition to these arguments, the District and
Chicago Metro complain about numerous other aspects of
the injunction. We have considered their arguments and
find little merit. Many of their arguments are undeveloped
and unsupported. See United States v. Berkowitz, 927 F.2d
1376, 1384 (7th Cir. 1991) (“We repeatedly have made
clear that perfunctory and undeveloped arguments . . . are
waived (even where those arguments raise constitu-
tional issues).”). But a few of their arguments raise
valid concerns with the injunction, so we modify the
injunction in a few minor respects to account for
those arguments, in addition to the modifications we
made to the 2012 ordinance.
44 Nos. 12-2925 and 12-2981
1. Refunds to Subscribers
First, we agree that paragraph 17 of the injunction is
problematic. It requires the District to “refund to the
affected Commercial Accounts all monies collected by
[the] District for fire alarm monitoring since the inception
of the Ordinance.” MPI ¶ 17. This is problematic because
the subscribers who would receive such refunds are not
parties to this case. See, e.g., McKenzie v. City of Chicago,
118 F.3d 552, 555 (7th Cir. 1997) (“The fundamental prob-
lem with this injunction is that plaintiffs lack standing
to seek — and the district court therefore lacks authority
to grant — relief that benefits third parties.”). While we
realize it may seem more efficient to deal with custom-
ers’ potential claims against the District in this
proceeding, the question of whether and what amount
of refunds such subscribers should receive is sufficiently
complex that it warrants more attention and process
than we can give it on this record. For example, the sub-
scribers who paid for the District’s monitoring services
at least received those monitoring services, even if the
District was not permitted by statute to provide them
and even if the quality and reliability were worse than
promised. So the subscribers may not be entitled to a
complete refund, but rather the refund may need to be
mitigated to account for the reasonable value of the
alarm monitoring services the District actually provided
them during that time. Cf. 26 Williston on Contracts § 68:1
(4th ed.) (award for reasonable value of services rendered
is permitted under unjust enrichment, even when “the
contract is unenforceable because of a lack of capacity
of one of the parties”).
Nos. 12-2925 and 12-2981 45
2. Adopting the Code
Paragraph 9 of the injunction requires the District
to “adopt the current version of the NFPA Code” and to
“adopt such newer versions when they are issued.” MPI
¶ 9. We do not see a legal basis for such a requirement.
Rather, courts have acknowledged which version of
NFPA codes municipalities adopt without commenting
on the propriety of having adopted a version from years
past. See, e.g., Alliance for Mentally Ill v. City of Naperville,
923 F. Supp. 1057, 1062 (N.D. Ill. 1996) (noting “Naperville
adopts the 1991 version of the Life Safety Code (“LSC”),
published by the National Fire Protection Association
(“NFPA”)”), abrogated on other grounds by Hemisphere
Bldg. Co. v. Village of Richton Park, 171 F.3d 437 (7th
Cir. 1999). The Code itself includes no requirement that
municipalities adopt the most recent version. Its “Code
Adoption Requirements” section states merely that “[t]his
Code shall be administered and enforced by the authority
having jurisdiction designated by the governing author-
ity.” NFPA 72 § 1.7 (2002) (language remains same
through 2013 version). Without a legal basis for
requiring that the District adopt the most recent version
of the Code and continue to do so with every revision,
paragraph 9 of the injunction must be removed.
3. Timing
We raise a final concern with the modified permanent
injunction — that its duration is indefinite. It is of course
a permanent injunction, but we can easily imagine that
at some point in the future, the circumstances giving
46 Nos. 12-2925 and 12-2981
rise to the injunction will change and the injunction
may therefore also need to change or may no longer be
necessary. The district court retains the power to
modify the injunction further if the circumstances so
warrant. Given that the injunction addresses this
particular time, current technology, and a current set of
market problems, we are confident that the district
court will keep the door open to necessary modifications
in the public interest, while keeping in mind the themes
and tension underlying this case: balancing a municipal
entity’s legitimate regulatory authority while protecting
the market from unlawful monopolistic activity.
III. Conclusion
The modified permanent injunction generally comports
with ADT I and appropriately enjoins the District’s
activity with regard to alarm monitoring in the District.
The injunction must be modified as noted above with
regard to the new ordinance, the subscriber refunds,
and requiring the District to adopt a certain version of
the NFPA Code. But it is otherwise a reasonable exercise
of the district court’s discretion in light of all the evidence,
particularly the testimony at the evidentiary hearing
following ADT I. The injunction is forceful, but
given the District’s and Chicago Metro’s history of recalci-
trance throughout this litigation, the district court was
justified in taking strong measures.
A FFIRMED AS M ODIFIED .
Nos. 12-2925 and 12-2981 47
APPENDIX
Relevant Portions of NFPA 72 (2002) (all other portions
omitted)
Chapter 1: Administration
1.7 Code Adoption Requirements. This Code shall be
administered and enforced by the authority having juris-
diction designated by the governing authority.
* * * *
Chapter 3: Definitions
3.3.192 Subsidiary Station. A subsidiary station is a
normally unattended location that is remote from the
supervising station and is linked by a communications
channel(s) to the supervising station. Interconnection of
signals on one or more transmission channels from pro-
tected premises with a communications channel(s) to
the supervising station is performed at this location.
3.3.193 Supervising Station. A facility that receives
signals and at which personnel are in attendance at all
times to respond to these signals.
* * * *
Chapter 8: Supervising Station Fire Alarm Systems
8.2 Fire Alarm Systems for Central Station Service. Fire
alarm systems used to provide central station service
shall comply with the general requirements and the use
requirements of Section 8.2.
* * * *
48 Nos. 12-2925 and 12-2981
8.2.5 Facilities.
8.2.5.1 The central station building or that portion of a
building occupied by a central station shall conform to
the construction, fire protection, restricted access, emer-
gency lighting, and power facilities requirements of the
latest edition of ANSI/UL 827, Standard for Safety Central-
Station Alarm Services.
8.2.5.2 Subsidiary station buildings or those portions
of buildings occupied by subsidiary stations shall
conform to the construction, fire protection, restricted
access, emergency lighting, and power facilities require-
ments of the latest edition of ANSI/UL 827, Standard for
Safety Central-Station Alarm Services.
8.2.5.2.1 All intrusion, fire, power, and environ-
mental control systems for subsidiary station buildings
shall be monitored by the central station in accordance
with 8.2.5.
8.2.5.2.2 The subsidiary facility shall be inspected at
least monthly by central station personnel for the
purpose of verifying the operation of all supervised
equipment, all telephones, all battery conditions, and
all fluid levels of batteries and generators.
8.2.5.2.3 In the event of the failure of equipment at the
subsidiary station or the communications channel to the
central station, a backup shall be operational within
90 seconds.
8.2.5.2.4 With respect to 8.2.5.2.3, restoration of a failed
unit shall be accomplished within 5 days.
Nos. 12-2925 and 12-2981 49
8.2.5.2.5 Each communications channel shall be con-
tinuously supervised between the subsidiary station
and the central station.
8.2.5.2.6 When the communications channel between
the subsidiary station and the supervising station fails, the
communications shall be switched to an alternate path.
Public switched telephone network facilities shall be
used only as an alternate path.
8.2.5.2.7 In the subsidiary station, there shall be a com-
munications path, such as a cellular telephone, that is
independent of the telephone cable between the subsidiary
station and the serving wire center.
8.2.5.2.8 A plan of action to provide for restoration of
services specified by this Code shall exist for each sub-
sidiary station.
* * * *
8.4 Remote Supervising Station Fire Alarm Systems
8.4.2* Facilities
8.4.2.1 Fire alarm systems utilizing remote supervising
station connections shall transmit fire alarm and super-
visory signals to a facility meeting the requirements of
either 8.4.2.1.1 or 8.4.2.1.2.
8.4.2.1.1 Fire alarm and supervisory signals shall be
permitted to be received at the public fire service commu-
nications center, at the fire station, or at the govern-
mental agency that has the public responsibility for
taking prescribed action to ensure response upon receipt
of a fire alarm signal.
50 Nos. 12-2925 and 12-2981
8.4.2.1.2* Where permitted by the authority having
jurisdiction, fire alarm and supervisory signals shall be
permitted to be received at an alternate location approved
by the authority having jurisdiction.
8.4.3 Equipment and Personnel
8.4.3.4 Retransmission of an alarm signal, if required,
shall be by one of the following methods, which appear
in descending order of preference as follows: . . .
8.4.3.5.1 The remote supervising station shall have not
less than two trained and competent persons on duty at
the remote supervising station at all times to ensure
disposition of signals in accordance with the require-
ments of 8.4.4.
8.4.4 Operations
8.4.4.1 If the remote supervising station is at a location
other than the public fire service communications center,
alarm signals shall be immediately retransmitted to
the public fire service communications center.
References
A.8.4.2.1.2 A listed central station might be considered
an acceptable alternate location for receipt of fire alarm
and supervisory signals.
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246 F.Supp. 1022 (1965)
Inez UTZINGER, now Inez Hillis, as Administratrix of the Estate of Oliver T. Utzinger, deceased, and in her own behalf, Plaintiffs,
v.
The UNITED STATES of America, Defendant.
Civ. A. No. 5713.
United States District Court S. D. Ohio, W. D.
April 13, 1965.
Augustus Beall, III, Cincinnati, Ohio, and Harry Alan Sherman, Pittsburgh, Pa., for plaintiffs.
Arnold Morelli, Cincinnati, Ohio, and Daniel E. Leach, Washington, D. C., for defendant.
JOHN W. PECK, District Judge.
Plaintiff alleges in her complaint that her decedent received fatal injuries and that she sustained severe personal injuries as the result of a collision on the navigable waters of the Ohio River. The accident occurred on the night of August 27, 1963, when an outboard motor cruiser operated by her decedent, in which plaintiff was a passenger, collided with the steel rails of an abandoned loading dock within said waters. This cause is presently before the Court on defendant's motion for summary judgment.
Plaintiff brought this action under the Federal Tort Claims Act, 28 U.S. C. § 2671 et seq., and under 28 U.S.C. § 1346(b), alleging that defendant, acting through the Secretary of the Army and the Army Corps of Engineers, was negligent in failing to protect the navigability of said waters and in failing to remove the obstruction therein or to otherwise warn decedent of its presence. Defendant has moved for summary judgment on the ground that sole jurisdiction is in admiralty under the Suits in Admiralty Act, 46 U.S.C. § 741 et seq., as amended. The motion originally contained a second *1023 ground in which defendant denied ownership of the obstruction, but a factual conflict having developed, this ground will not here be considered. There is no genuine issue as to any material fact and the case is in proper posture for summary judgment.
It is fundamental that the United States may only be sued in instances in which Congress has waived the sovereign immunity, and the Federal Tort Claims Act is an instance of such waiver. Section 2680, Title 28 U.S.C. provides, however:
"The provisions of this chapter and section 1346(b) of this title shall not apply to * * *
"(d) Any claim for which a remedy is provided by sections 741-752, 781-790 of Title 46, relating to claims or suits in admiralty against the United States."
Section 742 of Title 46, provides in part that:
"In cases where if such vessel were privately owned or operated, or if such cargo were privately owned or possessed, or if a private person or property were involved,[1] a proceeding in admiralty could be maintained, any appropriate nonjury proceeding in personam may be brought against the United States * * *." (Emphasis supplied).
The law is well settled that for the purpose of determining admiralty jurisdiction the place where the tort occurred is controlling. Smith v. Lampe, 64 F.2d 201 (6th Cir. 1933); Mings v. United States, 222 F.Supp. 996 (S.D.Cal. C.D.1963); Beeler v. United States, 224 F.Supp. 973 (W.D.Pa.1964); Weinstein v. Eastern Airlines, Inc., 316 F.2d 758 (3rd Cir. 1963), cert. denied 375 U.S. 940, 84 S.Ct. 343, 11 L.Ed.2d 271; 2 C.J. S. Admiralty § 59, p. 114. "If the tort occurred on navigable waters, the claim is one that lies within the jurisdiction of admiralty; nothing more is required." Weinstein v. Eastern Airlines, Inc., supra, 316 F.2d at 761.
It is established by the complaint that the accident occurred within and upon the navigable waters of the Ohio River. Further, there can be no doubt but that an action could be maintained by plaintiff if a private person were involved. Therefore, it is here concluded that this action is one properly cognizable in admiralty and that it cannot be maintained under the Federal Tort Claims Act.
It has been held that filing an action on the civil side of the court rather than the admiralty side is jurisdictional rather than procedural. Beeler v. United States, supra. This proposition is thoroughly discussed and resolved in Beeler, 224 F.Supp. at pages 975-976 and the Court is in agreement with the conclusion reached therein.[2]
It is accordingly here determined that defendant's motion for summary judgment should be sustained, and an entry sustaining the motion and entering judgment for the defendant may be presented.
NOTES
[1] This language was added to the Act by a 1960 amendment. The authorities submitted by plaintiff to the effect that the action herein may properly be brought under the Federal Tort Claims Act were decided prior to 1960, at a time when a remedy for certain maritime torts did exist under the Tort Claims Act, and are not felt to be otherwise applicable here.
[2] But cf. Mings v. United States, supra, where plaintiff was permitted to transfer the case to the admiralty side when the case arose under defendant's motion to dismiss.
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Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
08/14/2020 08:08 AM CDT
- 169 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
CANDYLAND, LLC v. NEBRASKA LIQUOR CONTROL COMM.
Cite as 306 Neb. 169
Candyland, LLC, a Nebraska limited liability
company, doing business as “Kandi’s,” appellant,
v. Nebraska Liquor Control Commission,
an agency of the State of Nebraska,
et al., appellees,
___ N.W.2d ___
Filed June 19, 2020. No. S-19-535.
1. Judgments: Jurisdiction: Appeal and Error. Determination of a juris-
dictional issue which does not involve a factual dispute is a matter of
law which requires an appellate court to reach its conclusions indepen-
dent from a trial court.
2. Administrative Law: Liquor Licenses: Parties: Words and Phrases:
Appeal and Error. Under the Nebraska Liquor Control Act, the defi-
nition of “party of record” in Neb. Rev. Stat. § 53-1,115(4) (Cum.
Supp. 2018) controls for purposes of the Administrative Procedure
Act’s requirement that all parties of record shall be made parties to
the proceedings for review in a review of the Nebraska Liquor Control
Commission’s proceedings.
3. Administrative Law: Jurisdiction: Appeal and Error. For a district
court to acquire jurisdiction to review a final decision of an administra-
tive agency under the Administrative Procedure Act, the appellant must
file the petition and serve summons.
4. Administrative Law: Service of Process: Time. Service on nongovern-
mental entities under Neb. Rev. Stat. § 84-917(2)(a)(i) (Reissue 2014) is
required within 30 days of the filing of the petition.
Appeal from the District Court for Lancaster County: Jodi
L. Nelson, Judge. Appeal dismissed.
Kyle J. McGinn and William F. McGinn, of McGinn,
Springer & Noethe, P.L.C., for appellant.
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306 Nebraska Reports
CANDYLAND, LLC v. NEBRASKA LIQUOR CONTROL COMM.
Cite as 306 Neb. 169
Douglas J. Peterson, Attorney General, Milissa Johnson-
Wiles, and James Smith, Solicitor General, for appellees.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, Papik,
and Freudenberg, JJ.
Per Curiam.
NATURE OF CASE
Candyland, LLC, applied to the Nebraska Liquor Control
Commission (Commission) for a retail Class C liquor license.
After the Omaha City Council recommended denial and hun-
dreds of “Protestants, Citizen Objectors, and Interested Parties”
appeared in person or by writing before the Commission,
the Commission denied Candyland’s application. Candyland
attempted to appeal the order of the Commission to the dis-
trict court for Lancaster County under the Administrative
Procedure Act (APA). Candyland did not believe that the citi-
zen objectors were necessary parties and did not serve sum-
mons on the citizen objectors. Subsequently, the district court
found that Candyland had not served “[a]ll parties of record”
as required by Neb. Rev. Stat. § 84-917(2)(a)(i) (Reissue
2014) of the APA and dismissed the petition for review for
lack of subject matter jurisdiction. Candyland filed a motion
for a new trial, which was denied. Candyland appeals the
district court’s orders in which it dismissed the petition and
denied the motion for new trial. We conclude the district
court did not err. The district court lacked subject matter
jurisdiction under the APA, and likewise, we lack jurisdiction.
Accordingly, we dismiss this appeal.
STATEMENT OF FACTS
On June 18, 2018, Candyland applied to the Commission for
a retail Class C liquor license for a business on Blondo Street
in Omaha, Douglas County, Nebraska. In July, the Omaha
City Council conducted a hearing on Candyland’s application
and approved a resolution that recommended it be denied.
The case proceeded to the Commission, which held a hearing
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CANDYLAND, LLC v. NEBRASKA LIQUOR CONTROL COMM.
Cite as 306 Neb. 169
on the application on October 10. Hundreds of “Protestants,
Citizen Objectors, and Interested Parties” appeared in person
or by writing for the Commission hearing. On October 29, the
Commission denied Candyland’s application.
On November 15, 2018, pursuant to the APA, Candyland
filed a petition on appeal in the district court for Lancaster
County. The petition named as respondents the Commission,
the City of Omaha, and the hundreds of “Protestants, Citizen
Objectors, and Interested Parties.” On the same day, Candyland
filed a “Motion for Service by Publication on Respondent
Protestants and Citizen Objectors.” Candyland served sum-
mons on the Commission and the City of Omaha.
On December 14, 2018, the district court held a hearing on
Candyland’s motion for service by publication. The district
court overruled the motion, evidently indicating that citizen
objectors were not necessary parties to the case.
On May 3, 2019, the district court dismissed Candyland’s
petition for lack of subject matter jurisdiction. It found that
Candyland had failed to obtain service of summons on the
citizen objectors, without which there could be no jurisdiction.
The court rejected Candyland’s argument that the volume of
citizen objectors would have made individual service onerous.
The court noted that it was undisputed that none of the indi-
viduals had been served but acknowledged in a footnote that
it had previously erred when it had observed that the citizen
objectors were not necessary parties.
Candyland appeals.
ASSIGNMENTS OF ERROR
In its appeal from the district court, Candyland assigns,
summarized and restated, that the district court erred when
it (1) denied Candyland’s motion for service by publica-
tion and dismissed its petition for failure to obtain service;
(2) concluded that citizen objectors were parties of record
and necessary to vest subject matter jurisdiction; and (3)
required Candyland to serve citizen objectors, thereby denying
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CANDYLAND, LLC v. NEBRASKA LIQUOR CONTROL COMM.
Cite as 306 Neb. 169
Candyland access to courts, in violation of Neb. Const. art. I,
§ 13. For purposes of our analysis, we consider Candyland’s
assignments of error in reverse order.
STANDARDS OF REVIEW
[1] Determination of a jurisdictional issue which does not
involve a factual dispute is a matter of law which requires an
appellate court to reach its conclusions independent from a trial
court. Retroactive, Inc. v. Nebraska Liquor Control Comm.,
298 Neb. 936, 906 N.W.2d 328 (2018).
ANALYSIS
In this case, the district court determined that it lacked
subject matter jurisdiction because Candyland had not served
citizen objectors. The district court dismissed the petition.
As explained below, we agree with the district court’s ruling.
Where the district court lacked subject matter jurisdiction, we
likewise lack jurisdiction and dismiss Candyland’s appeal. See
In re Estate of Evertson, 295 Neb. 301, 889 N.W.2d 73 (2016).
Candyland Did Not Preserve Its Constitutional
Challenge to § 25-508.01.
In the September 19, 2019, order by which this case was
moved to this court’s docket, we noted that the constitutional
issue raised by Candyland’s third assignment of error, regard-
ing Neb. Rev. Stat. § 25-508.01 (Reissue 2016), had not been
preserved. Accordingly, as we previously concluded, we do not
consider Candyland’s constitutional challenge.
Citizen Objectors Are Parties of Record
Who Should Be Served.
[2] Candyland contends that citizen objectors were not
parties necessary to confer jurisdiction on the district court.
We reject this argument. “Parties of record” who must be
served under the APA is defined solely based on statute. See,
§ 84-917(2)(a)(i); Retroactive, Inc. v. Nebraska Liquor Control
Comm., supra; Kozal v. Nebraska Liquor Control Comm.,
297 Neb. 938, 902 N.W.2d 147 (2017). Recently, we held
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CANDYLAND, LLC v. NEBRASKA LIQUOR CONTROL COMM.
Cite as 306 Neb. 169
that under the Nebraska Liquor Control Act, “the definition
of ‘party of record’ in § 53-1,115(4) controls for purposes
of the APA’s requirement that ‘[a]ll parties of record shall be
made parties to the proceedings for review’ in a review of the
Commission’s proceedings.” Kozal v. Nebraska Liquor Control
Comm., 297 Neb. at 948, 902 N.W.2d at 155. It follows that
the definition provided by the Nebraska Liquor Control Act
in Neb. Rev. Stat. § 53-1,115(4) (Cum. Supp. 2018) “is the
controlling definition of ‘party of record’ for purposes of APA
review of the Commission’s proceedings.” Kozal v. Nebraska
Liquor Control Comm., 297 Neb. at 948, 902 N.W.2d at
155-56. Accord Retroactive, Inc. v. Nebraska Liquor Control
Comm., supra.
Turning to the statutory definition, § 53-1,115(4) provides:
For purposes of this section, party of record means:
(a) In the case of an administrative proceeding before
the commission on the application for a retail, bottle club,
craft brewery, or microdistillery license:
(i) The applicant;
(ii) Each individual protesting the issuance of such
license pursuant to subdivision (1)(b) of section 53-133;
(iii) The local governing body if it is entering an
appearance to protest the issuance of the license or if it
is requesting a hearing pursuant to subdivision (1)(c) of
section 53-133; and
(iv) The commission.
There is no dispute that some number of individuals pro-
tested the issuance of the license to Candyland. The district
court did not err when it concluded that for purposes of
§ 84-917(2)(a)(i), protestants or citizen objectors were parties
of record. See § 53-1,115(4).
Dismissal for Failure to Serve Citizen
Objectors Was Not Error.
[3] It is well settled that for a district court to acquire juris-
diction to review a final decision of an administrative agency
under the APA, the appellant must file the petition and serve
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CANDYLAND, LLC v. NEBRASKA LIQUOR CONTROL COMM.
Cite as 306 Neb. 169
summons. See, J.S. v. Grand Island Public Schools, 297 Neb.
347, 899 N.W.2d 893 (2017); Northern States Beef v. Stennis,
2 Neb. App. 340, 509 N.W.2d 656 (1993).
In its December 2018 order, the district court denied
Candyland’s motion to serve citizen objectors by publica-
tion, but according to the court’s later order of May 3, 2019,
it recognized that it had erroneously believed in December
2018 that the citizen objectors were not “necessary parties.”
To the extent that the district court had dismissed the citizen
objectors in December and thereby purportedly acquired juris-
diction by virtue of a timely filed petition and service on the
Commission and the City of Omaha, such order was a nullity.
A court cannot create or confer jurisdiction in itself. See State
v. Lotter, 301 Neb. 125, 917 N.W.2d 850 (2018), cert. denied
___ U.S. ___, 139 S. Ct. 2716, 204 L. Ed. 2d 1114 (2019).
Further, even if service by publication could be appropri-
ate, about which we make no comment, the motion was not
accompanied by a showing by affidavit required by Neb. Rev.
Stat. § 25-517.02 (Reissue 2016), and therefore the motion for
service by publication was properly denied.
With respect to proper service on the citizen objectors,
there has been considerable discussion in this appeal regarding
the time during which Candyland was required to serve the
citizen objectors. In their appellate briefs, the parties asserted
that Candyland was required to serve the citizen objectors
within 30 days of filing the petition. However, at oral argu-
ment, the Commission asserted that Candyland had 180 days
to serve the citizen objectors, in accordance with Neb. Rev.
Stat. § 25-217 (Reissue 2016). This assertion caused this court
to order supplemental briefing, the result of which was that
the Commission asserted service was required in 180 days,
the City of Omaha asserted 30 days, and Candyland asserted
180 days.
The time by which Candyland was required to serve the citi-
zen objectors is controlled by the APA. Section 84-917(2)(a)(i)
of the APA provides as follows:
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CANDYLAND, LLC v. NEBRASKA LIQUOR CONTROL COMM.
Cite as 306 Neb. 169
Proceedings for review shall be instituted by filing a peti-
tion in the district court of the county where the action
is taken within thirty days after the service of the final
decision by the agency. All parties of record shall be
made parties to the proceedings for review. If an agency’s
only role in a contested case is to act as a neutral fact-
finding body, the agency shall not be a party of record.
In all other cases, the agency shall be a party of record.
Summons shall be served within thirty days of the fil-
ing of the petition in the manner provided for service of
a summons in section 25-510.02. If the agency whose
decision is appealed from is not a party of record, the
petitioner shall serve a copy of the petition and a request
for preparation of the official record upon the agency
within thirty days of the filing of the petition. The court,
in its discretion, may permit other interested persons
to intervene.
(Emphasis supplied.) Neb. Rev. Stat. § 25-510.02 (Reissue
2016), to which reference is made in § 84-917(2)(a)(i), per-
tains to the manner of service on governmental entities. The
citizen objectors, of course, are nongovernmental entities.
Section 84-917(2)(a)(i) has undergone numerous revisions
and amendments and has received considerable treatment in
appellate cases, each of which has tried to make sense of the
statute as it existed at the time of its application to the case
under review. See, e.g., Leach v. Dept. of Motor Vehicles,
213 Neb. 103, 327 N.W.2d 615 (1982) (approving 180 days);
Northern States Beef v. Stennis, 2 Neb. App. 340, 509 N.W.2d
656 (1993) (approving 30 days and rejecting 180 days).
The Tax Equalization and Review Commission appeal
statutes are modeled after the APA. Neb. Rev. Stat.
§ 77-5019(2)(a) (Reissue 2018) contains language roughly
equivalent to § 84-917(2)(a)(i). In Cargill Meat Solutions v.
Colfax Cty. Bd. of Equal., 281 Neb. 93, 97, 798 N.W.2d 823,
826 (2011), we stated that § 25-510.02 “provides the man-
ner for serving the state or political subdivision. Obviously,
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CANDYLAND, LLC v. NEBRASKA LIQUOR CONTROL COMM.
Cite as 306 Neb. 169
[the plaintiff], a private corporation, is not an entity covered
by § 25-510.02. [The plaintiff] cannot possibly be served
in accordance with § 77-5019(2)(a), so it cannot apply.” In
Cargill Meat Solutions, because the county board filed its
notice of appeal with the Nebraska Court of Appeals rather
than with the Tax Equalization and Review Commission,
appellate jurisdiction was never conferred under either party’s
theory of the applicable statutes and the 30-day issue—and
manner of service issue—was not resolved. Nevertheless, the
Cargill Meat Solutions opinion concludes as follows:
Summing up, one thing has become abundantly clear—
the Legislature has inadvertently created a procedural
minefield. Section 77-5019(2)(a) does not make sense.
The statute states ‘[s]ummons shall be served on all par-
ties . . . in the manner provided for service of a summons
in section 25-510.02.’ As mentioned, § 25-510.02 governs
service of process on a state or political subdivision.
But not all parties to a [Tax Equalization and Review
Commission] hearing or a subsequent appeal are politi-
cal subdivisions. It defies the language of § 25-510.02 to
require a county board of equalization to serve a private
party, such as [the plaintiff], as if it were a political sub-
division. In effect, the current version of § 77-5019(2)(a)
leads to two different means for perfecting an appeal
based upon the [party’s] status. We can think of no sen-
sible reason for doing this.
As [the plaintiff] points out in its brief, the previous
version of § 77-5019(2)(a) required that summons be
served “in the manner provided for service of a sum-
mons in a civil action.” This language was workable.
It provided the flexibility to allow a corporation to be
served as a corporation, [Neb. Rev. Stat. § 25-509.01
(Reissue 2016),] an individual to be served as an indi-
vidual, [§ 25-508.01,] and a political subdivision to be
served as a political subdivision[, § 25-510.02]. Stating
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CANDYLAND, LLC v. NEBRASKA LIQUOR CONTROL COMM.
Cite as 306 Neb. 169
the obvious, the Legislature needs to correct this proce-
dural trap.
281 Neb. at 98, 798 N.W.2d at 826.
[4] Failing clarity by the Legislature, we believe that serv
ice on nongovernmental entities under § 84-917(2)(a)(i) is
required “within thirty days of the filing of the petition.” With
respect to the 30-day provision, we agree with the reasoning of
Northern States Beef v. Stennis, which stated:
We find that the plain meaning of the statute requires
that summons be served within 30 days of the filing
of the petition in order to perfect an appeal under the
[APA]. We conclude that the Legislature intended that
service be effected in 30 days and not 6 months as pro-
vided in § 25-217.
If the service of a summons within 30 days is not
jurisdictional, then 30-day service of summons has no
reason for being included in § 84-917(2)(a). We therefore
hold that in order to perfect an appeal under the [APA],
the party instituting the proceedings for review must file
a petition in the district court for the county where the
action is taken within 30 days after the service of the
final decision by the agency, and cause summons to be
served within 30 days of the filing of the petition.
2 Neb. App. at 340, 345-46, 509 N.W.2d at 659. Although the
statute considered in Northern States Beef v. Stennis, supra,
has since been amended with respect to the manner of service,
the 30-day requirement has remained in the statute throughout
subsequent revisions, including the version applicable to this
case, which we have quoted above. See, also, § 84-917(2)(a)
(Cum. Supp. 1992) (providing that summons “shall be served
within thirty days of the filing of the petition in the manner
provided for service of a summons in a civil action”).
In this case, it was undisputed that Candyland did not serve
the citizen objectors within 30 days of filing the petition. The
district court lacked jurisdiction. The district court’s decision
to dismiss the petition for review was correct.
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CONCLUSION
Candyland failed to seek district court review in the mode
and manner provided by the statute. By failing to serve the
summons and a copy of the petition on the citizen objectors
within 30 days, it failed to timely petition for review. The
district court lacked subject matter jurisdiction under the APA.
We likewise lack subject matter jurisdiction, and we dismiss
Candyland’s appeal for lack of jurisdiction.
Appeal dismissed.
Funke, J., participating on briefs.
Miller-Lerman, J., concurring.
I concur in the opinion of the court but write separately to
remark on a too frequent undesirable trend in the process.
This is one of a number of recent cases in which the State,
appearing here for the Commission, introduced a new theory
for the first time at appellate oral argument. See, e.g., State v.
Vann, ante p. 91, ___ N.W.2d ___ (2020) (Miller-Lerman, J.,
concurring). Ordinarily, an appellate court will not consider
an argument made for the first time on appeal. State v. Kruse,
303 Neb. 799, 931 N.W.2d 148 (2019); Siedlik v. Nissen, 303
Neb. 784, 931 N.W.2d 439 (2019). However, we have recog-
nized that a jurisdictional argument can be tendered for the
first time on appeal. Davis v. State, 297 Neb. 955, 902 N.W.2d
165 (2017). At oral argument, the Commission asserted that
Candyland had 180 days rather than 30 days to serve the non-
governmental parties. Thus, the case required supplemental
briefing, after which the Commission asserted service was
required in 180 days, the City of Omaha asserted 30 days, and
Candyland asserted 180 days.
In my view, it is more respectful of the adversarial and
judicial process to raise a critical issue at the first opportunity
and throughout the proceedings, rather than at the last appear-
ance of the case.
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01-03-2023
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08-14-2020
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
AMERICAN PETROLEUM )
INSTITUTE, )
)
Plain tiff/C 0 un terclaim )
Defendant, )
)
v. ) Civil Case No. 09-529 (RJL)
)
TECHNOMEDIA INTERNATIONAL, )
INC., )
)
Defendant/Counterclaim )
Plaintiff. )
ORDER fL.. ----
For the reasons set forth in the Memorandum Opinion, it is this .:sUday of March,
2010, hereby
ORDERED that API's Motion to Dismiss Counts 1-3 and 5-6 of TechnoMedia's
Amended Counterclaim Pursuant to Fed. R. Civ. P. 12(b)(6) [#39] is GRANTED in part
and DENIED in part; it is further
ORDERED that Count I of the Amended Counterclaim is DISMISSED with
prejudice, except as to TechnoMedia's claim that API is wrongfully withholding
TechnoMedia's trade secrets; it is further
ORDERED that Counts 2,3,5, and 6 of the Amended Counterclaim are
DISMISSED with prejudice; it is further
ORDERED that API's Motion to Strike Allegations of the Amended
Counterclaim Pursuant to Fed. R. Civ. P. 12(f) [#39] is GRANTED; it is further
ORDERED that all allegations in the Amended Counterclaim concerning any
association between API and Ecoman or between API and the Islamic Republic of Iran-
including, without limitation, the allegations contained at pages 1-2 and at paragraphs 30-
35, 77(d), 80(e), and 87 of the Amended Counterclaim-are hereby STRICKEN; it is
further
ORDERED that TechnoMedia's Application for Preliminary Injunction [#23] is
DENIED; and it is further
ORDERED that TechnoMedia's Motion for Leave to File Deposition Transcript
Excerpts of Patrick Quinn in Support of TechnoMedia's Application for Preliminary
Injunction [#62] is DENIED.
SO ORDERED.
RICHA . EON
United States District Judge
2
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234 Minn. 71 (1951)
YVONNE BOHNEN
v.
FRED GORR AND ANOTHER.
TOM BOHNEN
v.
SAME.[1]
Nos. 35,389, 35,390.
Supreme Court of Minnesota.
April 20, 1951.
*72 Francis W. Russell and Ahles & Ahles, for appellants.
John J. Sexton, for respondents.
KNUTSON, JUSTICE.
Appeals from orders denying motions for a new trial.
Two actions arising out of the same collision, one by the injured party, a minor, by her father and natural guardian, to recover for personal injuries, and the other by the father to recover medical and hospital expenses, loss of earnings, and damage to articles of wearing apparel of his minor daughter, were consolidated for trial and have been heard together here. The case involving personal injuries is decisive of both, so reference herein will be made to the injured minor as plaintiff.
State highway No. 23 runs through the village of Cold Spring, this state, in an east-west direction. Red River street in said village intersects the highway at right angles. The highway right of way, as it goes through the village, is 66 feet wide, of which 24 feet in the center is paved with black-top tarvia. The right of way of Red River street at the point where it intersects highway No. 23 is 80 feet wide, of which the center 28 feet is likewise paved with blacktop tarvia. Both the street and the highway are level and straight for at least two blocks in each direction from the intersection. Highway No. 23 is an arterial highway, protected by stop signs on Red River street both north and south of the intersection.
At the time of the accident, there were two quite large evergreen trees about 150 feet east of the center of Red River street on what would normally be the sidewalk line on the north side of the highway. The branches of these trees extended to the ground and out *73 from the trunk about six feet in each direction. The result was that the trees formed an obstruction to the view of anyone approaching the highway on the street from the north.
On August 28, 1948, at about 6 p.m., defendant Charles G. Waite was driving an automobile owned by defendant Fred Gorr in a westerly direction on highway No. 23. Plaintiff, who at that time was 18 years of age, left her home, which was located north of the intersection, intending to go on her bicycle to the home of a friend who lived south of the intersection. Waite and plaintiff were both familiar with the intersection. Plaintiff testified that she traveled south on Red River street about five or six feet west of the tarvia portion thereof; that as she approached the intersection she stopped ten feet north of the line of the highway; that she looked to the east a distance of 175 feet and saw nothing coming; and that she then looked to the west and saw nothing. She then proceeded to cross the highway, and when the front wheel of her bicycle was on the pavement she saw defendants' car coming from the east about 142 feet away. She testified that she was first going to apply her brakes and stop, but it looked like the car was coming fast, so she turned to the right and was struck after traveling three or four feet. That is all she remembered.
Waite testified that he was traveling about 25 miles per hour as he approached the intersection; that he first saw plaintiff after he had entered the intersection; that she was "right by the stop sign"; and that he then tried to turn to the left, but struck plaintiff with the front right corner of his right fender. He is corroborated in his testimony as to speed by his wife and two other passengers in the car. Except for Waite, none of the occupants saw plaintiff or the collision.
Defendants called as a witness one Gerald Zastrow, a 14-year-old boy who was sitting on the doorstep of his father's filling station, which is located at the northeast corner of the intersection. He actually saw the collision. He testified that he watched plaintiff as she approached the intersection riding her bicycle and that she *74 entered the intersection without stopping at all. According to his testimony, plaintiff slowed up some, but that it was "hardly noticeable." He first saw the automobile when it was opposite the filling station pumps and estimated that it was then traveling 40 miles per hour.
There is also testimony by the occupants of the automobile that they called on plaintiff at the hospital the night of the accident and that she then told them that "it was not our [defendants'] fault, that she [plaintiff] did not stop for the stop sign."
After the collision, defendants' car traveled about 570 feet down the highway before it came to a stop. Waite testified that he thought it would be better to let the car come to a gradual stop so that if anything were attached to the car it would not be injured by an abrupt stop.
Plaintiff called as a witness the village marshal, who lived on the southeast corner of the intersection. He stated that he heard the crash and rushed out of his house in time to see the car traveling west and that it was then going about 40 miles per hour.
The day was clear and the pavement dry. The sun was low in the west and interfered to some extent with Waite's driving.
There is no dispute that plaintiff suffered serious injuries. The jury returned a verdict for defendants. From a denial of plaintiff's motion for a new trial, this appeal has been taken.
While plaintiff assigns a number of errors, her argument on appeal simmers down to two points or contentions: (1) That the court erred in its instructions relating to the degree of care required of plaintiff in observing approaching traffic in the light of the undisputed evidence that two trees obstructed her view; and (2) that even if plaintiff was negligent the negligence of defendants constituted a superseding and intervening cause.
There can be no doubt that the verdict is justified by the evidence. The jury could well find that plaintiff entered the intersection without stopping at all. They could also find that defendants were guilty of no negligence proximately contributing to the collision; *75 but, even if defendants' negligence was established, plaintiff's contributory negligence is amply supported by the evidence.
M.S.A. 169.20, subd. 3, reads as follows:
"The driver of a vehicle shall stop as required by this chapter at the entrance to a through highway and shall yield the right of way to other vehicles which have entered the intersection from the through highway or which are approaching so closely on the through highway as to constitute an immediate hazard, but the driver having so yielded may proceed, and the drivers of all other vehicles approaching the intersection on the through highway shall yield the right of way to the vehicles so proceeding into or across the through highway."
Section 169.30, after conferring on the commissioner of highways with reference to state trunk highways and local authorities with reference to other highways authority to designate through highways by erecting stop signs at the entrance thereto, then provides:
"Every driver of a vehicle and every motorman of a street car shall stop at such sign or at a clearly marked stop line before entering an intersection, except when directed to proceed by a police officer or traffic-control signal."
With respect to plaintiff's duty to stop, the court charged the jury as follows:
"* * * our arterial highways are protected by stop signs with which we are all familiar, and it was the duty of one approaching Highway No. 23 from the north at the place in question to stop at the entrance thereof and to yield the right-of-way to vehicles which had entered that intersection from the through highway or which were approaching so closely as to constitute an immediate hazard, the hazard of collision if both vehicles continued in their courses at the same speed. After stopping for an arterial highway one seeking to pass through the intersection, after stopping and yielding in the manner I have just explained to you, has the right to proceed, and vehicles approaching the intersection by way of other highways *76 must yield the right-of-way. It is the duty of one approaching an arterial highway to stop at a point where one may effectively observe traffic approaching on the arterial. In this instance as Yvonne Bohnen approached Highway No. 23 at the time and place in question it was her duty under the law of this state to stop at the entrance to the highway and observe traffic approaching on that highway, and having stopped, if she did stop, and yielded the right-of-way to traffic approaching so closely as to constitute an immediate hazard, then she was at liberty to proceed onto or across Highway No. 23.
* * * * *
"It is the claim of the plaintiff Yvonne Bohnen that she stopped at some place to the north of Highway No. 23. Whether she stopped and where she stopped are questions of fact for you to determine. There are several pictures in evidence, three large ones and three small ones, which give you a clear view of the intersection in question. You will observe the stop sign in the pictures, and you will bear in mind what I have told you the law is, that a stop be made at the entrance to an arterial. That may or may not mean something other than stopping before coming to an arterial. The law does not say stop before coming to an arterial but to stop at the entrance to an arterial. If Yvonne Bohnen did not stop in compliance with the rules of law I have given you that would be prima facie evidence of negligence." (Italics supplied.)
The italicized portion of the above is assigned as error.
Plaintiff seeks to bring this case within the rule of Mattfeld v. Nester, 226 Minn. 106, 119, 32 N.W. (2d) 291, 302, 3 A.L.R. (2d) 909, where, on account of a knoll on the highway, it was not possible to see any appreciable distance down the highway. We there said:
"* * * he [the driver] could not be expected to stop, get out of his car, and go to the top of the knoll to reconnoiter before proceeding."
*77 One of the main purposes of the statute requiring a vehicle to stop before entering a through highway is to afford the driver of the vehicle a reasonable opportunity to observe approaching traffic on the highway to be crossed or entered. There may be other purposes which could be mentioned,[2] but whatever they are they are intended to more effectively accomplish the main object of yielding the right of way to the driver traveling on the through highway. Conditions at intersections vary greatly. The opportunity for observing traffic varies according to the obstructions surrounding or bordering the intersection, and it is also affected by the contour of the intersecting highways. The variation in conditions has led many courts to adopt a rule requiring the driver of a vehicle approaching a through street to stop at a place where he may effectively observe approaching traffic.[3]
In Olson v. Anderson, 224 Minn. 216, 218, 28 N.W. (2d) 66, 68, we quoted with approval the following language of the Wisconsin court in Svenson v. Vondrak, 200 Wis. 312, 316, 227 N.W. 240, 242:
"`It was not enough to stop at the "Stop" sign. It was his duty to stop and to observe where stopping and observing would be efficient and meet the purpose of the "Stop" warning.'
"* * * it is the duty of one approaching an arterial highway to stop at a point * * * where one may efficiently observe traffic approaching on the arterial highway."
*78 In the later case of Bokelkamp v. Olson, 254 Wis. 240, 243-244, 36 N.W. (2d) 93, 94, the Wisconsin court reaffirmed this rule in the following language:
"* * * he [the motorist approaching an arterial highway] must not only stop before entering upon an arterial highway but he must stop and observe where an efficient observation may be had."
Here, the only testimony in the record as to the place where plaintiff stopped and as to the obstruction to her view was that the view to the east was obstructed from a point ten feet from the north line of the highway. From that point plaintiff could see 175 feet east on highway No. 23. From the photographs in evidence, it is obvious that had she stopped at or near the north line of the highway her view to the east would have been practically unobstructed. While the driver of a vehicle does not have to enter an arterial highway at his peril once he has complied with the law by stopping and making such reasonable observations as the conditions surrounding the intersection will permit,[4] nor does he have to leave his vehicle and reconnoiter,[5] he must exercise a degree of care commensurate with the extra hazards created by obstructions to his view surrounding the intersection.[6]
A stop sign is intended to warn motorists of the presence of a through or arterial highway. Our statute requires the driver of a vehicle approaching a through highway to stop at the entrance to such highway. Stop signs are usually erected some distance from the entrance to the through highway in order to afford approaching motorists an opportunity to stop before they reach the highway. Where the view of a highway is obstructed at the point where a stop sign is erected, it may not be sufficient to stop where the sign is erected in order to comply with the statute requiring a motorist to stop at the entrance to the highway.
*79 In this case, even if we assume that plaintiff did stop, the jury would have been justified in finding that she did not exercise that degree of care required of her in failing to stop at a point where she could effectively observe approaching traffic. The court's charge as a whole is substantially correct. Failure to qualify a general statement of the law is not grounds for a new trial where the omission is not called to the court's attention until after the jury has returned a verdict.[7] The charge must be read as a whole, and statements taken out of the context are not grounds for a new trial.[8]
We see little merit in plaintiff's contention that defendants' negligence was a superseding intervening cause. The contention is predicated largely on the testimony of Waite that he saw plaintiff before she entered the intersection and that he could have stopped or turned into the left lane and could thereby have avoided striking her. Waite's testimony was such that the jury would be justified in finding that he was negligent. It would not, however, excuse plaintiff from exercising that degree of care required of her. The case is no different from the ordinary intersection case where two vehicles traveling at right angles to each other enter the intersection and collide. Where the evidence is conflicting in such a case, the question of negligence and contributory negligence is nearly always for the jury. The court correctly defined proximate cause in connection with defendants' negligence as follows:
"* * * proximate cause being the direct or immediate cause, that which causes a result directly and immediately or through a natural sequence of events without the intervention of another independent and efficient cause."
While the instruction respecting proximate cause might have been more clearly defined in connection with contributory negligence, the court did charge the jury:
"In considering the question of negligence or contributory negligence, as the case may be, you must keep in mind that there must be *80 a causal connection between the acts complained of and the injuries sustained. One may place himself in a position of peril and still injury may result from other causes. For that reason you must consider and determine the question of causal relationship. In other words, you will determine what was the proximate cause of the injuries which the plaintiff sustained at the time and place in question."
We have carefully examined the entire charge and all assignments not specifically mentioned. Taken as a whole, the charge adequately presents the law pertaining to defendants' negligence and plaintiff's contributory negligence. Under the evidence, both questions were properly submitted to the jury. We find no reversible error. At best, the portions of the charge now complained of were such verbal inaccuracies as to require timely objection so that they could be corrected before the jury retired. Storey v. Weinberg, 226 Minn. 48, 31 N.W. (2d) 912; Froden v. Ranzenberger, 230 Minn. 366, 41 N.W. (2d) 807; Mickelson v. Kernkamp, 230 Minn. 448, 42 N.W. (2d) 18; MacIllravie v. St. Barnabas Hospital, 231 Minn. 384, 43 N.W. (2d) 221.
Affirmed.
NOTES
[1] Reported in 47 N.W. (2d) 459.
[2] Cameron v. Goree, 182 Or. 581, 189 P. (2d) 596.
[3] Gartrell v. Harris' Coadm'xs, 300 Ky. 82, 187 S.W. (2d) 1019; Shoniker v. English, 254 Mich. 76, 236 N.W. 866; Garrison v. Burns, 178 Va. 1, 16 S.E. (2d) 306; Cameron v. Goree, 182 Or. 581, 189 P. (2d) 596; Cole v. Sherrill (La. App.) 7 So. (2d) 205; People v. Ubertini, 182 Misc. 634, 51 N.Y.S. (2d) 62; Angelo v. Lawson, 26 Wash. (2d) 198, 173 P. (2d) 124; Avent v. Tucker, 188 Miss. 207, 194 So. 596; Bokelkamp v. Olson, 254 Wis. 240, 36 N.W. (2d) 93; Ketzel v. Lazzini, 163 Pa. Super. 513, 63 A. (2d) 369 (duty to stop at intersection, not at sign); Olson v. Musselman, 127 Conn. 228, 15 A. (2d) 879 (duty to stop measured by standards of reasonable care); 2 Blashfield, Cyc. of Auto. Law and Practice (Perm. ed.) § 1035.
[4] Johnston v. Selfe, 190 Minn. 269, 251 N.W. 525.
[5] Mattfeld v. Nester, 226 Minn. 106, 32 N.W. (2d) 291, 3 A.L.R. (2d) 909.
[6] Wilmes v. Mihelich, 223 Minn. 139, 25 N.W. (2d) 833.
[7] MacIllravie v. St. Barnabas Hospital, 231 Minn. 384, 43 N.W. (2d) 221.
[8] Froden v. Ranzenberger, 230 Minn. 366, 41 N.W. (2d) 807.
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10-30-2013
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552 F.Supp. 104 (1982)
Flora MUSGROVE
v.
Richard S. SCHWEIKER, Secretary of Health and Human Services.
Civ. A. No. 81-3936.
United States District Court, E.D. Pennsylvania.
June 18, 1982.
On Motion for Relief from Judgment September 29, 1982.
*105 Eric J. Fischer, Jonathan M. Stein, Community Legal Services, Inc., Philadelphia, Pa., for plaintiff.
Thomas A. Dougherty, Jr., Asst. Regional Atty., Dept. of Health & Human Services, Region III, Philadelphia, Pa., for defendant.
MEMORANDUM OPINION AND ORDER
VanARTSDALEN, District Judge.
This is an action under the Social Security Act (Act), 42 U.S.C. §§ 405(g) and 1383(c)(3), to review the final decision of the Secretary of Health and Human Services (Secretary) terminating claimant Musgrove's Supplemental Security Income (SSI) benefits and denying her application for Social Security Disability (SSA) benefits. For the reasons which follow, the decision of the Secretary to terminate SSI benefits will be reversed and the decision of the Secretary to deny SSA benefits will be remanded for further proceedings.
SSI Benefits Termination
Claimant Musgrove began receiving SSI benefits at the time of the inception of the SSI program in January 1974. On June 3, 1980, she was notified that her medical condition was not disabling as of August 1979 and that she was last disabled for SSI benefits in October 1979. As a result, her SSI benefits were terminated. The claimant appealed and on February 2, 1981, a hearing was held before an ALJ. Claimant and her attorney attended that hearing. Following the hearing, the ALJ determined that, for purposes of SSI benefits, the claimant could not return to her former employment as a sewing machine operator but did retain the residual functional capacity to do sedentary work as defined by the Act. He determined that she was therefore not disabled under the Act as of August 1979. Subsequently, the Appeals Council upheld the decision of the ALJ and the decision became the final one of the Secretary as of July 21, 1981.
In his opinion, the ALJ reviewed the testimony and evidence presented under the standard utilized when an applicant makes an initial application for SSI benefits. The claimant argues that in so doing the ALJ applied the wrong standard of law in determining whether Mrs. Musgrove's SSI benefits *106 were properly terminated. It is claimant's position that benefits, once granted, may only be terminated upon a proof of some medical improvement or clear prior error in the initial determination of eligibility. I agree.
The issue of what must be shown before the Secretary may terminate disability benefits has not yet been addressed by the court of appeals for this circuit. I have in a previous opinion been guided by the Court of Appeals for the First Circuit in Miranda v. Secretary of Health, Education and Welfare, 514 F.2d 996 (1st Cir.1975). See Shaw v. Schweiker, 536 F.Supp. 79 (E.D.Pa.1982). The Miranda court held that
once having found a disability, the Secretary may not terminate the benefits without substantial evidence to justify so doing. This will normally consist of current evidence showing that a claimant has improved to the point of being able to engage in substantial gainful activity; but it might also consist of evidence that claimant's condition is not as serious as was at first supposed.
Miranda, supra at 998 (emphasis added). Miranda thus permits termination only upon the Secretary presenting substantial evidence that proves either (1) improvement to the point where the claimant is able to engage in substantial gainful activity or (2) claimant's condition is "not as serious as was first supposed." In Shaw, supra, I concluded that the second ground for termination applies only to those situations involving newly discovered evidence or a clearly erroneous interpretation of evidence in the initial granting of benefits. After a final determination of disability, if a termination of benefits is effected without a showing of either improvement or newly-discovered evidence, such a termination must necessarily be based on whim, caprice or an impermissible relitigation of facts and determinations already finally decided.
Elsewhere in this circuit, Judge Ziegler of the Western District of Pennsylvania held in accord with the First Circuit when he determined that, before benefits may be terminated, there must be substantial evidence amounting to a showing of improvement. Timblin v. Harris, 498 F.Supp. 1107, 1108 (W.D.Pa.1980).
Early this year, the Court of Appeals for the Ninth Circuit addressed the issue of the appropriate legal standard in "cessation" or "termination" cases. See Patti v. Schweiker, 669 F.2d 582, 586-87 (9th Cir.1982). The Ninth Circuit held that, once the Secretary has determined that a claimant's disability has ceased, the burden of proof to establish otherwise lies with the claimant, since the claimant's burden is a continuing one which does not shift after an initial ruling of disability. However, "[i]n an appropriate case ... a prior ruling of disability can give rise to a presumption that the disability still exists. `Once evidence has been presented which supports a finding that a given condition exists, it is presumed in the absence of proof to the contrary that the condition has remained unchanged.'" Id. at 586-87, quoting Rivas v. Weinberger, 475 F.2d 255, 258 (5th Cir.1973). Thus, the burden of proof does not shift from the claimant, but the existence of the presumption following an initial determination of disability serves to "impose `on the party against whom it is directed the burden of going forward with evidence to rebut or meet the presumption.'" Patti, supra at 587, quoting Fed.R. Evid. 301. See also Rivas, supra, and Prevette v. Richardson, 316 F.Supp. 144, 146 (D.S.C.1970) (Once claimant meets initial burden of proving disability, in the absence of proof to contrary, there is presumption that the condition of the claimant remains unchanged).
I find the Patti decision to be consistent with my holding in Shaw and the decision of the First Circuit in Miranda. Assuming that a valid initial determination of disability was made by the Secretary in regard to Mrs. Musgrove, she is entitled to a presumption that her disability still exists, although the burden is still on her to prove her case:
All the presumption does is impose on the Secretary a burden to come forward with evidence that her condition has changed. Whether that burden has been met is a *107 judgment to be made initially by the Secretary, and that judgment cannot be overturned on appeal if it meets the "substantial evidence" standard. But where ... there is essentially no evidence to support a conclusion that the claimant's condition has changed, the substantial evidence test has not been met.
Patti, supra at 587.
This determination as to the appropriate standard of law to be applied in cessation cases does not, however, resolve the dispute before me.
Because of the circumstances surrounding Mrs. Musgrove's entry into the SSI program, an issue is raised as to whether there was, in fact, an initial determination by the Secretary of Mrs. Musgrove's disability. Mrs. Musgrove was officially put on the Pennsylvania state disability rolls in late 1973. At the inception of the federal SSI program in January 1974, Mrs. Musgrove was transferred to the federal SSI disability rolls as a result of a one-time transfer of persons disabled under state programs to SSI. A brief review of the legislative history of the SSI program and this one-time transfer under which individuals like Mrs. Musgrove became SSI recipients provides necessary background.
In October 1972, Congress repealed the categorical assistance program which had provided federal grants to state-administered disability programs. Finnegan v. Matthews, 641 F.2d 1340, 1342 (9th Cir. 1981); 42 U.S.C. § 1351-55, Pub.L. No. 92-603, 86 Stat. 1484 § 303 (repealed October 30, 1972). At the same time Congress provided for a program entitled Supplemental Security Income for Aged, Blind and Disabled (SSI), in which the federal government assumed the burden of providing benefits directly to certain disabled individuals and established uniform eligibility criteria. The SSI program became effective in January 1974. 42 U.S.C. §§ 1381-83.
In its original form, the SSI program included a "grandfather clause," which provided that persons who, in December 1973, were receiving benefits under a state plan which had been in effect as of October 1972 would automatically be considered disabled for purposes of the SSI program. Pub.L. No. 92-603; Finnegan, supra at 1342; Tatum v. Mathews, 541 F.2d 161, 163 (6th Cir.1976); Ryan v. Shea, 525 F.2d 268, 270 (10th Cir.1975). On December 31, 1973, one day before the SSI program was to go into effect, the grandfather clause was amended in response to the perceived "wholesale" number of persons who had been entered onto state disability rolls in anticipation of the automatic transfer to SSI rolls. The amendment or so-called "roll-back" provision required that, in order to qualify for automatic disability status under SSI, an applicant had to have received benefits under a state plan for at least one month before July 1, 1973, as well as in December 1973, and been continuously disabled under the state plan. Pub.L. No. 93-233, § 9 (December 31, 1973); Ryan, supra at 271; Johnson v. Mathews, 539 F.2d 1111, 1115 (8th Cir.1976). In other words, after this amendment, individuals who were receiving state disability benefits as of December 1973 were conclusively presumed to meet federal standards only if they had also been receiving those benefit for at least one month prior to July 1973 and remained continuously disabled. Ryan, supra at 271; Johnson, supra at 1114. Thus, Mrs. Musgrove, who was admitted to the state disability program in late 1973 would not be automatically entitled to SSI benefits as a "grandfatheree" ("grandmotheree"?) and would not be conclusively presumed to be disabled under SSI.
The Secretary was then faced with the disposition of those individuals like Mrs. Musgrove, termed "rollback cases," who had been on state disability rolls as of December 1973 but not before July 1, 1973. In order to avoid a harsh result to these individuals, the Secretary utilized a statutory provision, "ostensibly aimed at initial applicants who were found presumptively disabled, to continue payments to persons who had not yet been initially determined to be qualified." Johnson, supra at 1115; see 42 U.S.C. § 1383(a)(4)(B). By regulation, the Secretary classified rollback cases as presumptively *108 disabled, which permitted them to receive benefits for up to three months until an initial determination of eligibility could be made. See 20 C.F.R. § 416.954. When it became apparent that three months was not a sufficient time within which to process rollback cases and make initial determinations of SSI eligibility, Congress, recognizing that abrupt cessation would be harsh, provided that pending determination of eligibility the Secretary could continue to pay presumptive benefits to rollback cases until the end of 1974. Pub.L. No. 93-256, § 1 (Mar. 28, 1974); Ryan, supra at 271. Under the presumptive disability status of rollback cases, once the Secretary made a determination that an individual was not disabled under SSI standards, benefits ceased immediately, although the unsuccessful claimant had the right to have this determination reconsidered in a proceeding where notice and hearing rights were provided. Johnson, supra at 1115. The initial determination was made in many cases on the basis of a "paper review." Id.; Tatum, supra at 163; Ryan, supra at 271.
The administrative burden on the Secretary to process and evaluate these rollback cases was great and it became clear that all such cases could not be evaluated before the end of 1974. The administration continued to pay benefits past December 1974 until an initial determination of disability on each rollback case could be made. The Secretary continued to make initial determinations of disability and terminated benefits to those found to be non-disabled under the Act. See DeLao v. Califano, 560 F.2d 1384, 1386 (9th Cir.1977).
The Secretary began paying Mrs. Musgrove SSI benefits in January 1974. Mrs. Musgrove was never notified of any challenge to her status as disabled under the Act until 1980, when she was notified that her disability had ceased as of August 1979. Benefits were paid throughout that period without interruption.
Until the hearing on the cross-motions for summary judgment in this case, neither any representative of the Secretary nor the ALJ had questioned Mrs. Musgrove's SSI status as disabled prior to August 1979. At the hearing, however, counsel for the Secretary posited that the decision to terminate benefits as of October 1979 may have been, in fact, the first determination of disability made by the Secretary since Mrs. Musgrove's entry to the SSI rolls. As a result, argues counsel for the Secretary, Mrs. Musgrove is not entitled to the application of the principles set forth in Miranda, Patti, or Shaw for cessation or termination cases, since no previous valid determination of eligibility had been made.
The Secretary has offered nothing to support his contention that the 1979 determination to terminate benefits came about as a result of the first SSI review of Mrs. Musgrove's case since 1974. Absent something to support this statement, I find the Secretary's bare assertion to be incredible. Review of all rollback cases commenced immediately upon enactment of the Act. Initially three months, then one year, was provided for such review. Although all cases could not be reviewed within this one-year period and presumptive benefits were paid following December 1974 pending initial review, I cannot accept that it took until late 1979 for someone to complete the initial review of the record. Undoubtedly, the wheels of a bureaucracy like the Social Security Administration turn slowly. Nonetheless, it would show in my view unconscionable disregard for the wishes of Congress for the Secretary to pay, without question, benefits from January 1974 to late 1979 without ever determining whether Mrs. Musgrove was eligible for benefits under the Act. Moreover, the record reveals that representatives of the Secretary who reviewed Mrs. Musgrove's record in 1979 stated that the "state plan [was] last met 78/79." Exhibit 5. Section 416.994(e) of the Code of Federal Regulations provides that persons who became entitled to benefits because they were found to be disabled under a state plan may have benefits terminated, inter alia, when the disability does not meet the criteria of that state plan. Thus, Mrs. Musgrove's case could have been reviewed under state or federal criteria. The above notation by the representatives *109 of the Secretary may indicate a review by them using state criteria.[1]
In addition, those same representatives indicated that "disability/blindness ceased on [10/79] because ... impairment no longer of sufficient severity to prevent SGA [substantial gainful activity]." Exhibit 5. In the absence of anything to the contrary,[2] this evidence establishes that some prior review of Mrs. Musgrove's case had been undertaken before the decision to terminate SSI benefits.
I, therefore, conclude that Mrs. Musgrove's case had been evaluated by the Secretary and an initial determination of eligibility under Act criteria made prior to termination of benefits.
Because of this prior determination of eligibility by the Secretary, I further conclude that the ALJ utilized the wrong standard of law in upholding termination of SSI benefits. Since the record does not support a finding of a change in condition amounting to improvement or a clear error in the initial granting of benefits, I will reverse the decision of the ALJ and order the Secretary to pay SSI benefits to Mrs. Musgrove.
SSA Benefits
Mrs. Musgrove filed an application for Social Security Disability (SSA) benefits on June 14, 1979. Since she was fully insured under the Act for SSA purposes through September 30, 1973, the burden was on her to prove that she was disabled under the Act before that date. The Social Security Administration denied SSA benefits to Mrs. Musgrove and this issue was *110 presented at the hearing before the ALJ held February 2, 1981. The ALJ concluded that the record did not contain any medical evidence prior to September 30, 1973, which would establish that Mrs. Musgrove had an impairment as of that time which would have prevented her from returning to her former job as a power sewing machine operator.
As discussed in the section of this memorandum concerning SSI benefits, Mrs. Musgrove, in 1973, was classified as disabled by the Commonwealth of Pennsylvania. On August 31, 1973, one month before the date on which Mrs. Musgrove was last insured for SSA purposes, the Pennsylvania Department of Public Welfare (DPW) moved to place her in the DPW "Aid to Disabled" category and the claim was processed and finalized on December 14, 1973. The ALJ gave no evidentiary weight to the state's determination of Mrs. Musgrove's disability in making his decision that she was not disabled before September 30, 1973. In addition, since the hearing the claimant has come into possession of summaries of certain records of the DPW which she was unable to previously obtain and which provide some insight into Mrs. Musgrove's condition before September 1973.
The Third Circuit has made clear that "[a]lthough findings by other agencies are not binding on the Secretary, they are entitled to weight and must be considered." Fowler v. Califano, 596 F.2d 600, 603 (3d Cir.1979) (emphasis added); Charlton v. Schweiker, No. 81-2121, slip op. at 2 (E.D.Pa. Sept. 28, 1981).
Because the ALJ in this case did not take into consideration the prior evaluation of disability by the DPW and because newly-discovered evidence sheds light on Mrs. Musgrove's condition before September 30, 1973, the case must be remanded for further evaluation of Mrs. Musgrove's eligibility for SSA benefits. An order follows.
ORDER
Upon consideration of the cross-motions for summary judgment submitted by claimant Flora Musgrove and the Secretary of Health and Human Services (Secretary), together with supporting and opposing memoranda of law and argument presented at a hearing on the motions, it is hereby ordered that:
(1) the motion of the claimant for judgment as to Supplemental Security Income (SSI) benefits is granted and judgment is entered in her favor;
(2) the motion of the claimant for judgment as to Social Security Disability benefits (SSA) is denied;
(3) the motion of the Secretary for judgment is denied;
(4) the decision of the Administrative Law Judge upholding termination of Supplemental Security Income (SSI) benefits is reversed and the case remanded to the Secretary for calculation of benefits due claimant and the payment of such benefits;
(5) the matter of SSA benefits is remanded to the Secretary for further determination and proceedings consistent with this opinion; including consideration of the prior determination of disability by the Pennsylvania Department of Public Welfare and an opportunity afforded claimant to present the records of the Pennsylvania Department of Public Welfare concerning its determination in 1973 of her disability.
ON MOTION FOR RELIEF FROM JUDGMENT
On June 18, 1982, I issued a memorandum opinion and order in this action which reversed the decision of the Secretary of Health and Human Services (Secretary) terminating claimant Flora Musgrove's Supplemental Security Income (SSI) benefits.[1]See Musgrove v. Schweiker, 552 F.Supp. 104 (E.D.Pa.1982). In my decision I concluded, inter alia, that in a "termination" or "cessation" of benefits situation the burden of showing a disability remains on the claimant. If, however, a valid prior *111 determination of disability was made by the Secretary, in the absence of any evidence amounting to a showing either of improvement in claimant's condition or a clear prior error in the prior determination of disability, the claimant is entitled to a presumption of disability.
At the time of my decision, the Court of Appeals for the Third Circuit had not yet addressed the issue of the appropriate legal standard to be applied in cessation or termination cases. In my decision, I relied in large measure on a recent decision of the Court of Appeals for the Ninth Circuit, Patti v. Schweiker, 669 F.2d 582 (9th Cir. 1982). See Musgrove, supra, at 106-107.
Following my decision of June 18, 1982, the Third Circuit issued its opinion in Torres v. Schweiker, 682 F.2d 109 (3d Cir. 1982). The Secretary has moved for relief from the June 18 judgment, asserting that my prior decision is inconsistent with Torres. For the reasons which follow, the motion of the Secretary will be denied.
The crux of the Secretary's argument is that the effect of the rule of law set forth in my earlier decision is to shift the burden of proof to the Secretary, a result expressly held in Torres to be impermissible. While the Court's opinion in Torres does at first glance appear to cast doubt on the validity of my prior ruling, I conclude that the two decisions are not inconsistent.
In Torres, the claimant argued that a prior determination of disability by the Secretary in and of itself makes out a prima facie case of continuing disability and entitlement to benefits, thereby shifting the burden of proof to the Secretary to show that the claimant is no longer disabled. Torres, supra, 682 F.2d at 111.
The Torres Court rejected such a shifting of the burden of proof in a termination proceeding and set forth three grounds in support: (1) language of the United States Supreme Court in Mathews v. Eldridge, 424 U.S. 319, 336, 96 S.Ct. 893, 903, 47 L.Ed.2d 18 (1976);[2] (2) the broad language of 42 U.S.C. § 423(d)(5) (1976)[3] "supportive of a reading ... that would place the burden of proof as to the medical basis of a finding of disability on the claimant at all times"; Torres, supra, 682 F.2d at 111; and (3) the burden of proof in an initial application for benefits as set forth in a prior Third Circuit opinion, Rossi v. Califano, 602 F.2d 55, 57 (3d Cir.1979).[4]
The specific language of the Torres holding provides the proper starting point for analysis: "[W]e hold that in a termination proceeding the claimant has the burden of proving that she is unable to return to her customary occupation." Torres, supra, 682 F.2d at 112. While the Secretary concedes that my prior opinion expressly held that the burden of proof in a termination proceeding was on the claimant, the Secretary argues that the imposition of a presumption of disability when there is an absence of any evidence to show improvement or error in the prior determination has the effect of impermissibly shifting the burden of proof to the Secretary. Such a view misconstrues the effect of a presumption.
"Presumptions are rules of law requiring the assumption of one fact upon proof of another in the absence of satisfactory evidence." Sowizral v. Hughes, 333 F.2d 829, 833 (3d Cir.1964); see W. Prosser, Law of Torts § 38 at 209 (4th ed. 1971):
*112 They place upon the adverse party the "burden" of going forward and offering further evidence, in the sense that a verdict will be directed against him if he does not; but they do not affect the ultimate burden of proof, as to the preponderance of the total evidence required, once all the evidence is in. When persuasive evidence to the contrary is introduced, the occasion for the presumptions, as rules of law, is gone, and they simply cease to exist, "like bats of law flitting in the twilight, but disappearing in the sunshine of actual facts." All that remains is whatever inference from ordinary experience is to be drawn from the facts, which has whatever probative value the facts may justify.
Id. (footnotes omitted) (emphasis added); Sowizral, supra, 333 F.2d at 833, quoting Prosser on Torts, § 41 at 197 (2d ed. 1955).
Had the Secretary come forward with any "persuasive evidence" as to improvement in Mrs. Musgrove's condition or error in the prior determination, the presumption of disability would have ceased to exist. No such evidence was offered by the Secretary. See Musgrove, supra, at 109-110.
By contrast, in Torres the administrative law judge made a specific finding of "marked improvement" in claimant's condition following the initial determination of disability, which was supported by the record. Torres, supra, 682 at 112.
The cases cited by the Torres Court as supporting the view that the burden of proof in a termination proceeding remains on the claimant are also consistent with my holding in the previous Musgrove decision. See Crosby v. Schweiker, 650 F.2d 777, 778 (5th Cir.1981) (per curiam) and Myers v. Richardson, 471 F.2d 1265, 1268 (6th Cir. 1972).
In Crosby, the Court of Appeals for the Fifth Circuit stated that its holding did not conflict with a previous Fifth Circuit decision in which it had held that "[o]nce evidence has been presented which supports a finding that a given condition exists it is presumed in the absence of proof to the contrary that the condition has remained unchanged." Crosby, supra, 650 F.2d at 778, quoting Rivas v. Weinberger, 475 F.2d 255, 258 (5th Cir.1973) (emphasis added by Crosby Court). In Crosby, the evidence supported the ALJ's finding of improvement in claimant's condition.
In Myers, the Court of Appeals for the Sixth Circuit concluded that the Secretary may determine in a single hearing issues of the fact of claimant's initial disability as well as whether such disability has terminated. Myers, supra, 471 F.2d at 1267. In addition to resolving that issue in the affirmative, the Court also concluded that the burden of proof in both initial determination and termination proceedings is on the claimant. Id. The Secretary found that claimant Myers had been disabled for a certain period of time, but that the disability had terminated. Id. at 1266. Implicit in Myers is the finding by the Court that there was on the record evidence upon which the Secretary could have determined that claimant's condition had improved:
The appellant concedes in his brief that the medical testimony in regard to the extent of the appellant's disability and the period of time for which he was disabled is in conflict. As previously stated it is for the Secretary to resolve issues of fact and while a court might reach a different conclusion on the same evidence it is without the power to do so. We conclude that there was substantial evidence of the termination of appellant's disability to sustain the findings of the Secretary.
Id. at 1268 (emphasis added). Such evidence would eliminate the occasion for the presumption as a rule of law (the absence of satisfactory evidence) see Sowizral, supra, and Prosser, supra, and thereby dispel it.
In addition, without substantial evidence of the termination of appellant's disability, i.e., improvement, or a showing of error in the initial determination of disability, the termination of benefits by the Secretary must of necessity be based on whim, caprice, or an impermissible relitigation of facts and conclusions already finally decided.
*113 It should also be noted that the Torres Court based its ruling in part on its prior holding in Rossi, which set forth the correct burden of proof in an initial application for benefits.[5] Implicit in Torres, then, is the continued viability in this circuit of the Rossi "formula." If the standard set forth in Rossi is applied to the instant action, the result must be the same. Under Rossi, once the claimant meets her burden of proof that she is unable to return to her customary occupation, the burden shifts to the Secretary to show that the claimant, given her age, education and work experience, has the capacity to perform specific jobs that exist in the national economy. Rossi, supra, 602 F.2d at 57. This shifting of the burden of proof to the Secretary "is consistent with the recognition that information as to the availability of jobs in the national economy is sophisticated information that most individuals do not have the resources to prove or disprove. The Secretary, on the other hand, has vast resources and information at his disposal." Torres, supra, 682 F.2d at 111-112. Considerations of fairness and policy underlie the shift in burden of proof. Id. at 112.
In the instant case, there was a specific finding by the ALJ that Mrs. Musgrove could not return to her customary occupation. Transcript at 23. Therefore, under Rossi, the burden was on the Secretary to show that Mrs. Musgrove had the capacity to perform specific jobs that exist in the national economy.
I conclude that, even under the standard set forth in Rossi, there is not substantial evidence on the record to support the ALJ's implicit finding that the Secretary had met his burden of proof and the articulated finding that Mrs. Musgrove could perform sedentary work.
As a result of the above, I will deny the motion of the Secretary for relief from the June 18, 1982, judgment in this action.
NOTES
[1] It should be mentioned that I am unpersuaded by the argument of counsel for the Secretary that, because Mrs. Musgrove's records were reviewed under state and federal criteria, she must be a "grandfatheree" rather than a "rollback" recipient. It is true that 20 C.F.R. § 416.907 provides:
You will also be considered disabled for payment of supplemental security income benefits if
(a) You were found to be permanently and totally disabled as defined under a State plan approved under titles XIV or XVI of the Social Security Act, as in effect for October 1972;
(b) You received aid under the State plan because of your disability for the month of December 1973 and for at least one month before July 1973; and
(c) You continue to be disabled as defined under the State plan.
However, section 416.944(e) does not expressly limit review under both criteria to grandfatherees. Moreover, Mrs. Musgrove clearly did not meet the statutory requirements for grandfatherees.
[2] In such a situation, it is up to the Secretary to provide all its records concerning the claimant so that the lack of an initial evaluation can be documented. While Mrs. Musgrove never received notice that her claim had been reviewed favorably, in many cases a "paper review" was done and it appears that claimants were not notified unless a decision of non-disability was rendered.
I do not, likewise, accept the argument of the Secretary that requiring a showing of improvement or clear prior error in rollback cases creates an insurmountable burden for the Secretary. Even in "grandfatheree" cases, where no initial determination of disability was made and transfer from state to federal rolls was automatic, the Secretary has not been permitted to terminate benefits without such a showing.
It is relatively easy to locate the former state statute based on which a grandfatheree was ruled to be "disabled;" however, even the wisdom of hindsight will often be insufficient to allow an ALJ to understand fully how a state disability statute had been routinely interpreted and applied by the relevant administrators. Hence, it is indeed difficult, if not impossible, for an ALJ to properly assess whether a recipient is "continuously disabled" under the "complete" state standard. An ALJ's inquiry must therefore focus on whether a clear and specific error had been committed during the previous state determination of eligibility and on whether the recipient's medical condition has materially improved. Absent a finding of clear and specific error in the earlier determination a recipient must logically have been "disabled under a state plan;" absent a finding of subsequent material medical improvement a recipient must logically still be disabled "as so defined." The words of the statute could scarcely be clearer in providing that it is the recipient's condition and not the identity of the enforcing agency which must change in order to terminate disability benefits. The Secretary may not terminate benefits absent a showing of previous clear and specific error or medical improvement which is sufficient to establish that an applicant is no longer "continuously disabled as so defined."
Finnegan v. Matthews, 641 F.2d 1340, 1344-45 (9th Cir.1981) (footnotes omitted).
[1] In that memorandum opinion and order, I also remanded the separate matter of Social Security Disability benefits to the Secretary for further determination and proceedings.
[2] "In order to establish initial and continued entitlement to disability benefits a worker must demonstrate that he is disabled" and "To satisfy this test the worker bears a continuing burden of showing, by [appropriate medical means]" that he is disabled. Mathews, supra, 424 U.S. at 336, 96 S.Ct. at 903. Torres, supra, 682 F.2d at 111.
[3] "An individual shall not be considered to be under a disability unless he furnishes such medical and other evidence of the existence thereof as the Secretary may require." 43 U.S.C. § 423(d)(5) (1976).
[4] The initial burden of proof is on the claimant to show that she is unable to return to her customary occupation. Rossi, supra, 602 F.2d at 57. Once the claimant has made such a demonstration, the burden of proof shifts to the Secretary to show that the claimant, given her age, education and work experience, has the capacity to perform specific jobs that exist in the national economy. Id.
[5] See note 4 supra.
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645 F.Supp. 1457 (1986)
COLONIAL BANK, Petitioner,
v.
COMPAGNIE GENERALE MARITIME et FINANCIERE, Respondent.
No. 85 Civ. 7830(PNL).
United States District Court, S.D. New York.
October 15, 1986.
*1458 Cadwalader, Wickersham & Taft, New York City, for petitioner; Stephen G. Austin, Howard R. Hawkins, Jr., Joseph J. Schiavone, William D. Smith, of counsel.
Haight, Gardner, Poor & Havens, New York City, for respondent; Richard G. Ashworth, Robert C. Horner, Robert J. Rosoff, of counsel.
OPINION AND ORDER
LEVAL, District Judge.
This action was brought by Colonial Bank ("Colonial"), a Connecticut corporation, against Compagnie Generale Maritime et Financiere ("CGMF"), a corporation wholly owned by the Republic of France, for damages caused by CGMF's arrests in France and Egypt of the Greek-flag vessel the GME Atlantico (the "Atlantico"), a vessel owned by Compania Naviera Pancarib S.A. ("Pancarib") and operated by General Maritime Enterprises ("GME") under a time charter party. Colonial brings this action both in its own right as mortgagee of the vessel, and as assignee of Pancarib's claims against CGMF.
Defendant CGMF moves to dismiss the complaint for lack of subject matter jurisdiction, pursuant to Fed.R.Civ.P. 12(b)(1), and on the ground of forum non conveniens, pursuant to Fed.R.Civ.P. 12(b)(3). CGMF claims sovereign immunity under the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. §§ 1330, 1602-1611 (1982). Colonial contends that four exceptions to sovereign immunity apply, and CGMF is, therefore, amenable to suit. CGMF's motion to dismiss Colonial's complaint for lack of subject matter jurisdiction is granted.[1]
Background
1. Events Outside the United States.
CGMF is a shipping corporation wholly owned by the Republic of France. At all times relevant to this action, CGMF's commercial activities consisted solely of buying and selling vessels and transferring them to corporate subsidiaries by bareboat charter basis. The French-flag vessel Carbet was acquired by CGMF on December 30, 1976. It was operated at all times under a bareboat charter by Compagnie Generale Maritime ("CGM"), a French corporation and wholly owned subsidiary of CGMF, with offices in New York and other United States cities. The Carbet was used exclusively in shipping operations between France and French Guyana, and the French Antilles and French Guyana, never utilizing United States ports. In November 1981, CGMF contracted to sell the Carbet to the Belgian corporation General Maritime Enterprises ("GME") for $2,900,000. A few weeks later, GME informed CGMF that it would refuse to honor the contract. CGMF then sold the Carbet to a Thai corporation, and brought an arbitration proceeding in London against GME.
On March 12, 1982, in an effort to secure its claim in the pending arbitration, CGMF caused the arrest in Le Havre, France of the Atlantico, a Greek-flag vessel operated by GME. Several days later, Pancarib, a Panamanian corporation, appeared before the court in Le Havre, alleging ownership of the Atlantico. CGMF asserted that although Pancarib was the registered owner of the Atlantico, Pancarib was a one-vessel corporation established by GME, and Pancarib and GME were alter egos. The court denied Pancarib's application to vacate the arrest, finding that "either the vessel belongs effectively to G.M.E. or ... [GME] has created an appearance destined to mislead third parties; COMPAGNIA NAVIERA PANCARIB appears as more or less a fictive company, more a purely legal construct than a reality...." (Simon Aff. ¶ 5.) The arrest order was, however, vacated on grounds that did not involve a ruling on ownership or on the alter ego theory, without prejudice to further attachment, and the vessel was released on April 8, 1982. Later the court reversed this decision reinstituting the order of attachment but only after the vessel had gained her freedom.
In April 1982, CGMF was awarded damages against GME in the London arbitration in the amount of $799,958 plus interest, and shortly obtained judgments on the *1459 award both in England and in the Southern District of New York. Predicated on the award and English judgment against GME, on October 14, 1982, CGMF obtained an ex parte arrest order from the Court of First Instance of Alexandria, Egypt and succeeded in arresting the vessel. On February 20, 1984, the Court of Imposition of Alexandria vacated the arrest order, holding that the arrest was wrongful because the Atlantico was not the property of GME. CGMF's appeal to the Alexandria court was dismissed that October. On April 8, 1984, while its appeal was still pending in Alexandria, CGMF obtained an ex parte order from the Court of First Instance of Cairo, Egypt and again secured the arrest of the vessel. That arrest order was vacated on January 6, 1985.
2. Events Within the United States.
On January 28, 1982, Pancarib and Colonial Bank entered into a loan agreement whereby Colonial loaned Pancarib $1.9 million to be used to finance Pancarib's purchase of the Atlantico. Pursuant to the loan agreement, Pancarib executed a First Preferred Ship's Mortgage (the "Mortgage") and assigned the Atlantico's earnings to Colonial.
Shortly after the arrest in Le Havre, Pancarib defaulted on the mortgage. In October 1982 both Pancarib and Colonial demanded that the arrests be vacated. (Complaint ¶ 71.) Upon learning that neither GME nor Pancarib had any other assets to secure the judgment against GME, and that Colonial had an interest in the release of the Atlantico and was legally entitled to act with respect to the vessel,[2] CGMF sent attorneys in New York to Colonial to discuss the release of the vessel in exchange for security on, or settlement of, CGMF's claim against GME. (Horner Aff. ¶ 7.) Nothing came of these discussions. On April 30, 1985, Pancarib assigned to Colonial all its claims against CGMF, and Colonial brought this action in October 1985.
Colonial alleges tortious interference with the Atlantico, claiming that both Pancarib and Colonial were injured by the three arrests of the vessel. Colonial claims that if the vessel had not stood idle for two years, it would have been profitably employed by Pancarib which would not have been forced to default on the $1.9 million loan.
Discussion
The Foreign Sovereign Immunities Act of 1976, 28 U.S.C. §§ 1330, 1602-1611 (1982) (the Act or the "FSIA"), is the exclusive source of subject matter jurisdiction of suits involving foreign states. De Letelier v. Republic of Chile, 748 F.2d 790, 793 (2d Cir.1984), cert. denied, ___ U.S. ___, 105 S.Ct. 2656, 86 L.Ed.2d 573 (1985). Section 1330(a) of the Act confers original jurisdiction on district courts "without regard to amount in controversy of any non-jury civil action against a foreign state as defined in section 1603(a) of this title as to any claim for relief in personam with respect to which the foreign state is not entitled to immunity." 28 U.S.C. § 1330(a) (1982). Neither party disputes that CGMF is an "instrumentality" of a foreign state as defined in § 1603 and thus entitled to a foreign state's immunity.[3] Unless the immunities of the Act failed to come into effect by reason of pre-existing treaties between the United States and France, 28 *1460 U.S.C. § 1604, CGMF is "immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607." 28 U.S.C. § 1604 (1982). This court then lacks subject matter jurisdiction unless one of the statute's exceptions applies. See Verlinden G. V. v. Central Bank of Nigeria, 461 U.S. 480, 489, 103 S.Ct. 1962, 1969, 76 L.Ed.2d 81 (1983). Section 1605 sets forth the relevant exceptions,[4] as follows:
(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case
(1) in which the foreign state has waived its immunity either explicitly or by implication ...;
(2) in which the action is based upon a commercial activity carried on in the United States by the foreign state; ... or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States....
28 U.S.C. § 1605(a).
1. The "International Agreement" Limitation
The initial question is whether a pre-existing treaty between France and the United States rendered the immunities of the FSIA inapplicable under § 1604. "Subject to existing international agreements to which the United States [was] a party at the time of the enactment of this Act a foreign state shall be immune...." 28 U.S.C. § 1604 (1982). The United States was, and is, a party to a 1959 treaty (the "Convention") with France, known as the Convention of Establishment, Protocol and Declaration, November 25, 1959, United States-France, 11 U.S.T. 2398, T.I.A.S. No. 4625. Colonial contends that this pre-existing treaty waived any immunity for French companies in U.S. courts thereby preventing the grant of immunity in § 1604 from taking effect.
The Convention provides that "[n]ationals and companies of either [country] shall be accorded national treatment with respect to engaging in all types of commercial, industrial, financial and other activities for gain within the territories of the other [country]," art. V, and that companies of either country "shall have their juridical status recognized" in courts of the other country, art. XIV.
The Convention's assurance of "national treatment" and "juridical status" means that French companies are to enjoy the same rights as American companies in United States courts. Thus Article XIV provides that French companies are to receive treatment "upon terms no less favorable than the treatment therein accorded, in like situations" to United States companies. Convention, art. XIV, at 2415. It is intended to guarantee the rights of nationals and companies of the foreign state, not take them away. Article III of the Convention, which expressly deals with judicial issues, provides that nationals and companies of the two countries shall have access to the courts of the other country, and that agreements to arbitrate shall be respected. It does not address immunity of government entities in any respect.[5] In contrast, other treaties of the United States expressly disavow immunity for publicly-owned enterprises engaged in commercial activities *1461 in the contracting state.[6] I conclude that the provisions of the Convention simply do not deal with the issue of governmental immunities and do not preempt the later grant of immunity by the FSIA.
2. The "Waiver" Exception
The first exception to the grant of foreign sovereign immunity under § 1605 is for waiver. It provides that "[a] foreign state shall not be immune ... in any case ... in which the foreign state has waived its immunity...." 28 U.S.C. § 1605(a)(1) (1982). Unlike other limitations on subject matter jurisdiction, foreign sovereign immunity may be waived "either explicitly or by implication." Id. Explicit waivers are generally found in treaties and contracts. See H.R.Rep. No. 1487, 94th Cong., 2d Sess. 18, reprinted in 1976 U.S.Code Cong. & Ad.News 6604, 6617 (hereinafter cited as House Report). CGMF and Colonial have not entered into any contracts, and there is no treaty including an agreement of waiver. (See above.)
Implicit waivers are sometimes found in the actions of the foreign sovereign relating to the justiciability of the controversy. Courts have found a foreign sovereign's utilization of United States courts to advance its own interests to be incompatible with a claim of immunity from the jurisdiction of the same courts for related matters. See First National City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 633-34, 103 S.Ct. 2591, 2603, 77 L.Ed.2d 46 (1983). Colonial contends that CGMF implicitly waived its defense of immunity to suit by having the English arbitration award confirmed in the Southern District of New York, employing a New York law firm to represent it in its negotiation with Colonial regarding the Egyptian arrests of the Atlantico, and pleading the judgment of this court confirming the arbitration award as an affirmative defense in this action.
In the legislative history of the Act, Congress noted three situations in which, prior to the Act, courts found implied waivers to foreign sovereign immunity: (1) a foreign state had agreed to arbitration in the United States;[7] (2) a foreign state had agreed that its contract was governed by the laws of the United States;[8] and (3) a foreign state had filed a responsive pleading in a suit without raising the defense of sovereign immunity.[9]House Report U.S.Code Cong. & Admin.News 1976, at 6617. Since the enactment of the FSIA, courts have been reluctant to extend the bases of implicit waiver beyond these three examples. Courts have construed the implicit waiver clause of § 1605(a) narrowly.[10] For example, most courts have refused to find an implicit waiver of immunity to suit in United States courts by reason of waiver in a jurisdiction other than the United States. See, e.g., Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 500 F.Supp. *1462 320, 323 n. 3 (S.D.N.Y.1980), rev'd on other grounds, 647 F.2d 300 (2d Cir.1981), cert. denied, 454 U.S. 1148, 102 S.Ct. 1012, 71 L.Ed.2d 301 (1982); Verlinden B.V. v. Central Bank of Nigeria, 488 F.Supp. 1284, 1300-02 (S.D.N.Y.1980), aff'd on other grounds, 647 F.2d 320 (2d Cir.1981), rev'd on other grounds, 461 U.S. 480, 103 S.Ct. 1962, 76 L.Ed.2d 81 (1983).[11] Also, engagement in commercial activity in the United States was found not to constitute an implicit waiver of sovereign immunity. Harris v. VAO Intourist, Moscow, 481 F.Supp. 1056, 1058 (E.D.N.Y.1979).
Colonial contends that by obtaining a judgment in this court confirming the arbitration award, CGMF waived its defense of immunity in this related action. I do not agree. Although there is a relationship between CGMF's judgment and the subject matter of Colonial's suit (both being efforts by CGMF to collect its due from GME), there is also a clear, significant difference.
Colonial's suit charges CGMF with abuse of process consisting of its repeated seizures of the Atlantico. These are alleged to be tortious because GME is claimed by Colonial to have had no attachable ownership interest in the Atlantico. CGMF's suit here for confirmation of the arbitration award seeks recovery of its due from GME. Although the arrests were premised on the same liability of GME as CGMF's suit, the two suits involve completely different issues. CGMF's suit in this district to confirm its arbitration award against GME dealt with GME's liability arising out of its contract to purchase the Carbet and involved no issue whatsoever as to whether GME owned an interest in the Atlantico. Colonial's suit charging CGMF with abuse of process involves Colonial's contention that GME owned no attachable interest in the Atlantico and had nothing to do with whether GME had incurred a liability to CGMF in connection with the Carbet contract.
The relationship between CGMF's action against GME and Colonial's action against CGMF is, therefore, rather superficial and I do not find a basis for concluding that CGMF's suit against GME waived its sovereign immunity as to Colonial's action against it.
The conclusion might be otherwise if GME were the plaintiff in this action. See Paterson Zochonis (U.K.) Ltd. v. Compania United Arrow, S.A., 493 F.Supp. 621, 624 (S.D.N.Y.1980). But Colonial disavows any relationship with GME and denies that its assignor Pancarib stands in alter ego status with GME. Indeed, the gist of Colonial's action is to assert that CGMF's dispute with GME was not a valid reason for it to arrest Pancarib's vessel.
Colonial also contends that CGMF has implicitly waived immunity by incorporating into its answer, as an affirmative defense of set-off, the judgment against GME.[12] (Answer ¶ 9.) Colonial alleges that by asserting its United States judgment as a defense or set-off while claiming immunity, CGMF is abusing the United States courts. I see no basis for this argument. It would be otherwise if CGMF had brought an action in a United States court against Colonial and claimed sovereign immunity to avoid Colonial's counterclaim. See § 1607. Here, however, the judgment is being employed only defensively. CGMF is not seeking relief from Colonial. The judgment supports one of several theories by which CGMF seeks to avoid, negate or reduce the liability Colonial seeks to inflict on it. A defendant's assertion of one defense does not forfeit the timely assertion of another. Cf. In re Rio Grande Transport, Inc., 516 F.Supp. 1155, 1159 (S.D.N.Y. 1981) (defendant did not waive immunity by filing a "conditional" complaint that would *1463 be pursued only if the immunity defense was rejected).
I conclude that CGMF has neither explicitly nor implicitly waived immunity within the meaning of § 1605(a)(1) of the FSIA.
3. The "Commercial Activity" Exceptions
The second exception to foreign sovereign immunity under the Act, § 1605(a)(2), generally makes foreign states liable to suit in United States courts insofar as concerns their commercial activity, if one of the three conditions relating the commercial activity to the United States is satisfied.
Colonial contends the first and third clauses are applicable.[13] The first clause provides that foreign states shall not be immune from suits "based upon a commercial activity carried on in the United States by the foreign state." Id. The third provides that no immunity shall exist if the suit is based "upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States." Id.
A. The First Clause
Commercial activity "carried on in the United States" under the first clause, is defined in the Act as "commercial activity carried on by such state and having substantial contact with the United States." 28 U.S.C. § 1603(e) (1982).[14] The Court of Appeals has read this clause to focus not on whether the defendant generally engages in commercial activity in the United States, but on whether the particular conduct giving rise to the claim is, or is not, an integral part of commercial activity having substantial contact with the United States. In Ministry of Supply, Cairo v. Universe Tankships, Inc., the court held:
When a foreign state has carried on a commercial activity within the United States, the first clause of § 1605(a)(2) thus withdraws immunity ... with respect to acts outside the United States if they comprise an integral part of the state's "regular course of commercial conduct" or "particular commercial transaction" "having substantial contact with the United States."
708 F.2d 80, 84 (2d Cir.1983) (Friendly, J.).
The acts upon which this action is based did not occur in the United States and were not integrally related either to particular acts in the United States or to commercial conduct having substantial contact with the United States. CGMF's arrests of the Atlantico occurred in France and Egypt. They had no connection to the United States, or to CGMF's commercial activities "carried on in" the United States. CGMF's commercial activity related to this lawsuit was limited to the acquisition of vessels for bareboat charter to CGMF's subsidiaries. The subsidiaries and charterers, but not CGMF, operated the vessels calling at United States ports. Far from comprising "an integral part" of commercial activity in the United States, CGMF's contract to sell the Carbet, the subsequent London arbitration, *1464 and the arrests of the Atlantico, had no connection to any commercial activity "having substantial contact with the United States."
The only act of CGMF in the United States having any relationship to this action was the suit in the Southern District of New York against GME. Colonial argues that CGMF's suit constituted commercial activity in the United States. Without deciding whether the institution of litigation can ever constitute commercial activity, this did not satisfy the exception. As defined in the FSIA, "[a] `commercial activity' means either a regular course of commercial conduct or a particular commercial transaction or act. The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose." 28 U.S.C. § 1603(d) (1982) (emphasis added). Colonial has failed to support jurisdiction based on the first commercial activity clause.
B. The Third Clause
The third clause of § 1605(a)(2) denies immunity if "the action is based ... upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States." 28 U.S.C. § 1605(a)(2) (1982). The issue presented is whether CGMF's arrests of the Atlantico in France and Egypt have caused a "direct effect" on Colonial in the United States.
The statute does not define "a direct effect." Court interpretations have included "one which has no intervening element, but, rather, flows in a straight line without deviation or interruption," Upton v. Empire of Iran, 459 F.Supp. 264, 266 (D.D.C. 1978), aff'd, 607 F.2d 494 (D.C.Cir.1979); and, one that is a directly foreseeable result of acts outside the United States. See Harris v. VAO Intourist, Moscow, 481 F.Supp. 1056, 1062-63 (E.D.N.Y.1979).
In Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300 (2d Cir.1981), cert. denied, 454 U.S. 1148, 102 S.Ct. 1012, 71 L.Ed.2d 301 (1982), the Court of Appeals held that because corporations are intangible and can only suffer monetary losses, "the relevant inquiry under the direct effect clause when plaintiff is a corporation is whether the corporation has suffered a `direct' financial loss." Id. at 312. The Court held that a breach of contract precluding American companies from collecting money owed had a direct effect in the United States. See also Exchange National Bank v. Empresa Minera del Centro del Peru, S.A., 595 F.Supp. 502, 505 (S.D.N.Y.1984) (defendant's nonpayment of a promissory note due in New York had a "direct effect in the United States"); In re Rio Grande Transport, Inc., 516 F.Supp. 1155, 1163 (S.D.N.Y.1981) (the collision and sinking of an American-owned vessel off the coast of Gibraltar had a "direct effect in the United States").
Colonial claims that the financial injury it suffered as mortgagee of the Atlantico was a directly foreseeable result of CGMF's allegedly wrongful arrests and was therefore a direct effect. I do not believe this comes within the statutory exclusion.
Colonial had loaned money to Pancarib to finance Pancarib's purchase of the vessel. As security for the loan, it took back a mortgage of the vessel; to secure mortgage payments it took an assignment of the Atlantico's earnings. CGMF's seizures of the Atlantico did not alter Colonial's rights as against Pancarib, which continued to owe periodic mortgage payments. Had Pancarib possessed funds it could have paid its debt-service obligations to Colonial, notwithstanding the arrests. The consequence of the arrests to Colonial was to diminish the value of its security as the Pancarib's earnings from the Atlantico, assigned to Colonial to secure the loan payments, were reduced to nothing during the vessel's captivity. Thus, when Pancarib was unable to make its payments, the account it had assigned as security was empty. If the words of the statute are to be construed in accordance with their normal meaning, I would conclude that CGMF's seizures of the Atlantico, although directly *1465 affecting the interests of its owner, had but an indirect effect on the mortgagee.
There is no doubt that the injury to Colonial was real and costly. Very likely (depending on the terms of the financing) the loss was more costly to the bank than to the owner, which may have placed little capital at risk. But the size of the loss is not determinative of the United States Courts' jurisdiction, which turns rather on whether the injury was "direct."
An arrest of a vessel can cause an infinite variety of losses. Shippers and/or consignees of cargo can be forced into default on obligations. Construction projects can be brought to a halt for lack of necessary material delayed in transit. Bank loans to all such venturers can come into default, and if inadequately secured, can cause losses to the banks. It would be small consolation to such victims to learn that their losses were merely "indirect." But as to the assertion of jurisdiction over foreign states on such claims, that is the dividing line Congress has drawn.
And if there is an apparent arbitrariness in having jurisdiction turn on the directness of the injury, its effect is diminished by the fact that a similar dividing line determines the very existence of a cause of action and whether injured parties have "standing" to assert it.
Finally, the direct/indirect distinction serves a meaningful end in relation to the statute's objectives in foreign relations. The statute seeks a balance between the provision of a convenient forum for claimants aggrieved in commercial dealings with foreign states and the promotion of comity and harmony between the United States and other nations. House Report U.S.Code Cong. & Admin.News 1976, at 6616. To extend jurisdiction to claims brought by all persons indirectly injured by commercial acts of foreign states would subject them to the jurisdiction of United States courts in an enormously expanded number of cases (including, no doubt, many that would eventually be dismissed for failure to state a cause of action). Given the proclivity of the United States population to devise lawsuits for every contretemps, the harassment of foreign sovereigns by exposure to the jurisdiction of United States courts would no doubt be considerable. Thus the statutory clause limiting jurisdiction over foreign sovereignties to instances of "direct" effect serves a valuable goal of foreign relations and should not be nullified by freehanded court interpretation.
Conclusion
I conclude that none of the exceptions to sovereign immunity of the Foreign Sovereign Immunity Act apply. CGMF's motion to dismiss the complaint for lack of subject matter jurisdiction is granted.
SO ORDERED.
NOTES
[1] It is unnecessary to reach the issue of forum non conveniens.
[2] Under the Mortgage, Colonial was "at liberty to pay and discharge all [liabilities] and/or to take any such measures as it deem[ed] expedient or necessary for the purpose of securing the release of the Vessel." Mortgage, cl. 8.02.03.
[3] A "foreign state," as defined in the FSIA, includes "an agency or instrumentality of a foreign state," 28 U.S.C. § 1603(a) (1982), which is "any entity ... a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof." Id. § 1603(b)(2). CGMF, a legally distinct corporation, wholly owned by the Government of France, clearly fits within the definition set out in § 1603. See, e.g., O'Connell Machinery Co. v. M.V. Americana, 734 F.2d 115 (2d Cir.), cert. denied, 469 U.S. 1086, 105 S.Ct. 591, 83 L.Ed.2d 701 (1984) (shipping company, majority owned by subdivision of the Republic of Italy, was a "foreign state"); Canadian Overseas Ores Ltd. v. Compania de Acero del Pacifico S.A., 727 F.2d 274 (2d Cir.1984) (corporation, a controlling interest of which was owned by the Chilean Government, was a "foreign state").
[4] The Act also provides exceptions for actions "in which rights in property taken in violation of international law are in issue," 28 U.S.C. § 1605(a)(3) (1982); actions "in which rights in property ... acquired by succession or gift or rights in immovable property situated in the United States are in issue," id. § 1605(a)(4); actions "for personal injury or death, or damage to or loss of property, occurring in the United States," id. § 1605(a)(5); "in any case in which a suit in admiralty is brought to enforce a maritime lien," id. § 1605(b); or with respect to certain counterclaims, id. § 1607.
[5] The House Report states that "[t]o the extent that [international agreements with provisions pertaining to immunity] are silent on a question of immunity the [FSIA] would control; the international agreement would control only where the conflict was manifest." H.R.Rep. No. 1487, 94th Cong., 2d Sess. 18, reprinted in 1976 U.S.Code Cong. & Ad.News 6604, 6616. In this case, not only is there no "manifest conflict," but the Convention is completely silent with respect to immunity.
[6] E.g., Treaty of Amity, Economic Relations, and Consular Rights, Aug. 15, 1955, United States-Iran, art. XI, 8 U.S.T. 899, 909, T.I.A.S. No. 3853 ("No Enterprise of either [Party], including corporations ... shall, if it engages in commercial, industrial, shipping or other business activities within the territories of the other [Party], claim or enjoy ... immunity therein from ... suit...."); Treaty of Friendship, Commerce & Navigation, Jan. 21, 1950, United States-Ireland, art. XV, 1 U.S.T. 785, 797, T.I.A.S. No. 2155 ("No enterprise of either Party which is publicly owned or controlled shall, if it engages in commercial ... activities within the territories of the other Party, claim ... immunity therein from ... suit....").
[7] See, e.g., Birch Shipping Corp. v. Embassy of United Republic of Tanzania, 507 F.Supp. 311 (D.D.C.1980).
[8] See, e.g., Marlowe v. Argentine Naval Commission, 604 F.Supp. 703 (D.D.C.1985).
[9] See, e.g., Canadian Overseas Ores Ltd. v. Compania de Acero del Pacifico S.A., 727 F.2d 274 (2d Cir.1984).
[10] See Frolova v. Union of Soviet Socialist Republics, 761 F.2d 370, 378 (7th Cir.1985) (per curiam) (USSR's signing UN Charter and Helsinki Accords did not constitute waiver of sovereign immunity); Transamerican Steamship Corp. v. Somali Democratic Republic, 590 F.Supp. 968, 973-74 (D.D.C.1984) (participation in American foreign aid program was not an implicit waiver of immunity), modified, 767 F.2d 998 (D.C.Cir.1985).
[11] The only case to the contrary, Ipitrade International, S.A. v. Federal Republic of Nigeria, 465 F.Supp. 824, 826 (D.D.C.1978) (contract's choice of Swiss law and European forum to resolve disputes waived immunity in United States), has not been followed.
[12] "[D]istrict courts have discretion to determine that the conduct of a party in litigation does constitute a waiver of foreign sovereign immunity in light of the circumstances of a particular case." Canadian Overseas Ores Ltd. v. Compania de Acero del Pacifico S.A., 727 F.2d 274, 278 (2d Cir.1984).
[13] The second clause has no relevance because the activity on which Colonial's action is basedthe alleged tortious interference with the Atlanticois not claimed to have been "performed in the United States." 28 U.S.C. § 1605(a)(2), second clause.
[14] Congress "underscore[d] the fact that the `commercial activity carried on in the United States' must be substantial to support jurisdiction." Verlinden B.V. v. Central Bank of Nigeria, 488 F.Supp. 1284, 1296 (S.D.N.Y.1980) (emphasis added), aff'd on other grounds, 647 F.2d 320 (2d Cir.1981), rev'd on other grounds, 461 U.S. 480, 103 S.Ct. 1962, 76 L.Ed.2d 81 (1983). "In choosing those words, Congress made clear that the immunity determination under the first clause diverges from the `minimum contacts' due process inquiry...." Maritime International Nominees Establishment v. Republic of Guinea, 693 F.2d 1094, 1109 (D.C.Cir.), cert. denied, 464 U.S. 815, 104 S.Ct. 71, 78 L.Ed.2d 84 (1983). In Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300 (2d Cir.1981), cert. denied, 454 U.S. 1148, 102 S.Ct. 1012, 71 L.Ed.2d 301 (1982), the court held that notwithstanding the legislative history of the FSIA, the constitutional concept of due process in personam jurisdiction under International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), must be independently considered in FSIA cases. Texas Trading at 313-15. Defendants do not contend that the due process inquiry under Shoe is not met.
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10-30-2013
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int
FILED
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA l g 2014
Clel'k, U.S. Dlstrict and
Bankruptcy Cou rts
Larbi Semiani, )
)
Plaintiff, )
)
v. ) Civil Action No. l L[["“'g
)
USA, )
)
Defendant. )
l
MEMORANDUM OPINION
This matter is before the Court on its initial review of plaintiff’s pro se complaint and
application for leave to proceed in forma pauperis. The Court will grant the in forma pauperis
application and dismiss the case because the complaint fails to meet the minimal pleading
requirements of Rule S(a) of the Federal Rules of Civil Procedure.
Pro se litigants must comply with the Federal Rules of Civil Procedure. Jarrell v. Ti.s'ch,
656 F. Supp. 237, 239 (D.D.C. 1987). Rule S(a) of the Federal Rules of Civil Procedure requires
complaints to contain "(l) a short and plain statement of the grounds for the court's jurisdiction
[and] (2) a short and plain statement of the claim showing that the pleader is entitled to relief."
Fed. R. Civ. P. S(a); see Ashcrof v. Iqbal, 129 S. Ct. 1937, 1950 (2009); Cz'ralsky v. CIA, 355
F.3d 661 , 668-71 (D.C. Cir. 2004). The Rule 8 standard ensures that defendants receive fair
notice of the claim being asserted so that they can prepare a responsive answer and an adequate
defense and determine whether the doctrine of resjua'icata applies. Brown v. Callfano, 75
F.R.D. 497, 498 (D.D.C. 1977).
Plaintiff is a resident of Algeria suing the United States. He recounts actions that
occurred in various court proceedings, particularly in California state courts, but, as with
plaintiffs previous actions, the instant complaint simply fails to provide any notice of a
cognizable claim and a basis for federal court jurisdiction. See Semiani v. USA-US Governmenr,
No. 14-0463 (D.D.C. Mar. 20, 20l4) (Rule 8 dismissal); Semianz` v. USA-US Government, No.
13-0217 (D.D.C. Feb. 21, 2013), ajj"d, No. 13~5083 (D.C. Cir. Sept. 5, 2013) (sairte); see also
Semiani v. US. Dep 't ofState, No. 13-1180 (D.D.C. Aug. l, 2013) (describing dismissed
complaint as containing "vague and conclusory language [alleging] assorted violations of
[plaintiff’s] rights to life in peace, liberty and security") (internal quotation marks omitted). A
separate Order of dismissal accompanies this Memorandum Opinion.
%/4~///)/¢//
%Z~ limited S'ta'tes Distfict Judge
Date: May 7 , 2014
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06-19-2014
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The appellant has filed a motion setting forth that several affidavits and search warrants introduced in evidence in the court below do not appear in the record, and requesting a writ of certiorari directing the clerk of the court below to complete the record by certifying copies of the affidavits to the clerk of this court. The affidavits were referred to, but no copies thereof were filed with the motion for a new trial. The stenographer's transcript of the evidence introduced on the motion for a new trial recites the introduction of these affidavits and identifies them only by saying "see exhibits to testimony of H.S. Garrett on trial in the cause." An examination of Garrett's testimony discloses that two of these papers were introduced as exhibits to his testimony and copies thereof are there set forth. The other affidavits and search warrants were not introduced in connection with Garrett's testimony, or referred to in the transcript thereof.
What we are presented with then is a claim that the stenographer's transcript of the evidence is incomplete. This defect in the record, if such it is, could have been cured by a proper correction of the stenographer's transcript in the manner provided by the statute before it became a part of the record. The clerk below was without *Page 696
power to include in the record for this court any matters of evidence not appearing in the stenographer's transcript of the evidence.
The motion, therefore, will be overruled.
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07-05-2016
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435 F. Supp. 389 (1977)
SUWANNEE STEAMSHIP COMPANY
v.
UNITED STATES.
C.D. 4708; Court No. 70-2603-1277.
United States Customs Court.
July 18, 1977.
*390 Toole, Taylor, Moseley & Milton, Jacksonville, Fla. (James F. Moseley, Jacksonville, Fla., of counsel), for plaintiff.
Barbara Allen Babcock, Asst. Atty. Gen., Washington, D. C. (Edmund F. Schmidt, New York City, trial atty.), for defendant.
RE, Chief Judge:
Plaintiff steamship company brought this action to recover customs duties paid on certain repairs made in foreign ports to the "S.S. Volusia." It maintains that the duties should have been remitted by the Secretary of the Treasury because the foreign repairs were the result of a casualty.
Contending that there is no genuine issue of fact which requires a trial, the defendant has moved for summary judgment pursuant to Rule 8.2 of the rules of this court. Since plaintiff did not controvert the facts stated in the defendant's motion for summary judgment, those facts are deemed admitted under Rule 8.2(b). See Mobilite, Inc. v. United States, 70 Ct. Cust. 359, C.R.D. 73-11 (1973).
In 1968, the plaintiff was the operator of the "S.S. Volusia." In January and March of that year, on a voyage from Morocco to Norfolk, Virginia, the Volusia encountered heavy seas, requiring the use of salt water for ballast in the vessel's fresh water tanks. While in Norfolk, the failure of the vessel's chief engineer to flush the salt water from the tanks, as he had been instructed, caused the contamination of the fresh water taken on board while the vessel was in port. On the vessel's subsequent voyage, from Norfolk to South Africa, this contaminated water salted both boilers and necessitated repairs. The repairs were made in Port of Spain, Trinidad in April 1968, and in Capetown, South Africa in June 1968.
Pursuant to the provisions of section 466 of the Tariff Act of 1930, 19 U.S.C. § 257, duties of 50 per centum ad valorem were assessed on the cost of these foreign repairs. Plaintiff sought remission of these duties under section 466 of the Tariff Act of 1930, 19 U.S.C. § 258, from the regional commissioner of customs in Miami, Florida. The application for remission was denied on the ground that the ultimate cause of the repairs, i. e., the taking on of salt water, and the failure to flush the tanks while in port, did not occur on the same voyage as the repairs. Plaintiff paid the assessed duties, and thereafter brought this action for their recovery.
*391 The relevant statutory provisions are sections 257 and 258 of Title 19 of the United States Code, as written prior to January 5, 1971.[1] Duties on the Volusia's repairs were assessed pursuant to section 257, which provides in pertinent part:
"§ 257. Duty on equipments or repair parts for Vessels.
The equipments, or any part thereof, including boats, purchased for, or the repair parts or materials to be used, or the expenses of repairs made in a foreign country upon a vessel documented under the laws of the United States to engage in the foreign or coasting trade, or a vessel intended to be employed in such trade, shall, on the first arrival of such vessel in any port of the United States, be liable to entry and the payment of an ad valorem duty of 50 per centum on the cost thereof in such foreign country; * * *."
The plaintiff's application for remission of the duties paid was made under section 258, providing in pertinent part:
"§ 258. Remission for necessary repairs.
If the owner or master of such vessel furnishes good and sufficient evidence
(1) That such vessel, while in the regular course of her voyage, was compelled, by stress of weather or other casualty, to put into such foreign port and purchase such equipments, or make such repairs, to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination; * * *
* * * * * *
then the Secretary of the Treasury is authorized to remit or refund such duties, * * *."
The defendant previously moved to dismiss this action asserting that the court lacked jurisdiction. It contended that the statutory authority conferred upon the Secretary of the Treasury to remit repair duties was entirely discretionary, and that the exercise of that discretion was final and not subject to judicial review. In part, the contention was based upon section 701(a)(2) of the Administrative Procedure Act, 5 U.S.C. § 701(a)(2), which provides:
"Chapter 7Judicial Review
§ 701. Application; definitions.
(a) This chapter applies, according to the provisions thereof, except to the extent that
* * * * * *
(2) agency action is committed to agency discretion by law."
This court held that the contention was without merit. Suwannee Steamship Company v. United States, 354 F. Supp. 1361, 70 Ct. Cust. 327, C.R.D. 73-3 (1973). Clearly, defendant overlooked the strong presumption in favor of judicial review of administrative action. Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 91 S. Ct. 814, 28 L. Ed. 2d 136 (1971); Abbott Laboratories v. Gardner, 387 U.S. 136, 87 S. Ct. 1507, 18 L. Ed. 2d 681 (1967). Cf. Califano v. Sanders, 430 U.S. 99, 97 S. Ct. 980, 51 L. Ed. 2d 192 (1977). The Supreme Court has left no doubt that "[i]ndeed, judicial review of such administrative action is the rule, and nonreviewability an exception which must be demonstrated." Barlow v. Collins, 397 U.S. 159, 166, 90 S. Ct. 832, 838, 25 L. Ed. 2d 192 (1970). See also Dunlop v. Bachowski, 421 U.S. 560, 95 S. Ct. 1851, 44 L. Ed. 2d 377 (1975); K. Davis, Administrative Law of the Seventies §§ 28.1628.16-1 at pp. 638-41 (1976) and Saferstein, Nonreviewability: A Functional Analysis of "Committed to Agency Discretion." 82 Harv.L.Rev. 367 (1968).
Furthermore, since statutes are to be read pari materia, the defendant's assertion, that the Secretary's exercise of discretion was judicially unreviewable, ignored the mandate of section 706(2)(A) of the A.P.A., 5 U.S.C. § 706(2)(A), which provides:
"§ 706. Scope of Review.
To the extent necessary to decision and when presented, the reviewing court shall *392 decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. The reviewing court shall
* * * * * *
(2) hold unlawful and set aside agency action, findings, and conclusions found to be
(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; * * *." (Emphasis added.)
If all agency action dependent upon the exercise of delegated discretionary authority were immune from judicial review, section 706(2)(A) of the A.P.A. would be useless and meaningless.
In the effort to give effect to both provisions of the A.P.A., an increasing number of federal courts have granted a limited scope of judicial review to assure that administrators act reasonably, and do not abuse the discretion delegated by the Congress. See, e. g., Krueger v. Morton, 176 U.S.App.D.C. 233, 539 F.2d 235 (1976); Ortega v. Weinberger, 516 F.2d 1005 (5th Cir. 1975); Reece v. United States, 455 F.2d 240 (9th Cir. 1972); Littell v. Morton, 445 F.2d 1207 (4th Cir. 1971); Cappadora v. Celebrezze, 356 F.2d 1 (2d Cir. 1966). These courts have determined that
"the reviewing court * * * has the power to ensure that the [administrative decision] is not wholly dependent upon the personal will of the administrator." B. Schwartz, Administrative Law § 216 at p. 608 (1976).
This court denied the defendant's prior motion to dismiss and held that the Secretary's discretionary authority to remit the foreign repair duties was judicially reviewable, and was bounded by the court's power to prevent action which was arbitrary, capricious or an abuse of discretion. Suwannee Steamship Company v. United States, 354 F. Supp. 1361, 70 Ct. Cust. 327, C.R.D. 73-3 (1973). That decision, therefore, held that judicial review was available. The present motion for summary judgment presents the question of the scope of that review.
Under section 706 of the A.P.A., which sets forth the scope of judicial review, the reviewing court is required to "hold unlawful and set aside agency action, findings, and conclusions found to be* * * arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A).
In cases of express delegation of discretionary authority, the courts have held the scope of judicial review to be limited and narrow. Under this standard of review, it has been held that if the administrative decision is not contrary to law, and has a rational basis in fact, the courts will not substitute their discretion for that of the administrator. Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 95 S. Ct. 438, 42 L. Ed. 2d 447 (1974); Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 91 S. Ct. 814, 28 L. Ed. 2d 136 (1971).
In situations in which the agency action is not based upon a formal record of the administrative proceedings, the reviewing court must be presented with an explanation of the reasons given by the administrator for his decision.[2]Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., supra; Camp v. Pitts, 411 U.S. 138, 93 S. Ct. 1241, 36 L. Ed. 2d 106 (1973); DeVito v. Shultz, 300 F. Supp. 381 (D.D.C. 1969). In cases where the administrator's stated explanation is sufficient to enable the court to determine the reasonableness of his actions, only those reasons need be considered, and the court will not speculate on potentially reasonable alternative justifications *393 which were not raised.[3]Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., supra; Camp v. Pitts, supra.
The Secretary of the Treasury's explanation for his refusal to remit the repair duties to the plaintiff was contained in a letter from the deputy assistant regional commissioner of customs in Miami. This letter to the plaintiff, dated December 16, 1969, gave the following explanation for the action of the customs officials:
"There is no authority for remission unless the repairs and stress of weather or casualty that led to the repairs take place during the same voyage. Since the VOLUSIA encountered heavy weather on a voyage prior to the one in which the repairs were effected, your petition therefore is denied."
Bearing in mind the judicially determined scope of review, this explanation for the administrative action may be said to raise two main questions.
The first is whether the Secretary of the Treasury's interpretation of section 466 of the Tariff Act of 1930, 19 U.S.C. § 258(1), that remission was precluded unless the cause of the damage occurred during the same voyage as the repairs, was "not in accordance with law."
The second is whether the Secretary's finding, that the cause of the damage necessitating the repairs occurred prior to the voyage when they were made, was reasonable, that is, neither "arbitrary, capricious, [nor] an abuse of discretion."
The first question is one of statutory interpretation and application. In administrative law, the courts have shown great deference to the interpretation given to a statute by the agency or official charged with its administration. See Griggs v. Duke Power Co., 401 U.S. 424, 91 S. Ct. 849, 28 L. Ed. 2d 158 (1971); Udall v. Tallman, 380 U.S. 1, 85 S. Ct. 792, 13 L. Ed. 2d 616 (1965); N.L.R.B. v. Hearst Publications, Inc., 322 U.S. 111, 64 S. Ct. 851, 88 L. Ed. 1170 (1944); and authorities cited in Carr & Son, Inc. v. United States, 347 F. Supp. 1390, 69 Ct. Cust. 78, C.D. 4377 (1972). Nevertheless, the courts will not defer to an administrative interpretation of a statute when it is inconsistent with the statutory language or the congressional purpose and intent. See Morton v. Ruiz, 415 U.S. 199, 94 S. Ct. 1055, 39 L. Ed. 2d 270 (1974); Espinoza v. Farah Mfg. Co., 414 U.S. 86, 94 S. Ct. 334, 38 L. Ed. 2d 287 (1973); Red Lion Broadcasting Co. v. F.C.C., 395 U.S. 367, 89 S. Ct. 1794, 23 L. Ed. 2d 371 (1969). See also materials on "Application of Statutory Terms to Facts and Interpretation of Statutory Terms" in Gellhorn and Byse, Administrative Law 427 et seq. (6th ed. 1974).
A careful reading of the statute, and an examination of the legislative history of section 466, 19 U.S.C. § 258(1), amply demonstrate that the Secretary's interpretation is consistent with the legislative policy. Section 466 of the Tariff Act of 1922 contained a provision for remission of foreign repair duties identical with the one before the court. When the Tariff Act of 1930 was being enacted, the House of Representatives passed an amended version of section 466 which would have substantially increased the number of situations in which remission was permissible. Under the House revision, the Secretary was authorized to remit duties upon evidence
"(1) That such equipment or parts thereof or repair parts or materials were purchased, or that such expenses of repairs were incurred, in a foreign country, in order to maintain such vessel in a seaworthy condition, or to repair damages suffered or to replace equipment damaged or worn out during the voyage, or to maintain such vessel in a sanitary and proper condition for the carriage of cargo or passengers; * * *." H.R. 2667, § 466 at p. 327 (passed House, May 28, 1929).
*394 The rationale for this revision of section 466 was stated succinctly in the Report of the House Committee on Ways and Means:
"Your committee believes that the limitations of this section [section 466 of the Tariff Act of 1922] are too strict and result in an unnecessary burden on American shipping.
The section as construed does not permit the remission or refunding of duties in the case of equipment purchased or repairs made in the ordinary course of the voyage to replace worn-out equipment or to repair minor damages or ordinary wear and tear." H.Rep.No.7, 71st Cong., 1st Sess. 171 (1929).
Clearly, the House amendment would have greatly increased the situations in which duties were to be remitted. Under the amendment, only a general overhaul or reconditioning would have been excluded from the remission allowance. See id.
The members of the Senate Finance Committee rejected this House amendment, and, in the bill reported to the full Senate, substituted the wording that presently appears in section 466.
Both the hearings of the Senate Committee, and the committee's final report on section 466, evidence the concern of the committee members that the House amendment would have provided insufficient protection for American shipyards, the class for whose benefit the section was originally formulated. See Senate Hearings on H.R. 2667, 71st Cong., 1st Sess., Vol. XVII at 537-46 (1929) [hereinafter cited as Hearings]; S.Rep.No.37, 71st Cong., 1st Sess. 72 (1929).
In furthering this goal of protecting American shipyards, the Senate version of section 466 did two things. First, it limited remission to relatively serious repairs: those necessary "to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination." And second, it strictly defined both the nature and the timing of the cause of the damage necessitating the repairs. This was accomplished by authorizing remission only for those repairs caused "by stress of weather or other casualty," provided that the stress of weather or other casualty occurred while the vessel was "in the regular course of her voyage."
The Secretary's interpretation of section 466 effectuates these statutory objectives. The plaintiff's assertion, that this interpretation of the authority to remit frustrates congressional intent by unfairly penalizing shipowners, was answered by several members of the Senate Committee. The Secretary's interpretation was seen as giving maximum protection to American shipyards, while at the same time costing American shipowners no more for foreign repairs than they would pay at home due to lower labor and equipment costs in foreign ports. See Hearings, supra at 539-40 (remarks of Senator Couzens); id. at 544 (remarks of Senator Sackett). The committee report indicates that the Senate version of section 466 still provided "generous" treatment to American shipowners, because the repair duty merely equalized the cost of foreign and domestic repairs. See S.Rep. No.37, 71st Cong., 1st Sess. at 72 (1929).
In light of the legislative history, which shows a congressional intent to formulate a narrow and strict remission provision to protect American shipyards, the court concludes that the Secretary's interpretation of section 466, 19 U.S.C. § 258(1), is in furtherance of the legislative purpose, and therefore "in accordance with law."
The second question presented is whether the Secretary's finding, that the cause of the damage necessitating the repairs occurred on a prior voyage, is a reasonable one which ought not to be judicially disturbed. This inquiry deals with a review of the exercise of administrative discretion based upon an evaluation of all the salient facts, including administrative experience. The scope of judicial review of this expressly delegated administrative discretion is more restricted and circumscribed than in the performance of the judicial function in the interpretation and application of the statutory mandate. See Barlow v. Collins, 397 U.S. 159, 166, 90 S. Ct. 832, 837, 25 L. Ed. 2d 192 (1970); Texas Gas Transmission Corp. v. Shell Oil Co., 363 U.S. 263, *395 268-70, 80 S. Ct. 1122, 1126-27, 4 L. Ed. 2d 1208 (1960). See also Gray v. Powell, 314 U.S. 402, 411, 62 S. Ct. 326, 332, 86 L. Ed. 301 (1941).
Indeed, respected judicial authority teaches that the administrator's decision must stand unless the reviewing court finds that it was
"made without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis such as an invidious discrimination against a particular race or group, or in Judge Learned Hand's words, on other `considerations that Congress could not have intended to make relevant.'" Wong Wing Hang v. Immigration and Naturalization Service, 360 F.2d 715, 719 (2d Cir. 1966).
No such finding can be made in this case. On the contrary, at least two specific reasons have been stated to sustain the Secretary's determination.
First, the Secretary determined that the ultimate cause for the salting of the vessel's boilers was the taking on of salt water for ballast during the prior voyage from Morocco to Norfolk. This was coupled with the failure of the vessel's chief engineer to flush the salt water from the tanks in Norfolk, as instructed. In its complaint, and by its failure to file an opposing statement, the plaintiff has admitted these facts or events. In concluding that the taking on of salt water, and the subsequent failure to flush it out before adding fresh water, ultimately caused the damage, the Secretary acted well within his discretionary authority under section 466, 19 U.S.C. § 258(1). Since plaintiff has offered no other cause or explanation, one cannot quarrel with the reasonableness of the Secretary's finding. Hence, since both of these events occurred prior to the voyage from Norfolk to South Africa, when the repairs were made, the Secretary acted reasonably in refusing to remit the repair duties.
Second, the Secretary had a reasonable basis for concluding that, within the meaning of section 466, 19 U.S.C. § 258(1), no "casualty," occurred on the vessel's voyage from Norfolk to South Africa. In Dollar Steamship Lines, Inc. v. United States, 5 Ct. Cust. 23, 28-29, C.D. 362 (1940), this court indicated that
"the word `casualty' is to be considered together with the phrase `stress of weather.' The phrase `or other casualty' is supplemental to and qualifies the phrase `stress of weather' broadening the term to include other similar casualties. * * A casualty similar to `stress of weather' would include such as is violently exerted; that which comes with unexpected force or violence, such as that of a fire, or a collision, or an explosion.
We are of the opinion that a casualty similar to `stress of weather' should be of necessity a happening that comes with the violence of the turbulent forces of nature."
In International Navigation Co., Inc. v. United States, 148 F. Supp. 448, 38 Ct. Cust. 5, 11, C.D. 1836 (1957), after reaffirming the analysis of the term "casualty" in the Dollar Steamship case, this court explained further:
"It is evident that under the provision as enacted it was not intended that duties should be remitted in all cases where repairs were made because of damages suffered or equipment damaged or worn out during the course of a voyage, even though such repairs were necessary to maintain the vessel in a seaworthy condition. It was only where the damage occurred by reason of some serious or extraordinary event, described as `stress of weather or other casualty,' that remission was permitted."
The evidence presented to the Secretary failed to establish that the salting of the vessel's boilers occurred "with the violence of the turbulent forces of nature," or from any analogous circumstance. Rather, it is plain that the damage was directly attributable to the negligence of the vessel's chief engineer in failing to flush the fresh water *396 tanks in Norfolk. It was reasonable for the Secretary to conclude that this negligence did not justify remission under the statute.
In view of the foregoing, it is the determination of this court that the Secretary of the Treasury acted reasonably, and did not abuse his discretion by refusing to remit the duties paid on the foreign repairs to the S.S. Volusia. Since the administrative action under review was not shown to be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law," the defendant's motion for summary judgment is granted.
Judgment will be entered accordingly.
NOTES
[1] P.L. 91-654, 84 Stat. 1944, substantially amended these two sections effective January 5, 1971. The amended statute is now codified at 19 U.S.C. § 1466.
[2] In cases where a formal administrative record of a public adjudicatory proceeding is available, the administrator's decision must be supported by substantial evidence on the record viewed as a whole under section 706(2)(E) of the A.P.A., 5 U.S.C. § 706(2)(E). See Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., supra; Citizens to Preserve Overton Park v. Volpe, supra.
[3] If the administrative explanation is insufficient to judge the reasonableness of the agency action, the matter is remanded to the administrator for a fuller and more precise statement. See Camp v. Pitts, supra; DeVito v. Shultz, supra.
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TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-94-00274-CR
Terry Lee Decker, Appellant
v.
The State of Texas, Appellee
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 167TH JUDICIAL DISTRICT
NO. 0932340, HONORABLE LARRY FULLER, JUDGE PRESIDING
PER CURIAM
A jury found that appellant penetrated the anus and female sexual organ of a child
younger than fourteen years of age. Act of May 26, 1987, 70th Leg., R.S., ch. 573, § 1, 1987
Tex. Gen. Laws 2275, amended by Act of July 18, 1987, 70th Leg., 2d C.S., ch. 16, § 1, 1987
Tex. Gen. Laws 80 (Tex. Penal Code Ann. § 22.021, since amended). The district court assessed
punishment at imprisonment for seventy-five years. The sufficiency of the evidence is not
challenged.
In point of error one, appellant complains of the district court's failure to grant a
mistrial after the prosecutor, during voir dire, effectively told the jurors that appellant had
molested other children. The prosecutor concluded his portion of the voir dire examination as
follows:
A defendant also has a right to only be tried on one case. In other words,
it doesn't matter what kind of criminal history he has or what other kind of
accusations have or have not been made against him. A child abuse case -- a
defendant could molest every child in the neighborhood and you don't get to hear
about that in any particular case. So don't think because the state doesn't present
other evidence that it's not out there. The law is real strict on what evidence can
be presented to you.
MR. WESTENHOVER [defense counsel]: Your Honor, I'm going to
object to this voir dire.
THE COURT: And I am going to shut it down. Disregard the last
statements. We have got to move along and I sustain the objection.
The court called counsel to the bench for a conference outside the jury's hearing. The court
admonished the prosecutor that his remarks were improper but overruled appellant's motion for
mistrial. The court then gave the panel a second instruction to disregard: "All right, ladies and
gentlemen, you will disregard the last comments made by the district attorney. If you don't
remember them, don't ask."
Appellant argues that the prosecutor's statement, by suggesting to the jury panel
that appellant had committed other criminal acts, was calculated to deny him a fair trial before an
impartial jury. Pennington v. State, 353 S.W.2d 415 (Tex. Crim. App. 1962). Pennington is
distinguishable because the court in that case did not sustain the defendant's objection. Here, the
objection was sustained and the jury was twice told by the court not to consider the prosecutor's
remarks. While the prosecutor's comments were manifestly improper, they were not so
prejudicial as to be incurable by the court's instructions to disregard. Herring v. State, 758
S.W.2d 849, 853 (Tex. App.--Corpus Christi 1988, pet. ref'd). Point of error one is overruled.
In his second point of error, appellant contends the district court erred by granting
the State's challenge for cause to venire member Joe Wills. Wills indicated during voir dire that
he would not vote to convict a person for sexual assault without physical evidence of abuse.
Outside the presence of the other panelists, Wills was questioned further by the court and counsel.
THE COURT: Are you saying, I'm just asking you that if there is no
doctor that testifies as to physical harm, you could not convict?
MR. WILLS: No.
THE COURT: Do you want to ask him something?
MR. WESTENHOVER: All right. Well, if the state proves its case to
your satisfaction, could you vote to convict this man?
MR. WILLS: If it's proved to my satisfaction.
MR. WESTENHOVER: And to your satisfaction would just be your
personal opinion and within your conscience?
MR. WILLS: I don't know.
MS. DOUMA [prosecutor]: Mr. Wills, you are saying if the state proved
its case to you beyond a reasonable doubt through testimony alone, that would be
not enough for you. You would require that the state go one step further and bring
you physical evidence such as through a doctor's testimony?
MR. WILLS: Yes.
. . .
MR. WILLS: I could not take the girl or boy, whichever the case may be,
their word and I could not take the mother's word on this.
MR. WESTENHOVER: Judge, I think all he is saying is he is going to
require physical evidence which is his opinion as a juror. And I don't think there
is any law that says that he's not entitled to.
The court granted the State's challenge for cause over appellant's objection.
Appellant urges that this point of error is controlled by Garrett v. State, 851
S.W.2d 853, 857-61 (Tex. Crim. App. 1993). Garrett was a prosecution for capital murder.
During voir dire, a venire member stated that he would be unable to affirmatively answer the
punishment issue regarding the defendant's future dangerousness based on evidence of a single
criminal act, no matter how outrageous that act might have been. The State successfully
challenged the venire member on the ground that he was biased against case law holding that the
facts of the case on trial can alone support a finding of future dangerousness. See Tex. Code
Crim. Proc. Ann. art. 35.16(b)(3) (West Supp. 1995). The Court of Criminal Appeals reversed.
There is, of course, abundant case law to the effect that the facts of a capital crime,
if "severe enough," will support a jury verdict of "yes" to the second special issue.
However, none of the cases requires a particular jury, or an individual juror, to
answer the second special issue affirmatively solely on the facts of that particular
offense.
. . . [T]hat the law permits jurors to find future dangerousness in some
cases on the facts of the offense alone does not mean that all jurors must do so, or
even consider doing so. A particular juror's understanding of proof beyond a
reasonable doubt may lead him to require more than the legal threshold of
sufficient evidence to answer the second special issue affirmatively. . . . That an
individual venireman would set his threshold of reasonable doubt higher than the
minimum required to sustain a jury verdict [on appeal] does not indicate he has a
bias or prejudice against the law.
Garrett, 851 S.W.2d at 859-60 (footnotes and citation omitted). Appellant urges that the same
reasoning applies in this cause. He contends that while a jury may find a defendant guilty of
aggravated sexual assault based solely on the testimony of the victim and without physical or
medical evidence, this does not mean that all must do so. Appellant argues that Wills, like the
venire member in Garrett, merely indicated that his threshold of reasonable doubt was higher than
the minimum required to support a verdict on appeal.
It has been said that Garrett concerns only a venire member's bias or prejudice
against the law at the punishment phase of a capital trial. Castillo v. State, 867 S.W.2d 817, 823
(Tex. App.--Dallas 1993, pet. granted). While we express no opinion on that question, we agree
with the Dallas court that Garrett did not overrule a long line of cases holding that a venire
member who is biased against a certain type of legitimate evidence is properly challengeable for
cause under article 35.16(b)(3). Narvaiz v. State, 840 S.W.2d 415, 426 (Tex. Crim. App. 1992)
(would not vote to convict based on circumstantial evidence alone); Caldwell v. State, 818 S.W.2d
790, 797 (Tex. Crim. App. 1991) (would not vote to convict based on testimony of single
eyewitness); May v. State, 738 S.W.2d 261, 271 n.7 (Tex. Crim. App. 1987) (would not consider
accomplice witness testimony). The State is entitled to a jury composed of persons who will
objectively consider the available evidence. Castillo, 867 S.W.2d at 823 (venire member who
would not vote to convict based on testimony by one police officer properly excused pursuant to
article 35.16(b)(3)); see Leach v. State, 770 S.W.2d 903, 907-08 (Tex. App.--Corpus Christi 1989,
pet. ref'd) (venire member who would be "skeptical" of police testimony was biased against the
State and properly excused pursuant to article 35.16(a)(9)). A juror who cannot objectively
consider the State's evidence would, in effect, hold the State to a higher burden than proof beyond
a reasonable doubt. Caldwell, 818 S.W.2d at 797.
The complaining witness in this cause did not disclose that she had been sexually
assaulted until four years after the acts took place. The doctor who examined the complainant
found no physical evidence of sexual abuse. Wills clearly indicated during his voir dire
examination that he could not find a person guilty of sexually assaulting a child unless the child's
testimony was corroborated by medical testimony describing physical evidence of abuse. Wills
stated that without such medical testimony, he would not vote to convict even if the complainant's
testimony established guilt beyond a reasonable doubt. Because Wills was unable to objectively
consider the testimony of the complaining witness, he would have held the State to a stricter
burden of proof than required by law. The district court did not err by sustaining the State's
challenge for cause. Point of error two is overruled.
Next, appellant contends the district court erroneously permitted an expert to testify
that the complaining witness's accusations against him were true. The witness in question was
Deanna Garza-Louis, a child and family counselor with expertise in the area of child sexual abuse.
In her testimony, Louis described various behaviors that are symptomatic of sexual abuse and
explained why children often do not report sexual abuse when it happens. The testimony of which
appellant complains came in response to a hypothetical question. In the question, the prosecutor
asked Louis to assume a set of facts corresponding to those previously described by the
complainant and her mother in their testimony (age of child, circumstances in which alleged acts
took place, behavior of victim, nature of outcry, etc.) and to give her professional opinion
whether those circumstances indicated child sexual abuse. Over objection, Louis stated, "My
opinion would be that the child has probably been abused."
Expert testimony that a particular witness is truthful, or that the class of persons
to which the witness belongs is truthful, is not admissible under Rule 702. Tex. R. Crim. Evid.
702; Yount v. State, 872 S.W.2d 706, 711-12 (Tex. Crim. App 1993). An expert on child sexual
abuse may, however, describe the common elements or symptoms of child sexual abuse and give
an opinion as to whether the complaining witness manifests those symptoms. Duckett v. State,
797 S.W.2d 906, 917-20 (Tex. Crim. App. 1990). Expert testimony that is otherwise relevant
and admissible is not excludable merely because it corroborates the testimony of another witness
(even if that testimony is unimpeached) or enhances the inferences to be drawn from other
evidence. Cohn v. State, 849 S.W.2d 817, 819-20 (Tex. Crim. App. 1993).
Louis testified that, in her opinion, a hypothetical child who engages in the
behavior attributed to the complainant "has probably been abused." We believe Louis's testimony
was comparable to that held admissible in Duckett, in which the expert testified that the
complainant manifested the various symptoms of a sexually abused child. Although Louis's
testimony corroborated the testimony of the complaining witness, it did not constitute a direct
opinion on the truthfulness of the child. No error is presented and point of error three is
overruled.
Points of error four and five are related. At the close of the State's case in chief,
the prosecutor asked the district court to judicially notice that the indictment in this cause was
returned on May 5, 1993. In point of error four, appellant contends the court fundamentally erred
by failing to instruct the jury that it might, but was not required to, accept the judicially noticed
fact as true. Tex. R. Crim. Evid. 201(g). The court's charge did include this instruction:
You are further charged as the law in this case that the State is not required
to prove the exact date alleged in the indictment but may prove the offense, if any,
to have been committed at a time prior to the presentment of the indictment so long
as said offense, if any, occurred within 10 years of the date of the presentment of
the indictment.
You are further charged as the law in this case that an indictment for
Aggravated Sexual Assault of a Child may be presented within ten years from the
date of the commission of the offense.
The court also instructed the jury that the indictment was not evidence and that "it is only from
the witness stand that the jury is permitted to receive evidence regarding the case." In point of
error five, appellant contends that because no witness testified to the date the indictment was
presented, the evidence is insufficient to prove that the offense was committed prior to indictment
and within the period of limitations.
The statute of limitations is a defense that is waived unless it is urged by the
defendant in a timely manner in the trial court. State v. Yount, 853 S.W.2d 6, 8-9 (Tex. Crim.
App. 1993). (1) The limitations period applicable to aggravated sexual assault of a child is ten years.
Tex. Code Crim. Proc. Ann. arts. 12.01(2)(D), 12.03(d) (West Supp. 1995). The indictment in
this cause was marked filed on May 5, 1993, and alleged that the offense occurred on or about
October 1, 1988. Under the evidence, the alleged offense could not have been committed before
November 12, 1987, or after 1992. (2) Doubtlessly because there was no evidence to support it,
appellant did not assert the statute of limitations as a defense, did not request any instruction on
the defense of limitations, and did not otherwise raise the limitations issue in the district court.
Nevertheless, appellant now argues that the court's instructions to the jury placed on the State the
burden of proving by witness testimony that the prosecution was not barred by limitations. See
Boozer v. State, 717 S.W.2d 608, 610 (Tex. Crim. App. 1984); Benson v. State, 661 S.W.2d
708, 713 (Tex. Crim. App. 1982) (sufficiency of evidence determined in light of charge).
Appellant argues that the State did not meet this burden because no witness testified to the date
of presentment.
We are unpersuaded by this argument. The court's instruction with regard to the
date of the offense was essentially informational. The instruction did not, either expressly or by
fair implication, condition a guilty verdict on a finding that the offense was committed before the
indictment was presented and within the ten-year limitations period. Rather than placing an
additional burden on the State, the instruction made it clear to the jury that the State was not
obligated to prove that the offense was committed on the precise date alleged in the indictment.
Because the statute of limitations was not asserted as a defense or otherwise made
an issue at trial, it was unnecessary for either party to prove the date of the indictment's
presentment. Although the court judicially noticed the date of presentment, that date was not an
adjudicative fact in this cause and Rule 201(g) did not apply. See 1 Steven Goode, Olin Guy
Wellborn III, & M. Michael Sharlot, Guide to the Texas Rules of Evidence: Civil and Criminal
§ 201.1 (Texas Practice 2d ed. 1993) (distinguishing adjudicative, legislative, and "reasoning"
facts). Because neither the law nor the court's charge obligated it to do so, the State was not
required to prove the date of presentment in order to establish appellant's guilt. Points of error
four and five are overruled.
The judgment of conviction is affirmed.
Before Justices Powers, Kidd and B. A. Smith
Affirmed
Filed: March 1, 1995
Publish
1. It is not clear from the opinion in Yount whether the statute of limitations is an affirmative
defense or merely a defense. It is clear, however, that all judges agreed that the limitations
defense is waived unless timely asserted. See Yount, 853 S.W.2d at 8 (opinion of Campbell, J.,
for the court: "the defendant must bring the defect to the attention of the trial court in order to
preserve any error"), at 12 n.5 (opinion of Baird, J., concurring: "it is clear from our opinions
today that limitations can be waived if not timely asserted"), and at 15 (opinion of Clinton, J.,
dissenting: "I agree with the majority that limitations presents no jurisdictional impediment to
prosecution. That is to say, unless raised in the trial court in a timely manner, limitations will
not operate to divest the trial court of authority to convict.").
2. Appellant was tried in April 1994. The complainant testified that her birthday was
November 12 and that she was then eleven years old. This establishes her date of birth as
November 12, 1982. She also testified that appellant sexually assaulted her when she was five
years old and in kindergarten, and while she was living on Brighton Street in Austin. The
complainant's mother testified that the complainant started kindergarten in the fall of 1988.
Other evidence establishes that the complainant told her mother about the incidents in 1992,
when they were living in Marble Falls.
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
WASHINGTON MAILERS UNION :
LOCAL M-29, affiliated with :
COMMUNICATION WORKERS OF :
AMERICA, AFL-CIO, :
:
Plaintiff, : Civil Action No.: 08-2206 (RMU)
:
v. : Re Document Nos.: 9, 10
:
THE WASHINGTON POST, :
:
Defendant. :
MEMORANDUM OPINION
GRANTING THE PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT; DENYING THE
DEFENDANT’S CROSS-MOTION FOR SUMMARY JUDGMENT
I. INTRODUCTION
The parties join this controversy on cross-motions for summary judgment. Washington
Mailers Union No. 29 (“the plaintiff” or “the Union”) is the exclusive bargaining agent of non-
supervisory employees that work in The Washington Post’s (“the defendant” or “the Post”)
mailrooms. The Union filed a grievance, pursuant to an expired collective bargaining agreement
(“1998 CBA”), on behalf of one such employee following his termination. Because the court
concludes that the plaintiff’s grievance is arbitrable under the expired CBA, the court grants the
plaintiff’s motion for summary judgment and denies the defendant’s cross-motion for summary
judgment.
II. FACTUAL & PROCEDURAL BACKGROUND
The Union and the Post have been parties to numerous CBAs over the years. Joint
Stipulation ¶ 2. The parties’ most recent CBA was in effect from May 18, 1998 through May 18,
2003, id. ¶ 3, and laid out a Grievance and Arbitration Procedure, id., Ex. A at 2-5. At the time
these motions were briefed, the parties had engaged in negotiations over the terms of a new
CBA, but those negotiations had not yielded another CBA. Joint Stipulation ¶ 4.
Attached to the 1998 CBA is a “Memorandum of Agreement between The Washington
Post and Washington Mailers Union No. 29” (“MOA”), signed by the parties on May 18, 1998.
Id., Ex. A at 43-45. The MOA contains a provision (“the lifetime job guarantee provision”) that
reads:
The [Post] agrees that all mailers whose names appear on the Job Guarantee
Roster will be guaranteed either a full-time situation or an opportunity to work
five (5) shifts per week, as set forth below, with the [Post] in accordance with the
provisions of the latest collective bargaining agreement for the remainder of their
working lives until their employment ceases through retirement, resignation,
death or discharge for cause.
Id. at 43. Section 1(f) of the MOA states that “[t]his Job Guarantee will not be subject to
amendment or revision in future collective bargaining negotiations.” Id. at 44.
William Jenkins III was one of the Post employees listed on the Job Guarantee Roster.
Joint Stipulation ¶ 6. Jenkins began his employment with the Post on or about November 3,
1973. Id. ¶ 7. By letter dated October 15, 2008, the Post informed Jenkins that his employment
was terminated for “gross misconduct.” Id. ¶ 8 & Ex. B. On October 16, 2008, the Union filed a
grievance challenging Jenkins’s termination, pursuant to step one of the Grievance and
Arbitration Procedure. Joint Stipulation ¶ 9 & Ex. A at 3. On November 20, 2008, the Joint
Standing Committee met, Joint Stipulation ¶ 10, “to hear both parties and their representatives,”
id., Ex. A at 3. 1 On or about December 4, 2008, the Union demanded that Jenkins’s grievance be
arbitrated, pursuant to step three of the Grievance and Arbitration Procedure. Joint Stipulation ¶
1
This Committee was comprised of two representatives appointed by the Post and two
representatives appointed by the Union. Joint Stipulation, Ex. A at 2.
2
11 & Ex. A at 3. On or about December 6, 2008, the Post formally denied Jenkins’s grievance
and refused to participate in arbitration. Joint Stipulation ¶ 12.
The Grievance and Arbitration Procedure of the 1998 CBA applies to any “disagreement
involving an alleged violation of a specific provision of [the 1998 CBA], including a controversy
over any form of discipline or discharge.” Id., Ex. A. at 3. On several prior occasions, some
period of time has elapsed between the expiration of one CBA and the implementation of a new
one. Joint Stipulation ¶ 13. During these lapses, including the one following the expiration of
the 1998 CBA, the Union continued to file grievances concerning, among other issues, the
discipline and termination of employees, and the Post consistently took the position that the
grievances were not subject to arbitration under the expired CBA. Id. None of these grievances
were ever arbitrated; however, none involved the discharge of an employee covered by the MOA
and listed on the Job Guarantee Roster. Id.
On December 19, 2008, the plaintiff commenced this action, requesting that the court
compel arbitration of Jenkins’s grievance, pursuant to the 1998 CBA. See generally Compl. On
April 14, 2009, the plaintiff filed a motion for summary judgment, arguing that Jenkins’s
grievance is covered by the arbitration provision of the 1998 CBA and that the grievance “arises
under” that CBA. See generally Pl.’s Mot. The defendant filed a cross-motion for summary
judgment, contending that the grievance is not arbitrable because the arbitration provision of the
1998 CBA did not survive expiration and because the grievance did not “arise under” that CBA.
See generally Def.’s Mot. As both motions are fully briefed, the court now turns to the
applicable legal standards and the parties’ arguments.
3
III. ANALYSIS
A. Legal Standard for a Motion for Summary Judgment
Summary judgment is appropriate when “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 (1986); Diamond v. Atwood, 43 F.3d 1538, 1540
(D.C. Cir. 1995). To determine which facts are “material,” a court must look to the substantive
law on which each claim rests. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A
“genuine issue” is one whose resolution could establish an element of a claim or defense and,
therefore, affect the outcome of the action. Celotex, 477 U.S. at 322; Anderson, 477 U.S. at 248.
In ruling on cross-motions for summary judgment, the court shall grant summary
judgment only if one of the parties is entitled to judgment as a matter of law upon material facts
that are not genuinely disputed. Citizens for Responsibility & Ethics in Washington v. U.S. Dep’t
of Justice, 658 F. Supp. 2d 217, 224 (D.D.C. 2009) (citing Rhoads v. McFerran, 517 F.2d 66, 67
(2d Cir. 1975)). To prevail on a motion for summary judgment, the moving party must show that
the opposing party “fail[ed] to make a showing sufficient to establish the existence of an element
essential to that party’s case.” Celotex, 477 U.S. at 322. By pointing to the absence of evidence
proffered by the opposing party, a moving party may succeed on summary judgment. Id.
The opposing party may defeat summary judgment through factual representations made
in a sworn affidavit if he “support[s] his allegations . . . with facts in the record,” Greene v.
Dalton, 164 F.3d 671, 675 (D.C. Cir. 1999) (quoting Harding v. Gray, 9 F.3d 150, 154 (D.C. Cir.
1993)), or provides “direct testimonial evidence,” Arrington v. United States, 473 F.3d 329, 338
(D.C. Cir. 2006).
4
B. The Court Grants the Plaintiff’s Motion for Summary Judgment
on the Arbitrability of Jenkins’s Grievance
In Nolde Brothers, Inc. v. Bakery Workers, the Supreme Court held that in cases in which
the parties to an expired agreement disagree over a provision of the expired agreement, “the
presumptions favoring arbitrability must be negated expressly or by clear implication.” 430 U.S.
243, 255 (1977). But in Litton Financial Printing Division v. NLRB, the Court “refuse[d] to
apply that presumption wholesale in the context of an expired bargaining agreement, for to do so
would make limitless the contractual obligation to arbitrate.” 501 U.S. 190, 209 (1991). The
Litton Court held that, as a general rule, post-expiration grievances are not presumptively
arbitrable unless they “aris[e] under” the contract. See id. at 205-06.
A post-expiration grievance “arises under” the contract in one of three ways. Id. at 205-
06. First, a post-expiration grievance arises under the contract “where it involves facts and
occurrences that arose before expiration.” Id. at 206. Second, a post-expiration grievance arises
under the contract “where an action taken after expiration infringes a right that accrued or vested
under the agreement.” Id. Generally, “rights which accrued or vested under the agreement will .
. . survive termination of the agreement.” Id. at 207. Third, a post-expiration grievance arises
under the contract “where, under normal principles of contract interpretation, the disputed
contractual right survives expiration of the remainder of the agreement.” Id. at 206. “[I]f a
collective-bargaining agreement provides in explicit terms that certain benefits continue after the
agreement’s expiration, disputes as to such continuing benefits may be found to arise under the
agreement.” Id. at 207-08. Under these three exceptions, a post-expiration grievance can be said
to “arise under” the expired agreement, falling within the presumption of post-expiration
arbitrability. See generally id. at 205-08.
5
The plaintiff contends that the lifetime job guarantee is a vested right that survived the
expiration of the 1998 CBA. Pl.’s Mot. at 12. The defendant maintains that the parties never
agreed to give post-expiration effect to the Grievance and Arbitration Procedure of the 1998
CBA. See Def.’s Reply at 2.
A contractual right may vest in more than one way. See, e.g., Cincinnati Typographical
Union No. 3 v. Gannett Satellite Info. Network, Inc., 17 F.3d 906, 911 (6th Cir. 1994) (explaining
two different ways in which a right may vest: (a) if “the parties intended a right to vest;” and (b)
if the right “can be worked toward or accumulated over time”). The parties agree, Def.’s Mot. at
15-16, Pl.’s Reply at 9, that the lifetime job guarantee in the MOA, unlike provisions concerning
severance pay, vacation pay or pension benefits, does not fall under the category of a vested right
that is “worked toward or accumulated over time,” Cincinnati Typographical Union, 17 F.3d at
911. But, as explained in Cincinnati Typographical Union, another way to determine that a right
has vested is to demonstrate that “the parties intended [the] right to vest.” Id. at 910.
As the defendant points out, Def.’s Mot. at 9, a court may look to “contract language or
extrinsic evidence” to determine whether the parties intended a right to vest, Cincinnati
Typographical Union, 17 F.3d at 910. This includes “evidence of the intended duration of the
right with regard to particular employees.” Id. at 911. In this case, the language of the parties’
MOA explicitly stated that “all mailers whose names appear on the Job Guarantee Roster will be
guaranteed either a full-time situation or an opportunity to work five (5) shifts per week . . . for
the remainder of their working lives,” apart from three exceptions that are not applicable here.
Joint Stipulation, Ex. A at 43 (emphasis added). This guarantee was “not subject to amendment
or revision in future collective bargaining negotiations.” Id. at 44. Contract language that
broadly guarantees employment for the duration of a specified individual’s “working life,” and
6
that is not subject to revision, strongly supports a determination that the parties intended the right
to vest and be guaranteed for the future. Cf. Cincinnati Typographical Union, 17 F.3d at 911
(ruling that the limited circumstances articulated in a CBA’s protection of employees indicated
that the parties did not intend to create “a right vested and thus guaranteed for the future”).
Because the parties in the instant case intended Jenkins’s lifetime job guarantee to vest, the
lifetime job guarantee constitutes a “vested” right and is therefore arbitrable under Litton. See
Litton, 501 U.S. at 205-06 (explaining that the second exception to the general rule against
arbitrability of post-expiration grievances is “where an action taken after expiration infringes a
right that accrued or vested under the agreement”).
Indeed, two circuits that have ruled on the post-expiration arbitrability of substantially
similar contractual lifetime employment guarantees have concluded that the job guarantee was a
“vested right.” See Detroit Typographical Union No. 18 v. Detroit Newspaper Agency, 283 F.3d
779, 782 (6th Cir. 2002); Cumberland Typographical Union No. 244 v. Times & Alleganian Co.,
943 F.2d 401, 405 (4th Cir. 1991). In Detroit Typographical Union, the plaintiff was named a
lifetime job guarantee holder under the Memoranda of Agreement entered into between the
union and the newspaper. 283 F.3d at 782. The Memoranda of Agreement stated that its
provisions “shall be ongoing and part of all future collective bargaining agreements and shall not
be subject to amendment except by mutual consent of the parties.” Id. The CBA that expired on
April 30, 1995 provided that an arbitrator would decide “all disputes regarding the interpretation
of any portion of [the] agreement.” Id. at 783. After the CBA expired, the union filed a
grievance on behalf of the lifetime job guarantee holder, but the newspaper refused to arbitrate
the grievance. Id. The Sixth Circuit held that because the “right had fully vested,” the dispute
7
concerning the proper interpretation of the expired CBA “should be resolved according to the
arbitration provision of that agreement.” Id. at 787.
Similarly, in Cumberland Typographical Union, a union and an employer had negotiated
a lifetime job guarantee agreement for certain employees. 943 F.2d at 402. The terms of the job
guarantee were to “continue in force through succeeding agreements unless changed by mutual
agreement between the parties.” Id. at 403. The CBA between the parties also included a
grievance-arbitration procedure. Id. After the CBA expired, the union filed a grievance, alleging
that an action taken by the newspaper violated the lifetime job guarantee. Id. When the
employer refused to arbitrate the issue, id., the Fourth Circuit ruled that the job guarantee right
was a vested right and therefore subject to binding arbitration under the expired CBA, id. at 405,
407.
Like Detroit Typographical Union and Cumberland Typographical Union, this case
involves a continuing lifetime job guarantee incorporated under an expired CBA. Compare Joint
Stipulation, Ex. A at 43 (promising that “all mailers whose names appear on the Job Guarantee
Roster will be guaranteed [employment] . . . for the remainder of their working lives”), with
Cumberland Typographical Union, 943 F.2d at 402-03 (explaining that a job guarantee stating
that “all employees . . . whose names appear on the attached priority list will be retained on
situations for the remainder of their working li[ves]” created a vested right), and Detroit
Typographical Union, 283 F.3d at 782 (stating that the lifetime job guarantee at issue was
“virtually identical” to the lifetime job guarantee in Cumberland Typographical Union and thus
created a vested right). The court, therefore, concludes that Jenkins’s lifetime job guarantee is a
right that the Union and the Post intended to vest.
8
The Post contends that the fact that “the parties have never arbitrated a grievance
concerning the discipline or termination of any employee, or any other issue, after contract
expiration and in the absence of a currently effective agreement” supports a determination that
the parties did not intend post-expiration arbitrability. Def.’s Mot. at 9. The court considers this
argument unpersuasive because none of the aforementioned grievances involved the issue at
hand, namely, “the discharge of an[] employee covered by the Memorandum of Understanding
and listed on [the Job Guarantee Roster].” Joint Stipulation ¶ 13.
In sum, because the lifetime job guarantee is a “vested right,” it “arises under” the
expired 1998 CBA and is thus arbitrable. See Litton, 501 U.S. at 205-06, 207 (explaining that a
“post[-]expiration grievance can be said to arise under the contract . . . where an action taken
after expiration infringes a right that accrued or vested under the agreement,” and “[r]ights which
accrued or vested under the agreement will, as a general rule, survive termination of the
agreement”).
Even assuming arguendo that the lifetime job guarantee is not a “vested right” under
Litton’s second exception, “the disputed contractual right” – the lifetime job guarantee –
“survives expiration of the remainder of the agreement” under Litton’s third exception. See
Litton, 501 U.S. at 205-06; see also Detroit Typographical Union, 283 F.3d at 782 (quoting
language from the parties’ CBA, which states that “the guarantee commitment shall endure
beyond the term of any specific Collective Bargaining Agreement executed between the
parties”). The parties’ CBA explicitly provided that the job guarantee applied for the
“remainder of [Jenkins’s] working li[fe],” Joint Stipulation, Ex. A at 43, impervious to
“amendment or revision in future collective bargaining negotiations,” id. at 44.
9
Thus, because the lifetime job guarantee “survives expiration of the remainder of the
agreement,” it “arises under” the expired CBA and is thus arbitrable. See Litton, 501 U.S. at
205-08; see also Detroit Typographical Union, 283 F.3d at 782; Cumberland Typographical
Union, 943 F.2d at 405.
IV. CONCLUSION
For the foregoing reasons, the court grants the plaintiff’s motion for summary judgment
and denies the defendant’s cross-motion for summary judgment. An Order consistent with this
Memorandum Opinion is separately and contemporaneously issued this 30th day of March,
2010.
RICARDO M. URBINA
United States District Judge
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
______________________________
)
DISTRICT OF COLUMBIA, )
)
Plaintiff, )
)
v. ) Civil Action No. 08-2075 (RWR)
)
JOHN A. STRAUS, et al., )
)
Defendants. )
______________________________)
MEMORANDUM OPINION
The District of Columbia (“DC”) unsuccessfully sued attorney
John Straus and his law firm, James E. Brown & Associates,
seeking attorneys’ fees under the Individuals with Disabilities
Education Act (“IDEA”), 20 U.S.C. § 1415, claiming that the
District of Columbia Public Schools (“DCPS”) was the prevailing
party in an administrative proceeding that Straus had needlessly
brought and continued. The defendants now seek attorneys’ fees
under Federal Rule of Civil Procedure 54(d), arguing that DC
acted in bad faith throughout the course of the litigation.
Because the defendants have not established that DC’s efforts
were undertaken in bad faith, their petition for fees will be
denied.
BACKGROUND
In the underlying action, Straus represented a child with
special educational needs who was enrolled in a DC public high
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school. A DCPS multidisciplinary team referred the child to DCPS
for a psychiatric evaluation. Because DCPS failed to conduct the
evaluation, Straus filed an administrative due process complaint
on behalf of the child and his legal guardian. The complaint
sought to have DCPS fund an independent evaluation. Three
business days after Straus filed the complaint, DCPS authorized
Straus to obtain an independent evaluation at DCPS’ expense.
Thereafter, a hearing officer dismissed the complaint with
prejudice on the ground that DCPS’ authorization mooted the
issue. The hearing officer added his conclusions that Straus had
filed the complaint without foundation and had groundlessly
maintained the litigation after it became moot. DC then brought
this action and moved for summary judgment, claiming that DCPS
was the prevailing party in the administrative proceeding and it
therefore was entitled to attorneys’ fees. However, judgment as
a matter of law was entered in the defendants’ favor because DCPS
was not a prevailing party. DC appealed the decision, the D.C.
Circuit affirmed, and the defendants now move under Rule 54(d)
for attorneys’ fees, arguing that DC brought and pursued this
action in bad faith and therefore they are entitled to a fee
award. DC opposes the motion, disputing that defendants have
demonstrated any bad faith.
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DISCUSSION
“In the United States, parties are ordinarily required to
bear their own attorney’s fees -- the prevailing party is not
entitled to collect from the loser.” Buckhannon Bd. and Care
Home, Inc. v. W. Va. Dep’t of Health and Human Servs.
(“Buckhannon”), 532 U.S. 598, 602 (2001); see also Alyeska
Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 247 (1975).
“Under this ‘American Rule,’ we follow ‘a general practice of not
awarding fees to a prevailing party absent explicit statutory
authority.’” Buckhannon, 532 U.S. at 602 (quoting Key Tronic
Corp. v. United States, 511 U.S. 809, 819 (1994)). Numerous
statutes, including the IDEA, provide for an award of attorneys’
fees for the prevailing party. That party may move under Rule
54(d) for a fees award by specifying “the statute, rule, or other
grounds entitling the movant to the award.” Fed. R. Civ. P.
54(d)(2)(A), (B)(ii).
When there is no statutory authorization for such an award,
a court may “consider whether the requested fee award [falls]
within any of the exceptions to the general ‘American Rule[.]’”
Alyeska Pipeline Serv. Co., 421 U.S. at 245. In Alyeska, the
Supreme Court set forth these common law exceptions, which
include circumstances “where a party has brought an action as a
trustee of a fund or property or to preserve or recover a fund
for the benefit of others in addition to himself” or where the
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non-movant has acted in “bad faith.” In re Antioch Univ., 482
A.2d 133, 136 (D.C. 1984) (internal quotation marks omitted).
“Legal fees may . . . be levied against a party who has willfully
disobeyed a court order or when the losing party has acted in bad
faith, vexatiously, wantonly, or for oppressive reasons.” Id.
(internal quotation marks omitted); see also Hall v. Cole, 412
U.S. 1, 5 (1973); Am. Hosp. Ass’n v. Sullivan, 938 F.2d 216, 219
(D.C. Cir. 1991); Ellipso, Inc. v. Mann, 594 F. Supp. 2d 40, 43
(D.D.C. 2009). Notwithstanding these exceptions, “courts do not
have ‘roving authority’ to allow counsel fees whenever deemed
warranted.” In re Antioch Univ., 482 A.2d at 136 (quoting
Alyeska Pipeline Serv. Co., 421 U.S. at 260).
“Bad faith can support an award of attorneys’ fees in
circumstances where the bad faith (1) occurred in connection with
the litigation, or (2) was an aspect of the conduct giving rise
to the lawsuit.” Am. Hosp. Ass’n, 938 F.2d at 219. Bad faith
occurring in connection with the litigation can include “the
filing of a frivolous complaint or meritless motion, . . . or
discovery-related misconduct.” Id. at 219-20 (internal citations
omitted). “Bad faith in conduct giving rise to the lawsuit may
be found where ‘a party, confronted with a clear statutory or
judicially-imposed duty towards another, is so recalcitrant in
performing that duty that the injured party is forced to
undertake otherwise unnecessary litigation to vindicate plain
-5-
legal rights.’” Id. at 220 (quoting Fitzgerald v. Hampton, 545
F. Supp. 53, 57 (D.D.C. 1982)). Further, “the substantive
standard for a finding of bad faith is ‘stringent’ and
‘attorneys’ fees will be awarded only when extraordinary
circumstances or dominating reasons of fairness so demand.’”
Ass’n of Am. Physicians and Surgeons, Inc. v. Clinton, 187 F.3d
655, 660 (D.C. Cir. 1999) (quoting Nepera Chem., Inc. v. Sea-Land
Serv., Inc., 794 F.2d 688, 702 (D.C. Cir. 1986)). “[T]he finding
of bad faith must be supported by ‘clear and convincing
evidence[.]’” Id. (quoting Shepherd v. Am. Broad. Cos., Inc., 62
F.3d 1469, 1476-78 (D.C. Cir. 1995)). This “‘generally requires
the trier of fact, in viewing each party’s pile of evidence, to
reach a firm conviction of the truth on the evidence about which
he or she is certain.’” Id. (quoting United States v. Montague,
40 F.3d 1251, 1255 (D.C. Cir. 1994)).
The defendants advance three main arguments to establish bad
faith.1 The defendants complain that DC’s Attorney General
contacted the press and “provide[d] interviews to the Washington
Post and the City Paper” about filing this case, thereby
“cho[osing] to make this matter a media event[.]” (Defs.’ Reply
at 3.) It is hardly a novel concept, much less evidence of bad
1
The defendants offer no support for their conclusory
allegation that DC brought this litigation based on a baseless
claim (Defs.’ Reply at 4), nor have defendants argued that DC
filed any meritless motions during the course of litigation, or
that DC committed any discovery-related misconduct.
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faith, that a jurisdiction’s chief law enforcement officer would
choose to make public his initiatives. The defendants also argue
that DC had no “interest [in] resolving this matter amicably,
adumbrating that it wanted a decision and thereafter . . .
refus[ing] seriously [to] engage in settlement discussions.”
(Id.) That a party in litigation chooses to seek a decision on
the merits as opposed to settle the case does not alone establish
bad faith or necessarily reflect an illegitimate litigation
strategy. Defendants’ final argument –- that DC’s decision to
appeal the judgment against it shows bad faith (id.) –- wholly
lacks merit and warrants no discussion. DC’s efforts here
reflected zealous, if misguided, advocacy, but the defendants
have made no showing meeting the stringent standards required to
establish bad faith. Thus, defendants are not entitled to
attorneys’ fees, and their petition for fees therefore will be
denied.
CONCLUSION
Because the defendants fail to make a factual showing of bad
faith by DC, their petition for attorneys’ fees will be denied.
A final, appealable Order accompanies this Memorandum Opinion.
SIGNED this 12th day of April, 2010.
/s/
RICHARD W. ROBERTS
United States District Judge
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275 F.Supp.2d 177 (2003)
Carlos ROMERO-BARCELO, Petitioner,
v.
Anibal ACEVEDO-VILA, Respondent.
No. 00-091(JAF).
United States District Court, D. Puerto Rico.
July 31, 2003.
*178 *179 *180 *181 Edward Borges, Esq., Jane Becker Whitaker, Esq., Borges Law Center, PSC, San Juan, for Petitioner's.
Harry Anduze Montaño, Esq., San Juan, Johanna Emmanuelli Huertas, Esq., Law Offices of Pedro Ortiz Alvarez, Ponce, for Respondent's.
OPINION AND ORDER
FUSTE, District Judge.
On June 23, 2000, Carlos Romero-Barceló ("Petitioner Romero-Barceló"), filed a motion requesting disbarment of Aníbal Acevedo-Vilá ("Respondent Acevedo-Vilá"). After evidentiary and formal disciplinary hearings, a Panel ("Panel") appointed by this court rendered its Report and Recommendation ("Report") on April 16, 2003. Docket Document No. 67. The Panel recommended that Respondent be publicly reprimanded for violations of Rule 8.4 and 3.1 of the Model Rules of Professional Conduct. Respondent Acevedo-Vilá opposed the Report, raising objections to the proceedings and the Report's conclusions. Docket Document 70. After a careful review of the entire record, we recommend that the district judges of this court issue a public reprimand.
Duty compels us to adjudicate this legal dispute brought by two attorneys who happen to be political rivals. We note with disillusion and dismay the depths to which public discourse has fallen, and we hope, though indications are to the contrary, that this court is seldom, if ever, used to resolve matters that are best left to other arenas. That said, we will not shirk our responsibility to enforce the highest standards of ethical conduct for any individual who wishes to practice before this Federal District Court.
It is a fair characterization of the lawyer's responsibility in our society that he stands "as a shield," . . . in defense of right and to ward off wrong. From a profession charged with such responsibilities there must be exacted those qualities of truth-speaking, of a high sense of honor, of granite discretion, of the strictest observance of fiduciary responsibility, that have, throughout the centuries, been compendiously described as "moral character."
Schware v. Bd. of Bar Exam's, 353 U.S. 232, 247, 77 S.Ct. 752, 1 L.Ed.2d 796 (1957) (Frankfurter, J., concurring).
We have addressed the issues before us with Justice Frankfurter's words in mind, in order, not to play party politics, but to preserve the integrity of the Bar. We strongly urge the other judges of the court to adopt a similar stance, so that the message can be sent loud and clear. Unethical conduct will not be tolerated, no matter how it arises, or who is involved.
I.
Factual and Procedural Synopsis
To review the origins of this matter, we largely reiterate the Panel's factual synopsis, expounding where appropriate. See Docket Document 63.
In June 2000, Petitioner Romero-Barceló filed a petition for disbarment. At the time, Respondent Acevedo-Vilá was the minority leader of the Popular Democratic Party's ("PDP") delegation in the Puerto Rico House of Representatives. He was also a candidate in the November 2000 elections for the federal position of Resident Commissioner of the Commonwealth of Puerto Rico in the United States House of Representatives, a position which he subsequently secured. Complainant Romero-Barceló opposed Respondent Acevedo-Vilá in these elections as the incumbent Resident Commissioner, representing the New Progressive Party ("NPP"). Both men were, and are, attorneys-at-law in Puerto Rico and members *182 of the Bar of the United States District Court for the District of Puerto Rico.
Respondent Acevedo-Vilá has been an attorney since 1985 and was a member of the Puerto Rico House of Representatives from 1992 through 2000. Beginning in 1997, as Speaker for the Minority at the House of Representatives, Respondent Acevedo-Vilá became actively involved in monitoring governmental action related to the implementation of the Puerto Rico Health Reform Act, Law 190 ("Law 190"). ACT TO REGULATE THE GOVERNMENT HEALTH INSTALLATIONS PRIVATIZATION PROCESS, 1996 P.R. Laws 190. Law 190 granted the Puerto Rico Department of Health and the Government Development Bank ("GDB") the authority to design, establish, and carry out the procedures and provisions for the sale of Diagnostic and Treatment Centers ("DTC") to private entities.
While Respondent Acevedo-Vilá knew that the Health Department and the GDB were legally authorized and empowered to conduct and control the privatization process and sale of the DTCs, Respondent was concerned that several DTCs had been sold for a price either below the amount of public debt held by the DTC, or below their appraisal/market value. Respondent exchanged communications with the Puerto Rico Comptroller, Manuel Díaz Saldaña ("Comptroller Díaz Saldaña"), and other government representatives, and made public his disagreement with the process of privatization of the DTCs.
Sometime during the month of September 1999, Respondent Acevedo-Vilá received three sworn statements, dated August 27, 28, and 30, 1999 ("Sworn Statements"), by Andrés Sánchez-Delgado ("Sánchez-Delgado"). The statements were made as part of Sánchez-Delgado's efforts to file a civil action against his employer, Dr. Carlos Juan Rodríguez Mateo, a politician affiliated with the NPP and a prominent physician, alleging wrongful termination of employment and sexual harassment. Sánchez-Delgado narrated in detail a series of events, of which he claimed to have personal knowledge, involving Petitioner Romero-Barceló. Specifically, Sánchez-Delgado alleged that he delivered $175,000 to one of Romero-Barceló's personal aides, Mr. Domingo García ("Domingo García"). According to the August 27 and 28 statements, the delivery took place at a political activity being held in Guayama, Puerto Rico, in connection with a December 1998 plebiscite. Sánchez-Delgado averred that the $175,000 belonged to Dr. Rodríguez Mateo, and that the money was a "gift" for Romero-Barceló in exchange for his alleged assistance and/or intervention in favor of Dr. Rodríguez-Mateo's acquisition of a DTC in Salinas, Puerto Rico ("Salinas DTC"). Petitioner's alleged intervention was to be on behalf of a corporation called Med-Sur, of which Dr. Rodríguez Mateo is an officer, and to which the bid for the Salinas DTC was eventually awarded.
Respondent Acevedo-Vilá and his assistant, Attorney Carlos Ruiz ("Attorney Ruiz"), assert that Sánchez-Delgado's sworn statements were thoroughly examined and analyzed by Respondent Acevedo-Vilá and his assistants, and that Respondent's assistants compiled public documents related to the sale of the Salinas DTC and any political contributions made to Romero-Barceló by Dr. Rodríguez Mateo or persons related to him. Both Attorney Ruiz and Respondent Acevedo-Vilá were able to confirm certain facts alleged by Sánchez-Delgado in his Sworn Statements including, inter alia, that Petitioner Romero-Barceló had contacted the GDB during the bidding process, that the Salinas DTC was sold for less than the appraisal value, and that the father of Dr. Rodríguez Mateo was a member of Petitioner Romero-Barceló's security escort.
*183 On or around September 27, 1999, Respondent Acevedo-Vilá held a news conference denouncing the sale of the Salinas DTC at 48% of its book value of $2,379,987 and 55.5% of the $2,073,134 debt that the Puerto Rico Health Department had with government bondholders. Respondent Acevedo-Vilá requested that the GDB investigate the statements made by Sánchez-Delgado regarding Petitioner's alleged intervention on behalf of Med-Sur in the acquisition of the Salinas DTC. Respondent Acevedo-Vilá also issued a press release, in which he suggested that the information provided by Sánchez-Delgado, along with that reflected in documents disclosed by the GDB "raised serious questions about the sale of the Salinas DTC." Respondent Acevedo-Vilá also noted that the DTC was sold during a year in which a plebiscite was held in Puerto Rico, and suggested the possibility of an NPP scheme to promote the sale of DTCs below market price in exchange for diverting funds to the NPP campaign.
Petitioner Romero-Barceló denied Sánchez-Delgado's statements, and countered that he did not remember talking to Dr. Rodríguez-Mateo about the Salinas DTC. His assistant, Domingo García, acknowledged that he had talked to Dr. Rodríguez-Mateo about the purchase of the Salinas DTC, and also admitted that he called the GDB inquiring on the status of the transaction.
During the same time period, members of the PDP, Respondent Acevedo-Vilá's political party, were denouncing prior attempts by Sánchez-Delgado to offer false testimony against PDP leaders and warning others about Sánchez-Delgado's lack of credibility. Respondent Acevedo-Vilá attempted to determine whether Sánchez-Delgado's testimony was credible by contacting Attorney David Noriega, a political analyst who interviewed Sánchez-Delgado at a radio talk show. Attorney Noriega's opinion was that Sánchez-Delgado appeared to be credible and knowledgeable of facts regarding personal and family activities of Dr. Rodríguez-Mateo. Respondent Acevedo-Vilá, however, could not confirm that this conversation about Sanchez-Delgado's credibility happened before he filed the complaint with the Federal Elections Commission ("FEC") that gave rise to this matter.
A flurry of press releases by Respondent Acevedo-Vilá followed. On September 30, 1999, Respondent distributed a press release, calling upon Petitioner Romero-Barceló to explain, inter alia, his "connections with Dr. Carlos Rodríguez Mateo, whom it is alleged made an illegal contribution of $175,000 to [Romero-Barceló's] re-election campaign . . ." On October 6, 1999, Respondent Acevedo-Vilá issued another press release requesting that Comptroller Díaz Saldaña investigate the sale of DTCs sold below appraisal value, which he asserted could be indicative of a generalized scheme of illegal contributions. On the same date, the local newspaper EL NUEVO DIA reported that Comptroller Díaz Saldaña had agreed to examine Sánchez-Delgado's sworn statements to determine the legality of the DTC sale process.
On October 7, 1999, Respondent Acevedo-Vilá held a press conference announcing that he was filing a complaint with the Federal Election Commission ("FEC"),[1] alleging that Petitioner Romero-Barceló violated the Federal Election *184 Campaign Act of 1971, as amended, 2 U.S.C. §§ 431-56 (1994). In a press release on the same day, Respondent Acevedo-Vilá avers that he was prompted to file the complaint with the FEC because of the state government's alleged continued refusal to investigate Sánchez-Delgado's statements regarding an illegal contribution to Romero-Barceló's political campaign.
The FEC complaint alleged that Petitioner Romero-Barceló received an illegal campaign contribution of $175,000 from Sánchez-Delgado. The complaint also maintained that Sánchez-Delgado, pursuant to orders given by his employer, gave the money directly to Domingo García, Director of former Resident Commissioner Romero-Barceló's District Office in Puerto Rico, for Petitioner Romero-Barceló's election campaign. The FEC complaint further asserted that Dr. Rodríguez-Mateo made the contribution in exchange for Petitioner's assistance in Dr. Rodríguez-Mateo's acquisition of a medical institution in Salinas, Puerto Rico, for a price below the Government of Puerto Rico's selling price.
On October 15, 1999, Comptroller Díaz Saldaña publicly stated that he was investigating the sale of the Salinas DTC and other hospitals, and that he intended to interview Dr. Rodríguez-Mateo and Sánchez-Delgado.
On October 19, 1999, the FEC acknowledged the receipt of the Request for Investigation against Romero-Barceló. The letter advised Respondent Acevedo-Vilá that any additional information regarding the matter should be forwarded to the Office of the General Counsel of the FEC.
By letter dated January 13, 2000, Respondent Acevedo-Vilá supplemented his FEC complaint by submitting additional information that he alleged related to the facts presented in the original complaint. Attached to the letter were two January 5, 2000 newspaper articles, one published by EL NUEVO DIA, and the other presumably published by a local English language newspaper, THE SAN JUAN STAR. In the letter, Respondent Acevedo-Vilá alleges that these articles "depict an ongoing probe, by the U.S. District Attorney's Office [sic] for the District of Puerto Rico, the FBI and the U.S. Postal Service on possible conduct related to `the events described in my complaint.'" Both articles, however, relate that Sánchez-Delgado was questioned about allegations that Med-Sur had allegedly defrauded Humana Insurance of $15 Million. The only details that bear any reference to the FEC complaint are in THE SAN JUAN STAR article, which gives background details on Sánchez-Delgado and also reports that Sánchez-Delgado had received death threats because of the civil suit he filed against Rodríguez-Mateo.
On March 29, 2000, a radio news station, NOTI-UNO, broadcasted a March 16, 2000 recorded statement made by Sánchez-Delgado, in which he recanted the sworn statements he had made in August of 1999. In the recording, Sánchez-Delgado stated that his original statements against Romero-Barceló were false, and were made because he was upset with Dr. Rodríguez-Mateo. He also alleged, inter alia, that he was paid to make the statements against Romero-Barceló by his attorney, former NPP senator Nicolás Nogueras, PDP Representative Guillermo Valero, and Respondent Acevedo-Vilá. Subsequently, on March 24, 2000, he recanted the March 16, 2000 statement, averring that he was threatened by NPP *185 sympathetic employees of the Municipality of Bayamón to state that Respondent Acevedo-Vilá had prompted him to lie in the original sworn statements that formed part of the FEC complaint.
On March 30, 2000, Respondent Acevedo-Vilá was interviewed at a NOTI-UNO radio show. During the interview, the NOTI-UNO reporter asked Respondent Acevedo-Vilá about Sánchez-Delgado's credibility in light of the March 16 and March 24 statements. Respondent Acevedo-Vilá expressed that Sánchez Delgado lacked credibility and that, in light of these contradictions, Sánchez-Delgado would not make a good witness.
On May 18, 2000, the newspaper EL VOCERO began publishing a two-week series of investigative reports in which it recounted a scheme which Respondent allegedly masterminded. The scheme purportedly involved payments of money to an attorney who would then ensure that libelous claims against Petitioner Romero-Barceló were made public.
On June 1, 2000, Petitioner Romero-Barceló asked Respondent Acevedo-Vilá, publicly and in writing, to withdraw his complaint with the FEC, inasmuch as the same was based on the statements by Sánchez Delgado.[2] Petitioner alluded to Sánchez-Delgado's accusations implicating Respondent Acevedo-Vilá in a scheme to defame him. Petitioner Romero-Barceló alerted Respondent Acevedo-Vilá that inaction would result in legal action.
*186 On the same date, Respondent Acevedo-Vilá forwarded the letter to the FEC, claiming that "[Romero-Barceló's] conduct [was] highly irregular, if not illegal" because Romero-Barceló "threatened" to take legal action. Respondent Acevedo-Vilá requested that Romero-Barceló's letter be included as an additional document related to his complaint. Respondent Acevedo-Vilá also attached an affidavit, where he emphatically denied Sánchez-Delgado's accusations and denied having any participation in a scheme to defraud Romero-Barceló. Respondent Acevedo-Vilá made no reference to Sánchez-Delgado's March 16 and 24 disavowals of the sworn statements that constituted the evidence for the complaint as originally filed.
On June 23, 2000, Petitioner Romero-Barceló filed the instant petition, alleging that Sánchez-Delgado's sworn statements, which formed the foundation of the FEC complaint, were internally inconsistent. Docket Document No. 1. As such, he maintained that it was incumbent upon Respondent Acevedo-Vilá to take affirmative steps to verify the allegations before filing the FEC complaint and publicizing its allegations. Petitioner Romero-Barceló further alleged that Respondent Acevedo-Vilá, by publicly decrying the credibility of Sánchez-Delgado, irreparably undermined the basis of the FEC complaint, and that Respondent Acevedo-Vilá adamantly insisted upon pursuing the issue solely for the purpose of harassment. Accordingly, Petitioner Romero-Barceló contended that Respondent Acevedo-Vilá's failure to verify the veracity of Sánchez-Delgado's statements and his steadfast refusal to withdraw the FEC complaint was irresponsible, unethical, and a violation of 18 U.S.C. § 1001 (1999)[3] and Rule 8.4 of the Model Rules of Professional Conduct. MODEL RULES OF PROF'L CONDUCT R. 8.4.
On July 18, 2000, we issued a show cause order. See Docket Document No. 3.[4]
On July 19, 2000, Comptroller Díaz Saldaña reported that the sales of most DTCs carried out under Law 190 did not comply with standard regulations and parameters. Comptroller Díaz Saldaña identified irregularities in the sale process of most of the health facilities. However, Comptroller Díaz Saldaña also indicated that his office found no irregularities in Petitioner Romero-Barceló's behavior. Respondent Acevedo-Vilá did not apprise the FEC of this information.
On July 20, 2000, Respondent Acevedo-Vilá sent a letter to the FEC reporting that Sánchez-Delgado retracted his original statement under oath. Respondent Acevedo-Vilá again defends himself against Petitioner's allegations in the June 1, 2000 letter he submitted to the FEC, stating that he had been assured that he was not a subject of state investigation "because the reporter's sources have no credibility."
*187 On August 4, 2000, Sánchez-Delgado was charged with seventeen criminal felony charges for violation of the Puerto Rico perjury statute.[5]
On September 15, 2000, the FEC's Office of the General Counsel recommended that the file be closed and that "no action" be taken with respect to, inter alia, Carlos Rodríguez-Mateo, Domingo García, Carlos Romero-Barceló, and Romero-Barceló's Election Committee. In addition, the Office of the General Counsel concluded that even if Sánchez-Delgado's statements were credible, "neither the statements nor other information on the public record indicate that the $175,000 payment was a campaign contribution." In addition, the General Counsel's report reflects that "no record of contribution to Carlos Romero-Barceló either individually or in a lump sum" approaches the sum of $175,000, and that "there is no information that the $175,000 . . . was intended or used for Carlos Romero-Barceló's campaign . . . ." On September 22, 2000, the FEC in a vote of 6-0 adopted and approved the General Counsel's determination to dismiss the complaint, a decision which Respondent Acevedo-Vilá did not seek to review.
Respondent Acevedo-Vilá twice moved to dismiss the present petition in August and September 2000, see Docket Documents Nos. 4 and 22, motions which we denied. See Docket Documents Nos. 5, 11, and 25. On September 11, 2000, we ordered Magistrate Judge Castellanos to conduct a limited, preliminary investigation into Petitioner Romero-Barceló's allegations. Docket Document No.4. On September 15, 27, and 28, 2000, Magistrate Judge Castellanos conducted a hearing to determine the sufficiency of the evidence with regard to whether Respondent Acevedo-Vilá knew or should have known about the unreliable character of Sánchez-Delgado's allegations. The following witnesses testified during this hearing: Petitioner Romero-Barceló; Respondent Acevedo-Vilá; Dr. Rodríguez-Mateo; Domingo García; Migdalia Rivera-Pizarro, an employee, at the time of the hearing, of local NPP Senator Ramón Luis Rivera, Jr.; Ombudsman López Méndez; Héctor Santiago-Rivera, an attorney consulted by Sánchez-Delgado; José Gil Colón-Rodríguez, an associate of Sánchez-Delgado; Celeste Benítez, an individual implicated by Colón-Rodríguez in allegedly conspiring with Sánchez-Delgado; Carlos J. Ruiz-Nazario, Chief of Staff for Respondent Vilá Acevedo-Vilá at the time of the hearing; Ferdinand Mercado, Secretary General of the PDP at the time of the hearing; David Rivé-Power, Campaign Director for the PDP "Sila 2000" Committee; Víctor Rivera-Hernández, Executive Assistant to the President of the PDP at the time of the hearing; and Efraín Rivera-Carlos, a process server. At the conclusion of the hearing, the Magistrate found that there was sufficient evidence to continue disciplinary proceedings against Respondent Acevedo-Vilá. See Docket Document No. 46.
After having thoroughly reviewed the Report and Recommendation issued by Magistrate Judge Castellanos, we issued an Opinion and Order on February 9, 2001, in which we concluded that a formal disciplinary proceeding was required under Local Rule 211, and that Respondent Acevedo-Vilá was to be given "the opportunity to show cause why disciplinary action is not merited in his case." D.P.R. LOCAL R. 211.5(B).[6] We appointed Magistrate *188 Judge Aida Delgado-Colón, Steven C. Lausell, Esq., and Rafael Pérez-Bachs, Esq., to a panel ("the Panel") to determine whether Respondent Acevedo-Vilá knew or should have known on October 12, 1999, that the principal basis for his FEC complaint, i.e., Sánchez-Delgado's sworn statements, lacked credibility, and whether Respondent Acevedo-Vilá informed the FEC in a timely fashion about the changing nature of his information and belief regarding the veracity of Sánchez-Delgado's statements. Later, Pérez-Bachs resigned. We ordered the two-member Panel to review the entire record as it existed, and to hold a hearing in which witnesses may be called and cross-examined and to make, upon a clear and convincing evidence standard, detailed findings of fact with regard to two material issues. We also ordered the Panel to recommend what disciplinary action, if any, the court should take against Respondent Acevedo-Vilá, and the reasons for such action. We reminded the panel that the Bar of this court, rather than Petitioner Romero-Barceló or Respondent Acevedo-Vilá, carries the burden of proof.
In accordance with our Order, hearings were held June 3, June 4, and July 31, 2002, before Panel members Attorney Steven Lausell and Magistrate-Judge Aida Delgado-Colón, during which Respondent Acevedo-Vilá was afforded the opportunity to present and cross-examine witnesses. Several witnesses testified at the hearing conducted before the Panel: Attorney David Rivé-Power, Attorney Carlos Ruíz Nazario, Ferdinand Mercado, Víctor Rivera Hernández, Charles E. Figueroa Alvarez, Héctor Santiago, Attorney David Noriega, and Attorney Nicolás Nogueras.
On April 13, 2003, the Panel issued its Report and Recommendation. Docket Document No. 63. The Panel summarized the factual background of the events in question, and tackled the two issues we had presented for its consideration. As to the first, whether Respondent Acevedo-Vilá knew or should have known on October 12, 1999 that Sánchez-Delgado's sworn statements lacked credibility, the Panel found that
[t]he context of the sworn statements, which raised the specter of ulterior motives of both Sánchez-Delgado in signing them and Attorney Nogueras in providing them to Acevedo-Vilá; the content of the sworn statements in which no reference is made to political campaign contributions regarding Romero-Barceló; and the credibility of Sánchez-Delgado which was called into question by members of Acevedo-Vilá's own political party, all convince this Panel that Acevedo-Vilá knowingly misrepresented the truth in filing the complaint before the FEC and publicized the filing in order to mislead the voters and gain political advantage over his political adversary, Romero-Barceló.
Docket Document No. 63.
The Panel was unconvinced by Respondent's efforts at corroborating Sánchez-Delgado's statements. First, the Panel noted that no date was provided for Domingo Garcia's admitted intervention on behalf of Dr. Rodríguez Mateo on the sale of the Salinas DTC, and that Petitioner Romero-Barceló stated that this type of intervention did not materially differ from assistance his office gave to all his constituents. Furthermore, Petitioner Romero-Barceló asserted that he did not remember discussing the matter personally with Dr. Rodríguez Mateo.
Second, the Panel noted that sales of DTCs under their appraisal value were legal, and that this, in and of itself, did not support an inference that the sales were *189 being conducted as part of a scheme to divert funds to NPP campaign coffers.
Third, the Panel found that Respondent's confirmation of Sánchez-Delgado's statement that Domingo García was limping sometime in 1998 was "easily detectable by third parties and in no way added credibility to Sánchez-Delgado's statements."
Fourth, the fact that Petitioner Romero-Barceló had provided Dr. Rodríguez Mateo with an invitation to the Inaugural Ball for President Clinton in January 1997 did not sustain a finding of an alleged campaign contribution concurrent with the May 1998 Salinas DTC sale.
Fifth, the Panel noted that Respondent confirmed and made public that Dr. Rodríguez Mateo or persons related to him had made political contributions to Petitioner. However, the Panel noted that Respondent failed to note that those contributions had been reported to the FEC, were within the statutory maximum limits and, therefore, legal. They also questioned Respondent's characterization of 1996, 1997, and 1998 contributions as "contemporaneous" to the May 1998 sale.
Finally, the Panel considered the fact that Dr. Rodríguez-Mateo's father was part of Petitioner's security detail escort. "Even if true," the Panel found, "this is not illegal, per se, nor is it relevant to the assessment of Sánchez-Delgado's credibility or the veracity of his allegations as these are related to Romero-Barceló." Id. The Panel observed that Dr. Rodríguez-Mateo's father had been employed by Romero-Barceló since 1976, which predated the sale of the Salinas DTC by twenty-two years.
As to our second question, whether Respondent informed the FEC in a timely fashion about the changing nature of his information and belief regarding the veracity of Sánchez-Delgado's statements, the Panel found that "[d]uring March 2000 Acevedo-Vilá knew and had publicly admitted that the sworn statements on which the FEC complaint was premised had been contradicted and recanted by Sánchez-Delgado. At this time he should have taken timely action to advise the FEC." The Panel noted that in June 1, 2000, Respondent Acevedo-Vilá informed the FEC that Petitioner sent him a letter requesting the dismissal of the FEC complaint, and yet failed to inform the FEC of Sánchez-Delgado's conflicting March 16 and 24 statements. The Panel found that this was an attempt by Respondent to "add heat to an investigation which had already become frivolous. Upon sending the June 1, 2000 letter, Acevedo-Vilá breached his ethical obligations by failing to disclose relevant subsequent developments and, thus, in effect misrepresenting the current state of affairs to the FEC." Id.
The Panel recommended that Respondent be publicly reprimanded for breaching his ethical obligations as a member of the Bar of this court in violation of Rules 3.1[7] and 8.4(a) and (c) of the Rules of Professional Conduct adopted by this Court.
On May 22, 2003, Respondent Acevedo-Vilá presented his objection to the Panel's Report and Recommendation. Docket Document No. 70. In his objection, Respondent challenges the procedure of this court and the findings of the Panel, alleging, inter alia, that this court lacks jurisdiction *190 to entertain the disciplinary proceeding, that this court denied him due process, and that the Panel's findings are not supported by the evidence. Id. Respondent has raised some of these arguments previously in his motions to dismiss. Docket Document No. 4. In the interest of completeness, we will discuss each of Respondent's arguments in turn.
II.
Legal Standard
A. Disciplinary Proceedings
"Any court which has the power to admit attorneys to practice may also sanction them for unprofessional conduct." Standing Comm. on Discipline v. Ross, 735 F.2d 1168, 1170 (9th Cir.1984). "In the federal system there is no uniform procedure for disciplinary proceedings." Id. The individual judicial districts are free to define the rules to be followed and the grounds for punishment. See 28 U.S.C. § 1654. Federal district courts are bound by the disciplinary rules they implement when proceeding against attorneys for violation of ethical standards. Dailey v. Vought Aircraft Co., 141 F.3d 224, 230 (5th Cir.1998); Matter of Thalheim, 853 F.2d 383, 386, 388 (5th Cir.1988); United States v. Stoneberger, 805 F.2d 1391, 1393 (9th Cir.1986); Matter of Abrams, 521 F.2d 1094, 1104-05 (3d Cir.1975). Lawyers are subject to discipline for improper conduct in connection with business activities, individual or personal activities, and activities as a judicial officer. D.P.R. LOCAL R. 211.4(B) (rules of professional conduct will be applicable whether or not the act or omission occurred in the course of an attorney-client relationship or in the course of judicial proceedings); Matter of Johnson, 240 Kan. 334, 729 P.2d 1175, 1180 (1986); State v. Russell, 227 Kan. 897, 610 P.2d 1122, 1127 (1980). The Rules have also been held applicable to conduct in the heat of a public election campaign. Russell, 610 P.2d at 1127; State v. Michaelis, 210 Neb. 545, 316 N.W.2d 46, 53 (1982).
Rule 211.4 of the Local Rules of the United States District Court for the District of Puerto Rico provides the procedure that we must follow when misconduct or allegations of misconduct by an attorney admitted to practice in this jurisdiction come before this court. See Schneider v. Colegio De Abogados De P.R., 187 F.3d 30, 40 n. 16 (1st Cir.1999) (Lipez, J., concurring).
In the District of Puerto Rico, Local Rule 211.4 states that "[a]ny attorney admitted to practice before this Court may be disbarred, suspended from practice, reprimanded, or subjected to such other disciplinary action as the circumstances may warrant for misconduct defined in these Rules, and for good cause shown, and after notice and opportunity to be heard." D.P.R. LOCAL R. 211.4(A). The rules specify that any
[a]cts or omissions by an attorney admitted to practice before this Court, individually or in concert with any other person or persons, which violate the [ABA Model Rules of Professional Conduct], shall constitute misconduct and shall be grounds for discipline, whether or not the act or omission occurred in the course of an attorney-client relationship or in the course of judicial proceedings.
D.P.R. LOCAL R. 211.4(B).
Rule 211.5 states that when "misconduct or allegations of misconduct" are brought to the attention of the court, "the Judge shall refer the matter for investigation and the prosecution of a formal disciplinary proceeding or such other recommendation as may be appropriate." D.P.R. LOCAL R. 211.5(B). "If after investigation, the Court determines that disciplinary proceedings are warranted, it shall issue an order requiring the Respondent-attorney to show cause why disciplinary action should not be *191 taken, which order shall be served at the address registered with the Clerk of the Court." Id. "[A]fter the Respondent-attorney's answer to the order to show cause, . . . if any issue of fact is raised or the Respondent-attorney wishes to be heard, the Court shall set the matter for prompt hearing before one or more Judges of the Court or such other person or persons as the Court may designate." Id.
The First Circuit has clarified that an attorney facing disciplinary proceedings must be granted due process through notice and an opportunity to be heard. In re Cordova-Gonzalez, 996 F.2d 1334, 1336 (1st Cir.1993).
B. Rule 8.4
Rule 8.4 of the Model Rules of Professional Conduct stipulates, in part, that "[i]t is professional misconduct for a lawyer to: (a) violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another; . . . . (c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation." MODEL RULES OF PROF'L CONDUCT, R. 8.4 (2003).
The prohibition against false statements has been interpreted to include those statements that are knowingly false, as well as statements which, with ordinary care, would have been known to be false. Michaelis, 316 N.W.2d at 53-54; In re Palmisano, 70 F.3d 483, 486 (7th Cir.1995) (affirming reciprocal disbarment when state court had disbarred attorney for statements made in knowledge of their falsity or in reckless disregard of their truth or falsity); Office of Disciplinary Counsel v. Price, 557 Pa. 166, 732 A.2d 599, 604 (1999) (prima-facie case of violation of Rule 8.4 when misrepresentation knowingly made, or made with reckless ignorance of the truth or falsity of the representation).[8]
In addition, courts have held that the rule against dishonesty can be violated by silence or a failure to speak, including conduct that involved no express misrepresentations but simply consisted of a failure to reveal underlying facts which might be necessary to avoid misleading someone. "A half-truth or silence can be as much a misrepresentation as a lie . . . [particularly when] they fail to advise the court of very important necessary information . . . . The necessity for complete candor when dealing with the court, particularly in an ex parte context, cannot be overemphasized." In re Greene, 290 Or. 291, 620 P.2d 1379, 1383 (1980) (the court held that the failure of the lawyer to inform the court of pertinent facts constituted misrepresentation which violated Oregon's analog of Rule 8.4); see also Bradley F. Tellam, The Dishonesty RuleA Rule with a Future, 74 Or. L.Rev. 665, 669 (1995) (compiling cases); ABA Comm. on Ethics and Professional Responsibility, Informal Op. 1386 (1977) (finding that an attorney's failure to reveal an agreement to the court and to opposing council violated the ethical rules).
The dishonesty rule has also been applied in instances where an attorney fails to correct innocently created misunderstandings of which a lawyer subsequently becomes aware and neglects to correct her own statements that were initially believed to be true but later revealed to be false. In re Hubert, 265 Or. 27, 507 P.2d 1141, 1141-1142 (1973) (an attorney was disciplined for his failure to correct an unintentional misstatement about the amount of fees that he had received from his client because of his subsequent failure *192 to inform the court of the true facts, even though his client told him immediately after the hearing that his statement was false); In re Williams, 314 Or. 530, 840 P.2d 1280, 1283-1284 (1992) ("[a] misrepresentation can be made by making an assertion that is not in accordance with the truth when made . . . or by failing to correct a representation that, although true when made, is no longer true in the light of information later acquired . . . .").
C. Clear-and-Convincing-Evidence Standard
The clear-and-convincing-evidence standard has been recognized as the applicable standard in attorney discipline proceedings. See Sealed Appellant 1 v. Sealed Appellee 1, 211 F.3d 252, 256 (5th Cir.2000); In re Medrano, 956 F.2d 101, 102 (5th Cir.1992) (a court may discipline an attorney only upon the presentation of clear and convincing evidence); Rosenthal v. Justices of the S.Ct. of Cal., 910 F.2d 561, 564 (9th Cir.1990) ("[t]he burden is on the state to establish culpability by convincing proof and to a reasonable certainty"); In re Levine, 675 F.Supp. 1312, 1318 (M.D.Fla.1986); cf. In re Córdova-González, 996 F.2d 1334, 1336 (1st Cir.1993) (citing Rosenthal for the procedural due process rights of a charged attorney in a disciplinary proceeding); New England Ins. Co. v. Sylvia, 783 F.Supp. 6, 10 (D.N.H.1991); but see Palmisano, 70 F.3d 483, 486 (7th Cir.1995) (adopting preponderance of the evidence standard). An attorney disciplinary proceeding does not require that civil or criminal liability be established. Johnson, 729 P.2d at 1180-1181.
The Supreme Court has defined the clear and convincing standard "as that weight of proof which `produces in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established, evidence so clear, direct and weighty and convincing as to enable the fact finder to come to a clear conviction, without hesitancy, of the truth of the precise facts'" of the case. Medrano, 956 F.2d at 102 (quoting Cruzan by Cruzan v. Dir., Missouri Dep't. of Health, 497 U.S. 261, 285 n. 11, 110 S.Ct. 2841, 111 L.Ed.2d 224 (1990) (internal punctuation and citations omitted)).
D. Review of Prior Proceedings and Sanctions
Generally speaking, in reviewing a respondent's conduct through the record of disciplinary proceedings, we will defer to a panel's findings unless these are not supported by clear and convincing evidence. In re Doyle, 144 Ill.2d 451, 163 Ill.Dec. 515, 581 N.E.2d 669, 674 (1991); see also Matter of Levine, 174 Ariz. 146, 847 P.2d 1093, 1117 (1993) (recommendations of the committee are given "great weight"). However, the court is ultimately responsible for the imposition of sanctions.
In making sanction recommendations, this court will use the American Bar Association's Standards for Imposing Lawyer Sanctions (1986) ("ABA Standards") as a basic, but not conclusive, guide. Matter of Brady, 186 Ariz. 370, 923 P.2d 836, 839 (1996) ("[a]lthough not mandatory, the ABA Standards are persuasive as to appropriate sanctions and provide a `useful tool' in deciding the sanction to be applied."). Under the ABA Standards, a court contemplating sanctions should consider (1) the duty breached, (2) the attorney's mental state, (3) the extent of the actual or potential injury, and (4) other aggravating or mitigating circumstances. Id. at § 3.0. The standards make distinctions upon the level of conduct required for particular ethical violations. Id. The standards are adaptable, recognizing that "sanctions imposed must reflect the circumstances of each individual lawyer, and *193 therefore provide for consideration of aggravating and mitigating circumstances in each case." Id. at § 1.3.
The ABA Standards provide for disbarment when a lawyer "engages in . . . intentional conduct involving dishonesty, fraud, deceit, or misrepresentation that seriously adversely reflects on the lawyer's fitness to practice law." Id. § 5.11(b). A reprimand is the appropriate sanction when a "lawyer engages in any other conduct that involves dishonesty, fraud, deceit, or misrepresentation and that adversely reflects on the lawyer's fitness to practice law." Id. at § 5.13. ABA Standard 6.1 states that, with regards to false statements, fraud and representation, "[r]eprimand is appropriate when a lawyer is negligent either in determining whether statements or documents are false or in taking remedial action when material information is being withheld, and causes injury or potential injury to a party to the legal proceeding, or causes an adverse or potentially adverse effect on the legal proceeding." Id. at § 6.1.
III.
Analysis
A. Jurisdiction
Respondent notes that the FEC has "exclusive jurisdiction over civil enforcement of federal campaign finance and election matters." Docket Document No. 70. From that premise, he argues that "the clear intention of this action brought by petitioner is to have this Court make a separate inquiry as to the same facts currently pending for investigation by the [FEC]" and that "the exercise of jurisdiction by this Court with relation to underlying facts under the exclusive purview of the [FEC] is illegal." Id.
The federal district courts have the authority to adopt and enforce local rules. The First Circuit identified three distinct sources for this authority.
First, Congress has empowered the Supreme Court to prescribe rules of practice and procedure for the federal courts. In turn, the Supreme Court has authorized district courts to craft local rules to implement, or fill gaps in, national rules of practice and procedure. Second, Congress has vested the lower federal courts with independent authority to prescribe local rules. Third, district courts have inherent power arising from the nature of the judicial process, and this power extends to certain types of rulemaking.
Stern v. U.S. Dist. Court for Dist. of Mass., 214 F.3d 4, 13 (1st Cir.2000) (internal citations omitted).
In particular, a federal court has the "inherent power . . . to control admission to its bar and to discipline attorneys who appear before it." Chambers v. NASCO, Inc., 501 U.S. 32, 43, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991) (citing Ex parte Burr, 22 U.S. (9 Wheat.) 529, 531, 6 L.Ed. 152 (1824)). See also Whitehouse v. U.S. Dist. Court for Dist. of Rhode Island, 53 F.3d 1349 (1st Cir.1995). The First Circuit recognizes, moreover, the court's "duty and responsibility to supervise the conduct of attorneys who appear before it." See Culebras Enterps. Corp. v. Rivera-Rios, 846 F.2d 94, 97 (1st Cir.1988); see also Greer's Refuse Serv., Inc. v. Browning-Ferris Indus., 843 F.2d 443, 446 (11th Cir.1988) ("federal courts have clear statutory authority to promulgate rules governing the admission and conduct of the attorneys who practice before them.").
For its part, "the FEC is an independent agency established by Congress to `administer, seek to obtain compliance with, and formulate policy' with respect to the Federal Election Campaign Act of 1971 ("FECA") and chapters 95 and 96 of Title 26. 86 Stat. 3, as amended, 2 U.S.C. *194 § 437c(b)(1)." Fed. Election Com'n v. NRA Political Victory Fund, 513 U.S. 88, 91, 115 S.Ct. 537, 130 L.Ed.2d 439 (1994). The FEC has "exclusive jurisdiction with respect to the civil enforcement of such provisions." 2 U.S.C. § 437c(b)(1); see Fed. Election Comm'n v. Nat'l Conservative Political Action Comm., 470 U.S. 480, 485, 105 S.Ct. 1459, 84 L.Ed.2d 455 (1985).
However, the FEC's jurisdiction has not been interpreted broadly. In Galliano v. United States Postal Serv., 836 F.2d 1362 (D.C.Cir.1988), the authority of the Postal Service to enforce its own prohibition against false representations was not preempted by the FEC's exclusive authority with respect to representations that were not specifically regulated by FECA, even if those representations were part of political campaign literature. See Galliano, 836 F.2d at 1369. The Galliano court relied on the principle that "`a precisely drawn, detailed statute pre-empts more general remedies.'" Id. at 1367 (quoting Brown v. Gen. Servs. Admin., 425 U.S. 820, 96 S.Ct. 1961, 48 L.Ed.2d 402, (1976)). The Postal Service could not enforce its regulation against false representations only where the particular representation at issue was also covered under FECA. See id. It follows that the FEC's exclusive authority is limited to the enforcement of specific provisions listed in 2 U.S.C. § 437c(b)(1).
Here, we are investigating a possible violation by Respondent, an attorney admitted to practice before the court, of Rules 8.4(a) and (c) of the Rules of Professional Responsibility. The alleged violation involves Respondent's filing of a complaint with the FEC accusing a political opponent of receiving illegal campaign contributions. Whether Petitioner Romero-Barceló violated federal electoral laws is not a matter before this court. Since both candidates where running for federal office, such an inquiry is within the "exclusive jurisdiction" of the FEC, as it has the duty to enforce the statutes regulating federal elections. See Galliano, 836 F.2d at 1368. This court is concerned only with the alleged ethical violation. It is possible that, as part of its investigation of the possible ethical violation, the court would have reviewed some of the same documents or interviewed some of the same witnesses as the FEC.[9] This fact alone does not diminish our duty to investigate, nor does it affect our authority to do so. Perhaps if a provision against ethical violations by attorneys were part of FECA or of chapters 95 and 96 of Title 26 it could be argued that, as a function of 2 U.S.C. § 437c(b)(1), the FEC would have the exclusive authority to enforce the provision. See id. However, the court is not aware of such a provision. As a result, this court's authority to enforce our own Local Rules is untouched by FECA, and this matter is properly before us.
The matter before this court is the possible violation of a Local Rule. As shown infra, we have the authority to enact such rules and to enforce them. Consequently, this court has jurisdiction over this subject matter. Similarly, the court has jurisdiction over the Respondent's person in his capacity as an attorney admitted to practice before the court. The fact that the alleged ethical violation may involve Respondent Acevedo-Vilá's filing of a complaint with the FEC has no effect on the court's authority to review the alleged ethical violation and, if appropriate, to discipline Respondent. For the court to find otherwise would require the adoption of a new concept which absolutely precludes disciplinary action if a colorable argument could be made that the disciplinary action *195 intersects factually with any judicial or agency proceedings. To the extent that Respondent's argument is an invitation to adopt such a concept, the invitation is declined.
B. Constitutional Issues
1. Nature of the Proceedings as Quasi-Criminal
A fundamental premise of Respondent Acevedo-Vilá's attacks on the prior disciplinary proceedings is his contention, citing In re Ruffalo, 390 U.S. 544, 551, 88 S.Ct. 1222, 20 L.Ed.2d 117 (1968), that attorney disciplinary proceedings are "quasi-criminal" in nature and that he is entitled to many of the rights enjoyed by criminal defendants, particularly the rights associated with due process.
Due process is a flexible concept. A determination of the particular process due depends on the nature of the proceedings and the interests at stake. Goldberg v. Kelly, 397 U.S. 254, 268-69, 90 S.Ct. 1011, 25 L.Ed.2d 287 (1970). Although disciplinary proceedings are characterized as quasi-criminal, "the imposition of disciplinary sanctions itself implicates an independent and fundamental duty of the district court the supervision of the attorneys who practice as members of its bar in ways that other sanctions simply cannot." Crowe v. Smith, 151 F.3d 217, 230 (5th Cir.1998). Disbarment proceedings, rather than
[a] resolution regarding the alleged criminality of a person's acts, [are] a determination of the moral fitness of an attorney to continue in the practice of law. Although conduct which could form the basis for a criminal prosecution might also underlie the institution of disciplinary proceedings, the focus is upon gauging an individual's character and fitness, and not upon adjudging the criminality of his prior acts or inflicting punishment for them.
In re Daley, 549 F.2d 469, 474 (7th Cir. 1977).
Thus, when faced with an attorney's challenge to his disciplinary proceeding premised on his claim to the Fifth Amendment's protection against self-incrimination, the Daley court found that
[a] clear distinction exists between proceedings whose essence is penal, intended to redress criminal wrongs by imposing sentences of imprisonment, other types of detention or commitment, or fines, and proceedings whose purpose is remedial, intended to protect the integrity of the courts and to safeguard the interests of the public by assuring the continued fitness of attorneys licensed by the jurisdiction to practice law. The former type of proceeding is, in actuality, `criminal' in nature and therefore within the ambit of the Fifth Amendment safeguards against self-incrimination; the latter is not.
Id. at 475; see also Johnson, 921 F.2d at 586 (disbarment proceedings "seek to determine the fitness of an official of the court to continue in that capacity and to protect the courts and the public from the official ministration of persons unfit to practice."). Thus, "[a]lthough attorney discipline proceedings have been called `quasi-criminal,' the due process rights of an attorney in a disciplinary proceeding `do not extend so far as to guarantee the full panoply of rights afforded to an accused in a criminal case.'" Cordova-González, 996 F.2d at 1336 (quoting Razatos v. Colorado Supreme Court, 746 F.2d 1429, 1435 (10th Cir.1984)) (citations omitted); see also Sealed Appellant, 211 F.3d at 254-55 (quoting Razatos); Palmisano, 70 F.3d at 486 (where state court had disbarred attorney using clear and convincing burden of proof, federal court declined to find that quasi-criminal nature of the proceedings required the federal court to *196 make an independent finding of an ethical violation using a reasonable doubt burden of proof); Rosenthal, 910 F.2d at 564 (finding that a lawyer disciplinary proceeding is not a criminal proceeding and, as a result, protections normally afforded to a criminal defendant do not apply); Matter of Disciplinary Proceedings of Phelps, 637 F.2d 171, 176 (10th Cir.1981) (finding that, although the proceedings were quasi-criminal, the due process right to closing arguments extends only to criminal cases); Daley, 549 F.2d at 476 n. 6 (compiling cases).
Rather, "an attorney facing discipline `is entitled to procedural due process, including notice and an opportunity to be heard.'" Id. (quoting Rosenthal, 910 F.2d at 564); cf. Dailey, 141 F.3d at 229 (finding that the quasi-criminal nature of disciplinary proceedings demanded notice and opportunity to be heard); Phelps, 637 F.2d at 176 (holding that "the standard in [attorney disciplinary proceedings] is one of permitting the attorney a fair opportunity to present his case"); Lowe v. Scott, 959 F.2d 323, 335 (1st Cir.1992) (due process in proceeding to revoke physician's license requires notice of the charges and an opportunity to be heard). In fact, "that attorney discipline proceedings require proof only by clear and convincing evidence, as opposed to `beyond a reasonable doubt,' is indicative of the mere quasi-criminal nature of such proceedings, which nature would not implicate all of the due process requirements attendant purely criminal proceedings." Sealed Appellant, 211 F.3d at 254-55.[10]
Consequently, inasmuch as Respondent Acevedo-Vilá is suggesting that the procedures here are insufficient because they do not grant him traditional measures of criminal due process, these arguments fail.
2. Notice as Required by Due Process
Respondent Acevedo-Vilá argues that he did not have notice of the charges against him, alleging that at the beginning of the formal proceedings Respondent had yet to be given notice of the violations that he had committed.
Petitioner's original complaint alleges misconduct in
(a) filing [the FEC complaint] under oath using three sworn statements he knew, or should have known, had false and fraudulent statements without at the very least confronting or questioning the source of the accusations; (b) in refusing to withdraw the complaint when he himself had been linked behind the scheme to smear Petitioner's reputation; and (c) in refusing to withdraw it when he has publicly stated that the source Sánchez has no credibility, grossly violates and contravenes the Model Rules of Professional Conduct and amounts to conduct unbecoming a member of the Bar of the Court.
Docket Document No. 1.
Moreover, Respondent acknowledges "Petitioner's complaint charged Respondent with violating Rule 8.4 of the Model Rules of Professional Conduct." Docket Document No. 4. Respondent avers, however, that this court impermissibly changed the nature of the charges against him, so much so that it constructively left Respondent without notice as to the exact basis of the proceedings against him. Respondent substantiates this by pointing to our written opinions. In our September 11, 2000 Opinion and Order, Respondent alleges that we charged him with an "intentional violation of Rule 8.4," ordering that an evidentiary hearing be conducted by a magistrate to determine whether "Respondent *197 knew or should have known about the unreliable character of" the Sworn Statements which formed the basis of Respondent's FEC complaint. Respondent then states that we violated his due process rights, when, after the evidentiary hearing held by Magistrate Judge Castellanos, we ordered the Panel to determine whether Respondent timely informed the FEC of the "changing nature of the information" upon which the complaint was based. Finally, Respondent avers that the Panel's recommendation that Respondent be charged with not only Rule 8.4 but Rule 3.1 was the first instance in which he was given notice of a possible Rule 3.1 violation.
Respondent notes that the Supreme Court has held that an attorney must receive prior notice as to the "reach of the proceedings and the precise nature of the charges leveled" against him. Id.; see Ruffalo, 390 U.S. at 552, 88 S.Ct. 1222. Respondent contends that, as in Ruffalo, the court's clarification of the investigatory scope of the formal panel's hearing, and the Panel's invocation of Rule 3.1, constitute violations of his procedural due process rights.
In Ruffalo, an attorney in state disbarment proceedings did not have notice that his employment of an individual would be a disbarment offense until after both he and the individual had testified at length on all the material facts. Only after their testimony did the state bar add a charge premised on the testimony. The federal district court held that, notwithstanding the state bar's disbarment, there had been no misconduct, while the Court of Appeals disagreed and disbarred the attorney.[11]
The Supreme Court found that a "charge must be known before the proceedings commence. They become a trap when, after they are underway, the charges are amended on the basis of testimony of the accused. He can then be given no opportunity to expunge the earlier statements and start afresh." Id. at 551, 88 S.Ct. 1222. We find that the facts here are distinguishable.
Although a petitioner brings misconduct proceedings to the court's attention, a court thus informed need not proceed with disciplinary proceedings as a petitioner does not have standing to control the disposition of the case or force the court's hand. At the point the petition is made the court becomes the disciplinary body, taking into account the real party in interest, the public. See Statewide Grievance Comm. v. Botwick, 226 Conn. 299, 627 A.2d 901, 906-907 (1993) ("once a complaint has been made against an attorney, the court controls the situation and procedure, as the interests of justice may seem to it to require.") (internal citations omitted). It follows, then, that a court apprised of misconduct need not limit itself to the charges or characterization of misconduct forwarded by the initial petitioner. It may, upon initial review and investigation, choose to modify the nature of the disciplinary proceedings, as long as it provides the respondent with notice of the alleged misconduct and an opportunity to respond.
We draw Respondent's attention to Zauderer v. Office of Disciplinary Counsel of the Sup.Ct. of Ohio, 471 U.S. 626, 105 S.Ct. 2265, 85 L.Ed.2d 652 (1985). In Zauderer, the Office of the Disciplinary Council of Ohio filed a complaint against an attorney alleging that several advertisements he had placed violated the rules of professional conduct. Id. at 633, 105 S.Ct. 2265. The complaint charged the attorney with, inter alia, issuing a "false" and "deceptive" *198 advertisement because it offered legal representation on drunken driving cases on a contingency fee basis, an offer which the complaint alleged would run afoul of other professional rules of conduct. Id. Upon review of the complaint, the Board of Commissioners concurred that a violation of the rules had occurred. Id. at 634, 105 S.Ct. 2265. Its reasoning, however, differed from the reasoning in the complaint. The Board found the advertisement deceptive because its failure "to mention the common practice of plea bargaining in drunken driving cases, . . . might be deceptive to potential clients who would be unaware of the likelihood they would both be found guilty (of a lesser offense) and be liable for attorney's fees (because they had not been convicted of drunken driving.)" Id. The attorney in Zauderer appealed, quoting Ruffalo, complaining that the change in the basis of his violation was a denial of procedural due process.
Upon review, the Supreme Court stated: That the Board of Commissioners chose to make its recommendation of discipline on the basis of reasoning different from that of the Office of Disciplinary Counsel is of little moment: what is important is that the Board's recommendations put appellant on notice of the charges he had to answer to the satisfaction of the Supreme Court of Ohio. Appellant does not contend that he was afforded no opportunity to respond to the Board's recommendation; indeed, the Ohio rules appear to provide ample opportunity for response to Board recommendations, and it appears that appellant availed himself of that opportunity.
Id. at 654, 105 S.Ct. 2265.
The Court was not persuaded by the attorney's suggestion that he was prejudiced by his inability to counter the Commission's conclusion that it was common practice for persons charged with drunken driving to plead to lesser offenses. It noted that the attorney was not precluded from arguing that judicial notice of those facts was inappropriate during the proceedings. Id. at 655 n. 17, 105 S.Ct. 2265.
Finally, the Court found that the attorney's reliance on Ruffalo was misplaced.
Although the majority in that case did hold that a change in the charges against the petitioner during proceedings before the Ohio Board of Bar Commissioners violated due process, the feature of that case that was particularly offensive was that the change was such that the very evidence put on by the petitioner in defense of the original charges became, under the revised charges, inculpatory. Thus, in that case, the original charges functioned as a `trap,' for they lulled the petitioner into presenting evidence that `irrevocably assur[ed] his disbarment under charges not yet made.' In this case, the variance between the theory of the Office of Disciplinary Counsel and the Board of Bar Commissioners had no such prejudicial effect on appellant.
Id. at n. 18 (internal citations omitted).[12]
Under this standard, the Panel's finding of a 3.1 violation, if accepted by this court, *199 would not comport with due process. First mentioned at the end of the formal proceedings, the additional charge does not allow Respondent to craft a rule-specific defense or provide evidence to counter that specific charge.
However, we find that Respondent has had ample notice and opportunity to face the charge of a Rule 8.4 violation. After Petitioner's motion, Respondent filed motions to dismiss, Docket Document Nos. 4, 22, which this court considered and denied. Docket Document Nos. 5, 25. Subsequently, we referred Petitioner Romero-Barceló's petition for an evidentiary hearing to determine if Petitioner Romero-Barceló's grievance had merit, after which Respondent was allowed to submit a brief. Docket Document No. 39. Formal hearings were held before Magistrate Judge Aida Delgado-Colón and Attorney Steven Lausell, where Respondent was granted an opportunity to present evidence and a defense against the charges. Respondent Acevedo-Vilá received proper notice of the formal disciplinary proceeding, and he was granted more than a year to prepare his defense. Finally, he was served with the Panel's Report and Recommendation, to which he submitted an opposition. Docket Document No. 67. In short, "the treatment accorded [Respondent] provided him with a pointed example of the fairness of the court whose integrity his conduct had endangered." Phipps v. Wilson, 186 F.2d 748, 751 (7th Cir.1951).
3. Challenge to Evidentiary Hearing
a. Participation of Petitioner in Proceedings
Respondent Acevedo-Vilá complains that in the hearing before Magistrate Castellanos, "Petitioner Romero-Barceló actively participated as a party in *200 interest, and represented by counsel, during the preliminary investigation and the adjudicatory hearing before a panel appointed by the Court . . . . It is a matter of settled law that a private citizen has neither the right to initiate nor the right to participate in disciplinary proceedings." Docket Document No. 70. Respondent Acevedo-Vilá cites various cases to substantiate his argument.
The cases cited by Respondent Acevedo-Vilá stand for a different proposition. In all these cases, the petitioners attempted to reinstate or force disciplinary proceedings that had been dismissed by the court. The courts did not find, as Respondent Acevedo-Vilá seemingly alleges, that participation by a petitioner is prohibited and nullifies the proceedings. Instead, as discussed briefly supra, the courts found that a petitioner may not intervene or impose himself into the proceedings without leave of the court or disciplinary body in charge of the proceedings.
In the seminal case providing for a lack of standing on the part of private litigants, Mattice v. Meyer, 353 F.2d 316 (8th Cir.1965), a private person filed a complaint to have the Attorney General of Nebraska disbarred, alleging an ethical violation. The Court stated that private citizens lack standing at law to maintain a disciplinary proceeding as a formal action in the district court and, furthermore, lack standing to institute an appeal if the court declines to discipline the attorney. In other words, consonant with Mattice's holding, an individual may not institute a disciplinary proceeding as a civil or criminal action, acting as a plaintiff and directing the prosecution of the case. The court fell short of prohibiting an individual from either bringing the allegedly unethical conduct to the court's attention or from participating in the proceedings as an informant. In fact, the court clarified that an individual may file a petition that "`invokes the inherent power of the courts to maintain the integrity of the bar and to see that courts and its members do not fall into disrepute with the general public through unprofessional or fraudulent conduct.'" Id. at 319 (quoting Ginsburg v. Stern, 125 F.Supp. 596, 603 (W.D.Pa. 1954)). Quoting Ginsburg, the court continued:
Plaintiff's petition, just as any other complaint of professional misconduct, merely supplied information for the court's consideration. If the court considers that no offense has been committed; or that the allegations of the complaint are insufficient, immaterial, impertinent or scandalous; or that the complaint has been filed from an improper motive; or for any other reason decides not to proceed with the matter, the petitioner has no recourse.
Id.
Thus, Mandanici stands for the limited proposition that, after handing over the petition, "the individual may not exercise control over the proceedings of the court. Further action, if any, becomes the responsibility of the court." Starr v. Mandanici, 152 F.3d 741, 748 (8th Cir.1998).[13]
*201 In the case at bar, Petitioner Romero-Barceló's grievance, although submitted as a formal complaint, merely supplied information for the court's consideration.[14] Magistrate-Judge Castellanos' Report explicitly states that both Petitioner Romero-Barceló and Respondent Acevedo-Vilá were asked to participate in the initial hearing in an effort to "assist [Magistrate Castellanos] in submitting questions and developing the issues for the record."[15]Docket Document No. 46. Petitioner's participation was limited to that preliminary hearing, and did not extend to the formal disciplinary hearing before the appointed Panel. That limited participation in the investigatory proceedings, which served to determine whether there were grounds to pursue more formal proceedings, differs materially from an attempt on the part of a petitioner to force or control the disciplinary proceedings. We decline Respondent's invitation to find that substantial participation on the part of a petitioner at the behest of a disciplinary body constitutes a violation of due process.
b. Due Process at the Investigatory Stage
In his objection, Respondent Acevedo-Vilá mentions that he raised several objections during the previous proceedings, both before Magistrate Judge Castellanos and the Panel. He contends that the proceedings before Magistrate Judge Castellanos were incomplete, allowed false evidence, and were conducted without the guarantee of due process. Docket Document No. 70. Respondent avers that the whole proceeding before Magistrate Judge Castellanos was based on evidence gathered without having the opportunity to cross-examine or confront the evidence and, therefore, the evidence could not be used during the formal proceedings in *202 front of the Panel, or as part of the determination by this court.
It is well settled that full due process rights do not attach at investigatory stages that do not directly affect or adjudicate rights of an individual. S.E.C. v. Jerry T. O'Brien, Inc., 467 U.S. 735, 742, 104 S.Ct. 2720, 81 L.Ed.2d 615 (1984). As the Supreme Court clarified in Hannah v. Larche,
[w]hen governmental agencies adjudicate or make binding determinations which directly affect the legal rights of individuals, it is imperative that those agencies use the procedures which have traditionally been associated with the judicial process. On the other hand, when governmental action does not partake of an adjudication, as for example, when a general fact-finding investigation is being conducted, it is not necessary that the full panoply of judicial procedures be used.
363 U.S. 420, 442, 80 S.Ct. 1502, 4 L.Ed.2d 1307 (1960) (holding that the Commission of Civil Rights did not have to inform the targets of its investigation of the specific charges, the identities of the complainants, or allow the targets to cross-examine witnesses).
Attorneys who will be "accorded all the traditional judicial safeguards at a subsequent adjudicative proceeding ... should some type of adjudicative proceeding subsequently by [sic] instituted," cannot successfully complain that they were not provided with the procedural due process at an investigatory hearing. Id. at 446, 80 S.Ct. 1502; see also Georator Corp. v. Equal Employment Opportunity Comm'n, 592 F.2d 765, 768-69 (4th Cir. 1979) ("[w]hen the preliminary determination is without legal effect in and of itself, due process will be satisfied if there is an opportunity to be heard before any final order of the agency becomes effective"); Ewing v. Mytinger & Casselberry, 339 U.S. 594, 598, 70 S.Ct. 870, 94 L.Ed. 1088 (1950) (stating that the court has "repeatedly held that no hearing at the preliminary stage is required by due process as long as the requisite hearing is held before the final order becomes effective"); Matter of Ellis, 504 N.W.2d 559, 562-63 (N.D.1993)(fact that attorney was not given notice and did not appear at preliminary investigatory hearing was not a violation of due process when the initial proceeding was followed by more formal disciplinary proceedings); Terrell v. Miss. Bar, 635 So.2d 1377, 1383-84 (Miss.1994) (the fact the record contained no evidence of service of process and attorney was not given opportunity to cross examine witnesses during precomplaint investigative proceedings did not result in due process violation).
The reasoning behind these cases is clear. A respondent will be able to receive his constitutionally guaranteed due process if and when the initial investigation leads to formal proceedings. The investigatory process
[c]ould be completely disrupted if investigative hearings were transformed into trial-like proceedings ... Fact-finding agencies without any power to adjudicate would be diverted from their legitimate duties and would be plagued by the injection of collateral issues that would make the investigation interminable. Even a person not called as a witness could demand the right to appear at the hearing, cross-examine any witness whose testimony or sworn affidavit allegedly defamed or incriminated him, and call an unlimited number of witnesses of his own selection. This type of proceeding would make a shambles of the investigation and stifle the agency in its gathering of facts.
Hannah, 363 U.S. at 443-44, 80 S.Ct. 1502.
Consequently, Respondent Acevedo-Vilá was not denied due process when he was *203 not offered the equivalent of a full formal hearing in the investigatory hearing stage. He was allowed to counter the evidence with his own, and file briefs for the Magistrate Judge's consideration. Afterwards, he had a full year to prepare for a formal hearing where he could present evidence and testimony to counter the evidence compiled in the evidentiary hearing. Simply put, Respondent Acevedo Vilá had an opportunity to review and respond to the evidence against him. His procedural challenge to the evidentiary hearing here is unpersuasive.[16]
c. Confrontation of his Accuser
Respondent Acevedo-Vilá argues that he did not have the opportunity to face his accuser, Petitioner Romero-Barceló, during the hearing by Magistrate Judge Castellanos. He avers that this violated his Sixth Amendment right to confrontation.
"The confrontation clause is a criminal law protection." Rosenthal, 910 F.2d at 565. As such, it does not apply to an attorney disciplinary proceeding. Id. Further, disbarment proceedings are not criminal proceedings, and relaxed rules of evidence apply. Florida Bar v. Vannier, 498 So.2d 896, 898 (Fla.1986) (finding that "in bar discipline cases, hearsay is admissible and there is no right to confront witnesses face to face. The referee is not barred by technical rules of evidence."); Matter of Calvo, 88 F.3d 962, 967 (11th Cir.1996) (citing Vannier, 498 So.2d at 898).
Here, we find no evidence that Respondent Acevedo-Vilá attempted to call Petitioner Romero-Barceló to the stand. Further, while Respondent Acevedo-Vilá is being subjected to disciplinary proceedings premised on Petitioner's grievance to this court, Respondent has not suggested how Petitioner Romero-Barceló's testimony would have been pertinent to the proceedings at bar. Respondent seems to suggest that the Panel needed to recreate the evidentiary hearing so as to provide him with the opportunity to confront the evidence presented there, or forfeit consideration of the evidence. Given our discussion, supra, of the role of the investigatory evidentiary hearing, and the nature of disciplinary proceedings, we find no basis for such averments. Respondent Acevedo-Vilá had multiple opportunities to confront the evidence, the last of which was his objection to the Panel's Report and Recommendation here. His right to confront, challenge, and rebut the evidence has not been compromised.
4. Challenges to the Panel
During the formal hearing, Respondent called into question the Panel's *204 role in the proceeding, suggesting that the Panel was improperly engaging in a dual role as prosecutor and judge. Respondent suggests that this procedure denied him due process. As Justice Blackmun noted in Richardson v. Perales, 402 U.S. 389, 91 S.Ct. 1420, 28 L.Ed.2d 842, (1971), "the advocate-judge-multiple-hat suggestion ... assumes too much and would bring down too many procedures designed, and working well ...." Id. at 410, 91 S.Ct. 1420. Similarly, Respondent Acevedo-Vilás argument that the mere existence of various roles led to a biased hearing assumes too much. Disciplinary procedures are designed to give attorneys an opportunity to respond and defend against the charges made, and Respondent Acevedo-Vilá fails to proffer, and we do not find, any evidence to suggest that in this particular instance the process led to an unfair hearing in front of the Panel. Without more, we decline to find that Respondent Acevedo-Vilá was not afforded a fair hearing. Gorman v. Univ. of Rhode Island, 837 F.2d 7, 15 (1st Cir.1988) (holding that the alleged prejudice of disciplinary hearings, in that case, university disciplinary hearings, must be based on "more than mere speculation and tenuous inferences"); Cordova-Gonzalez, 996 F.2d at 1336 (holding that the attorney's subjective impressions of bias or prejudice were insufficiently corroborated in the record).
5. Constitutionality of Rules
Respondent Acevedo-Vilá also challenges the Local Rules themselves. Respondent maintains that the disciplinary rules are unconstitutional, averring that these are too vague and, therefore, allow a judge too much discretion to establish proceedings at will. Docket Document No. 70.
A presumption of constitutionality attaches to enactments of a district court, such as the local rules here, and the burden is on the party challenging the enactment to demonstrate its unconstitutionality beyond a reasonable doubt. People v. Morley, 725 P.2d 510, 516 (Colo. 1986) (en banc). A disciplinary rule will not be found to be overbroad or vague and, hence, constitutionally infirm, when the subject of the rule is commonly understood by reasonable men and particularly by attorneys. See Matter of Perrello, 271 Ind. 560, 394 N.E.2d 127, 130-31 (1979).
The Local Rules in the District of Puerto Rico set out the procedure that we must comply with during attorney disciplinary proceedings. See D.P.R. Loc. R. 211. Simply alleging unconstitutionality, without precising the vagueness as applied to the proceedings at bar, is not enough.
B. Alleged Procedural Errors
Respondent Acevedo-Vilá objects to this court's September 11, 2000 Opinion and Order, Docket Document No. 4, contending that we applied an incorrect standard to Respondent's motion to dismiss. Respondent cites our Opinion and Order and our assertion that "taking the Petitioner's assertions as true, as we must for the purposes of this motion to dismiss, we find that Respondent Acevedo-Vilá is not entitled to summary dismissal of this action." Id. Respondent Acevedo-Vilá alleges that this "eviscerated" any right to impartiality, as the "scales were tipped decidedly against the party with most to lose in favor of the party which had no standing in the proceedings," Docket Document No. 70, and cites Mandanici v. Starr, 99 F.Supp.2d 1019 (E.D.Ark.2000), for the proposition that we erred by accepting Petitioner Romero-Barceló's allegations as true. He notes that Mandanici states that a "person who files an ethics grievance has no standing as a party, and mere allegations of misconduct need not be accepted as true." Id. at 1028.
*205 We find that Mandanici supports a different conclusion. In Mandanici, a petitioner requested that the district court appoint counsel to investigate allegations of prosecutorial misconduct by the Independent Counsel and his staff related to the investigation and subsequent impeachment of President Clinton. To determine whether it was obligated to refer the petitioner's request for investigation, the court first discussed the local rules and the petitioner's standing. The court clarified that the petitioner's involvement in disciplinary proceedings was limited to that of an informant, id. at 1025, and that, therefore, a petitioner had no recourse if the court decided not to proceed with the action. The court reasoned that a petitioner thus delimited would not be able to force an investigation upon an unwilling judiciary. The court interpreted the local rule as "permitting judges to exercise their discretion in evaluating the credibility of the allegation [prior to referring it to investigation], thereby providing a safeguard against the appointment of counsel to investigate baseless allegations founded on rumor, innuendo, prejudice or emotion." Id. at 1027. "Without the [local rules requirement] of specific evidence, the Court would be required to appoint counsel to investigate any allegation of an appearance of impropriety, creating the distinct likelihood of lengthy, costly and embarrassing ethical investigations that turn out to be totally without merit." Id. at 1027-28. The court went on to explain that:
Unlike a party to a civil action, a person who files an ethics grievance has no standing as a party, and the mere allegation of misconduct does not need to be accepted as true. The initiation of a disciplinary investigation against a lawyer is a serious matter that should not be initiated by the Court based on innuendo or rumor. Requiring a citizen to substantiate an allegation of misconduct protects the courts and the Bar from the disruption caused by investigations of a frivolous nature.
Id.
The Mandanici court considered the nature of the allegations, the facts proffered by the petitioner, and the likelihood that the facts alleged and substantiated would lead to disciplinary action. Id. at 1028. It found that the informant had ample opportunity to substantiate the allegations, having at that point filed memoranda and "hundreds of pages of documents" to support his position. Id. Upon review of respondent's submission, it found that there was no support for the petitioner's allegation that the Independent Counsel or his staff solicited false testimony in order to incriminate President Clinton, and that the Independent Counsel did not suffer any conflict of interest.
Under Local Rule 211.5, when this court is made aware of misconduct, "which if substantiated, would warrant discipline on the part of an attorney," the court "shall refer the matter for investigation and the prosecution of a formal disciplinary proceeding or such other recommendation as may be appropriate." D.P.R. LOCAL R. 211.5(A). In our Opinion and Order of September 11, 2000, we reviewed the pertinent case law, its possible application to the allegations by Petitioner, and Respondent's position in his motion to dismiss, and ultimately found that, "if substantiated," Petitioner's allegations would support a finding of a Rule 8.4 violation. This initial investigation created a duty, as articulated in the Local Rules, to investigate the allegations in Petitioner Romero-Barceló's complaint. We note that we did not simply accept Petitioner's legal theories. Instead, in that initial review we found that a colorable ethical violation was possible upon proof that Respondent Acevedo-Vilá knew or should have known of the *206 falsity of the statements provided to the FEC.
Our words in denying Respondent's motion to dismiss, while reminiscent of the deferential motion-to-dismiss standard, did no more than to set in motion the procedures required by the local disciplinary rules. Our September 11, 2000 Opinion and Order served as a preliminary inquiry where we determined whether to continue with more formal disciplinary proceedings. Once we found that Respondent's conduct, if true, would fall within the legal definition of an 8.4 violation, we needed to institute further proceedings to determine if there was sufficient evidence to substantiate the allegations. The Local Rules are unequivocal.[17] Thus, while the language cited by Respondent implied we were making a determination based on wholesale acceptance of Petitioner's complaint, we actually only made a limited review consonant with the Rules. Stated differently, our result would have been the same had we not referenced the motion-to-dismiss standard.
C. Review of Panel's Findings
Respondent Acevedo-Vilá claims that the evidence presented does not clearly and convincingly support a finding that he violated Rule 8.4. Respondent Acevedo-Vilá's attack is two-fold. First, Respondent argues that a finding of malfeasance requires us to find that he knew of the false nature of the Sánchez-Delgado statements when submitted to the FEC. Second, Respondent Acevedo-Vilá avers that there was no way that he could have known that Sánchez-Delgado was lying, and that this conclusion could have only been reached with hindsight and with the level of investigation undertaken by this court.
1. Rule 8.4
Respondent Acevedo-Vilá alleges that clear and convincing evidence of a knowing misrepresentation or falsehood is necessary to find a violation of Rule 8.4. Respondent, in essence, is presenting yet another challenge to our September 11, 2000 Opinion and Order, where we first set forth the standard.
Rule 8.4 of the Model Rules of Professional Conduct stipulates, in part, that "[i]t is professional misconduct for a lawyer to: (a) violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another; ... (c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation." MODEL RULES OF PROF'L CONDUCT, R. 8.4 (2003).
As we explicated, supra, a prima-facie violation of Rule 8.4(c) is made out where a "misrepresentation is knowingly made, or where it is made with reckless ignorance of the truth or falsity thereof .... [N]o actual knowledge or intent to deceive ... is necessary to establish a prima facie violation; the element of scienter is made out if Respondent's conduct was reckless, to the extent that he can be deemed to have knowingly made the misrepresentation.'" Office of Disciplinary Counsel v. Anonymous Attorney A, 552 Pa. 223, 714 A.2d 402, 407 (1998); see also Levine, 847 P.2d at 1117; Michaelis, 316 N.W.2d at 54; Palmisano, 70 F.3d at 486. In addition, conduct implicating dishonesty has been found in the presentation of half-truths, or silence, as to material facts. *207 Greene, 620 P.2d at 1383; Hiller, 694 P.2d at 543-44; see also Matter of Richards, 123 N.M. 579, 943 P.2d 1032-1035 (1997) (appeal court finding that attorney's omission of material facts regarding the objections he made in trial was a misrepresentation "in an attempt to increase chances the court" would believe him.); Neb. State Bar Ass'n v. Douglas, 227 Neb. 1, 416 N.W.2d 515, 530-531 (1987) (finding that fraud may rise not only from misrepresentation but from concealment). The failure to correct a misrepresentation has also been found to be dishonest and a violation of ethical rules. Hubert, 507 P.2d at 1141-1142; Williams, 840 P.2d at 1283-1284.
2. Adoption of the Panel's Findings
Keeping in mind this standard, we briefly redact the Panel's findings here. As stated by the Panel, Respondent Acevedo-Vilá's FEC complaint alleged that Petitioner Romero-Barceló had received improper campaign contributions in violation of the limits imposed by the FEC. Respondent's allegations stemmed from Sánchez-Delgado's sworn statements. The Panel reviewed the reliability of Sánchez-Delgado's statements and whether these could have supported the allegations of campaign contribution violations and, therefore, Respondent Acevedo-Vilá's "belief".
The Panel first noted that Sánchez Delgado's statements had been made in preparation for the filing of a civil suit against Dr. Rodríguez Mateo. Sánchez-Delgado's attorney, Nicolás Nogueras, faxed the statements to Respondent Acevedo-Vilá because he felt they could help Respondent with his political campaign. Members of Acevedo Vilá's own party had denounced Sánchez-Delgado, alleging that he had offered false testimony previously. At the outset, therefore, Sánchez-Delgado's credibility was in question. The Panel observed that the statements were ultimately retracted by Sánchez-Delgado, and that Sánchez-Delgado was later prosecuted and convicted on September 4, 2002 for having provided perjured testimony implicating Petitioner Romero-Barceló, Domingo García, and others. Finally, the Panel noted Respondent's avowed state of mind at the time of his filing: "I don't know if this person is telling the truth, I just want someone to investigate. And if he is not telling the truth, he should be prosecuted." Docket Document No. 48.
In his defense, Respondent Acevedo-Vilá maintained that he examined the sworn statements and decided not to proceed until he could confirm facts contained therein. The Panel considered Attorney Ruiz' and Respondent Acevedo-Vilá's asseveration that at least six other facts presented in the sworn statements had been verified prior to the FEC filing. First, the Panel observed that while Domingo García admitted calling the GDB to inquire about the Salinas DTC sale, there was no actual date for that call. Furthermore, Petitioner Romero-Barceló attested that this assistance would not differ materially from the assistance that he would have given to other constituents and that he did not remember personally discussing the matter with Dr. Rodríguez-Mateo. Second, the fact that the Salinas DTC was sold at a price below market value was not found to substantiate Sánchez-Delgado's allegations, given the legality and commonality of such a practice. Third, Domingo García's limp during the time period was detectable by third parties and not conducive to a finding that Sánchez-Delgado's statements were true. Fourth, Petitioner's provision of 1997 Presidential Inaugural Ball tickets to Dr. Rodríguez Mateo was not temporally connected to the 1999 sale, and, while confirming the relationship between Petitioner and Dr. Rodríguez-Mateo, would not suggest the improprieties alleged by Sánchez-Delgado. Fifth, Dr. Rodríguez-Mateo's 1996, 1997, and 1998 statutorily-permissible contributions to Petitioner's campaign, while confirming *208 his NPP membership and support of a party candidate, did not suggest illegality. Sixth, the fact that Dr. Rodríguez Mateo's father was under Petitioner's employ for twenty-two years was also a confirmation of a relationship between both Petitioner and Dr. Rodríguez-Mateo, but in and of itself did not substantiate a finding of illegal activity. Finally, Sánchez-Delgado's knowledge of Dr. Rodríguez-Mateo's personal or family background was commensurate to his role as Dr. Rodríguez-Mateo's chauffeur.[18]
The Panel found that these corroborating facts suggest that Sánchez-Delgado had some knowledge of Dr. Rodríguez-Mateo's personal life and, at most, that Dr. Rodríguez Mateo and Petitioner Romero-Barceló knew each other. As such, they did not materially sustain Respondent's allegations of fraud. The Panel concluded that Respondent Acevedo-Vilá simply did not engage in a reasonable inquiry to determine if the statements were true.[19] More importantly, however, the Panel determined that, even if the allegations in the statements were true, Respondent misrepresented the nature and content of the statements to the FEC and the public. The Panel determined, *209 and we corroborate, that Sánchez-Delgado never stated that the money was a campaign contribution for Romero-Barceló's political campaign. Instead, Sánchez-Delgado describes the money as payment for Petitioner Romero-Barceló's intervention on Dr. Rodríguez Mateo's behalf in the sale of the Salinas DTC. The characterization of the money as a campaign contribution stems not from Sánchez-Delgado's statements, as Respondent Acevedo-Vilá asserts in his FEC complaint,[20] but from Respondent's own recasting of Sánchez-Delgado's statements.[21] Respondent does not explain this inconsistency, but the Panel noted that "it would have been *210 clear, at least to an attorney, that the actions Sánchez-Delgado attributed to Romero-Barceló ... if true, were matters to be investigated by state authorities (bribery or public corruption) but would have deprived the FEC of jurisdiction, unless those actions were labeled and characterized as `political contributions.'" Docket Document No. 67, 2 U.S.C. § 437c(b)(1). Respondent Acevedo-Vilá's allegations in the FEC complaint were circumstantial and called for a process of deduction. Even if we were to assume a clear logic behind Respondent's characterization of Sánchez-Delgado's statements, Respondent omitted the reasoning from the FEC complaint and his public statements. As such, Respondent's omission of vital information only contributed to the misrepresentation. See Phelps, 637 F.2d at 180 (finding that the attorney had no hard facts upon which to base his contentions). In essence, Respondent made the critical mistake of "drawing and concluding far too much from limited evidence." Id. at 180 (considering similar behavior to be misrepresentation). This misrepresentation is unexplained by Respondent, and unreasonable in an attorney.
The Panel also found that Respondent Acevedo-Vilá's statement that he was frustrated by the state government's inaction in regards to his multiple requests to investigate DTC sales was unpersuasive. Amongst the evidence profered by Respondent himself are letters from the Puerto Rico Comptroller in which Respondent is assured that the Comptroller's office is heeding his requests. Regardless, while this frustration might explain Respondent's behavior, it certainly does not excuse it.
Finally, the Panel noted that Respondent's failure to attempt to withdraw his complaint, or to inform the FEC of Sánchez-Delgado's recantation in light of Respondent's own failing belief in Sánchez-Delgado's credibility was incomprehensible and inconsonant with his allegations that he was merely providing evidence for FEC review, especially since he had previously supplemented his complaint with circumstantial and unrelated evidence. Even assuming, arguendo, that Respondent had marshaled evidence that suggested the truth of Sánchez-Delgado's statements, and that he truly believed these when he first filed the complaint, he would still be under a duty to inform the FEC of the changing credibility of the statements. Once the statements were revealed as false, the continued reliance on them as a foundation of Respondent's complaint would be as unethical as if he had filed them in knowledge of their falsity from the outset. See Williams, 840 P.2d at 1284. We highlight that while Respondent did ultimately inform the FEC of Sánchez-Delgado's disavowal of his statements, he did so four months later. The Panel noted that, inexplicably, on June 1, 2000 Respondent forwarded Petitioner Romero-Barceló's withdrawal demand to the FEC on the day he received it, but failed to inform the Panel of Sánchez-Delgado's recantation in the letter. The delay in informing the FEC, both when the retractions happened, and when he was already filing other information with the FEC, only adds to the violation here.
The evidence compiled by the Panel, and essentially uncontested by Respondent, supports a finding that Respondent did not make a reasonable inquiry into the nature of Sánchez-Delgado's statements, misrepresented the relevant facts surrounding the statements, both to the FEC and the public, and failed to inform the FEC of the questionable nature of Sánchez-Delgado's statements when these were recanted. These misrepresentations violate Rule 8.4(a) and (c).
*211 Respondent Acevedo-Vilá maintains that a reprimand in his case would chill legitimate legislative inquiries. In his objection to the Panel's Report and Recommendation, Respondent argues that the Panel is proscribing legitimate conduct, claiming that, in essence, the Panel found that evidence existed that the DTC sales were legal and, therefore, his insistence in pursuing his DTC investigations was meritless. Specifically, Respondent argues:
The Panel seems to believe that once a law allows an action, it is right and no one has a right to question it, not even a legislator. Under their standard, when racial discrimination was legal in the United States there was no reason to object to it nor to make any fuss or attempt to change it.
Docket Document No. 70.
Respondent effectively broadens the findings of the Panel in his opposition, only to fault the Panel for his own broad construction. The Panel did not determine that Respondent Acevedo-Vilá inappropriately investigated the DTC sales and did not suggest that a legislator must accept the legality of a statute as the final word on the matter. However, the Panel did confirm that Respondent never mentioned that the DTC sales process allowed for below-market value sales. While irregularities may exist in the pattern or sales procedure, the Panel found that Respondent used the below-value sales as the crux of serious public allegations of fraud, without disclosing that these were facially legal. Coupled with Respondent's testimony during the hearing that he "just wanted someone to investigate," the Panel found that Respondent knowingly and recklessly misrepresented facts. To paraphrase the Panel, the fact that the sales were facially legitimate was a material fact not disclosed by Respondent Acevedo-Vilá, and not explainable if his ultimate goal was truthfulness. We applaud a legislator's efforts to uncover corruption wherever it may be hidden. To do so while hiding material facts, however, undermines the process, and Respondent's arguments here.
Respondent also objects to the Panel's finding that "even if Acevedo-Vilá had convinced [the] Panel that he actually believed Romero-Barceló had received an illegal payment of $175,000, such belief, based solely on the sworn statements of Sánchez Delgado and the facts allegedly `corroborated' by Acevedo Vilá do not constitute `reasonable belief' under the Rules of Professional Responsibility." Docket Document No. 67.
Respondent counters that "[u]nder this standard, if a lawyer sees a person standing with a gun in her hand and a dead person on the floor, and immediately hears the person stating `I didn't kill him,' then it would not be reasonable for that person to believe that she was the killer." Docket Document No. 70. Again, Respondent misconstrues the Panel. The "reasonable belief" the Panel refers to here is a reasonable belief of campaign contribution violations. The Panel found that, even if they were to assume that Sánchez-Delgado's statements were reasonably credible, they did not support a "reasonable belief" that there were campaign contribution violations, since the sworn statements never characterized them as campaign contributions. If Respondent determined that these were campaign contributions based on their context, as suggested in his filings, he should have disclosed his inferences.
In sum, this court finds that the evidence here is clear and convincing that Respondent Acevedo-Vilá knew or should have known of the falsity of Sánchez-Delgado's statements, and that, given the actual content of the sworn statements, his representations of the statements led to unsupported allegations of campaign finance violations which misrepresented the *212 facts to both the FEC and the public. The court also concludes that the evidence is clear and convincing that Respondent failed to inform the FEC about Sánchez-Delgado's retraction of his sworn statements, even after he had determined that Sánchez-Delgado was no longer credible. These actions constitute violations of Rule 8.4(a) and (c).
3. Proposed Sanction
Although not mandatory, the ABA Standards provide a useful touchstone in deciding the sanction to be applied. The Standards suggest that a court imposing sanctions consider "(a) the duty violated; (b) the lawyer's mental state; (c) the actual or potential injury caused by the lawyer's misconduct; and (d) the existence of aggravating or mitigating factors." ABA Standards § 3.0.
We briefly apply the ABA Standards to the circumstances here. The duty violated here was the duty of honesty and truthfulness. Respondent Acevedo-Vilá breached his duty to adequately investigate the truthfulness of the statements he presented to both the FEC and the public, while at the same time misrepresenting their content. Further, when the credibility of the statements came into question, so much so that Respondent admitted Sánchez-Delgado's lack of credibility, Respondent Acevedo-Vilá waited four months to inform the FEC. When asked to withdraw the complaint by the person it affected, Respondent forwarded Petitioner's letter to the FEC, characterizing it as a threat, while failing, once again, to inform the FEC of the retracted statements.
A violation of this duty strikes at the heart of the legal process, compromising the effective function of adjudicatory institutions, bringing disrepute to the bar, and implicating an attorney's character. As the Oregon Supreme Court stated in In re Hiller, "[a] person must be able to trust a lawyer's word as the lawyer should expect his word to be understood, without having to search for equivocation, hidden meanings, deliberate half-truths or camouflaged escape hatches. That trustworthiness is the essential principle embodied in [the dishonesty rule]." 298 Or. 526, 694 P.2d 540, 544 (1985).
Respondent's mental state at the time he filed the complaint in question, as culled from his statements, seems to be one of frustration. Respondent Acevedo-Vilá claimed that he felt that the NPP-controlled government was ignoring his requests for investigation into the DTC sales process. As Respondent stated during the hearing: "I don't know if this person is telling the truth, I just want someone to investigate. And if he is not telling the truth, he should be prosecuted." Docket Document No. 48.
Respondent Acevedo-Vilá's conduct was injurious. The FEC instituted an investigation into the allegations in Respondent's complaint, premised on questionable sworn statements that did not support a finding that the FEC even had jurisdiction over the matter. In addition, Respondent's June 1, 2000 letter appending Petitioner's withdrawal request squandered an opportunity, long overdue, to inform the FEC of Sánchez-Delgado's retraction, instead accusing Petitioner Romero-Barceló of additional malfeasance and prolonging the FEC inquiry.
Respondent Acevedo-Vilá's conduct also damaged the public. Throughout the relevant period, Respondent referenced Sánchez-Delgado's statements and repeated the allegations about the DTCs while omitting material facts. This, in the midst of an electoral campaign which was meant to determine both Respondent and Petitioner's fitness for electoral office. In the end, Respondent's conduct did nothing more than undermine the public's confidence in *213 its elected officials, and by extension, this Bar.
Moreover, it is beyond question that Respondent's conduct harmed Petitioner, who suffered through months of unfounded investigation into his behavior, as well as public excoriation.
While Respondent Acevedo-Vilá's conduct was injurious, there is no evidence that Respondent has been previously reprimanded or sanctioned by this court or any other. Further, various witnesses favorably testified about Respondent's character during the Panel hearing. Consequently, assessing the factors above, we believe that Respondent's conduct, while not rising to the seriousness of disbarment or suspension, deserves a public reprimand. "Reprimand, also known as censure or public censure, is a form of public discipline which declares the conduct of the lawyer improper, but does not limit the lawyer's right to practice." ABA Standards § 2.5. As stated by the ABA,
[a] reprimand is appropriate in cases where the lawyer's conduct, although violating ethical standards, is not serious enough to warrant suspension or disbarment. A reprimand serves the useful purpose of identifying lawyers who have violated ethical standards, and, if accompanied by a published opinion, educates members of the bar as to these standards.
Id.
III.
Conclusion
"The power of a court to impose appropriate and reasonable sanctions upon those admitted to its bar is a familiar phenomenon and lies within the inherent power of any court of record.'" Flaksa v. Little River Marine Constr. Co., 389 F.2d 885, 889 n. 10 (5th Cir.1968) (quoting Gamble v. Pope & Talbot, Inc., 307 F.2d 729, 735 (3d Cir.1962) (Biggs, CJ., dissenting)); see also Mandanici, 152 F.3d at 751 ("every court has inherent authority to disbar or discipline attorneys for unprofessional conduct ....") (Beam, J. concurring in part). "Disciplinary procedures are viewed as a function of maintaining the integrity of the bar and avoiding the appearance of impropriety .... Thus, discipline of ... attorneys is seen as both `a catharsis for the profession and a prophylactic for the public.'" In re Stoner, 507 F.Supp. 490, 492 (N.D.Ga.1981) (citations omitted).
"Lawyers holding public office assume legal responsibilities going beyond those of other citizens .... [A]buse of public office can suggest an inability to fulfill the professional role of lawyers." MODEL RULES OF PROF'L CONDUCT, R. 8.4, cmt. 4 (2003). Courts, therefore, may require attorneys to speak with greater care and civility than is the norm in political campaigns. Palmisano, 70 F.3d at 487; cf. Gentile v. Nev. Bar, 501 U.S. 1030, 1065-76, 111 S.Ct. 2720, 115 L.Ed.2d 888 (1991), Fla. Bar v. Went for It, Inc., 515 U.S. 618, 634-35, 115 S.Ct. 2371, 132 L.Ed.2d 541 (1995) (discussing restrictions on attorney advertising).
An attorney is not absolutely liable for every statement that turns out to be incorrect. "It would unduly quell investigation and exposure of corruption to disbar an attorney who publicizes suspicious conduct, just because the suspicions were dispelled." Palmisano, 70 F.3d at 487. Furthermore, it is beyond peradventure that a legislator may, and very well should, advocate for the best interests of the public he represents. Respondent Acevedo-Vilá's allegations as to the sales of the DTCs had the salutary effect of spurring the Comptroller's investigation into the government's sales of the DTCs, an investigation which revealed irregularities in the sales process.
However, the Panel found that Respondent Acevedo-Vilá lacked support for both *214 his FEC complaint and his public statements premised on Sánchez-Delgado's sworn statements. This behavior, we find, is hard to characterize as unintentional. Respondent's contention that his behavior here was merely legislative, an extension of his long-standing concern over the DTC sales process, does not justify any falsehoods nor explain his single-mindedness in pursuing Petitioner Romero-Barceló. The evidence presented here leads us to wonder: Would Respondent have pursued this inquiry with the same zeal during his campaign had another individual been accused of DTC sale and campaign improprieties? Respondent held numerous press conferences detailing his every step with regards to the FEC complaint, while neglecting to offer material facts and exculpatory information to both the public and the FEC. The Panel found it curious that Respondent failed to submit Sánchez-Delgado's recantation, as do we. His particular silence as to the developments in the case speaks volumes. And while Respondent did eventually inform the FEC, he has yet to explain the time lapse.
Furthermore, we are concerned by Respondent Acevedo-Vilá's seeming lack of remorse over the incident. We do not suggest that he should have accepted the Panel's report without objection. Respondent had concerns and objections over the procedure of this court which we have carefully considered in this Opinion and Order. However, Respondent has approached this case with fervent zeal while not recognizing that this disciplinary proceeding presents more nuanced inquiries. His failure to acknowledge any possible wrongdoing on his part, or to offer any mitigating defenses for his behavior, is troublesome.
There is a growing lack of public confidence in both the political and legal systems. Ironic, then, that this case involves both. Respondent Acevedo-Vilá may have had true suspicions about the DTC sale process we have no reason to suspect otherwise. However, that concern, when enveloped in a political campaign, led Respondent Acevedo-Vilá to engage in behavior that, unfortunately, overshadowed any legitimate inquiries into the DTC sale process. "The unpopularity of our profession, the accusations against it, must not and cannot be permitted to hide its finer service from our eyes. We, and no others, carry the burden of making the law worth having over the long run, and from day to day." Karl L. Llewellyn, THE BRAMBLE BUSH 181 (Oceana Publications 1960) (1930). The circumstances in this case implicate that burden. The mere fact that some may consider the behavior here as par for the course in both the legal and political process when it is in actuality unethical suggests that we have been too lax in enforcing the clearly articulated duties of the bar. We skirted the outer boundary of appropriate conduct as an attorney in violation of Model Rule of Professional Conduct 8.4. We, therefore, recommend a public reprimand.
IT IS SO ORDERED.
NOTES
[1] The FEC is a quasi-judicial body or administrative agency of the federal government. See 2 U.S.C. §§ 437c-438 (1994); FEC v. NRA Political Victory Fund, 513 U.S. 88, 97, 115 S.Ct. 537, 130 L.Ed.2d 439 (1994) (assuming that the FEC is an agency); Becker v. FEC, 230 F.3d 381, 384 (1st Cir.2000) (same). Attorneys-at-law are bound by the rules of professional conduct when they appear before the agency. Cf. MODEL RULES OF PROF'L CONDUCT R. 8.4 cmt (1983) (noting that a "lawyer must comply with applicable rules at all times, whether or not acting in professional capacity").
[2] We reproduce the text of the letter below:
Dear Mr. Acevedo,
On the seventh day of October 1999 you submitted a complaint against me, signed under oath, for an alleged violation of the federal election campaign laws. Your statement was based on a sworn statement made by Andrés Sánchez Delgado, which you endorsed and relied on, assuming and accepting as true all the libelous and defamatory charges made by him against my District Director Domingo García. In your complaint you stated, without any evidence whatsoever, that I had been given an amount of money for intervening in the alleged favoritism to Dr. Carlos Rodríguez Mateo.
At all times you knew that I had no governmental, administrative or executive authority over the persons making the decision to sell to Dr. Rodríguez Mateo. As a matter of fact on March 30th, 2000 you stated that Andrés Sánchez Delgado did not have any credibility whatsoever. I asked you publicly, as a result of your public statement regarding the lack of credibility of Andrés Sánchez Delgado, to withdraw your complaint, which was solely based on the perjured statement of Andrés Sánchez Delgado. So far you have failed to do so.
More recently, the local press has published information, supported by the sworn statements corroborated by a polygraph expert, that you have been involved in bribing Andrés Sánchez Delgado to make the statements which you have made part of your complaint. If the ongoing investigation corroborates the information, you have committed some serious crimes indeed.
I hereby demand that you withdraw your complaint within the next seven (7) days, on or before June 7, with copy to me. Otherwise, I shall take the appropriate legal action against you.
Cordially,
Carlos Romero-Barceló
We note that Respondent Acevedo-Vilá cannot rely on Petitioner Romero-Barceló's statements in this letter to suggest that the FEC was constructively informed of the retraction of Sánchez-Delgado's statements. Petitioner's letter itself makes no mention of the retracted statements. Although Petitioner makes reference to "perjured statements," it is not clear, from the text of the letter, whether this is rhetorical license or references actual changes in the credibility of the sworn statements. The letter makes reference to local press information, supported by sworn statements corroborated by a polygraph expert. However, the letter does not signify who made the statements. All in all, while the letter certainly informs the FEC of additional allegations that bear on the circumstances of the complaint, it does not clearly impugn the credibility of the statements upon which the complaint is based.
[3] Section 1001 provides, in pertinent part:
(a) Except as otherwise provided in this section, whoever, in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States, knowingly and willfully-
(1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact;
(2) makes any materially false, fictitious, or fraudulent statement or representation; or
(3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry;
shall be fined under this title or imprisoned not more than 5 years, or both.
18 U.S.C. § 1001.
[4] Although the order to show cause was entered before the conclusion of the preliminary investigation, we find that the sequence of events, in this case, have not affected Respondent Acevedo-Vilá's procedural rights, since the issues before us have remained constant.
[5] Sánchez-Delgado pled guilty to all seventeen charges on September 4, 2002. He was sentenced on March 13, 2003.
[6] The Local Rule provides: "If after investigation, the Court determines that disciplinary proceedings are warranted, it shall issue an order requiring the respondent-attorney to show cause why disciplinary action should not be taken." D.P.R. LOCAL R. 211.5(B).
[7] "A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis for doing so that is not frivolous, which includes a good faith argument for an extension, modification or reversal of existing law." Model Rules Of Professional Conduct, Rule 3.1 (2003).
[8] The Price court defined recklessness as the "deliberate closing of one's eyes to the facts that one had a duty to see or stating as fact things of which one was ignorant." Price, 557 Pa. at 175, 732 A.2d 599.
[9] The FEC complaint was dismissed on September 22, 2000, as Magistrate Judge Castellanos was conducting the preliminary hearing.
[10] We note that in at least one circuit, evidentiary hearings are not absolutely required. In re Evans, 834 F.2d 90, 91 (4th Cir.1987).
[11] Although practice before a federal court is derivative from an attorney's membership in a state bar, disbarment by the state is not conclusively binding on the federal courts. Theard v. U.S, 354 U.S. 278, 281-82, 77 S.Ct. 1274, 1 L.Ed.2d 1342 (1957).
[12] Other cases are similarly instructive. In State Bar Assoc. v. Wenger, 454 N.W.2d 367 (Iowa 1990), a commission attempted to charge an attorney under disciplinary review for failure to pursue his client's claim and failure to respond to the disciplinary board's inquiries regarding the matter. At the end of the disciplinary proceeding, the commission charged the attorney with the independent offense of giving false testimony under oath, contending that the truth or falsity of the correspondence submitted to the commission was "inextricably intertwined" with the charge that the attorney failed to cooperate with the commission's proceedings. Therefore, the commission reasoned, the attorney "could not claim that he was not on notice that false testimony in this regard would subject him to disciplinary action." Id. at 369. The Supreme Court of Iowa refused to allow the amendment of the complaint against the attorney. It found that the "failure to respond charge and the amended charge of false testimony `are two different, distinct, and unrelated incidents of misconduct of which [the attorney] had notice of only one." Id. Citing Ruffalo, the court found that the belated amendment would work to deprive the attorney of his due process rights because it would not grant Respondent an opportunity to counter the allegations. However, rather than discharging the claims of false testimony, the court allowed the commission to proceed with the investigation of charges of false testimony, allowing the attorney an opportunity to respond to the commission's charge. Id. at 370. In In re Doyle, the Supreme Court of Illinois refused to discipline an attorney for his prelitigation activities because the complaint did not inform the attorney that these activities were at issue. The court found that in its previous jurisprudence it had established that "a complaint must contain factual allegations of every fact which must be proved in order for the [Plaintiff] to be entitled to judgment on the complaint, and a judgment cannot be rendered on facts demonstrated by evidence at trial unless those facts were alleged in the complaint." In re Doyle, 163 Ill.Dec. 515, 581 N.E.2d at 678 (internal citations omitted). In Bar Assoc. v. Johnson, 447 F.2d 169 (3d Cir.1971), the court declined to add a charge that the disciplined attorney had violated his attorney client relationship when the only notice of a possible charge came after two days of hearings and after the attorney had testified at length concerning the relationship between him and his client. Id. at 173. The court noted that "[d]ue process contemplates notice which gives a party adequate opportunity to present his case." Quoting Ruffalo, the Johnson court found that "[i]n these circumstances, respondent was entitled to know the exact nature of the charges against him before the commencement of proceedings." Id. The court also invalidated another charge, since it "was not contained in the complaint; nor was there any other warning to respondent that he would have to answer to such a charge." Id. These cases do not differ in reasoning from Zauderer. In each, the vital element of the due process violation was the attorney's inability to defend against the charges facing him.
[13] In another case cited by Respondent Acevedo-Vilá, Akinaka v. Disciplinary Bd. of Hawaii Supreme Court, 91 Hawai'i 51, 59, 979 P.2d 1077 (1999), the court found that an individual who had filed complaints against attorneys did not have standing to bring suit to compel the disciplinary board to initiate disciplinary proceedings. The individual's "only function, as the Petitioner, in the disciplinary process is to supply evidence of the alleged attorney malfeasance to [the disciplinary body.]" Id. "To conclude otherwise," the court continued,
[w]ould mean that petitioners, who have no actual stake in the outcome of disciplinary proceedings, could force [the disciplinary body] to conduct a full-scale investigation and hearing into every complaint it receives, regardless of whether that complaint is unfounded or frivolous. This would not only be an absurd waste of time and resources, but it would also effectively usurp the discretionary authority that [the disciplining body] has in considering whether to prosecute an ethics complaint against a lawyer, and would also distort the aim and purpose of the disciplinary process.
Id. (internal citations omitted). As in Mandanici, the court did not prohibit the participation of a petitioner in disciplinary proceedings. Instead, it found that a court could not be forced to take disciplinary action by a petitioner if it chose not to. Id.; see also Ramos Colon v. United States Attorney for the Dist. of P.R., 576 F.2d 1, 2, 6, 9 (1st Cir.1978) (a former defendant "cannot challenge the court's decision not to discipline.... It remains for the court to vindicate its authority, if it so chooses."); Application of Phillips, 510 F.2d 126, 126 (2d Cir.1975) (per curiam) (pro se litigant could not compel court to sanction opposing counsel because "a private person ... has no standing to participate in a disciplinary proceeding.").
[14] The Local Rules of the District of Puerto Rico stipulate that allegations of misconduct may be brought to the court's attention "by complaint or otherwise." D.P.R. LOCAL R. 211.5(A). We also note without highlighting that an attorney who has "knowledge that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer's honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate professional authority." MODEL RULES OF PROFESSIONAL CONDUCT, R. 8.3 (1983). A rule that prohibits a petitioner, particularly an attorney, from bringing misconduct to the court's attention would be unworkable.
[15] During the hearing, Magistrate Judge Castellanos observed:
I will have to say that I was doing some preliminary research on the matter of getting the assistance of counsel conducting the investigation. There is nothing wrong for me doing that, at least that is my impression. So [Respondent's counsel] will have the same opportunity and you as well. There's a lot of detail and evidence that I'm not familiar with at this particular moment. I think in order to conduct this investigation, I will allow you to help the Court in doing so.
Hearing before Magistrate Judge Castellanos, Friday, September 15, 2000, p. 2.
[16] We draw the Respondent's attention to the FEC's proceeding when handling his complaint against Petitioner Romero-Barceló. The FEC specifically provides that "once a complaint is filed, the Office of General Counsel reviews the complaint to determine whether it satisfies the filing requirements. Supporting Federal Candidates: A Guide For Citizens: Filing of a Complaint, available at http://www.fec.gov/pages/citn0011.htm (July 23, 2003). Within five days of filing a complaint, the FEC must notify the person accused of a violation of the Campaign Act in writing. Id. Unless the FEC dismisses the complaint on its own, it must give the respondent fifteen (15) days to demonstrate why the FEC should dismiss the complaint without any investigation. After the fifteen-day response period has elapsed, the Office of General Counsel evaluates and investigates the complaint, and if four out of six members vote affirmatively that there is reason to believe that the respondent violated the Campaign Act, the General Counsel must inform the respondent of the factual basis for its finding. Id. The respondent is given time to respond prior to an FEC vote on whether to make a finding of probable cause. Id. As here, an FEC respondent is not granted a right to full trial-type proceedings in the investigative stage of the complaint.
[17] The wording of the court's Local Rule 211.5 in this regard is not precatory, but mandatory throughout, stating that the court "shall," not "may," institute proceedings. In re Thalheim, 853 F.2d 383, 387 (5th Cir. 1988). We must abide by the rules which we have promulgated. Id. at 388.
[18] The Panel also heard the testimony of Attorney David Noriega. Attorney Noriega testified that he conducted a radio interview with Sánchez-Delgado. He attested that he received a call from Respondent Acevedo-Vilá prior to the filing of the FEC complaint and that Respondent has asked him whether he felt Sánchez-Delgado was credible. Attorney Noriega also testified that he told Respondent that he and fellow Panelists found him to be credible. However, Attorney Noriega also testified that Respondent Acevedo-Vilá called him prior to his appearance before the Panel to "warn" him that he might be called to testify in front of the Panel, and that they had "recreated the content of the conversation." ["Second Conversation"] Docket Document No. 48. They did so "in order to make certain of what we had spoken about. You know, to be able to know exactly and make sure that this was the topic of conversation and so that we could come here and be able to tell the truth." Id.
The Panel noted that it had called Attorney Noriega in order to "hear his testimony about the conversation." Docket Document No. 67. Respondent's contact with Attorney Noriega to clarify the events, and to confirm the contents of the conversation, eviscerated the verification purpose of Attorney Noriega's testimony. Consequently, the testimony does not have the same weight as it would have had it been provided without the comparison conducted by Respondent and Attorney Noriega. This is of particular importance, because this conversation is the only evidence proffered by Respondent which suggests that he specifically investigated the credibility of Sánchez-Delgado. The content of the conversation and the actual information solicited by Respondent would have been particularly salient.
Even if we were to ignore this second conversation, we find that this would constitute Attorney Acevedo-Vilá's only effort to specifically investigate Sánchez-Delgado's credibility. Secondhand impressions of credibility seem woefully inadequate given the facts here.
[19] We hesitate to determine, as a matter of law, what a proper inquiry would consist of, and what actions, if any, Respondent may have taken to uncover the truthfulness of Sánchez-Delgado's statements. We note, however, that Respondent did not contend that he, or his assistants, met with Sánchez-Delgado. Further, as observed by the Panel, not once during the proceedings did Respondent Acevedo-Vilá claim that he believed Sánchez-Delgado. Considering that Sánchez-Delgado's statements were not made for the purpose of detailing campaign contributions, but were, instead, made in an effort to institute civil proceedings against his employer for unrelated charges, a meeting may very well have elucidated or brought to light inconsistencies in Sánchez-Delgado's statements. We observe without highlighting that attorneys customarily interview witnesses before relying on the character of the testimony they will give. Phelps, 637 F.2d at 180. Given the nature of the FEC complaint here, Respondent's minimal corroboratory steps are incongruous with Respondent's goal of determining Sánchez-Delgado's truthfulness.
[20] Respondent's FEC complaint states, in part:
[7]. According to several sworn statements given by Sánchez-Delgado, on or about August or September, 1998, Sánchez Delgado, pursuant to order from his employer, Dr. Rodríguez Mateo, delivered the amount of $175,000.00 to an assistant of the respondent, named Domingo Garcia, for respondent's political campaign.
8. Pursuant to information and belief, this was a political campaign contribution in violation of the limits imposed by the FECA. 2 U.S.C. § 441a.
9. According to the sworn statements given by Sánchez Delgado, the political contribution made by Dr. Rodríguez Mateo was in relation to or exchange for the respondent's assistance in the acquisition of Treatment and Diagnostic Clinic of Salinas for a price much lower than the actual market price.
Omitted from the quote above are Respondent's references to Sánchez-Delgado's sworn statements, reproduced below.
That on or about August and September, 1998, while I was at a New Progressive Party activity related to the 1998 Plebiscite, Dr. Rodríguez Mateo and I approached Carlos Romero-Barceló, to whom Dr. Rodríguez Mateo said: "Carlos, I have a gift for you. It's a little money. Since you helped me so much with this clinic deal. I have this for you." Carlos Romero responded: "all right!; I need them!". Then, Dr. Rodríguez said to me, "Andy, go to the car with Domingo Garcia, who is one of Carlos' assistants and get the Converse bag with Carlos' money and give it to him. Be careful, you know that there are $175,000.00 and things are not going well ...."
FEC Complaint, Exhibit 1.
That on or about the months of August and September, 1998, while I was with the doctor we went to a political activity related to 1998 Plebiscite [sic], in which Carlos Romero-Barceló was the main speaker. At the end of the activity, we approached Carlos Romero and Dr. Rodríguez Mateo said to him: `Listen, Carlos since you helped me with the C.D.T. of Salinas, doing your best at it I brought you this little gift, some money, $175,000 dollars, to which Carlos responded: `All right, I need them.'
FEC Complaint, Exhibit 2.
On the day that I was seen delivering the Converse blue bag with the $175,000 to Domingo Garcia, assistant to Carlos Romero-Barceló, Mr. Garcia was limping and using a walking stick ....
FEC Complaint, Exhibit 3.
Respondent Acevedo-Vilá's characterization of the nature of the statements as campaign contributions is clearly not supported by the only evidence proferred, Sánchez-Delgado's sworn statements, appended as exhibits. In fact, in its dismissal of Respondent's complaint, the FEC stated that "[i]t is important to note that although the complaint alleges that the $175,000 in cash was a contribution in connection with Romero-Barceló's campaign for reelection, no reference to Carlos Romero-Barceló's campaign or his committee is contained in any of Sánchez-Delgado's affidavits." Docket Document 67.
[21] Respondent Acevedo-Vilá's objection to the Panel's Report and Recommendation sheds additional light on his conclusion that the alleged "gift" was, in fact, a contribution to the NPP's campaign coffers. In his objection, Respondent complains that the Panel took judicial notice of facts that took place between 1999 and 2000, and yet "did not take judicial notice of several proceedings in this Court where the solicitation of bribery by [NPP] government officials has been proven as part of a scheme to divert monies to the political campaign of several politicians." Docket Document No. 70. He presented this chain of deductions as a hard fact, which misrepresented the pertinent evidence to the FEC.
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FILED
UNITED STATES DISTRICT COURT
MAR 1 6 2010
FOR THE DISTRICT OF COLUMBIA NANCY MAYER WHITIIN&TON, CLERK
U.S. DISTRICT C()(JflT
LARRY L. MOORE,
Plaintiff,
v. Civil Action No. 10 0434
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA,
Defendant.
MEMORANDUM OPINION
This matter is before the Court on consideration of plaintiff's application to proceed in
forma pauperis and pro se complaint. The Court will grant the application, and will dismiss
the complaint. 1
Plaintiff states that he has filed cases in the United States District Court for the District
of Arizona, and he deems the performance of the assigned judge to be "slotful [sic] and
careless[.]" Compl. at 5. Plaintiff requests the transfer of all cases to this district "for
'special action' to be done by the court to review and or investigate" the matter. [d. at 7.
Assuming without deciding that plaintiff states a cognizable claim, the relief he
The Court notes that plaintiff already has accumulated two "strikes" under 28
U.S.C. § 1915(g). See Moore v. Futrell, No. 09-2093 (D. Ariz. Mar. 5, 2010) (dismissing
civil action for failure to state a claim upon which relief may be granted); Moore v.
Hindmarch, No. 09-1461 (D. Ariz. Jan. 7,2010) (dismissing civil action for failure to state a
claim upon which relief may be granted). He might earn two additional "strikes" in the near
future. See Moore v. Arpaio, No. 09-1492 (D. Ariz. Mar. 1,2010) (order dismissing
complaint without prejudice for failure to state a claim upon which relief can be granted, but
allowing plaintiff 30 days within which to file an amended complaint); Moore v. Maricopa
County Sheriff's Office, No. 09-2232 (D. Ariz. Feb. 19, 2010) (order dismissing complaint
without prejudice for failure to state a claim upon which relief can be granted, but allowing
plaintiff 30 days within which to file an amended complaint). If plaintiff accumulates three
strikes, he will be barred from proceeding in forma pauperis unless he demonstrates that he is
under imminent danger of serious physical injury. See 28 U.S.c. § 1915(g).
demands is not available. Federal district courts are courts of limited jurisdiction and
"possess only that power conferred by Constitution and statute." Kokkonen v. Guardian Life
Ins. Co., 511 U.S. 375, 377 (1994). The powers conferred on the federal district courts do
not include the power to review the decisions of other district courts or to force other district
courts to act. See Johnson v. Camilletti, No. 09-1110, 2009 WL 1708802, at *1 (D.D.C. June
17, 2009) ("This Court lacks subject matter jurisdiction to review the proceedings of another
[district] court. "); see also 28 U.S.C. § 1291 (conferring"jurisdiction of appeals from all final
decisions of the district courts of the United States" to the federal courts of appeals). "The
structure of the federal courts does not allow one judge of a district court to rule directly on the
legality of another district judge's judicial acts or to deny another district judge his or her
lawful jurisdiction." Dhalluin v. McKibben, 682 F. Supp. 1096, 1097 (D. Nev. 1988).
Accordingly, the Court will dismiss this action for lack of subject matter jurisdiction.
An Order consistent with this Memorandum is issued separately on this same date.
United States District Judge
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100 F. Supp. 421 (1951)
JASPER
v.
SAWYER et al.
Civ. A. 3504-51.
United States District Court District of Columbia.
October 3, 1951.
*422 Charles F. O'Neall, and Paul D. Page, Jr., Washington, D. C., for the plaintiff.
Thomas L. McKevitt, and Walter Williams, both of the Department of Justice, Washington, D. C., for the defendants.
HOLTZOFF, District Judge.
This is an action by an adjacent property owner to enjoin the Secretary of Commerce and the Attorney General of the United States from taking by eminent domain certain property in the State of Virginia for use as an airport.
The matter is now before this court on an application made by the plaintiff for the convening of a three-judge statutory court, pursuant to section 2282, Title 28, of the United States Code, the claim being made by the plaintiff that the statute under which the defendants are proceeding is unconstitutional. That section provides that an injunction restraining the enforcement of an act of Congress because of repugnance to the Constitution of the United States shall not be granted by any district court or judge unless the application is heard and determined by a district court of three judges.
It is well-settled that in order to justify the convening of a three-judge court, pursuant to the statute to which reference has been made, the constitutional question raised must be substantial, and a mere assertion of unconstitutionality is insufficient. It must appear that the question is a reasonably debatable one. It has been further held that if the point raised in support of the allegation of repugnance to the Constitution is one that has been determined by binding decisions of the Supreme Court, this circumstance precludes the question from being regarded as substantial.
The principles governing these matters were laid down by the Supreme Court in California Water Service Co. v. City of Redding, 304 U.S. 252, 254-255, 58 S. Ct. 865, 866, 82 L. Ed. 1323. In that case the court stated: "We have held that section 266 of the Judicial Code, 28 U.S.C.A. § 380, does not apply unless there is a substantial claim of the unconstitutionality of a state statute or administrative order as there described. It is therefore the duty of a district judge, to whom an application for an injunction restraining the enforcement of a state statute or order is made, to scrutinize the bill of complaint to ascertain whether a substantial federal question is presented, as otherwise the provision for the convening of a court of three judges is not applicable. (Cases cited.) We think that a similar rule governs proceedings under Section 3 of the Act of August 24, 1937, 28 U.S.C.A. § 380a, as to the participation of three judges in passing upon applications for injunctions restraining the enforcement of federal statutes upon the ground of constitutional invalidity."
The court goes on to say: "The lack of substantiality in a federal question may appear either because it is obviously without merit or because its unsoundness so clearly results from the previous decisions of this court as to foreclose the subject."
These principles were strictly applied in this jurisdiction in the case of Osage Tribe of Indians v. Ickes, D.C., 45 F. Supp. 179, 185, where it was pointed out that the three-judge procedure is an extraordinary one, imposing a heavy burden on federal courts, *423 with attendant expense and delay; a procedure, designed for a specific class of cases, sharply defined, which should not be lightly extended.
It appears that the Secretary of Commerce and the Attorney General are proceeding under the Act of September 7, 1950, Public Law 762, 81st Congress, 64 Stat. 770, which authorized and directed the Secretary of Commerce to construct, operate, and maintain a public airport within or in the vicinity of the District of Columbia. The Act further confers upon the secretary the power of eminent domain. It is alleged in the complaint that the airport is to be a municipal facility of the District of Columbia, located in Virginia. It is further asserted that it is unconstitutional to confer the power of eminent domain in connection with the construction and operation of a municipal facility for the District of Columbia, located outside of the District.
The court must, of course, take judicial notice of an act of Congress, and if there is an inconsistency between the act of Congress in question and a summary of its contents in the pleadings, the former must prevail. The court construes the act as not authorizing the construction of a municipal airport, but of a national or federal airport, to be located either within the District of Columbia or in its vicinity.
It is settled by decisions of the Supreme Court, beyond peradventure of doubt, that the United States is clothed with the power of eminent domain. Even though the power was not expressly conferred by the Constitution, the power is implied and is incidental to carrying out other powers, Kohl v. United States, 91 U.S. 367, 23 L. Ed. 449. The right of eminent domain which exists in the federal government may be exercised by it within the states, so far as is necessary to the enjoyment of the powers conferred upon it by the Constitution. Under its power to regulate commerce between the states, as well as foreign commerce, it is fundamental that Congress may construct, maintain, and operate instrumentalities of such commerce, California v. Pacific Railroad Co., 127 U.S. 1, 39, 8 S. Ct. 1073, 32 L. Ed. 150; Luxton v. North River Bridge Co., 153 U.S. 525, 529 et seq., 14 S. Ct. 891, 38 L. Ed. 808. Since the early days of the Republic, acting under this power as well as the power to maintain post offices and post roads, Congress constructed such instrumentalities of commerce as roads, highways, bridges, lighthouses, and the like. The power to do so is so well established that to question it does not present a substantial constitutional issue. At times Congress has maintained such instrumentalities through federal agencies, and at other times through corporations organized by its authority.
It is clear that in the light of modern developments an airport is an instrumentality of both foreign and interstate commerce. While, to be sure, what constitutes a public use is a judicial question and if the question is substantially debatable it would justify the convening of a three-judge courtnevertheless, when it is clear that the use for which it is sought to condemn property by eminent domain is a public one, there is no basis for a conclusion that a substantial question is presented as to the constitutionality of the statute.
The court feels that it is beyond the realm of debate that an airport is as much an instrumentality of commerce as a highway, a bridge, a lock, a dam, a lighthouse, all of which have been constructed at various times in different places under the authority of acts of Congress acting under the commerce power. The court, therefore, reaches the conclusion that a substantial constitutional question is not presented, and the application for convening a three-judge court is denied.
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United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 00-2590
___________
Keith Kulow, *
*
Appellant, * Appeal from the United States
* District Court for the
v. * Northern District of Iowa.
*
Cargill, Incorporated, * [UNPUBLISHED]
*
Appellee. *
___________
Submitted: April 11, 2001
Filed: April 16, 2001
___________
Before BOWMAN and FAGG, Circuit Judges, and CARMAN,1 Judge.
___________
PER CURIAM.
A jury returned a verdict in favor of Cargill, Incorporated, on Keith Kulow's
claim of age discrimination. The District Court2 entered judgment on the jury verdict
and denied Kulow's motion for a new trial. Kulow timely appeals.
1
The Honorable Gregory W. Carman, Chief Judge, United States Court of
International Trade, sitting by designation.
2
The Honorable Edward J. McManus, United States District Judge for the
Northern District of Iowa.
Seeking reversal and remand for a new trial, Kulow argues that the District Court
abused its discretion in submitting a verdict form combining what Kulow characterizes
as two age discrimination claims into one. Kulow also argues that the trial court abused
its discretion in admitting into evidence the testimony of Barb Kula. We disagree with
both contentions. Having considered the matter, we conclude the trial court did not
abuse its discretion in either respect. Accordingly, we affirm. See 8th Cir. R. 47B.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
-2-
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453 F. Supp. 1342 (1978)
Jesse C. HILL, Plaintiff,
v.
LIBERTY MUTUAL INSURANCE COMPANY, Defendant.
Civ. A. No. CA78-0386-R.
United States District Court, E. D. Virginia, Richmond Division.
July 24, 1978.
*1343 Walter H. Emroch, Richmond, Va., for plaintiff.
G. Kenneth Miller, May, Miller & Parsons, Richmond, Va., for defendant.
MEMORANDUM
MERHIGE, District Judge.
Plaintiff, Jesse C. Hill, a citizen of the Commonwealth of Virginia, brings this action to contest the validity of a release agreement which he made with defendant, Liberty Mutual Insurance Company, hereinafter referred to as Liberty, a corporate citizen of a state other than Virginia. Jurisdiction is asserted on the basis of diversity of citizenship, 28 U.S.C. § 1332.
The matter is before the Court on defendant's motion to dismiss, which motion has been fully briefed by both parties and is ripe for disposition.
The file reflects as follows: On November 13, 1976, plaintiff was injured in an automobile accident involving one Thelma Ware. Defendant Liberty carried a liability insurance policy on Thelma Ware. Three days after the accident, on November 16, 1976, plaintiff Hill signed a document entitled *1344 "Release and Settlement of Claim" tendered to him by an agent for defendant Liberty. The document provided, in pertinent part, that the plaintiff would settle all claims which he might have against Ms. Ware in exchange for "the sole consideration of payment of medical bills incurred before November 13, 1977 . . . and ten hundred and 00/100 dollars ($1,000.00)."
In this action, plaintiff alleges that the release agreement "was obtained through fraud, misrepresentation and duress and is invalid." He does not seek any monetary damages, but does seek a declaratory judgment that the release agreement is "invalid, null and void, and of no effect."
Defendant's first argument in support of its motion to dismiss is that the plaintiff has failed to name an indispensable party who, if named, would defeat diversity jurisdiction. In defendant's view Thelma Ware is an indispensable party to this action because the release agreement runs in her favor. Thus, in the defendant's view, the action cannot go forward without Ms. Ware as a party. However, if Ms. Ware is brought in, diversity jurisdiction will be defeated because she, so counsel contends, is a citizen of Virginia. As there is no Federal question, defendant contends that the action must be dismissed either for lack of an indispensable party, or for lack of jurisdiction.
While defendant's motion to dismiss may be well taken, Ms. Ware is not, in the Court's view, an indispensable party.
The criteria for determining whether or not a party is indispensable are found in Rule 19 of the Federal Rules of Civil Procedure. The first step, of course, is to determine whether the person in question falls within the categories of Rule 19(a), which provides, in pertinent part, as follows:
(a) Persons to be Joined if Feasible. A person who is subject to service of process 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 his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his 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 his claimed interest. If he has not been so joined, the court shall order that he be made a party.
With respect to category (1) of Rule 19(a), it is clear to the Court that the absence of Ms. Ware will in no way preclude the Court from awarding complete relief to those already parties. The sole relief sought is a declaration that the release agreement is null and void.
Category (2) of Rule 19(a) is somewhat more complicated. It does appear to the Court that Ms. Ware has "an interest relating to the subject of the action," and that a declaration that the release agreement is void would make her potentially liable for any judgment in excess of her insurance coverage. The practicalities of the situation, however, are not lost upon the Court. As a practical matter, interests of Ms. Ware in the instant litigation are fully protected by the presence of her insurance company as a defendant. Indeed, if the release be declared null and void, Liberty would be obligated under its policy with Ms. Ware to afford her counsel. Thus, "as a practical matter," the disposition of this action in the absence of Ms. Ware will not impair or impede her ability to protect her interest in upholding the validity of the release agreement.
Regarding subcategory (ii) of Rule 19(a)(2), the defendant has not suggested, and the Court does not perceive, any manner in which Ms. Ware's interest might subject either of the instant parties to any risk of incurring double, multiple, or otherwise *1345 inconsistent obligations. The release was procured by defendant as agent for Ms. Ware, and if the validity of the release is litigated here, the Court is satisfied that the same issue will not be open to litigation in any subsequent action.
In summary, the Court is of the view that Ms. Ware is not a person to be joined, if feasible, pursuant to Rule 19(a). She is a fortiori not an indispensable party under Rule 19(b).[1]
Defendant's second contention in support of its motion to dismiss is that plaintiff has failed to state a claim for the requisite jurisdictional amount. In defendant's view, the only amount in controversy here is the $1,000.00 plus medical expenses which changed hands as a result of the release agreement. As this amount is far less than the $10,000.01 required to sustain diversity jurisdiction, defendant contends that the action must be dismissed for want of jurisdiction.
Once again, the practicalities of the situation do not escape the Court. At bottom, the amount in controversy in the instant suit is not the amount which changed hands pursuant to the release agreement, but rather is the value of plaintiff's personal injury claim against Thelma Ware in the event the release agreement is declared null and void. Counsel for plaintiff has represented to the Court that plaintiff's injuries growing out of the automobile collision with Ms. Ware include "a serious broken leg which has not healed properly, causing a limp." (Plaintiff's reply memorandum filed June 6, 1978.) The Court is consequently satisfied that even though plaintiff's suit must fail for other reasons, plaintiff has alleged in good faith an amount in controversy in excess of $10,000.00.
The defendant's third contention is that there is no case or controversy between the instant parties. Defendant's main support for this contention is Liberty Mutual Insurance Co. v. Lee, 117 F.2d 735 (5th Cir. 1941). In that case, the insurance company had obtained on behalf of its insured a release agreement from the parents of a deceased child. The parents nevertheless brought an action in state court against the insured. While the state court action was pending, the insurance company filed a petition in Federal District Court seeking a declaratory judgment against the parents to the effect that the release agreement barred any action against the insured. The Court of Appeals held that the insurance company's petition for declaratory judgment had to be dismissed for lack of a justiciable controversy. The Court reasoned that the real controversy was between the parents and the insured, not between the parents and the insurance company. Since the parents and the insured were both residents of the same state, the proper forum for the dispute was the state courts, not the federal courts. The insurance company did have an interest in the outcome of the suit between the parents and the insured, but this interest *1346 did not give the insurance company the right to take charge of the controversy as its own and "carry it into a federal court because of [its] citizenship being diverse." 117 F.2d at 736. The proper course, the Court indicated, was for the insurance company to defend the state court action, as it was obligated to do according to its policy contract, and to plead the release agreement as a defense.
Although the situation is reversed in the case at bar, in that the injured party rather than the insurance company brings the action on the release agreement, the Court considers the principles of Liberty Mutual Insurance Co. v. Lee to be applicable. The overriding thrust of Lee is that a suit between an insurance company and a signatory to a release agreement does not present a justiciable controversy when the real dispute is between the signatory and the insurance company's insured. That is the instant situation. Indeed, the plaintiff has strenuously argued that the real question in this case is whether his claim for damages against Thelma Ware is barred. Indeed, it was this very contention which persuaded the Court that the amount in controversy exceeded the requisite $10,000.00 amount.
Plaintiff cannot have it both ways. Either the real controversy is with Thelma Ware over plaintiff's personal injuries or else it is with the insurance company over the release agreement. If the real controversy is with Thelma Ware, the jurisdictional amount is met, but the action must be dismissed for lack of a justiciable controversy between the plaintiff and the insurance company.[2] On the other hand, if the real controversy is with the insurance company, the action must be dismissed for want of the required amount in controversy. In either event, this Court has no jurisdiction over the instant action.
Even if this Court did have jurisdiction, however, this action would not be a proper one for declaratory judgment. It has long been established that judicial power to grant declaratory relief is discretionary. Brillhart v. Excess Insurance Co., 316 U.S. 491, 494, 62 S. Ct. 1173, 1175, 86 L. Ed. 1620, 1625 (1942); Tamari v. Bache & Co., 565 F.2d 1194, 1199 (7th Cir. 1977); Maryland Casualty Co. v. Boyle Construction Co., 123 F.2d 558, 562 (4th Cir. 1941). While such discretion should be liberally exercised, "it should not be exercised . . . for the purpose of anticipating the trial of an issue in a court of co-ordinate jurisdiction." Aetna Casualty & Surety Co. v. Quarles, 92 F.2d 321, 324 (4th Cir. 1937); see Washington-Summers, Inc. v. City of Charleston, 430 F. Supp. 1013, 1017 n.l (S.D.W.Va.1977). The instant case has obviously been brought for the specific purpose of anticipating Thelma Ware's defense to an action for damages by plaintiff in state court. Counsel for plaintiff has frankly stated that "plaintiff needs to know whether or not he should proceed with his action and go the the expenses of maintaining his action without facing a dismissal because of the alleged valid release". (Supplement to plaintiff's reply memorandum, filed June 13, 1978.)
Thus, even if the Court's holding that there is no jurisdiction should prove to be in error, dismissal of this action on discretionary grounds would still be appropriate under the policy of this judicial circuit. To sustain the suit would be "to drag this essentially local litigation into the federal courts and to defeat the jurisdiction of the state courts over it merely because one of the parties to the litigation happened to have indemnity insurance in a foreign insurance company." Indemnity Insurance Co. v. Schriefer, 142 F.2d 851, 853 (4th Cir. 1944).
Moreover, the Court is satisfied that permitting this action to go forward would contravene this circuit's policy against fragmented litigation. A judgment in favor of plaintiff would not end this dispute, but would force plaintiff to take further legal *1347 action in the state courts to vindicate his damages claim. The Court of Appeals for the Fourth Circuit has stated, however, that the declaratory judgment rule should not be invoked "to try a controversy by piecemeal, or to try particular issues without settling the entire controversy . . .." Aetna Casualty & Surety Co. v. Quarles, supra, 92 F.2d at 325.
Obviously, from what the Court has already stated, it does not share plaintiff's view that the instant case is an exception simply because no state action is yet pending or because the suit has been brought by the injured party rather than the insurance company. These facts do not alter the basic truth that the central controversy here concerns the liability of one Virginia citizen to another for injuries resulting from an automobile accident on Virginia highways. An action to determine such liability could be brought only in state court and would not be removable to Federal court. The case at bar merely seeks to test a defense likely to be asserted if such a non-removable state court action is brought by the plaintiff. In these circumstances, this Court is satisfied that the entry of a declaratory judgment by a Federal court would be entirely inappropriate. Hence, in the exercise of its sound discretion, the Court will dismiss the instant action.
NOTES
[1] Pursuant to opinions of the United States Court of Appeals for the Fourth Circuit, the factors enumerated in Rule 19(b) are not considered unless the person in question is a "person to be joined if feasible" under Rule 19(a), and this method is followed even when the person in question cannot be joined without destroying diversity jurisdiction. See Virginia Electric & Power Co. v. Westinghouse Electric Corp., 485 F.2d 78, 85-86 (4th Cir. 1973), cert. denied, 415 U.S. 935, 94 S. Ct. 1450, 39 L. Ed. 2d 493 (1974). This Circuit's method is apparently derived from the analysis in Provident Tradesman's Bank & Trust Co. v. Patterson, 390 U.S. 102, 88 S. Ct. 733, 19 L. Ed. 2d 936 (1968), in which the Supreme Court first interpreted Rule 19 in its present form.
The United States Court of Appeals for the Seventh Circuit follows a different method. In that circuit, when joinder of the person in question would destroy diversity, Rule 19(a) is considered inapplicable and the analysis proceeds directly to Rule 19(b). See Bio-Analytical Services, Inc. v. Edgewater Hospital, Inc., 565 F.2d 450, 452 (7th Cir. 1977); Bonnet v. Trustees of Schools of Township 41 North, 563 F.2d 831, 833 (7th Cir. 1977). While the Court deems the Seventh Circuit's method to be in conflict with both the Fourth Circuit and the Supreme Court, the Court is of the view that the facts as set forth in Rule 19(b) do not alter the conclusion that Ms. Ware is not an indispensible party.
[2] Virginia has no "direct action" statute, hence, the plaintiff cannot sue the insurance company directly. If Virginia did have a "direct action" statute, the Court's analysis regarding justiciability might well be different. Since that situation is not before the Court, however, the Court expresses no opinion on how its analysis might be affected.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/2580481/
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122 F. Supp. 2d 444 (2000)
HARRIS TRUST AND SAVINGS BANK, as former Trustee of the Sperry Master Retirement Trust No. 2 (and its successor, the Unisys Master Trust), and the Bank of New York, as Trustee of the Unisys Master Trust, Plaintiffs,
v.
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, Defendant.
John Hancock Mutual Life Insurance Company, Third-Party Plaintiff,
v.
Chase Manhattan Bank, N.A., Counterclaim Defendant,
and
Sperry Corporation and the Retirement Committee of Sperry Corporation, Third-Party Defendants.
No. 83 CIV. 5401 (DC).
United States District Court, S.D. New York.
November 22, 2000.
*445 *446 *447 Anderson Kill & Olick, P.C., by Lawrence Kill, John B. Berringer, Ann V. Kramer, Ann S. Ginsberg, Todd D. Robichaud, New York City, for Harris Trust.
Reboul, MacMurray, Hewitt, Maynard & Kristol, by Howard G. Kristol, Robert M. Peak, Jane M. Barton, Eric H. Jaso, Cheri M. McGilvery, New York City, for Hancock.
OPINION
CHIN, District Judge.
In this case, the current and former trustees and sponsors of an employee retirement plan contend that defendant and third-party plaintiff John Hancock Mutual Life Insurance Co. ("Hancock"), a fiduciary of the plan, breached its obligations under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), 29 U.S.C. § 1001 et seq.
The case was tried to the Court. For the reasons that follow, judgment will be entered in favor of plaintiffs against Hancock to the extent set forth below. My findings of fact and conclusions of law follow.
FINDINGS OF FACT
A. The Parties
Plaintiff Harris Trust and Savings Bank ("Harris Trust") is the former Trustee for the Unisys Master Trust, which is the successor to the Sperry Rand Master Retirement Trust No. 2. Plaintiff The Bank of New York ("BONY") replaced Harris Trust as Trustee for the Unisys Master Trust as of July 1, 1996. Counterclaim defendant and former plaintiff Chase Manhattan Bank, N.A. ("Chase") was a Trustee for the Sperry Rand Master Retirement Trust No. 2 in the 1970's and 1980's. Chase, Harris Trust, and BONY are hereafter referred to collectively as the "Trustee." *448 The Sperry Rand Master Retirement Trust No. 2 and its successor, the Unisys Master Trust, are hereafter referred to as the "Trust."
Third-party defendant Sperry Corporation is a successor to Sperry Rand Corporation. Sperry Corporation merged with Burroughs Corporation in 1986 to form Unisys Corporation. Sperry Corporation, Sperry Rand Corporation, and Unisys Corporation are hereafter referred to as "Sperry." Sperry is the sponsor of the Sperry Retirement Program and its successor, the Unisys Pension Plan (together, the "Plan").
Third-party defendant The Retirement Committee of Sperry Corporation (the "SRC") was a "named fiduciary" for the Plan. The duties previously performed by the SRC are now performed by the Pension Investment Review Committee (the "PIRC") of Unisys Corporation.
Defendant Hancock, an insurance company, is a holder of assets and a fiduciary of the Plan. See generally John Hancock Mut. Life Ins. Co. v. Harris Trust & Sav. Bank, 510 U.S. 86, 101-06, 114 S. Ct. 517, 126 L. Ed. 2d 524 (1993) (holding that assets at issue in this case were "plan assets" and that Hancock was a fiduciary for purposes of ERISA).
B. Hancock's Group Contracts
In general, during the relevant time period Hancock issued two types of group annuity or pension contracts: "participating" and "nonparticipating."
Holders of "participating" contracts participated in Hancock's overall investment experience, as deposits (or premiums paid to obtain retirement benefits) were commingled with other assets and investments in Hancock's "General Account." The General Account was used by Hancock to pay its operating costs and to satisfy its obligations to policyholders and creditors. The General Account also generated income as Hancock's general corporate assets were invested in different types of investments.[1] Hancock had the sole authority and discretion, with respect to its General Account, to set and execute investment policy and to allocate investment income, capital gains and losses, and expenses to particular lines of business, classes of contracts, and particular contracts.
Participation could be "dividend-rated" or "direct-rated." For dividend-rated contracts, investment income attributable to the contract, to the extent it was more favorable than interest assumptions incorporated into the contract, was distributed to the contract, in whole or in part, in the form of dividends. Hancock's Board of Directors annually voted, in its "dividend vote," to apportion and pay or allow a distribution of surplus with respect to eligible group annuity contracts and voted to adopt formulas for determining the distribution of such surplus. For direct-rated contracts, investment income attributable to the contract was directly credited to the contract's "fund."
Holders of "nonparticipating" contracts, such as Guaranteed Investment Contracts ("GICs") and Single Premium Annuity Contracts, were not entitled to share in the investment experience of the General Account. Instead, nonparticipating contracts usually contained a guaranteed rate of return or other similar type of guarantee.
In 1959, Hancock changed its method for allocating investment income by adopting the "investment generation" method, which tracked the net increase in the experience *449 account of each contract for each year (the "cell").[2]
C. GAC 50
In 1941, Hancock and Sperry entered into Group Annuity Contract No. 50 ("GAC 50") to fund a retirement plan for the benefit of Sperry employees. From its inception until December 31, 1967, GAC 50 was a dividend-rated participating contract. Since January 1, 1968, GAC 50 has been partially direct-rated and partially dividend-rated.
From its inception until December 31, 1967, GAC 50 was a deferred annuity contract. During this period, Sperry purchased deferred annuities from Hancock on an annual basis for each eligible employee. These annuities were payable to the employees (or their beneficiaries) upon their retirement.
Sperry paid Hancock premiums (which were deposited into Hancock's General Account and were sometimes referred to as "contributions") for each employee in accordance with purchase rate tables contained in the contract. In general, these tables incorporated three factors: (a) mortality rates that estimated actuarily (i) the probability that an annuitant benefit would be payable at each month following an annuitant's retirement at the assumed retirement age under the contract and (ii) if and when a death benefit would be paid; (b) an interest assumption for determining the "present value" of the stream of future benefits; and (c) a provision for future expenses, called "loading."
From its inception in 1941 until December 31, 1967, GAC 50 incorporated interest assumptions of 2% to 3%.
GAC 50 originally required Sperry to purchase deferred annuities annually from Hancock for all eligible employees. It also originally provided that, should Sperry cease making annual contributions to Hancock to purchase deferred annuities, the rights of eligible employees to the annuities already purchased would immediately become vested, even if such employees' rights to pension benefits had not yet vested under the Plan. Hence, Sperry was required to continue purchasing, on an annual basis, annuities for active employees or, if it ceased doing so, these employees' rights to pension benefits would immediately vest.
D. The 1968 Amendment
GAC 50 was amended as of January 1, 1968 (the "1968 Amendment"). It was converted from a deferred annuity plan to a Retrospective Immediate Participation Guarantee ("Retro-IPG") form of contract. The deferred annuities purchased prior to January 1, 1968, were cancelled and the assets supporting them were placed in a Pension Administration Fund (the "PAF"). The cancellation of these pre-1968 annuities did not affect Hancock's guarantee of benefits to participants and beneficiaries.
In its Retro-IPG form, GAC 50 operated as follows: net investment income from Hancock's General Account was directly credited to GAC 50's PAF on an annual basis. The amount credited depended upon the investment performance of Hancock's *450 General Account and the allocation of the performance to the PAF.
The 1968 Amendment required Hancock to maintain the PAF at a level sufficient to meet the "Liabilities of the Fund" (the "LOF") as computed by Hancock. The LOF is the contractual reserve for the pension benefit obligations guaranteed by Hancock. For the pre-1968 cancelled annuities, the LOF was computed assuming rates of return of 2.5 or 3%, depending on when the benefits were first guaranteed, and using the 1937 Standard Annuity and 1951 Group Annuity Mortality Tables, with specified adjustments to reflect mortality improvement.
The 1968 Amendment also required the PAF to be maintained at a "minimum operating level" (the "MOL") of at least 105% of the LOF. Amounts in the PAF in excess of the MOL were referred to as "free funds."
If the PAF balance fell below the MOL, or if the Trustee sought to remove the "free funds" through GAC 50's transfer provisions, the PAF would automatically terminate and GAC 50 would cease to function as a Retro-IPG. Hancock would "repurchase" the cancelled pre-1968 annuities at the original 2½ to 3% interest rates and the contract would revert back to a deferred annuity form. (PX 25 at Art. III, §§ 7, 9; Tr. 764-67). As a practical matter, removal of the "free funds" pursuant to the transfer provisions was not a viable option for the Trustee, for such a lump-sum transfer would have been prohibitively expensive because of the low interest rate assumptions used to price the "repurchased" annuities. (Tr. 150-51). Transfer under the contract also was also unattractive from the Trust's perspective because any such transfers were subject to an Asset Liquidation Adjustment ("ALA"), an adjustment to the amounts transferred to account for investment losses (or gains) to Hancock resulting from the liquidation of any assets. (PX 25, Art. III, § 9). In late 1981, Hancock estimated the ALA for GAC 50 transfers to be 39.4%, a figure that the Trust believed was excessive. (PX 561, 596; Tr. 728-29).
The 1968 Amendment also provided additional benefit payments to be guaranteed by Hancock. Upon the retirement of an eligible employee after 1968, Hancock would determine the amount by which the LOF would increase if the portion of the retirement benefit for the period after January 1, 1968, were to be "guaranteed" by Hancock. If GAC 50's PAF balance exceeded the MOL based on the increased LOF, Hancock would guarantee the payment of the additional pension benefits. Under the 1968 Amendment, Hancock had the right after 1972 to change these rate tables, but the new table would apply only to benefits guaranteed after the effective date of the change in the tables.
The 1968 Amendment also created a "Contingency Account," consisting of funds associated with GAC 50 to be held in Hancock's General Account. Since January 1, 1968, all investment income attributable to the Contingency Account has been allocated to GAC 50's PAF.
The 1968 Amendment also provided that Hancock would credit the PAF annually with the PAF's share and the Contingency Account's share of the net interest earned and apportioned to Hancock's Group Pension line of business, less 1% of such share.
Hancock has maintained a record, known as "Account 9," which included the amount of the risk charges in excess of one percent of net interest that would have been allocable to GAC 50 under Hancock's annual risk charge votes but for the 1% provision. The Account 9 record also included, among other things, the amounts of net interest, realized capital gains and losses, and taxes that would have been allocated to Hancock's unallocated surplus had the risk charges in excess of 1% of net interest been charged to GAC 50.
The 1968 Amendment also required Hancock to determine as of December 31 of each calendar year commencing January 1, 1968, the LOF and the amount (if any) *451 the PAF exceeded the LOF. From 1968 to at least the time of trial, Hancock reported GAC 50's PAF balance to Sperry or the Trust on an annual basis. Since 1968, Hancock has maintained a record of GAC 50's experience account, or "asset share," which consists of the PAF and Contingency Account balances and also reflects the balance of Account 9. The experience account so recorded was never used for allocating experience to the contract's PAF and Contingency Account.
Since January 1, 1968, GAC 50's LOF has been equal to or greater than its PAF balance. Since at least the early 1970's, the PAF balance in GAC 50 has exceeded the MOL (and thus the LOF).
E. The 1977 Amendment
GAC 50 was amended again as of August 1, 1977 (the "1977 Amendment"). The 1977 Amendment converted GAC 50 to a Retrospective Immediate Participation Guarantee/Prospective Deferred Liability ("Retro-IPG-PDL") form of contract. Under this amendment, the LOF would not be automatically increased upon the retirement of an employee, and new retirement benefits would not be guaranteed by Hancock. The SRC had the right to ask Hancock to guarantee benefits for retirees, but in fact it did not do so.
The 1977 Amendment permitted the SRC to designate employees to receive non-guaranteed benefits using the "free funds" in the PAF. The Plan remained ultimately responsible for the pension liability to such individuals; the payment risk was not shifted to Hancock.
On the effective date of the 1977 Amendment, the automatic addition of new guarantees ceased. (PX 25, Amendment No. 17). Since then, Sperry has never asked Hancock to guarantee any additional annuities, so the population of retirees has been frozen. (Tr. 1337-38, 1369). The LOF decreased while the PAF continued to increase. (Tr. 1338-39; PX 1244).
F. The Use of Free Funds
The gap between the LOF and GAC 50 assets (the PAF plus the Contingency Account) was $22 million at year-end 1981 and $56 million at year-end 1987, according to Hancock's numbers. (PXs 1241, 1242, 1244). According to Sperry, the "true" excess, as of year-end 1981, was more in the vicinity of $38 million to $50 million or more. (PXs 1240, 1241; see also PX 561, 621D; Tr. 731). In short, Hancock was retaining more funds in its General Account with respect to Sperry pensioners and employees than was necessary, and the issue arose as to what to do with the excess, or free funds.
After the 1977 Amendment, the SRC did designate employees to receive non-guaranteed benefits. Hancock paid such benefits out of the free funds of the PAF through June 1982. Free funds were also withdrawn from the PAF on other occasions, using a "rollover" procedure that Hancock had adopted in 1972 to permit contractholders to withdraw a portion of excess funds without any "market value adjustment" to account for differences between the "book" and "market" value of General Account assets.
From the late 1970's on, the SRC sought to reduce the amount of Plan assets invested in Hancock's General Account as it changed its investment strategies. It sought to shift, to some extent, from the kind of fixed income investments generally purchased with insurance company General Account funds to equity investments. The SRC also was dissatisfied with the rate of return from Plan assets invested in Hancock's General Account; Thomas Hirschberg, for example, believed that income to the Plan could be increased by transferring free funds into "other media." (Tr. 1513). Richard Raskin, an actuary who provided pension advice to Sperry during the period in question, confirmed that the SRC felt it could "do better" in terms of investing by getting the excess funds back, and he noted also that the SRC had an obligation under ERISA to *452 "maximize the investment return." (Tr. 712-13).
On three occasions, in 1977, 1979, and 1981, the Sperry Trust withdrew funds a total of approximately $12 million of Plan assets from the PAF's accumulated free funds, using the rollover procedure. The SRC transferred these amounts to the Plan's other money managers.
In 1982, the SRC attempted again to use the rollover procedure to withdraw accumulated free funds, but Hancock refused to let the SRC do so, citing its own cashflow needs. (ASF ¶¶ 77-79; Tr. 1488-89, 1607-13, 1689-90). The SRC then attempted to withdraw accumulated free funds to pay non-guaranteed benefits, but Hancock provided notice that it would no longer pay non-guaranteed benefits under the Retro-IPG-PDL (as it had been doing through June 1982). (PX 662; ASF ¶¶ 83, 84; PX 675; Tr. 811-12, 894-96, 1325). As a consequence of Hancock's refusals to permit such access to "free funds," the only mechanism available for the SRC to withdraw "free funds" were the transfer provisions of GAC 50. Again, however, that was not a viable option because of the pricing scheme.
Hancock did not consider its obligations under ERISA to the Plan when it decided to terminate the rollover procedure or the payment of non-guaranteed benefits with excess funds. (Tr. 1352-54). Instead, it used Plan assets for its own benefit: to help address its own cash flow problems, as "one more way of limiting cash outflows." (Tr. 1612; see Tr. 736; see also PX 593). In addition, by refusing to permit the withdrawal of "free funds," Hancock was able to continue collecting charges on the investment income generated by these funds. (Tr. 313-14). There was no question that the "free funds" belonged to the Trust; the issues confronting the parties were how to compute the amount of the excess funds, when Hancock had to give them back, and under what circumstances. (See Tr. 752-54).
Throughout this period, Hancock assessed the Trust risk charges. Hancock did not actually face any risk with respect to the free funds during this time period, however, because it was "sufficiently protected" by other provisions of GAC 50 so that it was not at "material risk." (Tr. at 313-14, 343-44, 401-02). Therefore, the excess risk charges collected by Hancock during this time period constituted overcompensation.
G. Revaluation
For some years prior to 1981, Sperry had been questioning Hancock on whether it was willing to revalue annuities to reflect changes in interest rates. (PX 449). Hancock's response was that its "policy" was to continue to value the annuities "on the basis on which they were originally purchased." (Id.). Hancock itself recognized, however, that there was a problem in using the original rates:
Interest rates have risen dramatically over the last several years and have risen gradually over a much longer period. Over these periods the case earnings rate of most of our retro IPG conversions and issue IPG's has risen as well. However, most of these contracts contain fixed interest, mortality, and loading assumptions for a major portion of the LOF. The rise in case rates has resulted in sizable differences between the case rate and the various interest assumptions of the LOF, especially for canceled annuities. The difference approaches 5% in some instances. The current size of such differences has resulted in numerous customer complaints that LOF amounts are absurdly conservative and should be revalued using higher interest rates.
(PX 572). In an internal memorandum addressing the issue, Hancock recognized that "[f]ar greater margins exist in LOF amounts than were imagined when the fixed LOF basis was established, and we should pass these prospective gains on faster than we are doing now." (Id.). The *453 memorandum showed, however, that Hancock was motivated by self-interest: "If we revalue and charge for it, John Hancock has increased profit potential."
At a meeting in December 1981, Hancock presented to Sperry a number of "possible contractual changes" that it was considering, including a change in the interest rate assumptions used to calculate reserves. (PX 593, at 4). In return, however, Hancock indicated that it would want an "up-front charge" of 10% of the difference between the reserves calculated on the new basis and the old basis. (Id. at 5). Sperry's reaction to the proposed 10% charge was that it was "[h]ighway robbery." (Tr. 750). Hancock confirmed at the meeting that its motivation was self interest, as Hancock's senior representative at the meeting began by stating that "Hancock was losing money in the individual health line of business and, in essence, the group pension or group annuity line of business was going to pay for that." (Tr. at 736).
After a follow-up meeting on January 13, 1982, at which Hancock confirmed its "recognition that the liabilities [had] been overstated" (PX 611), Hancock made a formal revaluation proposal on February 12, 1982, offering to revalue GAC 50's liabilities, thereby reducing the amount necessary to pay guaranteed benefits. (PX 626). The proposed new LOF assumptions were "an improvement," but they were still "more conservative than they needed to be." (Tr. at 543-44; see PX 1241).
Significantly, the proposal did not modify the transfer provisions, and thus Sperry would not be able to transfer excess funds out of the general account without terminating the contract. (Tr. at 742, 801-02, 1513-14; see DX 1594, PX 611). In addition, the proposal included a "special risk charge" to be paid to Hancock "as consideration" for its increased risks. (PX 626). Principally for these reasons, Sperry rejected the revaluation proposal. (Tr. 764-67, 803). Sperry's rejection of the revaluation proposal was reasonable. (Tr. 166-67, 578-81).
In sum, the circumstances surrounding Hancock's revaluation proposal demonstrated that it recognized that it was holding reserves far in excess of the amount necessary to cover liabilities, that it had the discretion to revalue the liabilities to reduce the amount necessary to be held in reserve, and that it refused to do so on terms more favorable to the Trust because of its own self-interest.
H. The 1988 Amendment
In 1988, after the filing of this action, the Plan was amended again, to permit the Trustee to freely transfer "free funds" out of Hancock's General Account without triggering the termination of the PAF and Hancock's "repurchase" of the pre-1968 deferred annuities (the "1988 Amendment"). Pursuant to the 1988 Amendment, the Trustee requested the transfer of more than $53 million in "free funds" out of the PAF.
I. Hancock's Investment and Allocation Decisions
1. Fixed and Frozen Assets
From at least as early as 1976, Hancock routinely invested Plan Assets in its own home office properties, i.e., the buildings, land, and physical plant maintained by Hancock for "its own occupancy" for the operation of its business, as opposed to properties acquired solely for investment purposes. (Tr. 218). Hancock charged itself "rent" for the use of this property, thereby generating investment income.[3] Hancock determined the rate of return on *454 these "investments" in its own assets and it allocated income and losses from these investments to its participating General Account contracts, including GAC 50. Hancock invested a greater proportion of its assets in home office properties than most other comparable insurance companies. (PX 353). The resulting rates of return were consistently lower in many years than the return on other investments made by Hancock for its customers. (Tr. 220-21, 232). Hancock recognized this problem itself as early as May of 1977 when it observed in an internal memorandum:
Particular attention was given to the fixed and frozen component of "scaling" which changed significantly in 1976, primarily due to the adverse effect of the investments in the Home Office complex. This adverse effect on interest rates is expected to continue and possibly worsen in 1977.... Notable was the fact that John Hancock (of the 12 listed insurance companies) has, except for Travelers, the largest proportion of admitted assets in Home Office properties (1.11% in 1976 versus Equitable's .30%) and, except for Mutual of New York, the lowest rate of return on such properties (-6.69% in 1976 versus Equitable's +4.84%).
(PX 353; see Tr. 226; see also PXs 899 at 1, 900, 901, 914, 1042). Hancock also recognized itself that one of the reasons for the low yield was that Hancock was "charging itself rental rates below the market rates." (PX 351). In addition, two of the buildings in question had low occupancy rates, and the properties had high operating expenses. (Id.).
The manner in which Hancock allocated the investment income for the fixed and frozen assets benefited other lines of business within Hancock at the expense of the group pension line. Group pensions is a line that accumulates a great deal of assets but is comparatively inexpensive to operate, while group insurance, for example, accumulates smaller levels of assets but generates high expenses because it requires more personnel and office space to handle the higher amounts of paperwork. (Tr.231).
In addition, Hancock chose not to allocate any portion of Hancock's investment in fixed and frozen assets to the Guaranteed Benefit Separate Account (the "GBSA"), the portion of the general account from which virtually all new nonparticipating group pension contracts were sold since 1980. (Tr. 1547-48, 1624). In the participating group pension contracts, the policyholders bore the investment risk; in contrast, Hancock bore all the investment risk with respect to GBSA contracts. As a consequence, the GBSA contracts were not saddled with the lower rate of return. An August 7, 1985 internal Hancock memorandum noted that there was higher negative scaling for participating contracts than for non-participating contracts and observed: "It does not seem reasonable to have the negative scaling for fixed and frozen assets vary even slightly between the two segments." (PX 877, at 3; see also Tr. 251-52, 1547-48).
Hancock's own group pension actuary, Henry Winslow, and others at Hancock repeatedly questioned the manner in which Hancock was allocating fixed and frozen income to the group pension line. In the early 1990's, Winslow repeatedly argued that the allocation procedures resulted in unacceptable shortfalls of income for the group pension line, and noted that this had the effect of "confound[ing]" customer expectation that the general account was primarily a fixed income investment. (PXs 899, 900, 901, 902, 907, 914; see also Tr. 1527-29 (Winslow acknowledging that group pension should have gotten additional income), 1541 (Winslow acknowledging that from 1977 to time of trial Hancock's investments in home office properties had driven down the rate of return on GAC 50 assets)). The minutes of the November 30, 1992 meeting of the Hancock Group Pension Profit Center Board of Directors read as follows:
*455 The current corporate investment generation methodology for Fixed and Frozen continues to be a burden for Group Pensions. The shortfall of over 60 basis points implies a shift into equity investments; whereas par [participating] clients expect the par general account's investments to be primarily fixed income. Group Pension should continue to work with corporate to ameliorate this situation.
(PX 907).
Hancock did not, however, significantly change its manner of allocating fixed and frozen income after 1977 and the rate of return on the home office properties was lower than the rate of return on other investments in subsequent years as well. (Tr. 232, 244). By 1994, the shortfall for fixed and frozen assets had reached 70 basis points; yet, Hancock failed to make any change in its methodology. (PX 1042).
Hancock's investments in fixed and frozen assets also included investments in its own subsidiaries, and likewise Hancock realized returns on these investments, which were allocated across its assets as with the other fixed and frozen investments. This continued into the mid 1990's. (Tr. 232-33). These investments resulted in reduced investment income. (See PX 583 ("One half of this drop reflects the decision to supply $200 million to our Variable Life subsidiary."); PX 878 at 5 ("[T]he fixed and frozen portion of this item includes our subsidiary, John Hancock Property & Casualty, which experienced a large reduction in market value in 1986.")).
In deciding to invest Plan Assets in its own properties and subsidiaries and in determining how to allocate income and what adjustments to make, Hancock was exercising its discretion. (Tr. 1664-66).
2. Third-Year Drop
From 1970 to 1977, to improve its "new money" rate, Hancock adopted a policy of imputing to new common stock purchases the yields it was earning on its bond and mortgage portfolios during the first two years after the common stocks' purchases. In other words, Hancock decided to assume that stocks would earn the same yield as bonds in the first two years following their purchase, even though common stocks actually yielded a lower rate of return. Hancock knew, at the time, that this decision would penalize contracts with largely pre-1970 contributions, such as GAC 50, while permitting Hancock to improve artificially its "new money rate" to help it attract new customers. (Tr. 270-71, 275-76, 278-83; PX 122, 126). Because the yield on stocks did not increase, Hancock made adjustments every third year to reconcile. (Tr. 271-72; PX 1248).
The net effect of Hancock's policy was to reduce the rate of return allocated to GAC 50 and other participating contracts, as Hancock artificially increased the "new money rate" for new investments by taking investment income properly allocable to older contracts like GAC 50 and using it to improve the rate of return on new business.
The actions with respect to the "third year drop" occurred prior to July 20, 1977.
3. The Cost of Borrowing
During certain years Hancock borrowed money and allocated the cost of the borrowing to different lines of business, including group pension. The group pension line of business, however, was always profitable and the cash flow associated with GAC 50 was always positive. Hence, GAC 50 and other group pension contracts were required to share the burden of the borrowing even though the loans were necessitated not by group pension but by other lines of business within Hancock. (Tr. 257-61; PX 1200A). Hancock could have allocated this expense just to the lines of business that required the loans, but it chose instead to allocate the costs of borrowing funds to other lines as well, including group pension.
*456 4. Indirect Expenses
Hancock also allocated certain "indirect expenses" to GAC 50, including (a) a portion of the litigation costs of the instant case, (b) a portion of the expenses incurred by Hancock in lobbying Congress to amend ERISA to relieve Hancock and other insurers of the fiduciary duties that the courts in this case have held ERISA imposes on them, and (c) a portion of expenses relating to contracts other than GAC 50. (Tr. 296-97, 1397, 1440-41, 1552-54; 1567-68; PX 904; see also Tr. 1440-41). These practices were inappropriate, and Hancock should have used its own surplus to pay for these items. (Tr. 297).
5. Segmentation (Par v. Non-Par)
In 1982, Hancock segmented its General Account into subaccounts, each with its own investment policy. One of the segments was the Pension Participating Segment, which was applicable to GAC 50, and another was the Pension Non-Participating Account. For the 1982 investment year, Hancock allocated higher yielding investments to its own nonparticipating business than it allocated to participating contracts such as GAC 50. (Tr. 305). Hancock benefitted from this allocation, to the detriment of the participating segment, including GAC 50. (Tr. 305-07).
6. Income Tax Allocations
Hancock allocated federal income tax to GAC 50 in such a manner that GAC 50 was charged for taxes generated by other contracts. Beginning in 1984, mutual life insurance companies were taxed on their surplus, or what could loosely be called "operating profit." The tax attributed to the participating segment of the group pension line was based upon the total allocated and unallocated surplus associated with that line, while within the line the tax was allocated to each participating contract not on the basis of the surplus but using its investment contribution base. In the case of GAC 50, the allocation was based on GAC 50's entire PAF, rather than the much smaller Contingency Account. (Tr. 309-11). If Hancock had allocated the tax on the basis of surplus within the line as well, GAC 50 would have borne a lower share of the tax. As McCarthy explained it:
[I]n effect, Hancock took the tax, split it into two pieces, allocated one piece of it the way the tax was actually borne and the other piece across the asset bases of the contracts, without regard to whether they had surplus or not or how much.
(Tr. 311).
At trial, the Plan's expert witness in this respect acknowledged that the Plan's damages would disappear in the event Professor Ibbotson's damages calculations were accepted. (See PX 1237).[4]
PRIOR PROCEEDINGS
This action was commenced on July 20, 1983. The Trustee alleged that Hancock was an ERISA fiduciary with respect to the free funds and that Hancock had breached its fiduciary duties by, inter alia, not permitting the Trustee to withdraw free funds. Hancock responded principally by arguing that it was not an ERISA fiduciary with respect to the free funds.
In 1988, the parties filed summary judgment motions. In 1989, Judge Patterson, to whom the case was then assigned, granted summary judgment dismissing the Trustee's ERISA fiduciary claims, holding that Hancock was not an ERISA fiduciary with respect to any assets of GAC 50. See Harris Trust & Sav. Bank v. John Hancock Mut. Life Ins. Co., 722 F. Supp. 998 (S.D.N.Y.1989). Judge Patterson later dismissed the Trustee's remaining breach *457 of contract and tort claims. See Harris Trust & Sav. Bank v. John Hancock Mut. Life Ins. Co., 767 F. Supp. 1269 (S.D.N.Y. 1991).
On appeal, the Second Circuit reversed in part and affirmed in part. It held that Hancock was an ERISA fiduciary with respect to the "free funds" portion of GAC-50, as to which benefits were not guaranteed, and that therefore Hancock was subject to "fiduciary responsibility" under ERISA with respect to the free funds, which were plan assets. See Harris Trust & Sav. Bank v. John Hancock Mut. Life Ins. Co., 970 F.2d 1138, 1143-44 (2d Cir.1992).
Hancock appealed to the Supreme Court. The Supreme Court affirmed the Second Circuit's holding, concluding:
Hancock provided no real guarantee that benefits in any amount would be payable from the free funds. We therefore conclude, as did the Second Circuit, that the free funds are "plan assets," and that Hancock's actions in regard to their management and disposition must be judged against ERISA's fiduciary standards.
John Hancock Mut. Life Ins. Co. v. Harris Trust & Sav. Bank, 510 U.S. 86, 106, 114 S. Ct. 517, 126 L. Ed. 2d 524 (1993).[5]
In 1996, Judge Patterson recused himself. The case was reassigned to Judge Ward, then to Judge Leisure, and then to the undersigned on December 23, 1996.
The case was tried to the undersigned, without a jury, in July, August, and September 1997. The parties called numerous witnesses and submitted hundreds of exhibits as well as extensive deposition excerpts and expert reports. They thereafter submitted lengthy post-trial memoranda.
DISCUSSION and CONCLUSIONS OF LAW
A. Applicable Legal Standards
ERISA imposes certain duties and responsibilities on plan fiduciaries, including a duty of loyalty, a duty of care, and a duty to refrain from participating in prohibited transactions. See generally Central States, Southeast & Southwest Areas Pension Fund v. Central Transport, Inc., 472 U.S. 559, 570-73, 105 S. Ct. 2833, 86 L. Ed. 2d 447 (1985).
The duty of loyalty is set forth principally in section 404(a)(1)(A)(i), which provides that:
a fiduciary shall discharge [its] duties with respect to a plan solely in the interest of the participants and beneficiaries and
(A) for the exclusive purpose of:
(i) providing benefits to participants and their beneficiaries ....
29 U.S.C. § 1104(a)(1)(A)(i). Fiduciary duties under ERISA "must be enforced without compromise to ensure that fiduciaries exercise their discretion to serve all participants in the plan." John Blair Communications, Inc. Profit Sharing Plan v. Telemundo Group, Inc., 26 F.3d 360, 367 (2d Cir.1994); accord O'Neil v. Retirement Plan for Salaried Employees of RKO Gen., Inc., 37 F.3d 55, 61 (2d Cir.1994). Indeed, as Judge Friendly has noted, ERISA requires the decisions of a fiduciary to "be made with an eye single to the interests of the participants and beneficiaries." Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir.), cert. denied, 459 U.S. 1069, 103 S. Ct. 488, 74 L. Ed. 2d 631 (1982).
*458 The duty of care is set forth in section 404(a)(1)(B), which requires a fiduciary to discharge its duties:
with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent [person] acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims ....
29 U.S.C. § 1104(a)(1)(B).
The duty to avoid prohibited transactions is covered by section 406, which prohibits a plan fiduciary from engaging in any transaction with a "party in interest," 29 U.S.C. § 1106(a)(1), or from using any plan assets for "[its] own interest or for [its] own account." 29 U.S.C. § 1106(b)(1); see generally Pension Benefit Guar. Corp. v. Hoyte, No. 95 Civ. 1667(JFK), 1997 WL 109439, at *3 (S.D.N.Y. Mar.11, 1997) ("Section 1106 delineates specific categories of transactions and other arrangements that violate ERISA's fiduciary responsibility rules."). Section 406:
protects beneficiaries by prohibiting transactions tainted by a conflict of interest and thus highly susceptible to self-dealing. It gives notice to fiduciaries that they must either avoid the transactions described in Section 406(b) or cease serving in their capacity as fiduciaries, no matter how sincerely they may believe that such transactions will benefit the plan.
Lowen v. Tower Asset Mgmt., Inc., 829 F.2d 1209, 1213 (2d Cir.1987). Indeed, as a consequence, "[g]ood faith is not a defense to violations of this provision and liability must be imposed `even where there is no taint of scandal, no hint of self-dealing, no trace of bad faith.'" Gray v. Briggs, 45 F. Supp. 2d 316, 326 (S.D.N.Y. 1999) (citation omitted).
Any fiduciary that breaches its obligations under ERISA "shall be personally liable to make good to such plan any losses to the plan resulting from such breach." 29 U.S.C. § 1109(a); see Lockheed Corp. v. Spink, 517 U.S. 882, 888, 116 S. Ct. 1783, 135 L. Ed. 2d 153 (1996) ("§ 409 of ERISA renders [plan fiduciaries] personally liable for any losses incurred by the plan, any ill-gotten profits, and other equitable and remedial relief deemed appropriate by the court"). Once an ERISA beneficiary establishes a prima facie case of a breach of a fiduciary duty, the burden of proof to explain or justify the fiduciary's actions shifts to the fiduciary. See New York State Teamsters Council Health & Hosp. Fund v. Estate of DePerno, 18 F.3d 179, 182-83 (2d Cir.1994); see also Lowen, 829 F.2d at 1215 ("a fiduciary charged with a violation of Section 406(b)(3) either must prove by a preponderance of the evidence that the transaction in question fell within an exemption, ... or must prove by clear and convincing evidence that compensation it received was for services other than a transaction involving the assets of a plan") (internal citation omitted); Marshall v. Snyder, 572 F.2d 894, 900 (2d Cir.1978) ("the burden of proof is always on the party to the self-dealing transaction to justify its fairness").
Hancock argues that it cannot be found to have violated ERISA, and in particular section 404, unless the Court finds that Hancock acted in an arbitrary or capricious manner or in bad faith. (Hancock Post-Trial Br. at 50) (citing Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 114-15, 109 S. Ct. 948, 103 L. Ed. 2d 80 (1989)). Hancock is incorrect, however, as the Second Circuit has squarely rejected the argument that an ERISA fiduciary's exercise of discretion with respect to the handling of plan assets is subject to an arbitrary and capricious standard of review:
We reject the argument that Firestone's arbitrary and capricious standard applies to [the fiduciary's] conduct in this matter. Firestone involved the denial of benefits, and the Court stated that if the terms of the plan accorded the administrator discretion in such matters, the decision should be upheld unless arbitrary and capricious. However, *459 we decline to apply the arbitrary and capricious standard to the fiduciary conduct at issue here because this case does not involve a simple denial of benefits, over which the plan administrators have discretion.
John Blair, 26 F.3d at 369. Relying on a Third Circuit case for the proposition that courts must apply "the strict statutory standards of ERISA" to determine whether fiduciaries have "sacrificed valid interests [of beneficiaries] to advance the interests of non-beneficiaries," id. (quoting Struble v. New Jersey Brewery Employees' Welfare Trust Fund, 732 F.2d 325, 333-34 (3d Cir.1984)), the Second Circuit held:
Firestone's proposition that the more lenient arbitrary and capricious standard applies where the plan grants discretion to administrators does not alter Struble's holding that decisions that improperly disregard the valid interests of beneficiaries in favor of third parties remain subject to the strict prudent person standard articulated in § 404 of ERISA.... Any other rule would allow plan administrators to grant themselves broad discretion over all matters concerning plan administration, thereby eviscerating ERISA's statutory command that fiduciary decisions be held to a strict standard.
John Blair, 26 F.3d at 369 (internal citations omitted). The Second Circuit held that the claim presented in John Blair that the plan fiduciary ignored the interests of the members of the plaintiff plan in favor of the members of a different plan was "properly evaluated under the strict fiduciary duties of ERISA set forth in § 404." Id. at 370. Here, plaintiff argues that the interests of Plan beneficiaries were ignored in favor of Hancock's own interest; such a claim is to be evaluated under the strict standards of section 404.
B. Application
1. Jurisdiction
The Court has subject matter jurisdiction over this action pursuant to 29 U.S.C. §§ 1132(e) and (f). As the Supreme Court, the Second Circuit, and this Court have all previously held, the Plan is governed by ERISA, the "free funds" are "plan assets" within the meaning of ERISA, and Hancock is, and was at all relevant times, a fiduciary under ERISA. 29 U.S.C. §§ 1002(21)(A), 1003(a); see John Hancock Mut. Life Ins. Co. v. Harris Trust & Sav. Bank, 510 U.S. 86, 90, 101-06, 114 S. Ct. 517, 126 L. Ed. 2d 524 (1993); Harris Trust & Sav. Bank v. John Hancock Mut. Life Ins. Co., 970 F.2d 1138, 1143-44 (2d Cir.1992); Harris Trust & Sav. Bank v. John Hancock Mut. Life Ins. Co., No. 83 Civ. 5401(DC), 1997 WL 278116, at *1 (S.D.N.Y. May 23, 1997).
2. The Merits
I conclude that Hancock violated its obligations under ERISA by breaching its duty of loyalty and its duty to avoid prohibited transactions.
Hancock did not "discharge [its] duties ... solely in the interest of the participants and beneficiaries and ... for the exclusive purpose of ... providing benefits to participants and their beneficiaries." 29 U.S.C. § 1104(a)(1)(A)(i). Likewise, Hancock breached its duty to avoid prohibited transactions as it engaged in transactions with a "party in interest" and used Plan assets for "[its] own interest." 29 U.S.C. § 1106(a)(1) and (b)(1).
Hancock refused to return Plan assets to the Trust when the Trust sought to use the rollover procedure in 1982 to withdraw accumulated free funds. The Trust felt it could get a better return by investing the excess funds elsewhere, but Hancock refused to return the Plan assets because of its cash flow problems. Instead, Hancock exercised its discretion to terminate the rollover procedures that had enabled the Trust to withdraw a total of $12 million prior to 1982. Clearly, Hancock put its own interests and cash flow needs ahead of the interests of the Plan *460 and its beneficiaries. By doing so, Hancock violated its obligations under ERISA.
Hancock also refused to revalue the liabilities on a fair and reasonable basis. It repeatedly recognized that because of outdated interest and mortality assumptions, the liabilities of GAC 50 were grossly overstated. The overstatement of the LOF exacerbated the problem, as the Trustee could not withdraw the excess without unreasonable consequences. Hancock had the discretion to revalue the LOF but exercised its discretion in a manner that furthered its own interests and disadvantaged the interests of the Plan.
In addition, in making investment and allocation decisions, Hancock repeatedly placed its own interests ahead of the interests of the Plan and Plan participants and beneficiaries. Hancock invested Plan assets in its own home office properties and charged itself below-market rents. As a consequence, GAC 50 received lower investment returns. Indeed, Hancock itself recognized in 1977 that it had the "[second] largest proportion of admitted assets in Home Office properties" and the "[second] lowest rate of return on such properties," of the twelve "listed insurance companies." (PX 353). Moreover, Hancock then allocated the income to its lines of business in such a manner as to further disadvantage GAC 50.
Likewise, the cost of borrowing, indirect expenses, and income tax were allocated and the General Account was segmented to the disadvantage of GAC 50. Similarly, Hancock adopted a policy of imputing to common stock purchases the yields it was earning on stocks and bonds and allocated higher yielding investments to its own non-participating business and lower yielding investments to participating contracts such as GAC 50. With respect to each of these items, Hancock could have taken a different approach, but in each instance Hancock exercised its discretion to its own advantage while disadvantaging GAC 50 and the Trust. By doing so, Hancock violated its duties under ERISA.
3. Hancock's Additional Defenses
a. Guaranteed vs. Non-Guaranteed Benefits
Hancock argues that it was not a fiduciary under ERISA with respect to the guaranteed portion of GAC 50, because no discretion was involved with respect to guaranteed benefits. (Hancock Post-Trial Br. at 28-29). That may be so, but Hancock clearly was a fiduciary and had discretion with respect to "free funds." Even under Hancock's numbers, the gap between the LOF and GAC 50 assets was $22 million at year-end 1981 and $56 million at year-end 1987. (PXs 1241, 1242, 1244). The assets that the Sperry Trust withdrew in 1977, 1979, and 1981 were free funds and Sperry Trust wanted to withdraw additional free funds in 1982 but was not permitted to do so.
b. The Contract
Hancock makes a multi-layered argument based on the existence of a contract. It contends that it clearly was not a fiduciary when it negotiated and entered into GAC 50, that it is not (and has not been) a fiduciary with respect to the fixed terms of the contract, and that it therefore could not have violated ERISA when it "ultimately elected to adhere to the terms of the contract and refused to alter it[]." (Hancock Post-Trial Br. at 35; see id. at 29-35). The problem with this argument, however, is that the existence of the contract did not relieve Hancock of its fiduciary responsibilities with respect to discretionary functions. GAC 50 gave Hancock extraordinary control and discretion over the investment of free funds, the allocation of investment income and expenses, and the release of excess funds. But the point is that these were discretionary matters, and Hancock was required by ERISA to exercise its discretion in accordance with its fiduciary obligations. See, e.g., IT Corp. v. Gen. Am. Life Ins. Co., 107 F.3d *461 1415, 1418 (9th Cir.1997) (rejecting attempt by life insurance company to exonerate itself from fiduciary responsibilities by relying upon contract), cert. denied, 522 U.S. 1068, 118 S. Ct. 738, 139 L. Ed. 2d 675 (1998); Leavitt v. Northwestern Bell Tel. Co., 921 F.2d 160, 161 (8th Cir.1990) ("Section 1110(a) prohibits agreements that diminish the statutory obligations of a fiduciary."); Amaro v. Cont'l Can Co., 724 F.2d 747, 752 (9th Cir.1984) ("We do not believe Congress intended that [ERISA's] minimum standards could be eliminated by contract."). As the Seventh Circuit has held:
When a contract ... grants an insurer discretionary authority, even though the contract itself is the product of an arm's length bargain, the insurer may be a fiduciary.
Ed Miniat, Inc. v. Globe Life Ins. Group, Inc., 805 F.2d 732, 737 (7th Cir.1986).
In making the decisions in question, Hancock clearly was exercising its discretion. Hancock permitted the Trust to remove a total of $12 million in excess funds using the rollover procedure in 1977, 1979, and 1981. It then exercised its discretion in 1982, however, to refuse to let the Trust use the procedure to remove additional funds. Likewise, although Hancock had been paying non-guaranteed benefits for some years, in 1982 it elected to terminate such payments. Again, this was a discretionary decision. Similarly, Hancock was exercising its discretion when it made investment and allocation decisions, such as deciding to invest in home office properties, charging itself below-market rents, and allocating income and expenses.[6]
Another example of Hancock's ability to exercise discretion within the parameters of the contract was the ALA. Transfers of free funds under GAC 50 were subject to the ALA, the "Asset Liquidation Adjustment." (PX 25, Art. III, § 9). GAC 50 did not set forth a formula for calculating the ALA and thus Hancock had the ability to set it. (Trapp Dep. 171-73; ASF ¶ 75). In early 1982, Hancock estimated the ALA for transfers from GAC 50 to be 39.4%; this meant that if Sperry sought a transfer of $10 million, it would receive only $6 million.
c. State Law
Hancock also argues that "the propriety of [its] allocation practices under state law and regulations had specifically been upheld by" Judge Patterson in his decision issued in 1991, Harris Trust & Sav. Bank v. John Hancock Mut. Life Ins. Co., 767 F. Supp. 1269 (S.D.N.Y.1991). (Hancock Post-Trial Br. at 16). But Judge Patterson never addressed the merits of the claim that Hancock breached its fiduciary duties under ERISA. Moreover, in its decision in this case, the Supreme Court specifically rejected Hancock's argument that "ERISA's fiduciary standards cannot govern an insurer's administration of general account contracts," as the Court held that while state law governing insurance generally is not displaced, "federal preemption occurs" where state law "`stands as an obstacle to the accomplishment'" of the goals of ERISA. John Hancock Mut. Ins. Co. v. Harris Trust & Sav. Bank, 510 U.S. 86, 97-99, 114 S. Ct. 517, 126 L. Ed. 2d 524 (1993).
d. Hancock's Status as a Mutual Company
Hancock argues that it did not violate ERISA because it is a mutual insurance company with obligations not just to the beneficiaries of GAC 50 but to all contract-holders, and contends that it could not discriminate in favor of the Sperry Trust *462 at the expense of its other contractholders. Hancock also argues that as a contractholder, "Sperry, in effect, owns a part of Hancock." (Hancock Post-Trial Br. at 119; see id. at 90, 95, 114 S. Ct. 517). These arguments are rejected.
Taking the arguments in reverse order: first, Sperry does not "own" a part of Hancock in any meaningful sense. But see Indianapolis Life Ins. Co. v. United States, 115 F.3d 430, 431 (7th Cir.1997) ("Policyholders of a mutual insurer also are nominal `owners' of the company."). A contractholder is not a shareholder or other owner of an equity interest; it cannot "sell" its contract rights; and it has no ability to control the management of the company. (See Tr. 419-20; see also Pl. Post-Trial Br. at 113 & n. 68). The Trust's rights are limited by the contract (and as provided by ERISA). Hancock's witnesses confirmed at trial that no matter how well Hancock does financially its contractholders will never receive any "unallocated" surplus or any distribution other than that provided for in their contracts. (See Tr. 1533-35, 1538-39). Barry Shemin of Hancock testified that "unallocated" surplus funds that are not allocated to any contract is "not intended to be distributed to contract holders of any kind as a general matter." (Tr. 1663; see also PX 1279 at 56).
Second, the Trust is not arguing that Hancock should have discriminated in its favor to the detriment of other contractholders. Rather, it is arguing only that it should not have been treated on an inequitable basis. The Second Circuit's decision in John Blair is instructive in this respect. There, the fiduciary owed "distinct duties" to two different plans. The Court held that the fiduciary "could not grant preferences as between the two." John Blair, 26 F.3d at 370. The Court held that where a surplus of funds was attributable to the actions of members of both plans, the fiduciary "should have apportioned the surplus between the two plans." Id. When the fiduciary allocated the entire surplus to one plan, it violated its fiduciary duty to the other plan. See id.
The point is that allocation decisions must be made by an ERISA fiduciary on a fair and reasonable basis. Allocation decisions that required participating contracts to bear investment risks while not requiring non-participating contracts to do so; that required the profitable group pension line to share the cost of loans that benefitted only other lines; and that allocated higher yielding investments to non-participating businesses and lower-yielding investments to participating contracts were not fair and reasonable.[7]
Significantly, Hancock's decisions were not driven by its concern for other contractholders or its fiduciary duties to other beneficiaries protected by ERISA. Rather, Hancock has maintained for years that ERISA did not apply and that it was not a fiduciary under ERISA. (See Pl. Post-Trial Br. at 14-19). Indeed, although Hancock now suggests that it was acting to protect other contractholders, its witnesses admitted at trial that it was acting to advance its own interests: the protection of its cash flow. (Tr. 1488-89, 1607-13, 1689-90; see also Tr. 736; PX 593).
*463 e. Statute of Limitations
Hancock argues that the Trust's claims must be dismissed as barred by the applicable statute of limitations. The parties agree that the governing statute of limitations is section 413 of ERISA, 29 U.S.C. § 1113, which provides that no action alleging a breach by any fiduciary responsibility, duty, or obligation under ERISA may be commenced after the "earlier" of (1) six years after "the date of the last action which constituted a part of the breach" or (2) three years after the earliest date "on which the plaintiff had actual knowledge of the breach." 29 U.S.C. § 1113 (1974).[8] In other words, suit must be commenced within three years after the plaintiff acquires actual knowledge of the breach, with an outside limit of six years after the breach. See, e.g., Carollo v. Cement & Concrete Workers Dist. Council Pension Plan, 964 F. Supp. 677, 687-88 (E.D.N.Y.1997). In the case of fraud or concealment, however, the action must be brought no later than six years after the date of discovery of the breach. Id.
Here, although I am not persuaded that Hancock engaged in fraudulent concealment, I conclude that the six-year limitations period applies.[9] Hence, the Trust is entitled to recover its damages resulting from any breaches of ERISA occurring on or after July 20, 1977, six years prior to the commencement of this action.
Hancock points out that certain of the decisions in question were made prior to six years before the filing of suit. That may be so, but Hancock was under a continuing obligation to make prudent investments and to exercise its discretion in the best interests of the Trust. Although the statute of limitations may have run with respect to certain initial investments, Hancock is still responsible for continuing violations within the six-year period. Carollo, 964 F.Supp. at 688 ("the six-year statute of limitations begins to run each year the fiduciaries maintain the plan in violation of their duties"); Reich v. Glasser, No. 95 Civ. 8288, 1996 WL 243243, at *3 (S.D.N.Y. May 10, 1996) (plaintiffs permitted to replead continuing breach theory whereby statute of limitations would run anew each time defendants made loan repayment carrying below-market interest rate); Buccino v. Continental Assur. Co., 578 F. Supp. 1518, 1521 (S.D.N.Y.1983) (fiduciary's continual failure to divest itself of unlawful or imprudent investments gives rise "to a new cause of action each time the Fund was injured").
Accordingly, Hancock's statute of limitations defense is rejected, except to the extent that the Trust is seeking damages for the period prior to July 20, 1977.[10]
4. Hancock's Counterclaims and Third-Party Claims
Hancock argues that in the event the Court finds it liable to the Trust for damages in "any amount," the Court should award judgment to Hancock on its counterclaims and third-party claims against Chase, Sperry, and the SRC as co-fiduciaries to the Plan. (Hancock Post-Tr. Br. at *464 174). See, e.g., Chemung Canal Trust Co. v. Sovran Bank/Maryland, 939 F.2d 12, 16 (2d Cir.1991) (defendants in ERISA breach of fiduciary duty cases may assert claims for contribution and indemnity against co-fiduciaries), cert. denied, 505 U.S. 1212, 112 S. Ct. 3014, 120 L. Ed. 2d 887 (1992). The argument is rejected and Hancock's counterclaims and third-party claims will be dismissed.
Hancock was substantially more at fault than its co-fiduciaries; it therefore is not entitled to contribution. See Restatement (Second) Trusts, § 258 (1959). To the contrary, the SRC demanded the release of the Plan Assets, and Hancock has failed to prove that Chase, Sperry, or the SRC played any role in the actions that resulted in a breach of Hancock's fiduciary obligations. Moreover, the evidence repeatedly showed that Hancock acted in its own interest and to its own advantage.
C. Relief
1. Damages
The proper measure of damages in this case is the difference between what the Plan actually earned and what it would have earned had Hancock not breached its fiduciary obligations. See, e.g., Donovan v. Bierwirth, 754 F.2d 1049, 1056 (2d Cir.1985) ("[W]e hold that the measure of loss applicable under ERISA section 409 requires a comparison of what the Plan actually earned on the Grumman investment with what the Plan would have earned had the funds been available for other Plan purposes."). The burden is on the breaching fiduciaries to prove that the funds would have earned less than the most profitable investment, and "[a]ny doubt or ambiguity should be resolved against them." Id.; see also Leigh v. Engle, 727 F.2d 113, 138-39 (7th Cir.1984) ("we believe that the burden is on the defendants who are found to have breached their fiduciary duties to show which profits are attributable to their own investments apart from their control of the ... [t]rust assets. It is conceivable that the defendants who have breached can show they received no benefit at all from the use of the trust assets. In any event, while the district court may be able to make only a rough approximation, it should resolve doubts in favor of the plaintiffs.").
With respect to damages here, I accept the testimony of the Trust's witnesses and reject the contrary conclusions of Hancock's witnesses.[11]
In particular, with respect to the failure of Hancock to release excess funds, I accept Professor Ibbotson's "rollout" method of computing damages:
the damages were measured by a comparison method based on if [the] money had been rolled out and reinvested compared to the fact that it had not been rolled out and been invested at these case rates. So the damages are the difference between the returns the money invested and its returns at reinvestment rate, which differs from the case rate.
(Tr. at 1083-84). In other words, Professor Ibbotson was of the view that if the Trust had been permitted to withdraw the excess funds, "it could have and would have invested them in the same manner that it would have invested its other money," and therefore it would have achieved a similar return. (Tr. at 1131).
*465 I find that Professor Ibbotson's use of the actual overall Sperry Trust rate of return is fair and reasonable in determining what the Trust would have earned had the excess funds been returned by Hancock. (See Tr. at 1129). The excess funds should have been released to the Trust, they would have had been available for the Trust to invest, and it is fair and reasonable to assume that they would have earned a rate equal to the Trust's actual overall rate of return. (Tr. at 1131). The damages in this respect, as of October 31, 1988 (when Hancock paid out the excess), are $13,767,200. (PX 1257; Tr. at 1131-32). I will also award the Plan pre-judgment interest on that amount, based on the Sperry Trust overall rate of return, from October 31, 1988 to the date of judgment. (See Tr. at 1162-63; PX 1266). See Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 286 (2d Cir.1992). Interest will be compounded. (Tr. at 1163, 1164; PX 1266). See Russo v. Unger, 845 F. Supp. 124, 127-28 (S.D.N.Y.1994).[12]
As for the allocation and excess risk charge claims, I accept the testimony of the Trust's witnesses, including Mr. McCarthy (see, e.g., Tr. 221, 345-48, 350-51, 367-69), and I reject the contrary testimony of Hancock's witnesses. Damages in these respects will be awarded for the period after July 20, 1977, and they will be adjusted to avoid a double recovery because I have accepted Professor Ibbotson's damages analysis as to excess funds. In addition, I will not award damages for "other scaling." Accordingly, I will award the Trust additional damages in the amount of $5,724,528, as of December 31, 1996 based on the Moreen "true excess." (See PX 1237). This number must be adjusted for additional interest from January 1, 1997 to date.
2. Equitable Relief
The Trust seeks equitable relief in the form of an accounting and removal of Hancock as a fiduciary for the Plan.
The request for an accounting is denied. A court may decline to order an accounting when a party has an adequate remedy at law. First Commodity Traders, Inc. v. Heinold Commodities, Inc., 766 F.2d 1007, 1011 (7th Cir.1985). Here, the Trust had full access to Hancock's records during discovery, the financial data has been studied by experts, and the litigation has been pending for years. In addition, I am awarding substantial damages. Under these circumstances, the Trust has an adequate remedy at law and I will not order an accounting now.
I will order the removal of Hancock as a fiduciary for the Plan. ERISA provides that:
Any person who is a fiduciary with respect to a [covered] plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be ... subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary.
29 U.S.C. § 1109(a); see Katsaros v. Cody, 744 F.2d 270, 281 (2d Cir.) (fiduciaries may be removed for "repeated or substantial violation[s] of [their] responsibilities") (quoting Marshall v. Snyder, 572 F.2d 894, 901 (2d Cir.1978)), cert. denied, 469 U.S. 1072, 105 S. Ct. 565, 83 L. Ed. 2d 506 (1984). As I have found, Hancock engaged in repeated and substantial violations of its fiduciary responsibilities under ERISA. The Trust's desire to terminate the relationship is understandable. Accordingly, removal is appropriate.
3. Attorneys' Fees and Costs
The Trust will be awarded its reasonable attorneys' fees and costs incurred in bringing this action, pursuant to section 502(g) of ERISA. 29 U.S.C. § 1132(g). *466 See, e.g., Miles v. New York State Teamsters Conference Pension & Retirement Fund Employee Pension Benefit Plan, 698 F.2d 593, 602 n. 8 (2d Cir.1983); Birmingham v. SoGen-Swiss Int'l Corp. Retirement Plan, 718 F.2d 515, 523 (2d Cir. 1983). Hancock has breached its duties as a fiduciary and has instead acted for its own self-interest. It has the ability to satisfy an attorneys' fee award. The award is necessary to deter Hancock and other fiduciaries from engaging in similar conduct in the future. The lawsuit has conferred a significant benefit on the Plan and its participants. An assessment of the relative merits of the parties' positions also weighs in favor of an award of fees. In addition, an award of attorneys' fees is particularly appropriate in this case because Hancock charged a portion of its litigation costs in this case to GAC 50. (See Tr. at 1397; see also Tr. at 1567-68).
On or before December 6, 2000, the Trust shall submit an application for attorneys' fees and costs, in the nature of a lodestar computation, i.e., providing brief descriptions of work performed and reporting the hours billed and hourly rates charged per attorney. The application shall include brief explanations of the billing rates. The Trust shall also include a schedule of costs for which it requests reimbursement.
CONCLUSION
The Trust shall submit a proposed judgment on or before December 6, 2000. The Trust will submit, at the same time, an affidavit explaining the interest calculations as well as its application for attorneys' fees and costs. Hancock shall submit any objections to the proposed judgment within seven business days after receipt of the Trust's papers.
SO ORDERED.
NOTES
[1] General Account funds were used by Hancock, inter alia, to invest in subsidiaries and to acquire and maintain "Home Office" properties, i.e., the buildings, land, and physical plant maintained by Hancock for the operation of its own business. Hancock determined the rate or return on its Home Office properties on an annual basis, and allocated income and losses from such properties to its participating contracts (including the contract at issue in this case).
[2] The "investment generation" method credited each cell with the rate of return for General Account assets acquired by Hancock in the original investment year, adjusted for "roll-over," which included the maturity, sale, call, and elimination through default of assets. As original investments matured, or "rolled over," rates of return on new investments made with the proceeds would affect credits to the cell for the original investment year. Since 1959, Hancock has used the investment generation method to allocate net investment income to the experience accounts and direct-rated funds of its Group Pension participating contracts. Through the investment generation method, Hancock allocated income, capital gains or losses, expenses, and taxes to lines of business participating in the experience of its General Account. The same method was used by Hancock to make allocations to Immediate Participation Guarantee, or "IPG," contracts. For a given year, the average of the rates of return for each cell, weighted to reflect the size of each cell for a particular contract, was referred to as the contract's "case rate." (ASF ¶¶ 20-22).
[3] Hancock used the term "fixed and frozen" to refer to the assets in question. (Tr. 220). Hancock made certain adjustment to the rates of return on the fixed and frozen investments; these adjustments were part of a process referred to as "scaling," by which Hancock "distributed" the effect of short-term investments, uninvested funds, and fixed and frozen assets by proportionate adjustments to long term rates of yield. (Tr. 221; PX 353).
[4] At trial, the Trust offered evidence with respect to another item of claimed damages called "other scaling." (See, e.g., Tr. at 262-66, 1012-17). The Trust, however, only offered a "hypothesis" (Tr. at 265), and it failed to demonstrate a prima facie case in this respect. Accordingly, I am not persuaded that Hancock breached its obligations under ERISA with respect to "other scaling."
[5] The ERISA Clarification Act, enacted on August 20, 1996 as part of the Small Business Job Protection Act of 1996, Pub.L. No. 104-188, 110 Stat. 1755 (1996), amended § 401 of ERISA, 29 U.S.C. § 1101, to exempt "insurers who hold assets in their general account from any liability both for acts prior to its enactment and, for a defined period, for future acts that otherwise might give rise to a claim under Part 4 of ERISA." Adkins v. John Hancock Mut. Life Ins. Co., 957 F. Supp. 211, 212 (M.D.Fla. Jan.21, 1997). The amendment is inapplicable to civil actions, such as the instant one, commenced before November 7, 1995. See id.
[6] At trial, Hancock's witnesses conceded that Hancock had the discretion to permit or discontinue rollover and to terminate or continue the use of free funds to pay nonguaranteed benefits. (Tr. 1352, 1354, 1682). Likewise, they conceded that in making allocation decisions, Hancock was choosing from within a range of methods thereby exercising its discretion. (Tr. 1664-66 (Shemin: "I guess I would say yes. Hancock, the company, is exercising its discretion.")).
[7] Hancock relies on Ganton Tech., Inc. v. National Indus. Group Pension Plan, 76 F.3d 462, 467 (2d Cir.1996), where the Second Circuit held that plan trustees did not act "arbitrarily" in refusing to permit one employer, a participant in a multi-employer pension plan, to transfer the plan assets attributable to its employees out of the plan because of the threat that would be posed to the remaining plan participants. The facts, however, are distinguishable. Here, the Trust was not one participant in a plan, nor was the Trust seeking to withdraw all its assets out of the plan. Rather, the Trust was a contractholder representing all the beneficiaries of the Plan, and it was seeking only to withdraw a portion of excess funds as it had been permitted to do on three prior occasions. In addition, Hancock acknowledged at trial that the withdrawal of the requested funds in 1982 "would not have had a major impact" on Hancock's overall financial picture. (Tr. 1689-90).
[8] Section 413 was amended in 1987 and 1989 in respects not material to this action.
[9] Hancock argues as to certain investments that the three-year rule should apply because the Trust had actual knowledge of certain actions taken by Hancock long before three years prior to the filing of suit. I am not persuaded, however, that the Trust had "actual knowledge" of any "breach or violation" prior to July 20, 1980. For example, Hancock did not disclose the misallocations and the Trustees could not have discovered them from the annual Financial Experience Statements sent to Sperry by Hancock. (Tr. at 1514-16). Neither the fact that Hancock invested Plan Assets in home office properties and subsidiaries, nor the significant "shortfall" in investment income that resulted from those investments, could be discerned from the annual Financial Experience Statements. (Tr. at 318-19; see also id. at 319-22, 1514-18).
[10] Hancock also argues laches, but the Court rejected this defense in its decision on the in limine motions. See 1997 WL 278116, at *2-3.
[11] Hancock's principal damages expert, Dr. Babbel, acknowledged that his calculations contained errors, errors that were not brought out until cross-examination by the Trust's counsel. (See, e.g., Tr. at 1831-33 ("I think it's fair to say that there is an offsetting error [in my calculations] that is perhaps more egregious and that I didn't bring that one up [on direct examination] either."), 1824-25, 1827-29 ("Q: So you made a number of what I guess might be called fundamental errors with respect to how you were looking at these issues, isn't that correct? A: I omitted those charges. I'm sorry."), 1833-34).
[12] The prejudgment interest calculation offered at trial was a multiplier of 2.6657, which was as of June 30, 1997. (PX 1266). The calculation will have to be revised to bring the interest calculation up to date.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/2668716/
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
____________________________________
JESUS VENTURA, et al., )
)
Plaintiffs, )
)
v. ) Civil Action No. 08-00621 (RCL)
)
BEBO FOODS, INC., et al., )
)
Defendants. )
____________________________________)
MEMORANDUM OPINION
This matter comes before the Court on defendants’ “Motion to Dismiss or, in the
Alternative, to Transfer” [9,10]. Upon full consideration of the motion, the oppositions and
replies thereto, the applicable law, and the entire record herein, the Court finds, for the reasons
set forth below, that defendants’ motion will be DENIED.
I. BACKGROUND
Plaintiffs are former restaurant wait staff and bussers who commenced this action against
defendant Roberto Donna (“Donna”) and various restaurants/companies he owns and operates.1
Plaintiffs allege violations of state and federal law governing wage payment and overtime
obligations of employers under the Fair Labor Standards Act, 29 U.S.C. § 201 et seq. (“FLSA”),
District of Columbia Wage Payment and Collection Act, D.C. Code § 32-1303 et seq.
1
Plaintiffs’ first amended complaint names the following parties as defendants: Roberto
Donna “in his corporate and individual capacity”; BEBO Foods, Inc.; Galileo Restaurant; RD
Trattoria, Inc.; and BEBO Trattoria Restaurant. Donna claims domicile and residence in the
Commonwealth of Virginia; however, plaintiffs list Donna as residing in the District of
Columbia. (Compl. ¶ 14; Donna Aff. ¶ 1.) RD Trattoria d/b/a BEBO Trattoria Restaurant is
incorporated in the Commonwealth of Virginia. BEBO Foods and SER, Inc. d/b/a Galileo
Restaurant are incorporated in the District of Columbia.
1
(“DCWP&CA”), and Equal Pay Act, 29 U.S.C. § 206 (“EPA”). Specifically, named plaintiffs
contend that they were not paid overtime compensation, were not always paid the minimum
wage, and in some instances were not paid any wages due to the issuance of paychecks that either
bounced, were void or were otherwise impossible to cash. (Compl. ¶¶ 1, 46-54, 59-61.)
Plaintiffs further allege that female bussers were denied equal pay to that of male bussers. (Id. ¶¶
55-58.) According to plaintiffs, these violations began as early as February 1992 during their
employment at the Donna-operated Galileo Restaurant (“Galileo”) in Washington, D.C.. (Id. ¶
25.) The violations allegedly continued until at least February 2008, after plaintiffs were
transferred in October 2006 to defendant Donna’s newly-opened BEBO Trattoria Restaurant
(“BEBO Trattoria”) in Arlington, Virginia due to the closure of Galileo for renovations. (Id. ¶
33-34.)
On April 11, 2008, plaintiffs filed the complaint [1] in this matter, and later filed a four-
count amended complaint [4] on May 29, 2008, which added no new causes of action, but styled
the case as a collective and class action. Defendants argue plaintiffs’ claims fail and dismissal is
appropriate based on various theories including lack of personal jurisdiction, improper venue,
and failure to state a claim upon which relief can be granted. In the alternative to dismissal,
defendants request transfer of the action to the United States District Court for the Eastern
District of Virginia.
II. ANALYSIS
1. Proper Party Status of Defendants BEBO Trattoria and Galileo
Defendants challenge the inclusion of BEBO Trattoria and Galileo as defendants in this
action, arguing they are trade names rather than legal entities capable of being sued and therefore
2
should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6). Plaintiffs respond by
asserting that both parties can be sued in their “doing business capacity” because they are
qualifying “employers” as that term is broadly defined and loosely construed under both the
FLSA and DCW&HL. In the alternative, plaintiffs have requested the opportunity to amend the
complaint caption to correct what is essentially a misnomer of identified defendants.
The parties’ filings, affidavits, and exhibits relating to this issue have conclusively
established that: (1) Donna is Principal for defendant corporations BEBO Foods and RD
Trattoria; (2) RD Trattoria is “doing business as” BEBO Trattoria Restaurant; and (3) Donna
owns/operates BEBO Foods, BEBO Trattoria Restaurant and Galileo Restaurant. (Donna Aff. ¶
2; Pls.’ Opp’n Ex. 1-2.) Furthermore, plaintiffs’ opposition indicates that a recent review of
District of Columbia bankruptcy petitions has revealed Galileo is a trade name for District of
Columbia corporation SER, Inc. (“SER”), and therefore is named in the complaint in its “doing
business as” capacity. Plaintiffs further state that their diligent review of D.C. corporation
listings did not reveal Galileo as a trade name for corporate entity SER at the time of the filing of
their previous complaint, and note that plaintiffs’ paychecks were not issued under the name of
that corporation. Defendants do not deny the connection between SER and Galileo, or refute
plaintiffs’ contentions that Galileo is not listed as a trade name with the District of Columbia.
Defendants are correct in noting the axiom that trade names are not juridical entities
capable of being sued. Evans v. Washington Center for Internships and Academic Seminars,
2008 WL 4937007 (D.D.C. 2008); American Society for the Prevention of Cruelty to Animals v.
Ringling Brothers and Barnum & Bailey Circus, 502 F. Supp. 2d 103, 105 fn. 2 (D.D.C. 2007);
Snowden v. CheckPoint Check Cashing, 290 F.3d 631, 634 (4th Cir. 2002). Because BEBO
3
Trattoria and Galileo have been identified as trade names of corporations, they can be dismissed
without prejudice as proper defendants in the complaint. However, the specific circumstances
involved in this case convince the Court to grant plaintiffs leave to amend the case caption to
correct the named defendants and designate the restaurant trade names in their “doing business”
capacity with respect to the corporate defendants.
Plaintiffs’ first amended complaint included both the known corporate defendants and the
names of the restaurants under which those companies were “doing business as”—i.e. the actual
places of business where plaintiffs worked. However, these designated corporation/restaurant
defendants are not separate and distinct legal entities, but rather a single entity with two names.
Here, either or both of the corporate or “doing business as” restaurant defendants—aliases for the
same legal entity—were identified in the complaint and provided with effective notice and
service of the charges against them. As such, amendment of plaintiffs’ complaint caption is in
order to reflect that the corporate/restaurant defendants are in fact one and the same defendant for
purposes of this lawsuit.
Based on the recent discovery of SER as the corporate entity behind Galileo, the
intertwined associations between Donna and all of the corporate/restaurant parties appearing in
the complaint, and the lack of any prejudice to the parties given actual notice to all of the
originally named “defendants,” including Galileo Restaurant, the Court grants plaintiffs leave
under Federal Rule of Civil Procedure 15(a)(2) to amend the complaint caption to reflect proper
legal entities capable of being sued. The amended caption will therefore reflect “SER, Inc. d/b/a
Galileo Restaurant” as a properly named defendant. Likewise, the Court grants plaintiff leave
4
sua sponte to further amend the complaint caption to substitute “RD Trattoria, Inc. d/b/a BEBO
Trattoria Restaurant” in place of those separately named defendants.
2. Personal Jurisdiction Over Defendants Donna and RD Trattoria
Defendants also contend that claims against non-resident defendants Donna and RD
Trattoria, Inc. (“RD Trattoria”) (now established to be “d/b/a BEBO Trattoria Restaurant”)
should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(2) for lack of personal
jurisdiction under the District of Columbia long-arm statute. Plaintiffs respond that the
allegations in their complaint and the affidavit of Ms. Elizabeth Scott clearly establish the
jurisdictional reach of this Court over these defendants. In the alternative, plaintiffs request they
be allowed jurisdictional discovery in order to further support personal jurisdiction over these
defendants.
Rule 12(b)(2) “authorizes a motion to dismiss based upon the traditional defense that the
court lacks jurisdiction over the defendant’s person, which raises a question as to whether the
controversy or defendant has sufficient contact with the forum to give the court the right to
exercise judicial power over defendant.” 5 Charles A. Wright & Arthur R. Miller, Federal
Practice & Procedure § 1351 (1969). For this Court to exercise personal jurisdiction over a
non-resident defendant, service of process must be authorized by the forum’s long-arm statute
and comport with the Due Process Clause of the Fourteenth Amendment. FC Inv. Group LC v.
IFX Markets, Ltd., 529 F.3d 1087, 1095 (D.C. Cir. 2008) (citing GTE New Media Servs. Inc. v.
BellSouth Corp., 199 F.3d 1343, 1347 (D.C. Cir. 2000). In the District of Columbia, in keeping
with longstanding Supreme Court precedent, “personal jurisdiction exists when the defendant has
purposely established minimum contacts with the forum state and when the exercise of
5
jurisdiction comports with the ‘traditional notions of fair play and substantial justice.’” Wiggins
v. Equifax, Inc., 853 F. Supp. 500, 502 (D.D.C. 1994) (quoting Asahi Metal Indus. Co. v.
Superior Court of California, 480 U.S. 102, 107 (1987)).
Purposeful availment thus stands as a touchstone of personal jurisdiction analysis, and the
plaintiff “must allege some specific facts evidencing purposeful activity by [d]efendants in the
District of Columbia by which they invoked the benefits and protections of its laws.”
Novak-Canzeri v. Saud, 864 F. Supp. 203, 205 (D.D.C. 1994). Plaintiffs may discharge this
burden with a prima facie showing that the requirements of the District of Columbia long-arm
statute have been met. Jones v. City of Buffalo, 901 F. Supp. 19, 21 (D.D.C. 1994). The
imposition of such a burden on plaintiffs excepts personal jurisdiction analysis from the general
rule that all allegations must be taken as true for purposes of ruling on a motion to dismiss. See
United States v. Philip Morris, Inc., 116 F. Supp. 2d 116, 120 fn. 4 (D.D.C. 2000). Indeed,
courts may consider outside evidence to make factual determinations in disposing of a motion to
dismiss for lack of personal jurisdiction, and the plaintiffs may rest their argument on their
pleadings, bolstered by such affidavits and other written materials as they can otherwise obtain.
See id.; Mwani v. Bin Laden, 417 F.3d 1 (D.C. Cir. 2005). Moreover, to establish a prima facie
case of jurisdiction, plaintiffs are not limited to evidence that meets the standards of admissibility
required by the district court. Mwani, 417 F.3d at 7.
The District of Columbia long-arm statute provides in relevant part as follows:
a District of Columbia court may exercise personal jurisdiction over
a person, who acts directly or by an agent, as to a claim for relief
arising from the person’s: (1) transacting any business in the District
of Columbia; ... (4) causing tortious injury in the District of Columbia
by an act or omission outside of the District of Columbia if he
6
regularly does or solicits business, engages in any other persistent
course of conduct, or derives substantial revenue from goods used or
consumed, or services rendered, in the District of Columbia.
D.C. CODE § 13-423(a). Jurisdiction based solely on this provision is specific in nature: “only a
claim for relief arising from acts enumerated in this section may be asserted against [defendant].”
Id. 13-423(b).
Plaintiffs assert that this Court has personal jurisdiction over defendants Donna and RD
Trattoria under Sections (a)(1) and (a)(4) of the long-arm statute. Specifically, plaintiffs rely on
the following factual allegations and evidence of defendants’ purposeful activity in the District of
Columbia connecting them with this forum: (1) Fidelity Bank on Eye Street, NW, Washington,
DC held the main account for RD Trattoria and required managerial staff and Donna to travel
into the District of Columbia with frequency to deposit funds into the account; and (2) RD
Trattoria and Donna engaged in targeted advertising and marketing in the District to seek patrons
at BEBO Trattoria and; (3) the management of Galileo and BEBO Trattoria are so financially and
factually entangled in their exploitation of workers that they must be included in the same suit;
and (4) both Galileo and BEBO Trattoria are owned and operated by Donna, and the employment
violations alleged occurred in both restaurants. (Pls.’ Opp’n 8.)
This Court’s personal jurisdiction over Donna is abundantly clear under Section (a)(1).
At a minimum, Donna “transacted business” in the District of Columbia for purposes of
plaintiffs’ action based on his association with, and operation of, both Galileo and the BEBO
Foods, Inc. (“BEBO Foods”) cooking classes in the District prior to the closing of Galileo for
renovations in October 2006 – a time period falling within the statute of limitations period and
during which the plaintiffs allege violations occurred in the course of their employment.
7
Donna’s alleged banking and check writing activities related to plaintiffs further qualify as
“transacting business” in the District of Columbia under the long-arm statute.
Less clear is the issue of personal jurisdiction over RD Trattoria. Contrary to plaintiffs’
assertions, personal jurisdiction is not available as to either Donna or RD Trattoria under Section
(a)(4) because that provision expressly requires tortious acts and injuries to confer jurisdiction, as
opposed to the statutory wage violations alleged in plaintiffs’ complaint. See Elemary v. Philipp
Holzmann A.G., 533 F. Supp. 2d 116, 122-23 (D.D.C. 2008) (Lamberth, J.).
In assessing personal jurisdiction over RD Trattoria based on Section (a)(1), the Court
rejects RD Trattoria and Donna’s targeted marketing of District of Columbia patrons as meeting
the “transacting business” requirement. Plaintiffs do not allege that defendants advertising in the
District of Columbia gave rise to plaintiffs’ claims, and such advertising is not a relevant
jurisdictional fact under Section (a)(1) where it is unrelated to the alleged injury suffered. See
Bayles v. K-Mart Corp., 636 F. Supp. 852, 854 (D.D.C. 1986) (advertising in the District by a
Virginia company was not a relevant jurisdictional fact where the company’s alleged negligence
was in no way related to that advertising).
Presenting closer questions are plaintiffs’ arguments concerning RD Trattoria’s banking
activities, and the intertwined nature of defendants and the alleged violations. Though supported
by scant evidentiary support, plaintiffs’ factual allegations claim RD Trattoria’s main bank
account was located in the District of Columbia, frequent trips were made by Donna and
managers to deposit funds in the account at the same physical bank location in the District, and at
some unspecified point during the dates cited in the complaint, plaintiffs were required to cash
pay checks drawing on the same or associated accounts held at that bank. Defendants’ affidavit
8
evidence fails to adequately address plaintiffs allegations, while seeking to summarily dismiss
the “transacting business” relevance of defendants’ banking activities in the District of Columbia
by stating that plaintiffs’ injuries did not arise therefrom. However, plaintiffs allege that their
trips to the bank and knowledge that the paychecks were bouncing or unable to be cashed due to
being unsigned are what substantially gave rise to plaintiffs’ claims for unpaid wages.
Furthermore, the Court finds some potential in plaintiffs’ contention that the financial and
factual entanglement between Donna, his various corporate and restaurant enterprises, and the
alleged wage violations may allow for the transference of other defendants’ “transacting
business” contacts to RD Trattoria for jurisdictional purposes under an alter-ego or similar
theory.
Accordingly, the Court finds that plaintiffs have made a sufficient “good faith” showing
on the personal jurisdiction issue at this stage of the proceedings to entitle them to jurisdictional
discovery in order for this Court to better determine if it has authority under the long-arm statute
to exercise personal jurisdiction over defendant RD Trattoria. “A plaintiff faced with a motion to
dismiss for lack of personal jurisdiction is entitled to reasonable discovery, lest the defendant
defeat the jurisdiction of a federal court by withholding information on its contacts with the
forum.” El-Fadl v. Central Bank of Jordan, 75 F.3d 668, 676 (D.C. Cir. 1996). See also GTE
New Media Servs. Inc., 199 F.3d at 1351-52; Caribbean Broad. Sys., Ltd. v. Cable & Wireless
PLC, 148 F.3d 1080, 1090 (D.C. Cir. 1998); Edmond v. U.S. Postal Serv. Gen. Counsel, 949
F.2d 415, 425 (D.C. Cir. 1991); Crane v. Carr, 814 F.2d 758, 760 (D.C. Cir. 1987); Diamond
Chem. Co. v. Atofina Chems., Inc., 268 F. Supp. 2d 1, 15 (D.D.C. 2003) (“The Circuit’s standard
for permitting jurisdictional discovery is quite liberal”).
9
3. Venue Is Proper
As an independent and alternative ground for dismissal, defendants allege improper
venue under Federal Rule of Civil Procedure 12(b)(3) as to defendants RD Trattoria and Donna.
Plaintiffs assert venue based on a federal question as they seek to enforce their rights under the
Fair Labor Standards Act.2 28 U.S.C. § 1391(b) holds, in pertinent part, that venue is proper in
any judicial district “where a substantial part of the events or omissions giving rise to the claim
occurred....” 28 U.S.C. § 1391(b)(2). Because this action is based on a federal question, and not
all defendants reside in the state of Virginia, this is the only provision that is applicable to this
case.
A district court need not determine which forum represents the best venue. Jacobsen v.
Oliver, 201 F. Supp. 2d 93, 108 (D.D.C. 2002). Moreover, “plaintiffs are not required to
establish that the District of Columbia has the most substantial contacts to the dispute, but rather
only that ‘a substantial part of the events occurred in the District.’” Id. The general venue
requirement of Section 1391(b), in its language pertaining to where “the claim arose,” should be
“ascertained by advertence to events having operative significance in the case, and a
commonsense appraisal of the implications of those events for accessibility to witnesses and
records.” Lamont v. Haig, 590 F.2d 1124, 1134 (D.C. Cir.1978).
Plaintiffs’ allegations establish that their claims arose in the District of Columbia such
that venue is proper in this Court with respect to all defendants. While significant activities
related to this action occurred outside of the District of Columbia after plaintiffs were transferred
2
This Court has supplemental jurisdiction over the state law claims of violation of the
DCWP&CA.
10
to Donna’s restaurant in Virginia, a substantial amount of relevant events also occurred during
the preceding time period while plaintiffs were employed within the District, and it is those
events from which this claim truly arose. The basis of plaintiffs’ claims began with alleged wage
violations during their employment at Donna’s Galileo restaurant in the District of Columbia,
and those violations are alleged to have continued to mount and become commingled with their
employment at BEBO Trattoria in Virginia after Donna temporarily closed Galileo and
transferred plaintiffs and other restaurant staff to his new restaurant. Defendants allegedly issued
paychecks that bounced or were otherwise unable to be cashed when plaintiffs attempted to
deposit them at a District of Columbia bank per defendants’ requirement, leading to this claim
for unpaid wages. Plaintiffs allege this bank account was held by Donna and RD Trattoria, and
the opportunity for jurisdictional discovery related to defendants’ financial ties should lead to
transparency on this issue as discussed supra.
The Court is not persuaded by defendants’ argument that events giving rise to plaintiffs’
claim in the District of Columbia are not of a substantial character to confer venue. Under the
FLSA’s two year statute of limitations, defendants seek to magnify the significance of plaintiffs’
alleged wage violations occurring in Virginia during the eighteen months preceding the filing of
their complaint. However, in doing so they ignore plaintiffs’ specific factual allegations of
willful violations that would enlarge the statutory period to three years, and therefore encompass
an almost equally substantial fourteen months of activity in the District of
Columbia—notwithstanding defendants’ alleged violations in the District, which date back
beyond either applicable statutory period to the early 1990’s. See McLaughlin v. Richland Shoe
Co., 468 U.S. 128 (1988).
11
Under these circumstances, venue is proper in the District of Columbia, as it hardly
qualifies as “an inconvenient or unfair place of trial” for defendants. Leroy v. Great Western
United Corp., 443 U.S. 173 (1979). Given the interrelation between District of Columbia
resident and non-resident defendants, and the identical nature of plaintiffs’ claims while
employed in both the District and Virginia, no substantial difference between available forums
exists in this case that provides a justification for transfer under 21 U.S.C. § 1404. Because
significant deference is accorded to resident plaintiffs’ choice of forum, and the decision to
transfer is within the sound discretion of the Court, transfer of venue will be denied. Sierra Club
v. Van Antwerp, 523 F. Supp. 2d 5, 11 (D.D.C. 2007) (Lamberth, J.) (citing DeLoach v. Philip
Morris Cos., 132 F. Supp. 2d 22, 24-25 (D.D.C. 2000)).
4. Propriety of BEBO Foods as a Defendant
Defendants also contest the inclusion of BEBO Foods (a company Donna operates for the
purpose of giving personally-taught cooking classes) as a proper defendant in this action, arguing
that BEBO Foods was not plaintiffs’ employer. Plaintiffs assert that for all practical purposes,
BEBO Foods is the alter ego of Donna and meets the definition of an “employer” under the
FLSA. After reviewing each party’s affidavit evidence on the nature and activities of BEBO
Foods, the Court is convinced that it is a properly joined defendant as this stage of the
proceedings.
Plaintiffs contend, and Donna effectively concedes, that BEBO Foods is his alter ego—
Donna holds himself out as the “Principal and sole employee” and states the company “has never
had any employee other than myself” and “[a]t no time has any other person than myself
performed work” for the company. (Donna Aff. ¶¶ 3, 5.) However, Donna’s affidavit does
12
admit that BEBO Foods paid one or more plaintiffs for moving restaurant furniture in October
2006—a payment Donna claims was a “loan” from BEBO Foods to RD Trattoria. (Id. ¶ 6.)
Despite Donna’s assertion, plaintiffs proffer evidence that Ms. Scott was employed by BEBO
Foods to market Donna, but was issued paychecks from RD Trattoria—an arrangement this
Court notes is symptomatic of the entanglement between Donna and the corporate defendants.
(Scott Aff. ¶¶ 13-14.) According to the affidavit, BEBO Foods’ cooking classes were held at the
very same restaurants where plaintiffs allege the wage violations occurred: Galileo and BEBO
Trattoria. (Id. ¶ 8.) Furthermore, plaintiffs’ contradictory evidence indicates that when BEBO
Foods held classes at BEBO Trattoria, employees including cooks, waiters, and bussers “were
required to perform work setting up, cooking, and facilitating these functions.”
The Supreme Court has supported an expansive understanding of the employee/employer
relationship in favor of including individuals under the FLSA. The Act defines “employee” very
broadly as “any individual employed by the employer.” To “employ” includes to suffer or permit
to work.” 29 U.S.C. §§ 203(e)(1), 203(g). In Henthorn v. Dept. of Navy, 29 F.3d 682, 684 (D.C.
Cir. 1994), the court set forth a totality of the circumstances test for determining whether an
entity is an “employer.” The factors include “whether the alleged employer (1) had the power to
hire and fire the employees, (2) supervised and controlled employee work schedules or
conditions of employment, (3) determined the rate and method of payment, and (4) maintained
employment records.” Id.
Here, plaintiffs’ contradictory evidence portrays BEBO Foods, Donna, and his restaurants
as indistinguishable with respect to the “employer” determination. Plaintiffs’ factual allegations
contradict Donna’s affidavit by contending that BEBO Foods, through the person of Donna, had
13
the power to hire and fire plaintiffs and supervise the conditions of employment during the
cooking classes at which plaintiffs worked. Thus, plaintiffs’ affidavit evidence has made a
sufficient showing of BEBO Foods’ role as plaintiffs’ “employer” to avoid dismissal.
5. Plaintiff’s Equal Pay Act Claim Was Properly Plead
Defendants argue that plaintiffs have failed to state a claim upon which relief may be
granted with respect to their EPA sex discrimination allegation. When considering a motion to
dismiss pursuant to Rule 12(b)(6), this Court will dismiss a claim if the plaintiff fails to plead
“enough facts to state a claim for relief that is plausible on its face.” Bell Atlantic Corp. v.
Twombly, 127 S. Ct. 1955, 1974 (2007). This Court must construe the allegations and facts in
the complaint in the light most favorable to the plaintiff and must grant the plaintiff the benefit of
all inferences that can be derived from the facts alleged. Barr v. Clinton, 370 F.3d 1196, 1199
(D.C. Cir. 2004) (citing Kowal v. MCI Comm’ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994)).
As noted in plaintiffs’ complaint, “the EPA requires that an employer make equal
payments for equal work on jobs that require equal skill, effort, and responsibility and which are
performed under similar working conditions.” (Compl. ¶ 87; 29 U.S.C. § 206(d).) Plaintiffs
allege that “[d]efendants have violated the EPA by discriminating against employees on the basis
of sex by paying higher wages to male bussers performing the same work as female bussers.”
(Compl. ¶ 88.) Specifically, plaintiffs allege female bussers were paid $3.35 per hour, while
male bussers were paid $8.00 an hour. (Id. ¶ 55-56.) Defendants concede that plaintiff Rosa
Rivas, a female, was paid $3.35 per hour, while plaintiff Jesus Ventura, a male, was paid $8.00
14
per hour. However, defendant offers Donna’s affidavit and pay stubs3 as evidence that the pay
disparity was based on Ventura’s longer tenure, an affirmative defense as a differential “based on
seniority” under 29 U.S.C. § (d)(1)(i). (Donna Aff. ¶ 8.)
Defendants cannot establish that plaintiffs have failed to state a claim upon which relief
may be granted. Having determined that in at least one instance defendants paid a female busser
less than her male counterpart, whether or not the basis for that pay disparity is due to gender or
an allowable exception is a question of fact. Assuming the truth of plaintiffs’ allegations that the
unequal pay was based on gender, as the Court must in the context of a motion to dismiss,
plaintiffs have stated a claim under the EPA. Defendants remain free to raise their “tenure”
affirmative defense at the summary judgment stage, after discovery and adequate briefing on the
issue has transpired.
III. CONCLUSION
Upon full consideration of the parties’ filings, applicable law, and the record herein, this
Court concludes that defendants “Motion to Dismiss, or, in the Alternative, to Transfer” [9,10] is
DENIED, leave of Court for plaintiffs to amend the complaint caption to reflect properly named
defendants is GRANTED, and jurisdictional discovery on the issue of RD Trattoria’s contacts
with the District of Columbia is GRANTED.
A separate order shall issue this date.
3
Because the Court does not rely on the Donna affidavit and pay stubs in ruling on
defendants’ motion to dismiss with respect to the EPA claim, the motion does not need to be
treated as one for summary judgment and disposed of pursuant to Rule 56. See Fed. R. Civ. P.
12(d).
15
Signed by Royce C. Lamberth, Chief Judge, on February 2, 2009.
16
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IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
STATE OF WASHINGTON, )
) No. 74124-1-I
Respondent, )
) DIVISION ONE
v. )
) UNPUBLISHED OPINION
MITCHELL HENRY RAMM, )
)
Appellant. ) FILED: April 17, 2017
)
APPELWICK, J. — Ramm was convicted of assault in the second degree
while armed with a deadly weapon. He argues that the trial court erred in excluding
his statements made at the time of his arrest, because these statements were not
hearsay. We affirm.
FACTS
On May 18, 2014, John McKissick was working as a security officer at the
Woodland Park Zoo. McKissick was not armed, but carried a flashlight. At around
8:00 a.m., McKissick came into contact with a man who was camping near the
rose garden. The man was Mitchell Ramm. McKissick approached Ramm, who
was in a sleeping bag. At about 10 feet away from Ramm, McKissick stopped.
McKissick repeatedly told Ramm that he was not allowed to camp there.
No. 74124-1-1/2
Ramm refused to leave. He said that McKissick should be paying him rent
for being in his space. After telling Ramm to leave three or four times, McKissick
informed Ramm that if he did not leave, McKissick would have to call the Seattle
Police Department to remove him. McKissick then left the area and called 911.
While McKissick was on the phone with 911, Ramm approached him,
yelling. Ramm attempted to provoke McKissick, calling him a chicken for not
physically engaging him. When McKissick did not respond, Ramm became more
aggressive. He began swinging at McKissick, attempting to punch him in the face.
McKissick protected himself by blocking Ramm's hands. Ramm then pulled two
wooden billy clubs out of his pocket and attempted to hit McKissick in the head.
He struck McKissick about six times.
Throughout the encounter, McKissick was backing away, trying to avoid
being hit. As he backed away, he tripped and fell in a ditch. There, McKissick
found several bicycle parts that he used to defend himself. Ramm threw a pallet
at McKissick, and then began throwing pieces of cement at McKissick.
By this time, other people had become aware of the incident and were
gathering nearby. When Ramm noticed the growing crowd, he sat down on a
picnic bench nearby. The police arrived about 30 seconds later. Ramm was
compliant with the officers, obeying their commands and putting his arms behind
his back to be handcuffed.
Ramm was charged with assault in the second degree. The State also
alleged that Ramm was armed with a deadly weapon, the wooden clubs, at the
time of the assault. At trial, Ramm pursued a diminished capacity defense. He
2
No. 74124-1-1/3
argued that because of his mental illness, he could not form the requisite intent to
assault McKissick. Ramm was convicted as charged. He appeals.
DISCUSSION
Ramm argues that the trial court erred in excluding statements he made at
the time of his arrest. He contends that these statements were not hearsay,
because they were not offered to prove the truth of the matter asserted.
Alternatively, he suggests the excited utterance hearsay exception applies, and
his trial counsel provided ineffective assistance by failing to argue this exception.
The State argues that even if the trial couderred,the exclusion of these statements
was not prejudicial.
When reviewing evidentiary decisions, we first determine the applicable
evidentiary rules and then decide whether the trial judge acted within the discretion
given by those rules. State v. Gunderson, 181 Wn.2d 916,921-22, 337 P.3d 1090
(2014). We review the trial court's decision to admit or exclude evidence for abuse
of discretion. Id. at 922. The court abuses its discretion where its decision is
manifestly unreasonable or based upon untenable grounds. Id.
I. Hearsay
Ramm contends that the trial court erred in excluding his out-of-court
statements to police officers as hearsay. When police officers first arrived on the
scene, Ramm said something along the lines of, "[Willy are you arresting me, you
should be arresting the other guy." Ramm may have also said,"He attacked me."
Pretrial, the State sought to suppress these statements as inadmissible
hearsay. Ramm argued that the statements were not hearsay, because they were
3
No. 74124-1-1/4
offered to show his state of mind, not to prove the truth of the matter asserted.
Ramm contended that these statements would support his diminished capacity
defense by showing that Ramm's mental illness affected his ability to form intent.
The court ruled,
So on its face this, of course, is not a statement that one would view
as unusual or without more evidence of a diminished capacity. It has
the hallmarks of an out-of-court assertion that hangs one's self in a
better light, and is offered for the truth of the matter; but it's not his
fault, it's the other guy's fault. So, with that, I do not find that the state
of mind exception would allow this to be admissible.
Consequently, it granted the State's motion to exclude the statements.
Hearsay is "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." ER 801(c). Whether a statement is hearsay depends upon the purpose
for which the statement is offered. State v. Crowder, 103 Wash. App. 20, 26, 11 P.3d
828 (2000). When a statement is offered not to prove the truth of the matter
asserted, but instead as a basis to infer something else, the statement is not
hearsay. Id.
Here, Ramm did not argue that McKissick attacked him first or that he was
acting in lawful self-defense. He did not offer the statements to prove the truth of
the matter asserted. Instead, Ramm sought to use the statements to show his
state of mind at the time of the altercation. He offered these statements to show
his objectively false belief that he was acting in self-defense. This was consistent
with Ramm's diminished capacity defense: he argued that he lacked the capacity
4
No. 74124-1-1/5
to intentionally assault McKissick, because his mental illness caused him to believe
he was defending himself. Thus, Ramm's statements were not hearsay.1
We conclude that the trial court erred in excluding Ramm's statements from
the time of his arrest. Because we hold that these statements were not hearsay,
we need not address whether they were otherwise admissible under the hearsay
exception for excited utterances.
II. Harmless Error
The State contends that even if the trial court erred in excluding the
statements, this error was harmless. It argues that McKissick's testimony
overwhelmingly demonstrated that Ramm instigated the altercation. And, it points
out that Dr. Muscatel testified as to Ramm's version of events and gave his opinion
that Ramm may have believed he was acting in self-defense.
A violation of an evidentiary rule is grounds for reversal only if it resulted in
prejudice to the defendant. State v. Howard, 127 Wash. App. 862, 871, 113 P.3d
511 (2005). An error is not prejudicial unless, within reasonable probabilities, the
outcome of the trial would have been materially affected had the error not occurred.
State v. Bourgeois, 133 Wash. 2d 389, 403, 945 P.2d 1120 (1997).
Here, the defense presented other evidence tending to show Ramm's state
of mind at the time of the altercation. Defense counsel elicited testimony from
eyewitnesses on cross-examination. Zookeeper Erin Martin testified that people
1 The trial court excluded the statements in part because they were Ramm's
own statements that painted him in a better light. But, there is no general rule that
an out-of-court statement is inadmissible hearsay because it is self-serving. State
v. Pavlik, 165 Wash. App. 645, 653, 268 P.3d 986 (2011). The fact that Ramm
himself made and offered the statements did not convert them into hearsay.
5
No. 74124-1-1/6
approached Ramm to tell him to calm down, because he was very agitated, and
that Ramm was rambling as he walked away. Bruce Walling, a grounds events
coordination supervisor, described Ramm's demeanor as agitated and upset.
Walling said that Ramm seemed "deranged." Ashley Pittman, who worked at the
zoo on the day in question, heard Ramm talking to himself, but nothing he said
made sense. She heard him say something about being a veteran and not wanting
to go back overseas. Sonja Rosas, another zoo employee, heard Ramm say
something about being in the war and having fought somebody. She testified that
she thought something might be off about Ramm's mental state, because his
words involving the war did not seem related to being kicked out of the zoo. Tonja
Duncan, a warehouser at the zoo, testified that she wrote in her report of the
incident that Ramm had quite a bit to say but none of it made sense.
And, two psychologists testified on Ramm's behalf. Dr. Wayne Winters is a
psychologist employed by Western State Hospital. Dr. Winters performed a
psychological evaluation of Ramm, based on Ramm's jail mental health records,
prior Western State Hospital reports, and Dr. Winter's clinical observations of
Ramm. Dr. Winters concluded that Ramm met the diagnostic criteria for
schizophrenia.
Dr. Kenneth Muscatel also testified. Dr. Muscatel is a psychologist who
evaluated Ramm in February and March 2015. After his evaluation of Ramm, Dr.
Muscatel concluded that Ramm had a chronic severe mental illness. Dr. Muscatel
believed that schizoaffective disorder was the best diagnosis, because that
diagnosis incorporates hallucinations and delusional thinking. During Dr.
6
No. 74124-1-1/7
Muscatel's interview of Ramm, Ramm jumped from subject to subject and
appeared to have grandiose and unrealistic thoughts. Ramm also explained that
he found being homeless to be very stressful, placing him in threatening and
vulnerable situations.
Dr. Muscatel relayed Ramm's version of the events that occurred on May
18, 2014. Ramm told Dr. Muscatel that he was confronted by someone who told
him he had to leave, and he felt threated by the person. Ramm said that the person
swung at him or hit him with a flashlight. He told Dr. Muscatel that he then took
out two sticks and became very aggressive with the other person. From this
interview, Dr. Muscatel concluded that Ramm was mentally ill on May 18 and not
taking his medication at the time. . Dr. Muscatel opined that it was possible that
Ramm,due to his mental state, believed that he was acting in self-defense and did
not know the potential consequences of his actions.
Thus, Ramm was still able to present extensive evidence as to the nature
of his mental illness. The jury heard that Ramm had a severe mental illness that
caused delusions. It heard that being homeless created additional stress for
Ramm. It heard that Ramm believed McKissick attacked him first. It heard that it
was possible that Ramm believed he was defending himself. Ramm's statements
at the time of his arrest were consistent with what Dr. Muscatel reported he was
told and relied upon in forming his opinion of diminished capacity. But, admitting
the statements would not have enhanced the expert opinion on which his defense
relied nor would they have provided new information to the jury. Therefore, we
conclude that there is not a reasonable probability that the outcome would have
7
No. 74124-1-1/8
been different had this error not occurred. The trial court's erroneous exclusion of
Ramm's statements was harmless.
111. Appellate Costs
Ramm argues that appellate costs should not be imposed. We agree.
Ramm was determined to be indigent for purposes of appeal. No evidence
suggests that Ramm's financial condition has improved or is likely to improve.
Ramm is chronically mentally ill and has spent years of his life homeless. We
presume that Ramm remains indigent. See State v. Sinclair, 192 Wash. App. 380,
393, 367 P.3d 612(2016)(noting that the Rules of Appellate Procedure establish
a presumption of continued indigency), review denied, 185 wn.2d 1034, 377 P.3d
733(2016). An award of appellate costs to the State is not appropriate.
We affirm.
WE CONCUR:
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
____________________________________
)
ELLIPSO, INC., )
)
Plaintiff, )
)
v. ) Civil Action No. 05-1186 (RCL)
)
JOHN B. MANN, et al., )
)
Defendants. )
____________________________________)
MEMORANDUM OPINION
On September 30, 2008, the Court entered final judgment in this case. (Docket entry
[220]). Now before the Court comes defendants John B. Mann and Mann Technologies’
motion [221] for attorneys’ fees and expenses. Upon consideration of the motion [221], the
opposition [228], the reply [231], applicable law, and the entire record herein, the defendants’
motion will be GRANTED.
I. BACKGROUND
In October 2002, plaintiff Ellipso was a struggling telecommunications company.
Ellipso, Inc. v. Mann, 541 F. Supp. 2d 365, 369 (D.D.C. 2008) (Lamberth, J.). At that time,
David Castiel, in his capacity as Ellipso president and chief executive officer, hired defendant
Robert Patterson to secure financing from investors. Id. Patterson structured a deal wherein
defendant Mann Technologies, L.L.C. (“Mann Tech”) loaned Ellipso $90,000, secured by
492,611 shares of ICO Global Communications Holding Ltd. Stock (“ICOHA Shares”) that
1
Ellipso held. Id. Patterson, however, the Harvard-trained lawyer who was securing financing for
Ellipso, also had an interest in Mann Technologies. Id. Accordingly, he stood to benefit from
the loan.
The loan agreement was executed on January 30, 2004, at which time the ICOHA shares
were valued at $180,000. Id. The loan agreement provided that in the event of a default by
Ellipso, Mann Tech could take possession of the collateral. See id. The loan agreement was also
“non-recourse,” meaning that Ellipso could stop performing on the loan contract, walk away, and
owe Mann Tech nothing more than the ICOHA Shares securing the loan.
Ellipso was in default from the very beginning and never made loan payments to Mann
Tech. As a result, Mann Tech foreclosed on the collateral. Ellipso filed suit against Mann Tech
on June 14, 2005. Ellipso argued that because Patterson allegedly concealed his dual role as both
an Ellipso consultant and a part owner of Mann Tech, the loan documents contained terms and
conditions extremely favorable to Mann Tech, and onerous and unconscionable to Ellipso. Mann
Tech, on the other hand, contended that Castiel, the Ellipso president and chief executive officer,
learned of Patterson’s role in Mann Tech and ratified the loan agreement anyway.
This Court granted Ellipso’s motion for preliminary injunction on November 2, 2005,
which prohibited Mann Tech from selling the shares of stock that it was holding as collateral.
Ellipso, Inc., v. Mann, No. 05-cv-1186, at *3, 2005 WL 5298646 (D.D.C. Nov. 2, 2005). The
Court determined that Ellipso had shown a likelihood of success on the merits of its fraud claim
because Patterson had not disclosed his dual role to Ellipso. Id. The Court of Appeals affirmed
this Court’s preliminary injunction on March 23, 2007. Ellipso, Inc. v. Mann, 480 F.3d 1153
(D.C. Cir. 2007).
2
On April 1, 2008, the Court considered a newly presented email dated November 16,
2004 from Ellipso president and chief executive officer David Castiel to defendant Robert
Patterson. The Court concluded, on the basis of the newly presented e-mail,1 that Ellipso had
knowledge of Mr. Patterson’s stake in Mann Tech no later than June 2004. Ellipso, 541 F. Supp.
2d at 371. Subsequent to that date, Ellipso performed several acts in affirmation of the loan
agreement, including negotiating and executing an amendment to the loan agreement, accepting a
check pursuant to the loan agreement amendment, and transferring collateral to Mann Tech. Id.
at 371–72. Accordingly, the Court determined that Ellipso could no longer assert that it had an
equitable claim to the collateral and granted summary judgment to Mann Tech on many of
Ellipso’s claims. Id. at 372. The Court also dissolved the preliminary injunction as to all
defendants. The Court later awarded the Mann Defendants’ damages suffered as a result of the
preliminary injunction. (Mem. Op. [215] at 9.)
As for Ellipso’s claims that remained following the summary judgment stage, the Court
held a seven day jury trial. Ultimately, the Court granted both parties’ motions for judgment as a
1
The e-mail by Castiel states: “In particular I never knew until May/June 2004 that you
were the 50% owner of Mann Tech and you had a stake in the upside of the [ICOHA] stock.”
(See Email from Castiel to Patterson (Nov. 16, 2004, Ex. 21 to Mot. [144] for Summ. J.)).
3
matter law and dismissed all claims and counterclaims.2 Final judgment was entered on
September 30, 2008. (Docket entry [220]).
The Mann Defendants now request attorneys’ fees.
II. APPLICABLE LAW
Absent a statute to the contrary, federal courts in this country operate under the
‘American rule’ that the prevailing party may not recover attorneys’ fees as costs or otherwise.
Alyeska Pipeline Servs. Co. v. Wilderness Society, 421 U.S. 240, 245 (1975). However, there are
a couple of exceptions to this general rule. First, a court may assess attorneys’ fees “when the
losing party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons.” Id. at 258;
See also American Hosp. Ass’n v. Sullivan, 938 F.2d 216, 220 (D.C. Cir 1991) (stating that bad
faith may be found where a “party is forced to undertake otherwise unnecessary litigation to
vindicate plain legal rights”). Second, of course, parties can contract around the American rule
through an attorney fee-shifting provision in a contract. See Liberty Mut. Ins. Co. v.
Lumbermen’s Mut. Cas. Co., 172 F.3d 919, slip op. at *1 (D.C. Cir. Jan. 20, 1999)
(unpublished).
2
In the Court’s August 5, 2008 oral rulings granting the parties’ motions for judgment as a
matter of law, the Court stated several key facts that emerged from the trial: (1) the loan
agreement generated over $100,000 for Ellipso; (2) Ellipso knew of Patterson’s Mann Tech
participation no later than June 2004 and subsequently affirmed the loan agreement; (3) at the
time of forfeiture, the value of the collateral securing Ellipso’s loan had dipped significantly
below the outstanding loan amount; (4) the loan was “non-recourse,” meaning that Ellipso could
stop performing on the loan contract, walk away, and owe Mann Tech nothing more than the
ICOHA shares securing the loan; (5) Ellipso was in default from the moment Mr. Castiel signed
the agreement; (6) Ellipso chose to walk away from the loan agreement; and (7) Mann Tech
exercised its right to foreclose on the collateral.
4
If attorneys’ fees are to be awarded, the court must multiply the “number of hours
reasonably expended on the litigation” by a “reasonable hourly rate.” Harrison Music Corp. v.
Tesfaye, 293 F. Supp. 2d 80, 85 (D.D.C. 2003) (Leon, J.). In this Circuit, “an attorney’s usual
billing rate is presumptively the reasonable rate, provided that this rate is in line with those
prevailing in the community for similar services by lawyers of reasonably comparable skill,
experience and reputation.” Kattan by Thomas v. District of Columbia, 995 F.2d 274, 278 (D.C.
Cir. 1993).
III. ANALYSIS
A. Mann Tech is Entitled to Attorneys’ Fees
The central allegation that gave rise to the plaintiff’s claims was that Castiel did not know
of Patterson’s dual role while negotiating and reaffirming the loan agreement. Ellipso repeatedly
made this allegation in pleadings and during discovery.3 However, as a result of an e-mail that
was produced well into the litigation,4 the Court learned that this allegation was untrue. Ellipso
did know of Patterson’s role in Mann Tech in June 2004 at the latest, yet still ratified the loan
agreement. In other words, the key “fact” that Ellipso used to instigate this litigation was
patently false. Ellipso repeatedly made this false allegation and it was the critical fact upon
3
See e.g., Ellipso’s Responses to Mann Defendants’ Request for Admissions (Mann
Def.’s Mot. [221] for Atty.’s fees, Ex. 7, at ¶ 5, 6, 8, 34) (Ellipso repeatedly denying that it knew
of Robert Patterson’s interest in Mann Tech as of August 2, 2004); (Mot. [4] for Preliminary Inj.
7) (stating that Ellipso would still have the ICOHA stock if it knew of Patterson’s dual-role).
4
The critical e-mail was produced by Robert Patterson, not by Ellipso. Ellipso states that
it did not produce the critical e-mail, and many other e-mails that were relevant to the case,
because of computer failures. (Pl.’s Opp’n to Mot. for Atty.’s Fees at 5.)
5
which the litigation turned;5 this leads the Court to conclude that Ellipso intentionally made this
false allegation.
Ellipso argues that even if Castiel did know of Patterson’s interest in Mann Tech in June
of 2004, there is no evidence that he knew of Patterson’s interest from January to June of 2004.
Therefore, Ellipso argues, Castiel did not know of Patterson’s interest when the original loan
agreement was executed and was not operating in bad faith by filing a lawsuit. (Def.’s Opp’n at
4–5.)
Indeed, with respect to the claims that survived summary judgment, the Court originally
agreed with the plaintiff. “[W]here a party to an executed contract discovers a material
misrepresentation made in the execution of a contract, that party may elect one of two mutually
exclusive remedies. He may either affirm the contract and sue for damages, or repudiate the
contract and recover that with which he or she has parted.” Ellipso, Inc. v. Mann, 480 F.3d 1153,
1158 (D.C. Cir. 2007). Accordingly, it appeared that some of Ellipso’s claims may have had
merit even though it ratified the contract after it learned of Patterson’s dual-role. After
conducting the seven day jury trial, however, it became apparent that when Mann Tech
foreclosed on the collateral the shares were worth considerably less than the $100,000 that
Ellipso obtained from the loan. Accordingly, Ellipso suffered no provable damages and appears
to have pursued the lawsuit merely to harass Mann Tech.
Regardless, Ellipso’s argument is a red herring. It fails to explain its conduct with regard
to the claims that did not survive summary judgment, in which Ellipso stated that it was entitled
5
See e.g., Ellipso, Inc. v. Mann, 480 F.3d 1153, 1159 (D.C. Cir. 2007) (affirming this
Court’s preliminary injunction because Mann Tech had not shown that Ellipso knew of
Patterson’s dual-roles before Ellipso affirmed the loan agreement).
6
to a rescission of the contract because it was unaware of Patterson’s interest in Mann Tech prior
to August of 2004. After examining the November 16, 2004 e-mail from Castiel, the Court
determined that Ellipso’s prior submissions about when Castiel possessed the relevant
knowledge of Patterson’s role in Mann Tech was false. In other words, Castiel misrepresented
the critical fact upon which the litigation turned. This misrepresentation alone constitutes bad
faith. See Scott-Blanton v. Universal City Studios Productions LLLP, No. 07-0098, 2009 WL
97254 at *3 (D.D.C. January 15, 2009) (Urbina, J.) (stating that attorneys’ fees can be awarded
when a plaintiff persists in pursuing a claim that it knows from the outset is false and wastes
counsel and the court’s resources). This false and misleading argument not only occurred in
discovery, but also before this court and in the Court of Appeals.6
Mann Tech is also entitled to attorneys’ fees on the independent ground that a fee-shifting
provision was included in the loan contract between Ellipso and Mann Tech. The Collateralized
Loan Agreement, signed on January 30th 2004, states that:
“[I]n the event this Loan Agreement shall be successfully enforced by suit or
otherwise, Borrower will reimburse the Lender or holder or holders of the
Obligations, upon demand, for all reasonable expenses incurred in connection
therewith, including, without limitation, reasonable attorneys’ fees and expenses.”
(Compl. Ex. 2, Collateralized Loan Agreement, ¶ 8.14.)
Of course, there is some question as to whether Mann Tech “successfully enforced” the
Loan Agreement since it did not file suit on the basis of the loan agreement (it was the defendant
6
See, e.g., Brief of Appellee, 2006 WL 3146834 (D.C. Cir. 2006) (stating that the District
Court’s factual finding that “Patterson acted as an undisclosed dual agent when he negotiated the
Loan Agreement on behalf of Ellipso and later advised Ellipso to transfer title to and possession
of the ICOHA shares to Mann Tech” should be affirmed). Of course, Ellipso did not transfer title
and possession of the ICOHA shares to Mann Tech until August of 2004, which we now know
was after Castiel knew about Patterson’s dual-role.
7
in this case), and it did not prevail on its counterclaims. However, because the language in the
loan agreement states “successfully enforced by suit or otherwise” (emphasis added), the Court
concludes that the contract contemplated Mann Tech enforcing the Loan Agreement by
defending its right to foreclose on the collateral. Since the Court concluded, following the trial,
that the terms of the loan allowed Mann Tech to foreclose on the collateral, which it did, and then
Mann Tech successfully defended itself in a lawsuit by Ellipso disputing that right, the fee-
shifting provision applies.
Ellipso also argues that Mann Tech’s motion for attorneys’ fees was untimely because it
did not raise the claim that it was entitled to attorneys’ fees on the basis of bad faith or the
Collateralized Loan Agreement at trial. As this Court stated when it granted Mann Tech’s
motion for reconsideration, it could not have ruled on whether or not Mann Tech was entitled to
attorneys’ fees at trial because it was unclear which party would prevail. (Docket entry [218] at
2.) As a result, it is no surprise that Mann Tech presented argument in support of its request for
attorneys’ fees following trial, after it was clear that it was the prevailing party. Mann Tech’s
motion for reconsideration of the attorneys’ fees issue on the basis that it was the prevailing party
was made within 10 days of the entry of judgment and therefore was timely.
B. Award Amount
1. Attorneys’ Fees
Mann Tech requests $283,382.28 in attorneys’ fees. Of that request, $8,584 are
attributable to the preparation, filing, and defense of the counterclaims. Mann Tech cannot
recover the amount of fees attributable to its counterclaims because it was not successful on
8
those claims. See Copeland v. Marshall, 641 F.2d 880, 891–92 (D.C. Cir. 1980) (“[N]o
compensation should be paid for time spent litigating claims upon which the party seeking the
fee did not ultimately prevail.”). That amount also includes the attorneys’ fees incurred in
conjunction with the preliminary injunction that was issued in this case. The Court has already
awarded $73,484.24 worth of attorneys’ fees that were billed in conjunction with the preliminary
injunction.7 Therefore, the plaintiffs cannot get double recovery for that amount. Taking the
$283,382.28 and subtracting the $8,584 (fees related to counterclaim) and 73,484.24 (fees
already awarded), leaves $201,314.04.
The Court has also scrutinized that figure for reasonableness. Most of the legal work in
this case was billed at $250 or $300 an hour. For example, Christopher Hoge, who has been in
practice since 1975, was billing Mann Tech at $300 an hour during trial. The Court finds that
this is a reasonable rate for an attorney with his experience and competence in the Washington,
D.C. area. The other legal bills in the case appear to be similarly reasonable. The total figure of
$201,314.04 is reasonable and appropriate in this case.
Ellipso makes no specific objections to the attorneys’ fees, but merely argues that Mann
Tech did not meet its burden of showing: (1) the attorneys’ billing practices; (2) the attorneys’
skill, experience, and reputation; and (3) the prevailing market rates in the relevant community.
7
Mann Tech actually sustained $110,420.76 in damages as a result of the preliminary
injunction. However, the Court felt that it was limited in awarding damages to the amount of the
injunction bond, which was $100,000. The Court stated at the time that it was awarding the
$26,515.76 in monetary damages and the remainder of the $100,000 in attorneys’ fees. The
Court also stated that with regard to the preliminary injunction it was obligated to cap the
damages award at $100,000, but that in the event that Mann Tech was entitled to attorneys’ fees
in the case as a whole, it could recover the remaining $10,420.76. (Docket entry [215] at 5, 9
n.9.) That amount is included in the $201,314.04 award.
9
Covington v. District of Columbia, 57 F.3d 1101, 1107 (D.C. Cir. 1995). To the contrary, Mann
Tech has met its burden. It has attached its legal bills as exhibits to its motion, reflecting its
attorneys’ billing practices. The Court has observed the attorneys’ performances in pleadings
and during trial, and the bulk of the trial work was billed by Christoper Hoge, who has over 30
years of legal experience. Finally, the Court can take judicial notice that $300 an hour is indeed a
fair rate for legal work according to the prevailing market rates in the Washington D.C. area.
Ellipso makes no specific objections to the amount of hours billed or the hours calculation, the
number of employees that were working on the case, or the amount that Mann Tech spent on the
counterclaim compared to the amount it spent defending itself against the primary claim.
2. Other Costs
Mann Tech also requests $75,862 in expenses for the time John Mann spent at
depositions, trial, and consulting his attorneys. He also requests an additional $72,000 because
John Mann could have spent that time billing clients as a consultant. Mann Tech cites no case
law for the proposition that a party is entitled to fees for his time spent participating in litigation
as part of an attorneys’ fee award, nor is the Court aware of any.8 In addition, Mann Tech does
not list these expenses with the specificity required, stating only that his presence was “necessary
to assist in the defense against Ellipso’s lawsuit.” Accordingly, Mann Tech will not be awarded
the additional costs it requests.
8
The Collateralized Loan Agreement likewise does not provide relief for these costs.
That agreement limits the amount of recovery to “reasonable expenses.” Because time spent by a
party at trial is generally not awarded by courts as a part of the “reasonable expenses” of
litigation, the Court will not do so in this case. There is no indication that the parties’ fee-
shifting agreement was intended to expand the ordinary meaning of attorneys’ fees and expenses
in the way that Mann Tech argues.
10
IV. CONCLUSION
Mann Tech is entitled to attorneys’ fees of $201,314.04 on two independent grounds: (1)
Ellipso instituted its lawsuit in bad faith, misrepresented the critical fact upon which the litigation
turned, and continued to pursue vexatious claims even in the absence of any damages; and (2)
Mann Tech successfully enforced the loan agreement and therefore is entitled to attorneys’ fees
pursuant to the parties’ fee-shifting agreement. Mann Tech’s motion for attorneys’ fees will be
GRANTED.
A separate order shall issue this date.
SO ORDERED.
Signed by Chief Judge Royce C. Lamberth on January 29, 2009.
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
GHALEB NASSAR AL BIHANI, )
)
Petitioner, )
)
v. ) Civil Case No. 05-1312 (RJL)
)
BARACK H. OBAMA, et al., )
)
Respondents. )
-fv
MEMORANDUM ORDER
(January '28 , 2009)
Petitioner, Ghaleb Nassar Al Bihani ("petitioner" or "AI Bihani"), is a detainee
being held at the U.S. Naval Base at Guantanamo Bay, Cuba. He alleges that he is being
unlawfully detained by Respondents President Barack H. Obama,l Secretary of Defense
Robert M. Gates, Army Brigade General Jay Hood, and Army Colonel Nelson J. Cannon
(collectively "respondents" or the "Government"). On January 15, 2009, the Court
commenced habeas corpus hearings for petitioner Al Bihani. That morning, counsel for
both parties made unclassified opening statements in a public hearing. Petitioner Al
Bihani listened to a translation of the opening statements via a live telephone
transmission to Guantanamo Bay, Cuba.
Pursuant to Federal Rule of Civil Procedure 25(d), if a public officer named as a
party to an action in his official capacity ceases to hold office, the court will automatically
substitute that officer's successor. Accordingly, the Court substitutes Barack H. Obama for
George W. Bush, and Robert M. Gates for Donald H. Rumsfeld.
1
Thereafter, the Court went into a closed door session to hear each side present
opening statements that included relevant classified information. Upon completion of
those statements, each side presented its evidence and arguments regarding various
material issues of fact in dispute between the parties. That presentation was not quite
completed by the early evening of January 15,2009, so the Court reconvened the next
morning. After counsels' presentation was completed, petitioner Al Bihani decided not
to testify on his own behalf. Thereafter the Court heard the closing arguments of the
parties. At the end of those arguments, the Court informed the parties that it would hold
a public hearing to announce its decision within the next ten days. A classified version of
this opinion, setting forth in greater detail the Court's reasoning, will be distributed
through the Court Security Office next week, together with the Final Judgment.
Before stating the Court's ruling, a brief statement of the relevant factual and
procedural history is appropriate.
BACKGROUND
Petitioner Al Bihani, a citizen of Yemen and a native of Saudi Arabia
(Unclassified Opening at 7:2-4), left home sometime in or around May 2001 in response
to a fatwa (religious decree) issued by a local Sheikh to fight jihad in support of the
Taliban against the Northern Alliance. (Id. at 17:6-8.) Petitioner traveled first to
Pakistan, where he was met by a family friend who escorted him to Afghanistan. (Id. at
17:14-23.) In Kwajah Ghar, Al Bihani allegedly received military training at an al Qaida
camp, and then joined a military unit, the 55 th Arab Brigade. (Id. at 11 :3-24, 17:24-
18:21; Unclassified Factual Return Narrative at 11.) That unit engaged in military
2
operations against the Northern Alliance near Khwajeh Ghar, Afghanistan. In late
November 2001, Al Bihani retreated with his unit after the initiation of bombing by the
U.S. and allied forces. (Unclassified Opening at 19:3-9.) They regrouped at a guest
house near the Pakistani boarder and eventually surrendered to a Northern Alliance
commander. (Id.) After a series of detentions at different facilities, Al Bihani was given
over to the U.S. Forces in June 2002. (Unclassified Factual Return Narrative at ~ 32
[Dkt. #83-2]; Unclassified Opening at 14:24-25--15:1-11.) He was transferred thereafter
to Guantanamo where he has remained since his arrival.
In the aftermath of the Supreme Court's decision in Rasul v. Bush, 542 U.S. 466,
473 (2004) (holding that 28 U.S.C. § 2241 extended statutory habeas jurisdiction to
Guantanamo), petitioner Al Bihani filed his habeas corpus petition with the Court on June
30,2005. (Pet. for Writ of Habeas Corpus [Dkt. #1].) As with the hundreds of other
petitions filed around that time, no action was taken by the Court on that petition until the
Supreme Court finally ruled on June 12, 2008, in Boumediene v. Bush, 128 S. Ct. 2229
(2008), that Guantanamo detainees are "entitled to the privilege of habeas corpus to
challenge the legality of their detention." Id. at 2262.
In the month that followed the Boumediene decision, this Court met with counsel
in Al Bihani's case on two occasions to discuss issues unique to his case and procedural
issues attendant to the habeas process. On July 30, 2008, this Court ordered the
respondents to file their Factual Return for petitioner Al Bihani by November 24,2008.
(Briefing and Scheduling Order, July 31, 2008 [Dkt. #53].) Respondents complied with
that order.
3
On November 28, 2008, the Court issued its Case Management Order (CMO) for
the case. (CMO [Dkt. #79].) That order was essentially identical to the earlier CMO
issued by the Court in Boumediene v. Bush, No. 04-cv-1166, on August 27,2008. On
December 4, 2008, the Court met with counsel in chambers to discuss any issues raised
after reviewing the Factual Return.
On December 5, 2008, the Government filed an unclassified version of its Factual
Return. (Notice of Filing of Unclassified Return [Dkt. #83].) Petitioner's counsel had
filed a motion for leave to take discovery the preceding day, making fourteen separate
requests for admissions and documents. (Notice of Documents Previously Filed with the
Court Security Office [Dkt. #87].) The Court held a discovery hearing on December 11,
2008, and granted one of petitioner's requests.
On January 2, 2009, petitioner Al Bihani filed his initial Traverse setting forth the
factual basis for his opposition to the Government's return. (Notice of Documents
Previously Filed with the Court Security Office [Dkt. #87].) On January 9, 2009,
Petitioner filed a supplement to his Traverse. On the same day, the Court held a pre-
hearing conference with counsel to identify the material issues of fact in dispute between
the parties and to discuss any legal or procedural issues that needed to be resolved before
the habeas hearing commenced. On January 13,2009, petitioner filed a second
supplement to his Traverse. The Government filed a Pre-Hearing Memorandum in
Response to Petitioner's Traverse on January 13,2009, and the Petitioner responded on
January 14,2009.
4
Based on a careful review of the Factual Return and the Traverse, and after a day
and a half of hearings on the factual issues in dispute and the oral arguments of the
parties, the following is the Court's ruling on petitioner Al Bihani's petition.
LEGAL STANDARD
Under the CMO, the Government bears the burden of proving, "by a
preponderance of the evidence, the lawfulness of the petitioner's detention." (CMO, ~
II.A.) The Government argues that petitioner is lawfully detained because he is an
"enemy combatant," who can be held pursuant to the Authorization for Use of Military
Force and the President's powers as Commander in Chief. 2 The following definition of
"enemy combatant," previously adopted by this Court in the Boumediene cases, governs
the proceedings in this case:
An "enemy combatant" is an individual who was part of or
supporting Taliban or al Qaeda forces, or associated forces
that are engaged in hostilities against the United States or its
coalition partners. This includes any person who has
committed a belligerent act or has directly supported
hostilities in aid of enemy armed forces.
Boumediene v. Bush, 2008 WL 4722127, at *2 (D.D.C. Oct. 27, 2008). Accordingly, the
question before this Court is whether the Government has shown by a preponderance of
2
In response to the September 11 th terrorist attacks, Congress passed a joint
resolution authorizing the President to:
[U]se all necessary and appropriate force against those nations,
organizations, or persons he determines planned, authorized, committed, or aided
the terrorist attacks that occurred on September 11, 2001, or harbored such
organizations or persons, in order to prevent any future acts of international
terrorism against the United States by such nations, organizations or persons.
Authorization for Use of Military Force, Pub. L. No. 107-40, §§ 2(a), 115 Stat. 224 (Sept.
18,2001).
5
the evidence that petitioner Al Bihani is being lawfully detained-i.e., that he is an
"enemy combatant" under the definition adopted by this Court.
ANALYSIS
The Government contends that petitioner Al Bihani is an enemy combatant under
the definition adopted by this Court in Boumediene because he was "part of or supporting
Taliban or al Qaeda forces." Boumediene, 2008 WL 4722127 at *2. In particular,
respondents allege that petitioner Al Bihani: (1) stayed at an al Qaeda affiliated
guesthouse in Afghanistan; (2) received military training at an al Qaeda affiliated training
camp, and (3) supported the Taliban in its fight against the Northern Alliance and U.S.
th
forces as a member of the 55 Arab Brigade.
Petitioner Al Bihani, not surprisingly, disagrees. While he admits to traveling to
Afghanistan to fight jihad on behalf of the Taliban against the Northern Alliance, he
claims he was never a member of the Taliban or al Qaeda, and he denies ever intending to
take up arms against U.S. forces. (Unclassified Opening at 7:23-8:5.) Moreover, he
claims to have been a mere cook in the 55 th Arab Brigade, and in 2004 he denied ever
receiving military training, (Unclassified Opening at 12:14), notwithstanding the fact that
he had previously and subsequently admitted to doing so on numerous occasions. For the
following reasons the Court concludes that the Government has met its burden under the
Case Management Order and will DENY Al Bihani's petition for a writ of habeas corpus.
The Government's evidence is a combination of certain statements of the
petitioner that the Court finds credible and certain classified documents that help
establish the most likely explanation for, and significance of, petitioner's conduct. Due
6
to the unclassified nature of this proceeding, however, the Court is limited to the
following explanation of the factual basis of the Government's case.
First, with respect to staying at particular al Qaeda affiliated guesthouses in
Afghanistan, the Government was able to establish this allegation by a preponderance of
the evidence by relying primarily on petitioner's own admissions. (See Unclassified
Opening at 17 :24-18:9.) The Court finds these admissions to be credible and consistent
not only with respect to his visits, but also with his overall trip to Afghanistan to
participate in jihad on behalf of the Taliban against the Northern Alliance.
Next, with respect to the Government's allegations that petitioner attended two al
Qaeda affiliated training camps (Le. al Farouq and Khalid bin Al Walid), the Court is
posed with the novel dilemma of choosing between two diametrically opposed accounts
by petitioner about receiving military training; the second of which being a wholesale
recantation of the first. (GEx. 49 at 4 [Dkt. #83-4].) In particular, from January 2002 to
June 2005, petitioner consistently acknowledged in numerous interrogation sessions that
he had attended both of these al Qaeda affiliated training camps as a part of his
preparation to join the 55 th Arab Brigade. Indeed, on a number of occasions he described
in significant detail the training regiment, method of instruction, and instructors at these
camps. In June of 2006, however, he suddenly reversed course when he testified as part
of his ARB hearing that he had never received military training at any time. (GEx. 49 at
4-5 [Dkt. #83-4].) Curiously, in an interrogation session after his ARB proceeding, he
reversed course once again and acknowledged attending these military training camps.
While it is tempting to resolve this dispute on behalf of the Government by accrediting,
7
as a matter of common sense, Al Bihani's longstanding and consistent admission to
attending those camps, the Court will refrain from doing so as unnecessary in light of the
overwhelming and consistent testimony of the petitioner in support of the Government's
third allegation.
As stated previously, the Government's final, and most telling, allegation is that
the petitioner, as a member of the SSth Arab Brigade fighting unit, "supported" the
Taliban in its fight against the Northern Alliance both prior to and after the initiation of
force by the U.S. in October 2001. In that regard, however, petitioner strongly contends
that his service in the SSth Arab Brigade was limited to serving as a cook and kitchen aid
to its ISO-plus fighters. Although he acknowledges being assigned a rifle and
ammunition, (Unclassified Opening at 18:13), Al Bihani contends that he never fired the
rifle in a battle against the Northern Alliance, let alone the United States and its allied
forces. Unfortunately petitioner misconstrues the concept of "support" inherent in the
enemy combatant definition. It is not necessary, as this Court ruled previously in the Al
Alwi case (Ghazy et al. v. Bush et aI., No. OS-2223, Dkt. # 107 at 8 (D.D.C., filed Nov.
IS, 200S», that petitioner actually fire a weapon against the U.S. or coalition forces in
order for him to be classified as an enemy combatant under the definition adopted by this
Court. Petitioner has not only admitted to serving under an al Qaeda military
commander, but his close ties to Taliban and al Qaeda affiliated forces as a member of
the Arab Brigade unit, albeit in a non-front-line capacity, is more than enough. Indeed, it
is particularly telling that when he finally retreated from the front lines, he did so only:
(1) after the U.S. had commenced its bombing campaign against the Taliban; (2) in
8
response to an order from his commander; (3) with Taliban forces, in Taliban trucks, and
armed with his Taliban-issued Kalashnikov rifle; and (4) to a designated guesthouse
where the unit went to regroup in preparation for its next mission. (GEx. 6 at 7-10.) Of
course, it was at that location, that his unit commander ultimately decided to surrender to
the Northern Alliance troops headed by General Dostum. (GEx. 6 at 10.) Simply stated,
faithfully serving in an al Qaeda affiliated fighting unit that is directly supporting the
Taliban by helping to prepare the meals of its entire fighting force is more than sufficient
"support" to meet this Court's definition. After all, as Napoleon himself was fond of
pointing out: "an army marches on its stomach."
Thus, based on the evidence presented by the Government and all reasonable
inferences drawn therefrom, the Court concludes that petitioner Al Bihani is being
lawfully detained as an enemy combatant because it is more probable than not that he
was "part of or supporting Taliban or al Qaeda forces" both prior to and after the
initiation of u.S. hostilities in October 2001. Accordingly, the Court must, and will,
DENY Al Bihani's petitioner for a writ of habeas corpus and will not order his release.
9
CONCLUSION
For all the foregoing reasons, and for the reasons in the forthcoming classified
version of this opinion, it is hereby
ORDERED that petitioner Al Bihani's petition for writ of habeas corpus is
DENIED.
SO ORDERED. I
~tjU~
RICHARDJ.
United States District Judge
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66 F.2d 612 (1933)
UNITED STATES
v.
LESSER et al.
No. 487.
Circuit Court of Appeals, Second Circuit.
August 1, 1933.
Morris Kamber, of New York City (Otho S. Bowling, of New York City, of counsel), for appellant Henry Lesser.
Anthony P. Savarese, of Jamaica, L. I. N. Y., for appellant Forrest E. James.
Alfred D. Van Buren, of New York City, for appellant Philip M. Lahn.
Howard W. Ameli, U. S. Atty., of Brooklyn, N. Y. (Herbert H. Kellogg, Donald C. Strachan, and Emanuel Bublick, Asst. U. S. Attys., all of Brooklyn, N. Y., of counsel), for the United States.
Before MANTON, L. HAND, and AUGUSTUS N. HAND, Circuit Judges.
AUGUSTUS N. HAND, Circuit Judge.
Henry Lesser, Forrest E. James, Philip M. Lahn, Walter E. Anderson, and Henry Henners were indicted for conspiring to violate section 2 of the Federal Food and Drugs Act of June 30, 1906 (21 USCA § 2). The indictment against Anderson was dismissed, and the jury found Henners was not guilty. Lesser, James, and Lahn were convicted and have all appealed.
The indictment alleged that the defendants *613 conspired to "introduce, ship and deliver for shipment from one State to another State adulterated and misbranded foods and drugs" and to "sell, transport, deliver and introduce, ship and deliver for shipment from one State to another State, a large quantity of fluid extract of ginger * * * which was then and there adulterated in that it differed from the standard strength, quality and purity of fluid extract of ginger as determined by the tests laid down in the United States Pharmacopia. * * *" The indictment also alleged that the defendants were doing business under the fictitious names of Jordan Brothers, S. A. Hall, and Charles M. Pomeroy, and that the conspiracy continued from June 1, 1929, to February 1, 1932.
Section 2 of the Food and Drugs Act (21 USCA § 2) makes any person guilty of a misdemeanor who shall ship or deliver for shipment from any state to any other state "any article of food or drugs which is adulterated or misbranded, within the meaning of sections 1 to 15. * * *" The term "drug" is defined in the act as including "all medicines and preparations recognized in the United States Pharmacopia or National Formulary for internal or external use." Section 7, 21 USCA. In section 8, 21 USCA, a drug is defined as adulterated if, when it "is sold under or by a name recognized in the United States Pharmacopia or National Formulary, it differs from the standard of strength, quality, or purity, as determined by the test laid down in the United States Pharmacopia or National Formulary official at the time of investigation." But it is provided that no drug shall be deemed to be adulterated "if the standard of strength, quality, or purity be plainly stated upon the bottle, box, or other container thereof although the standard may differ from that determined by the test laid down in the United States Pharmacopia or National Formulary."
We think that the government introduced evidence at the trial which justified the jury in finding that there was such a conspiracy as the indictment alleged and that all three of the defendants-appellants participated in it.
The defendant Lesser was interested in a flavoring and fruit extract business, having its headquarters at 601 Bergen street, Brooklyn, N. Y., known as the Fulton Chemical Works. It manufactured and supplied fluid extract of ginger and various fruit extracts to customers in many parts of the United States, among others, California Extract Company, Los Angeles, Cal., of which Jacob Rosenbloom, the half-brother of Lesser, was the owner, K. & K. Drug Company, of Newport, Ky., owned by Sol Kauffman, Leo B. Dreyfoos, of Cincinnati, Ohio, and Prescott B. Burkett, who did business under the name of Valo Products Company, Kansas City, Lone Star Company, Dallas, Tex., and American Products Company, Kansas City. From the year 1925 on, Rosenbloom's concern purchased Jamaica ginger extract from the Fulton Chemical Works and in the latter part of 1930 and early part of 1931. Lesser went west to see his half-brother in the latter part of 1929. Just before Rosenbloom ceased to do business in the early part of 1931, the sales were made to him in the names of Jordan Brothers and S. A. Hall. The evidence identified the latter with Fulton Chemical Works. Some of the ginger shipped in the name of Jordan Brothers was found upon a chemical examination to have been adulterated.
Sol Kauffman conducted business under the name of K. & K. Drug Company. He began doing business with the Fulton Chemical Works of 601 Bergen street about 1925 and 1926, and met James, Lesser, Lahn, and Henners at that place. He did business with the same concern in 1929 and the early part of 1930, when he ceased doing business. Fluid extract of ginger was sent to him under invoices of Fulton Chemical Works, Decker Ingraham & Smith, J. Carboy, and S. A. Hall, and he made his checks payable to the order of the person or concern named in the invoice. The orders, however, were given to the Fulton Chemical Works. An invoice dated February 13, 1930, was in the name of S. A. Hall. Kauffman discussed with Lesser the business of fruit extracts and extract of ginger and the prices of goods he had ordered from the Fulton Chemical Works (fol. 1713) during the latter part of the year 1929 when Lesser was in Cincinnati on business. Kauffman said that Lesser was connected with Fulton Chemical Works in 1929 and early in 1930 (fol. 1926).
Dreyfoos, of Cincinnati, testified that he purchased fluid extract of ginger from Lesser, James, and Lahn in 1927, 1928, 1929, and up to the latter part of February, 1930; that he would give orders to Lesser, James or Lahn and, when he sent in written ones, would send them to 601 Bergen street, Brooklyn, the office of the Fulton Chemical Works. Merchandise would be shipped in the names of this company and of S. A. Hall and J. Carboy, and the check would be made out to the person named in the invoice, but the orders would be given to Fulton Chemical Works. *614 Lesser and James were at the Gibson Hotel in Cincinnati in the early part of 1930.
Preston D. Burkett testified that he had had business relations with Lesser, James, and Lahn. He admitted making purchases from Lesser as the Fulton Chemical Works in 1924. He refused to disclose what they were on the ground that to answer might tend to incriminate him, but denied that he purchased extract of ginger from them in 1929 or 1930. On the same ground he refused to say whether he purchased it from S. A. Hall or Jordan Brothers in 1929 or 1930, and likewise refused to say whether he had any correspondence with James in 1929 and 1930. It was, however, shown by another witness named Darnell that he and Burkett, under the name of Valo Products, purchased adulterated ginger extract in 1930 and 1931 from Jordan Brothers and Pomeroy. There was evidence showing those persons were identified with Fulton Chemical Works.
Various other witnesses testified to dealings with Lesser in connection with the Fulton Chemical Works but at dates prior to 1929.
We think that the foregoing proof was sufficient to justify a jury in finding that Lesser continued in the business of the Fulton Chemical Works and of the individuals and concerns allied with it in the sale of fluid extract of ginger in interstate commerce. He offered no proof of severance from the association with the Fulton Chemical Works which had once existed and had continued for years. Though the earliest shipment of adulterated and misbranded fluid extract of ginger established was of the date of December 4, 1930, and the latest connection of Lesser with the conspiracy specifically shown was in February, 1930, it may reasonably be inferred that his proved relation continued in the absence of any evidence to the contrary. The "presumption of continuance," so called, justified the jury in believing that Lesser remained connected with Fulton Chemical Works throughout the period of the conspiracy during which the illegal shipments which were pleaded occurred. Commonwealth v. Fragassa, 278 Pa. 1, 122 A. 88; Easterday v. United States, 53 Ohio App. D. C. 387, 292 F. 664; Paterson v. Mobile Steel Co., 202 Ala. 471, 80 So. 855; Cooper & Peabody v. Dedrick, 22 Barb. (N. Y.) 516.
The so-called "Jim" letters written by the defendant James to Preston D. Burkett not only show the connection of James with the conspiracy, but greatly re-enforce the case against Lesser. Exhibit 153, which is apparently dated January 15, 1931, says that Harry "suggested that you destroy all your records as understand they want to try and subpna them for the cases which are coming up." In Exhibit 155, which is under date of March 24, 1931, is the statement:
"Harry did not see his party Sat. but he talked to him by phone and was told not to worry. Have not heard from the Coast since I wrote to you last. They were supposed to be on trial yesterday in some small town and surely hope they come out O. K. If only they can smooth that thing out there is still some hope that the business will come back somewhere near normal and if it does we all will have to try our `darndest' to keep it clean."
It is to be noted that prior to March 24, 1931, there had been a shipment of fluid extract of ginger in the name of Jordan Brothers to the California Extract Company which was found by the analysis of the chemists to be poisonous.
In Exhibit 157, under date of March 28, 1931, we find the following:
"Haven't heard a word from California so we have been unable to even guess what happened Monday. * * * Certainly will be glad when that matter is adjusted and naturally hope that they go no further than fines, and that they do not put an embargo on future shipments. * * *
"Oh, well, why worry, they may have us down but so far we are not out and to use Harry's pet expression, `everything will be all right in the morning.'"
In Exhibit 161, under date of May 27, the writer says:
"Have been unable to make shipment of your two barrels because we have been out of merchandise and have been after Harry for 10 days to get some in, but he is so dizzy that I don't know what is going to happen. If I don't get something definite from him within a day or two I will go out myself and get some goods and see that your order is filled. He seems to think that the racket is about over and wants to close up shop and quit. * * *"
On May 29 (Exhibit 162), James writes that:
"Harry and I haven't gotten together regarding the future but I did not want to hold you up any longer so went ahead and handled everything myself. He is coming in Monday and we will then decide definitely whether we continue or whether he drops out and I carry along alone for awhile."
*615 In Exhibit 163, dated June 5, 1931, James writes:
"Had another long chat with Harry today at lunch and he thoroughly understands now that I am going ahead alone and try and get the four samples approved. * * *
"Hated like the devil to break away from Harry because he certainly has been a wonderful friend but he has other things on his mind and did not want to follow along on my proposition so I just must follow along by myself. * * *"
In Exhibit 164, dated June 11, 1931, James writes about a mistake in the last shipment and says:
"Sorry about this but Harry had me going around in circles while he was trying to make up his mind what to do. When he finally decided to step out I rushed too fast and was depending on memory, hence the error."
To this exhibit is appended a financial statement dated June 11, 1931, showing a payment on August 1, 1930, to H. L. of $1,153.80. "Harry" and "H. L." were evidently the defendant Lesser. The foregoing letters show that the defendant Lesser was closely identified with James in the shipments to California and to the companies with which P. D. Burkett was connected and that this relation continued until June, 1931.
It is perhaps unnecessary to refer to other evidence than the "Jim" letters to show the participation of James in the conspiracy, but there was much other proof connecting him with the sales in interstate commerce of the Fulton Chemical Works and its adjuvants. Kauffman testified that he had had dealings with James as well as with Lesser and Lahn at the Fulton Chemical Works, that he did business with that concern in 1929 and 1930 and placed orders with it for fluid extract of ginger and received deliveries upon those orders, invoiced under the names of Fulton Chemical Works, S. A. Hall, Decker Ingraham & Smith, and J. Carboy. His conversations regarding the payment of the invoices were with James. James stayed with Lahn and Lesser at the Hotel Gibson in Cincinnati in 1929, and was there with Lesser in 1930. Dreyfoos likewise had conversations there with James and Lahn about fruit extracts and prices of merchandise. The insurance firm, of which James was a member, paid the rent of Jordan Brothers at No. 360 Furman street, Brooklyn, whence shipments in the name of Jordan Brothers were made. A dealer in essential oils, named Bolz, took orders from James on October 25, 1930, and at times thereafter. In January, 1931, this dealer received an order from Jordan Brothers. When they tendered their check for the purchase price, Bolz refused to accept it without some assurance that it was good. He was thereupon referred by Jordan Brothers to James, who telephoned that their check was all right. Proof connecting James with the conspiracy was ample.
The evidence also established the participation of the defendant Lahn in the conspiracy. He was the bookkeeper of Fulton Chemical Works. He took orders for it from persons purchasing extracts, ordered letterheads printed both for it and for S. A. Hall, Decker Ingraham & Smith, and J. Carboy, and also ordered supplies of essential oils, including oleo resin of ginger. He directed the mail of S. A. Hall to be forwarded from No. 598 Atlantic avenue to 186 Joralemon street, care of James, and rented an office at 598 Atlantic avenue under the fictitious name of Slade. A check used to pay the Schwartz Laboratories for an analysis on March 4, 1931, for James, of fluid extract of ginger, and found to contain phenols of a harmful nature, was charged to the account of Lahn.
It is evident from the above that Lesser, James, and Lahn were all associated in the business of Fulton Chemical Works and its various instrumentalities and were all engaged in shipping fluid extract of ginger in interstate commerce.
Various shipments of ginger fluid extract were made in interstate commerce in the names of Jordan Brothers, S. A. Hall, and Charles M. Pomeroy, which, upon analysis, were found to be adulterated and to differ from the "standard of strength, quality, or purity" of fluid extract of ginger as "determined by the test laid down in the United States Pharmacopia." Food and Drugs Act § 7 (21 USCA § 8). It is argued for the appellants that no "test" is laid down in the Pharmacopia to determine the character of fluid extract of ginger and that consequently the act is not shown to have been violated. But the Pharmacopia sets forth how a fluid extract of ginger is to be compounded, and the statute penalizes any person guilty of adulterating or misbranding. U. S. Pharmacopia 10th Revision 1926, pp. 158, 159, and 175. To interpret the words "test laid down" as referring to a method of detecting nonconformity with the standard of the Pharmacopia is to give the words an unnecessarily narrow meaning. They require conformity with the standard set up in the Pharmacopia and make no attempt to prescribe a method of *616 ascertaining whether such conformity exists. The chemist Eaton testified that he subjected the California shipments to chemical tests and found that they contained more oil and less ginger solids than a normal product of fluid extract of ginger. He also found that they contained an "organic phosphorous compound of the type tricresyl phosphate," which is a poisonous ingredient, and were not the fluid extract of the United States Pharmacopia. He said that the way to ascertain whether fluid extract of ginger complies with the United States Pharmacopia is to make a ginger extract according to its teachings and then determine the various ingredients "like the solids, and the ash, and the phosphorous compound * * * and the alcohol," and find out "what they run on an average."
The testimony of the chemist Reznek was to the same effect. The testimony of the chemist Maurice E. Smith related to specimens taken from shipments to California Extract Company and to Burkett's companies. He said that preparations purporting to be fluid extract of ginger contained a triorthocresyl phosphate, which was a poisonous ingredient. He tested the effect of the material upon chickens and the result of administering it was a partial paralysis, known to be caused by the presence of triorthocresyl phosphates. The basis for a finding by the jury that the shipments were adulterated and did not meet the standard of the United States Pharmacopia was ample.
There can be no doubt that enough was proved to justify an inference of guilty knowledge. The shipments failed to conform to lawful standards and were made in many cases by persons or concerns from whom they were not directly ordered. Lahn directed the post office to forward to James the mail of S. A. Hall, in whose name some of the shipments were made, and Lahn himself used the fictitious name of Slade when he rented an office at 598 Atlantic avenue for Hall. The "Jim" letters show that James and Lesser were aware of the illegality of the enterprise, and that Lesser abandoned it about June, 1931, after the shipments to California had come under investigation and danger was imminent. We think it evident that the business was conducted in a surreptitious way, and are satisfied that there was proof of guilty knowledge on the part of the appellants.
It is argued that the indictment should have been dismissed at the opening. It is said that the allegation that the defendants conspired to "unlawfully introduce, ship and deliver for shipment from one state to another state adulterated and misbranded foods and drugs" having been made in the conjunctive, a conspiracy to ship food as well as drugs had to be shown, and that the specification of fluid extract of ginger as the subject-matter of the conspiracy makes it impossible to prove the broad allegation as to both food and drugs. But the allegation as to adulterated foods may be disregarded as surplusage where, as here, the indictment sufficiently states a crime conspiring to ship adulterated drugs.
The contention that the indictment should have been dismissed for duplicity because it alleged generally a conspiracy to ship adulterated foods and drugs is trivial. As it specifies that the shipments to be made were of fluid extract of ginger there is in fact no duplicity. But in no event could the defendant be prejudiced by the inclusion of "foods" in the allegation. It is said that in case of an acquittal under this indictment where the only proof related to shipments of fluid extract of ginger, which is a drug, the defendants might still be subject to a new indictment for conspiring to ship adulterated foods. But it is well established that in case of a second prosecution resort may be had to parol evidence to establish the crime of which a defendant has in fact been convicted and that the sufficiency of a plea in bar must be tested in that way. Bartell v. United States, 227 U.S. 433, 33 S. Ct. 383, 57 L. Ed. 583.
It is also argued that error was committed by the trial court in allowing the government's pharmacological expert Maurice I. Smith to testify about his experiments on chickens with the samples of the extracts shipped by the defendants and to show that the administration of the ingredients produced paralysis. Proof of the poisonous effect of the compounds shipped tended to fortify the chemical testimony that they were adulterated and contained tricresyl phosphate, which is known to produce a paralyzing effect. There is no reason to hold that the noncorrespondence of the extracts shipped with the standard of the Pharmacopia must only be shown by chemical analyses. On the contrary, it may be established in any other logical and convincing way. Goodwin v. United States (C. C. A.) 2 F.(2d) 200; Columbus Const. Co. v. Crane Co. (C. C. A.) 98 F. 946, at page 957.
Judgment affirmed.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/2667066/
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________________
)
WILLIAM THADDEUS ANDERSON, )
)
Plaintiff, )
)
v. ) Civil Action No. 09-569 (ESH)
)
U.S. DEPARTMENT OF STATE, )
)
)
Defendant. )
__________________________________________)
MEMORANDUM OPINION
Plaintiff, proceeding pro se, has brought this action against the U.S. Department of State
(“the Department”) under the Freedom of Information Act (“FOIA”), 5 U.S.C. § 552. He seeks
to compel disclosure of a presentation that was the basis of a February 2003 speech to the United
Nations by former Secretary of State Colin Powell, as well as any communications related to that
presentation. After searching its records, the Department found no responsive documents, and
now moves for summary judgment. For the reasons stated, defendant’s motion for summary
judgment will be granted.
BACKGROUND
Plaintiff directed a FOIA request to the Department’s Office of Information Programs
and Services on February 11, 2009. (Am. Compl. ¶ 5.) The request sought access to a
presentation on “intelligence on Saddam Hussein’s regime in Iraq” that had been given by I.
Lewis Libby to Deputy Secretary of State Richard Armitage on January 25, 2003. (Id.) Plaintiff
also sought documents and communications “between the dates of January 24, 2003 and
February 3, 2003” that referred the presentation from files belonging to former Secretary of State
Colin Powell, Armitage, and Lawrence Wilkerson, the former Department Chief of Staff. (SJ
Mot., Statement of Material Facts (“SOMF”) ¶ 2.) Plaintiff requested that the Department waive
any processing fees under the “representative of the news media” exception. (Am. Compl. ¶ 5
(citing 5. U.S.C. § 552(a)(4)(A)(ii)).)
On March 26, 2009, defendant filed a complaint requesting access to the records, a
waiver of any FOIA fees, and costs. The Department responded to plaintiff’s FOIA request and
denied his request for a fee waiver on April 28, 2009, (Def. Mot. for Summ. J. [“SJ Mot.”],
Declaration of Celeste Houser-Jackson [“Houser-Jackson Decl.”], Ex. 2), and filed an answer to
the complaint on May 4, 2009. On June 30, 2009, the Department notified plaintiff that it had
searched the Central Foreign Policy Records, as well as active and “retired” records from the
Office of the Executive Secretariat, the Bureau of Near Eastern Affairs, the Bureau of
Intelligence and Research, the Bureau of International Security and Nonproliferation, and the
Office of the Coordinator for Counterterrorism. Defendant found no responsive records.
(Houser-Jackson Decl., Ex. 3.)
On July 31, 2009, defendant filed for summary judgment. Its motion included an
affidavit describing the search process from Celeste Houser-Jackson, acting director of the
Office of Information Programs and Services. (Houser-Jackson Decl. ¶ 1.) The affidavit states
that the Department began by searching the Central Foreign Policy File, which serves as a
“centralized records system” and is the Department’s “most comprehensive and authoritative
compilation of documents.” (Id. ¶ 8.) The file contains substantive documents that “establish,
discuss, or define foreign policy” or “require action or use by more than one office,” along with
memoranda of conversations and interoffice contacts. (Id.) The Department searched for all
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documents dating from January 24, 2003 to February 3, 2003, using the keyword “intelligence”
with “Saddam,” or “Hussein,” or “Iraq,” and with “Libby,” or “Powell,” or “Armitage,” or
“Wilkerson.” (Id. ¶ 9.)
The Department also searched active records maintained by the Office of the Executive
Secretariat, the Bureau of Near Eastern Affairs, the Bureau of Intelligence and Research, the
Bureau of International Security and Nonproliferation, and the Office of the Coordinator for
Counterterrorism. (Houser-Jackson Decl. ¶ 11.) The search of the Secretariat’s records used the
keywords “Powell,” “Hussein,” “Libby,” “Armitage,” “intelligence” and “Wilkerson.” (Id. ¶
12.) The search of the Near Eastern records only used the term “Armitage.” (Id. ¶ 13.) The
search of the Intelligence and Research records used the terms “Hussein, Saddam” or “Iraqi
government.” (Id. ¶ 14.) The International Security search used the keywords “intelligence,”
“presentation,” “Office of Special Plans,” “Vice President,” “Deputy,” “Armitage,” “Libby,”
“Feith,” and “Shulsky.” (Id. ¶ 15.) Defendant electronically searched the Counterterrorism files
using the terms “Libby,” “Armitage,” “Powell,” “presentation,” and “briefing,” and manually
searched Counterterrorism’s paper files on “Iraq-Terrorism.” (Id. ¶ 16.) After plaintiff filed his
brief opposing summary judgment, the Department again searched the records maintained by the
Secretariat and Near Eastern and International Security bureaus and filed a declaration by the
Department’s Information and Privacy Coordinator providing additional information. (Def.’s
Reply, Declaration of Margaret P. Grafeld [“Grafeld Decl.”] ¶¶ 1, 6.) The additional searches of
the Secretariat and International Security records used the terms “Iraq” and “Hussein,” (Id. ¶¶ 7-
8) and the search of the Near Eastern records used the keywords “presentation,” “Libby,” and
“intelligence.” (Id. ¶ 9.) Again, no responsive documents were found.
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The Department also searched “retired” files – files that have not been needed by an
office or bureau for several years – and manifests “document[ing] the contents of retired files”
from the offices whose active records it searched. (Houser-Jackson Decl. ¶¶ 17-19.) The
Houser-Jackson Declaration noted that these searches were performed by individuals “familiar”
with the subject of the request and were limited to records “falling within the time period” of the
plaintiff’s request. (Id. ¶¶ 18-19.) The Grafeld Declaration contained additional information on
the searches of the retired files. (Grafeld Decl. ¶¶ 10-14.) The Department first searched the
retired records manifest for all records from the time period specified by plaintiff. (Id. ¶ 10.)
Based on the results, defendant retrieved boxes with “potentially responsive” records. It
searched two boxes with “memorandum [sic] of” Powell’s “conversation files” from July 1, 2002
to June 30, 2003, a box of Powell’s country files (including a specific folder on Iraq), nine boxes
of Powell’s 2003 chronological files, and a box of Powell’s 2003 schedules. (Id. ¶¶ 10-11.) It
also searched two boxes of documents from Armitage’s office, including a file on Iraq and
weapons of mass destruction, and documents from Armitage’s and Wilkerson’s offices that have
yet to be recorded on a manifest. (Id. ¶ 12.) Defendant searched two boxes of files from the
Near Eastern bureau relating to Iraq political, economic, and assistance affairs, and retired
subject files, country files and chronological files from the International Security bureau. (Id. ¶¶
12-14.) None of the searches uncovered responsive records. (Id. ¶ 15.)
ANALYSIS
I. SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate if the pleadings and evidence on file show that there is
no genuine issue of 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 (1986). “In a FOIA case, summary
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judgment may be granted to the government if ‘the agency proves that it has fully discharged its
obligations under the FOIA, after the underlying facts and the inferences to be drawn from them
are construed in the light most favorable to the FOIA requester.’” Fischer v. Dep’t of Justice,
596 F. Supp. 2d 34, 42 (D.D.C. 2009) (quoting Greenberg v. U.S. Dep't of Treasury, 10 F. Supp.
2d 3, 11 (D.D.C. 1998)). The requester may challenge such a showing by “set[ting] forth
specific facts showing that there is a genuine issue for trial,” Fed. R. Civ. P. 56(e), that would
permit a reasonable jury to find in his favor. Laningham v. U.S. Navy, 813 F.2d 1236, 1241
(D.C. Cir. 1987). Agency declarations “are afforded a presumption of good faith;” an adequate
affidavit “can be rebutted only ‘with evidence that the agency’s search was not made in good
faith.’” Defenders of Wildlife v. U.S. Dep’t of Interior, 314 F. Supp. 2d 1, 8 (D.D.C. 2005).
However, “if the sufficiency of the agency's identification or retrieval procedure is genuinely in
issue, summary judgment is not in order.” Weisberg v. U.S. Dep’t of Justice, 627 F.2d 365, 370
(D.C. Cir. 1980).
II. ADEQUACY OF THE SEARCH
Plaintiff argues that defendant inadequately described its search and that its search was
inadequate because it failed to use certain keywords.1 (Pl.’s Opp’n at 4.) To establish that it has
conducted an adequate FOIA search, defendant must provide a “reasonably detailed” affidavit
containing “search terms and the type of search performed, and averring that all files likely to
1
Neither the Department nor plaintiff address the fee waiver issue. “Courts have consistently
confirmed that the FOIA requires exhaustion of this appeal process before an individual may
seek relief . . . .” Oglesby v. U.S. Dep’t of Army, 920 F.2d 57, 61-62 (D.C. Cir. 1990). “To the
extent that the government is not raising an exhaustion-of-remedies defense with regard” to the
fee waiver, “the Court may do so sua sponte.” Hinojosa v. Dep’t of Treasury, No. 06-0215,
2006 WL 2927095, at *3 n.2 (Oct. 11, 2006). In the fee waiver context, “[e]xhaustion does not
occur until the required fees are paid or an appeal is taken from the refusal to waive fees.”
Oglesby, 920 F.2d at 66. Here, plaintiff filed his complaint prior to paying the required fee or
appealing defendant’s refusal to waive. Judicial review of his fee waiver claim is therefore
precluded at this time. Id. at 67.
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contain responsive materials . . . were searched . . . to allow the district court to determine if the
search was adequate in order to grant summary judgment.” Oglesby, 920 F.2d at 68. The
agency must demonstrate that, “viewing the facts in the light most favorable to the requester, . . .
[it] ‘has conducted a search reasonably calculated to uncover all relevant documents.’”
Steinberg v. U.S. Dep't of Justice, 23 F.3d 548, 552 (D.C. Cir. 1994) (quoting Weisberg, 745
F.2d at 1485).
A. Description of the Search
Plaintiff argues that the Department has inadequately described its search of its “retired”
files by failing to describe the manifests in detail and failing to explain how the records were
searched. (Pl.’s Opp’n at 6-7.) To meet its burden of showing that its search was adequate,
defendant’s affidavit must “provide necessary details,” such as “about the scope or methods of
the searches conducted,” Defenders of Wildlife v. U.S. Border Patrol, 623 F. Supp. 2d 83, 91-92
(D.D.C. 2009), although it “need not ‘set forth with meticulous documentation the details of an
epic search for the requested records,’” Friends of Blackwater v. U.S. Dep’t of Interior, 391 F.
Supp. 2d 115, 119 (D.D.C. 2005) (quoting Perry v. Block, 684 F.2d 121, 127 (D.C. Cir. 1980)).
In response to plaintiff’s argument, the Department conducted additional searches of the retired
records and their manifests and submitted a second affidavit describing the search in greater
detail. (Grafeld Decl. ¶¶ 10-14.) The Grafeld Declaration describes the general criteria used; the
retired records searched, including the types of documents contained within the various boxes
examined; and the search methods used by the Department. (Id.) It lists the date range searched
and thoroughly describes the boxes found. The limited nature of the documents coupled with the
specificity of the search and the detailed description of the records examined provide sufficient
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detail about the scope and methods of the search,2 and therefore allow the Court to conclude that
defendant’s search was reasonably calculated to uncover all relevant documents. Thus, the
Department has provided sufficient information for the Court to determine that the search of the
retired files was adequate. See Oglesby, 920 F.2d at 68.
Plaintiff also challenges the Department’s description of its search of the active records,
arguing that it is insufficient because it does not explain why the terms “Iraq” and “Hussein”
were not used in certain searches. (Pl.’s Opp’n at 5-6.) This Court has found summary judgment
inappropriate where the government’s declaration “failed to document the search terms used” in
an electronic search. Aguirre v. SEC, 551 F. Supp. 2d 33, 60 (D.D.C. 2008) (citing Judicial
Watch, Inc. v. U.S. Dep’t of Justice, 185 F. Supp. 2d 54, 64 (D.D.C. 2002)); see also Friends of
Blackwater, 391 F. Supp. 2d at 120 (noting that the government’s failure to “enumerate any
specific search terms used in examining the agency's electronic files” raised doubts about the
adequacy of the search). Unlike the declaration found wanting in Aguirre, the Houser-Jackson
Declaration “describe[s] in detail how each office conducted its search.” See Aguirre, 551 F.
Supp. 2d at 61. Defendant has described the various keywords and methods it used to examine
its electronic records, has listed all of the various databases it searched, and has averred that it
searched “any and all records systems reasonably expected to contain the information sought by
2
The Department “examined the retired records manifests for records falling within the time
period specified . . . . Boxes containing potentially responsive retired records for these offices
were retrieved . . . and their contents were thoroughly examined.” (Grafeld Decl. ¶ 10.) “[A]
defendant agency is obligated to conduct a ‘reasonable’ search for responsive records using
methods which can be reasonably expected to produce the information requested by plaintiff to
the extent it exists.” Defenders of Wildlife, 314 F. Supp. 2d at 8. Manually searching the retired
records without using specific search terms could reasonably be expected to produce the
requested information given the limited scope of the request and the fact that those conducting
the search were familiar with the request. Defendant’s description of this reasonable search in its
affidavit was therefore sufficient. See Friends of Blackwater, 391 F. Supp. 2d at 120 (suggesting
that omitting search terms “alone might not be enough to invalidate an otherwise adequate
affidavit . . . .”)
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the plaintiff.” (Houser-Jackson Decl. ¶ 19.) Plaintiff does not argue that defendant proceeded in
bad faith, nor does he offer any evidence that would call defendant’s description of its search
into question. Defendant has documented its search in sufficient detail to determine that its
search was adequate, and thus it has met its burden. See Oglesby, 920 F.2d at 68.
B. Scope and Methods of the Search
Plaintiff also challenges the scope and methods of defendant’s search. Plaintiff first
argues that defendant’s choice of keywords when searching the International Security and
Executive Secretariat records was inconsistent and not reasonably calculated to uncover all
relevant documents. (Pl.’s Opp’n at 4-6.) “[T]he adequacy of a FOIA search is generally
determined not by the fruits of the search, but by the appropriateness of the methods used to
carry out the search.” Iturralde v. Comptroller of Currency, 315 F.3d 311, 315 (D.C. Cir. 2003).
The Court applies a “‘reasonableness’ test to determine the ‘adequacy’ of search methodology,”
Campbell v. U.S. Dep’t of Justice, 164 F.3d 20, 27 (D.C. Cir. 1998), and requires a “reasonable
and systematic approach to locating the requested documents,” Center for Pub. Integrity v. FCC,
505 F. Supp. 2d 106, 116 (D.D.C. 2007). An adequate search is one that “could . . . have been
expected to produce the information requested.” See Pub. Citizen, Inc. v. Dep’t of Educ., 292 F.
Supp. 2d 1, 6-7 (D.D.C. 2003). Defendant’s first affidavit explains that it searched records from
various bureaus using keywords related to the subject of the presentation and to the personnel
involved. (Houser-Jackson Decl. ¶¶ 12-16.) Defendant’s second affidavit includes results from
additional searches of the International Security and Executive Secretariat records using the
keywords “Iraq” and “Hussein” (Grafeld Decl. ¶¶ 6-9), which are terms that had been suggested
by plaintiff. (Pl.’s Opp’n at 5-6.) Defendant’s use of terms like “Iraq,” “Hussein,”
“intelligence,” and “presentation” in searching for a presentation on intelligence about Iraq was
-8-
reasonable and systematic and could be reasonably expected to produce the information
requested. Cf. Pub. Citizen, Inc., 292 F. Supp. 2d at 7 (finding a search inadequate where the
database was so unreliable that the agency could not reasonably expect to find the requested
information). Therefore, defendant adequately searched its records for references to the subject
and participants of the presentation and for general references to presentations. Defendant’s
search was sufficiently reasonable and systematic to satisfy its obligations under FOIA.
Plaintiff also argues that the search of the Near Eastern records was inadequate because it
did not include the keywords “Iraq” or “Saddam Hussein” and only used the search term
“Armitage.” (Pl.’s Opp’n at 5.) Defendant’s second affidavit asserts that it did a subsequent
searched, using “Libby,” “intelligence” and “presentation,” and that using the terms “Iraq” or
“Hussein” would unreasonably burden on the agency.3 (Grafeld Decl. ¶ 9.) Because plaintiff
seeks documents relating to a presentation of intelligence on Saddam Hussein’s regime,
defendant reasonably searched for references to “intelligence,” and “presentation.” This search
was both “reasonable” and “systematic,” Center for Pub. Integrity, 505 F. Supp. 2d at 116, and
could be reasonably expected to produce the requested information. Plaintiff does not explain
why it was necessary to search for the words “Iraq” and “Hussein” in a database filled with
unrelated references to each, particularly when a search more narrowly tailored to his request had
3
“Generally, an agency need not honor a FOIA request that requires it to conduct an unduly
burdensome search.” Pub. Citizen, Inc., 292 F. Supp. 2d at 6 (citing Nation Magazine, Wash.
Bureau v. U.S. Customs Serv., 71 F.3d 885, 891-92 (D.C. Cir. 1995)). However, the Department
must “provide a sufficient explanation why a search . . . would be unreasonably burdensome;”
merely claiming that a search would be “costly and take many hours to complete” is insufficient.
Id. Defendant has stated that the Near Eastern bureau is generally responsible for U.S. relations
with Iraq. (Grafeld Decl. ¶ 9.) Thus, it explained that using the terms “Iraq” or “Hussein” would
uncover such a large volume of records that it would create an unreasonable burden and “would
not reasonably be expected to produce the records Plaintiff seeks.” (Id.) Because the
Department’s use of the terms “intelligence” and “presentation” was adequate to uncover any
documents dealing with plaintiff’s request, the Court need not consider whether the Department
has established that using the terms “Iraq” and “Hussein” would be unreasonably burdensome.
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already proven unfruitful. A search is not inadequate merely because its terms are limited. See
Defenders of Wildlife, 314 F. Supp. 2d at 10 (“An adequate search may be limited to the places
most likely to contain responsive documents.”)
The Court has “little difficulty concluding that the [Department] made a ‘good faith effort
to conduct a search for the requested records, using methods which can be reasonably expected
to produce the information requested.’” Schoenman v. FBI, 575 F. Supp. 2d 136, 151 (D.D.C.
2008) (quoting Oglesby, 920 F.2d at 68). The Department’s affidavits “describe in . . . detail
what records were searched, by whom, and through what process.” Steinberg, 23 F.3d at 551-52.
Defendant has adequately identified the keywords used in its search and has adequately
explained, in reasonable detail, how it performed the searches. See Morley v. CIA, 508 F.3d
1108, 1122 (D.C. Cir. 2007) (holding that defendant had failed to meet its burden where it had
not identified terms searched or explained how it had conducted the searches). Defendant
asserts, and plaintiff does not contest, that it has searched through all record systems reasonably
expected to contain the requested information. (Houser-Jackson Decl. ¶ 19.) Furthermore,
defendant’s second affidavit provides a detailed account of a thorough search by persons familiar
with the retired files and with plaintiff’s request. The search was targeted in scope and by date
and included manifests from the relevant time period, as well as files that had yet to be included
in a manifest. Plaintiff “has not offered evidence that would raise ‘substantial doubt’ as to the
adequacy” of the searches and has not suggested that the Department acted in bad faith.
Williams v. Dep’t of Justice, 171 F. App’x 857 (D.C. Cir. 2005). Defendant has therefore met its
burden of proving that it has “fully discharged” its obligations under FOIA. Fischer, 596 F.
Supp. 2d at 42-43.
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CONCLUSION
For the foregoing reasons, the Court finds no genuine issue of material fact presented on
defendant's satisfactory response to plaintiff's FOIA request and concludes that defendant is entitled
to judgment as a matter of law. A separate Order accompanies this Memorandum Opinion.
_______/s/______________
ELLEN SEGAL HUVELLE
United States District Judge
Date: October 14, 2009
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954 F. Supp. 23 (1996)
EL FENIX DE PUERTO RICO, Plaintiff,
v.
The M/Y JOHANNY, et al., Defendants.
Civil No. 90-1638 (DRD).
United States District Court, D. Puerto Rico.
December 3, 1996.
Paul E. Calvesbert-Borgos, Fernando D. Castro-Maldonado, Calvesbert, Alfaro & Lopez-Conway, San Juan, PR, for Plaintiff.
Jorge Calero-Blanco, McConnell Valdes, San Juan, PR, for Defendants.
OPINION AND ORDER
DOMINGUEZ, District Judge.
On remand by order of the U.S. Court of Appeals for the First Circuit, El Fénix de *24 Puerto Rico v. The M/Y JOHANNY, 36 F.3d 136 (1st Cir.1994), there is pending before the Court plaintiff's motion under Fed. R.Civ.P. 59 to alter and/or amend the judgment (Docket No. 97). Plaintiff, El Fénix de Puerto Rico, requests that the judgment entered in this admiralty case on February 19, 1993, be vacated and a new trial be set because, pursuant to 28 U.S.C. 455(a), the judge who heard the earlier trial should have disqualified himself from participating in that proceeding.
I. Facts
El Fénix de Puerto Rico, an insurance company, issued an "all-risks" marine insurance policy on the motor yacht JOHANNY, which was owned by defendant Aurelio Varona-Pérez. On November 14, 1989, the JOHANNY was lost at sea, and the wreck has never been found. Alleging that Varona had intentionally scuttled the vessel, El Fénix filed this admiralty action seeking damages and a judicial declaration that the loss of the JOHANNY was not covered under the insurance policy. Varona, in turn, filed a counter-claim for a declaration that the loss was covered by the insurance policy. The case went to trial, and on February 19, 1993, the district court (Acosta, J.) entered judgment in favor of Varona.
The Court of Appeals set forth a summary of the facts found by the district court in the light most favorable to the judgment, as follows:
In the wake of Hurricane Hugo, which struck Puerto Rico in September 1989, Varona noticed a slight "vibration" in the JOHANNY. On November 14, 1989, Varona and his brother, a professional marine mechanic, set off from the Cangrejos Yacht Club in San Juan for the port of Fajardo, Puerto Rico, to have the boat drydocked for repair. Prior to departing San Juan Harbor, Varona's brother inspected the JOHANNY's underwater running gear, and, finding nothing amiss, concluded that it was safe to proceed.
Approximately one hour into the voyage, however, Varona noticed that the JOHANNY was riding abnormally low in the water. Upon investigation, Varona's brother discovered two to three feet of water in the engine compartment. Varona issued Mayday calls, but was unable to contact either the United States Coast Guard or his yacht club in San Juan. The source of the leak was not located and, within thirty minutes after discovery of the flooding, the two engines stopped simultaneously, apparently as a result of the rising water.
With the JOHANNY rapidly taking on water, Varona and his brother disembarked into a small dinghy, intending to return to San Juan, summon assistance and attempt to salvage the JOHANNY. The outboard motor of the dinghy malfunctioned, however, and since it would operate only intermittently it took almost three hours to reach the nearest point of land, where Varona reported the incident to the Puerto Rico Maritime Police. Neither Varona nor his brother saw the JOHANNY sink, and marine salvage surveyors have never been able to locate her.
El Fénix de Puerto Rico, 36 F.3d at 138.
The Court is not now concerned with the merits of the dispute, but rather with the question whether the district judge should have withdrawn from this case, and, if so, whether the proper remedy is for this Court to vacate the judgment. This question arises because the presiding judge invited a friend to observe the trial. The friend, Mr. Bob Fisher, is an avid yachtsman, and the judge thought his friend would enjoy watching a trial in admiralty.
During the first day of trial, Mr. Arturo A. Vaello, Jr., a marine surveyor providing expert testimony on behalf of the plaintiff, noticed that Fisher was in the courtroom. The two men knew each other beforehand, and in casual conversation, Fisher told Vaello that the district judge had "asked him to sit through the trial and listen to the evidence presented by the parties." Vaello promptly told El Fénix's counsel of this conversation.
El Fénix did not immediately raise the issue of recusal with the judge. Instead, ten days after judgment was entered in favor of Varona, El Fénix filed a motion under Fed. R.Civ.P. 59 to alter and/or amend the judgment. El Fénix argued that even though "it *25 had `no specific knowledge' that the judge was not impartial, it hypothesized that the [district] judge might have consulted Fisher in arriving at a judgment in the case," and therefore "contended that the Vaello [testimony] gave rise `to the possibility of an `appearance' of partiality' that might require disqualification under 28 U.S.C. § 455(a)." El Fénix de Puerto Rico, 36 F.3d at 139. The district court initially granted the motion, vacated the judgment, and transferred the case to another judge.[1] After receiving Varona's motion for reconsideration, the district judge vacated the recusal order and reinstated the judgment, and El Fénix appealed.
On appeal, the Court of Appeals vacated the reconsideration order and the portion of the recusal order which set aside the final judgment. The Court of Appeals held that the district judge had abused his discretion in both issuing his original recusal order and in later reconsidering the order, the first because the motion for recusal had not been supported by sufficient facts, and the second because once a judge has recused himself from a case, even if incorrectly, he should generally not take any other action in that case. The First Circuit therefore ordered that "[a]fter permitting the parties a reasonable opportunity to supplement or amend their postjudgment motions and responses, the district court should consider El Fénix's timely motion for new trial under Rule 59 based not only on 28 U.S.C. § 455(a) but on the various substantive challenges asserted in the original motion." El Fénix de Puerto Rico, 36 F.3d at 142.
On remand, the case was reassigned to the undersigned. El Fénix then questioned Fisher at an oral deposition about whether he had discussed the testimony and other evidentiary facts that he had heard at trial with the district judge before judgment was entered. Fisher's statements at his deposition indicate that he did discuss at least some disputed evidentiary facts with the district judge. First of all, Fisher stated that he met with the district judge in chambers or at lunch various times during the trial. In addition, when asked whether he did discuss evidentiary matters with the district judge, Fisher answered:
"Yes, I could not see how anybody could ever make a determination in a case like this; there was no physical proof, the vessel was never recovered to look for any kin[d] of evidence, just verbal testimony of both parties and he would have to determine it, I did not see how anybody could make a determination in the case. I found it very unusual."
Deposition, p. 22. Specifically regarding the testimony of Luis Varona, the defendant's brother, Fisher also stated that:
"I was discussing this with my wife, and I might have mentioned it in front of the judge also, that I felt his testimony seemed more knowledgeable, he was making a good case for himself, which was the first tangible thing that came up, you know, the description of the dinghy riding to shore and so forth, and the problems that he was having trying to get [the motor] ... and to get the leaking stopped and one thing and another, and from my little experience with leaking boats, I could sympathize with him."
Deposition, p. 23-24. Later on, Fisher went on to state that:
"I might have mentioned to him that I thought Luis's testimony [Varona's brother] was more credible than what had gone on before, but that is the extent of *26 that.... I might have told him that I felt that he was more credible than any of the.... I do not recall telling him that specifically, but I think I probably did, just in the course of general conversation."
Deposition, p. 29-30.
Furthermore, in response to questions regarding his acquaintance with Vaello, Fisher answered that "Vaello had done several surveys on my boats. At the time my insurance was being carried by a company now defunct, I guess, but Rudy Torruella was running this insurance company and he suggested that I use Vaello as a surveyor." Deposition, p. 26. In response to the question whether Fisher thought that Vaello's appraisals of the value of Fisher's boats were too low, Fisher answered:
Absolutely, because when I buy fifteen thousand dollars worth of sails, I expect to see the cost of the sails represented in the value of the boat, and they never were. They use blue book prices and it does not make any difference what the equipment is on the boat or the additional equipment that is on the boat. It could be a stripped down minimal cruiser with just a main and a foresail and a narrow price range; then you have like I have done, fill it up with additional winches and equipment and very expensive sails and it does not show.
Deposition, p. 27. Fisher was then asked whether, for purposes of the report, Vaello had taken the additional equipment installed by Fisher into consideration, and responded "No, he was holding ... the value way down, below what I thought reasonable." Deposition, p. 27.
II. Discussion
The crux of the decision of the Court of Appeals was that the evidence adduced by El Fénix was insufficient to require the district judge's disqualification under 28 U.S.C. § 455(a).[2] As that court remarked, "[n]o permissible reading of subsection 455(a) would suggest that Congress intended to allow a litigant to compel disqualification simply on unfounded innuendo concerning the possible partiality of the presiding judge." El Fénix de Puerto Rico, 36 F.3d at 140 (emphasis added). The Court of Appeals stressed that "[t]he utter absence of a sufficient factual basis for recusal under subsection 455(a) completely undermined the recusal order." Id.
The situation before this Court is substantially different. As noted above, there is evidence before this Court in the form of a deposition, authorized by U.S. District Judge Juan Pérez-Giménez, of the trial judge's friend, Mr. Fisher. At this deposition, Fisher indicated that during the trial he had made a variety of comments to the district judge regarding the testimony and credibility of witnesses. Insofar as the district judge thus received ex parte information regarding disputed evidentiary facts (namely, the credibility of witnesses), his disqualification may have been required pursuant to 28 U.S.C. § 455(b)(1).[3] However, and in any case, Fisher's statements provide an ample factual basis for a reasonable person to question whether the District Court could conduct the proceedings with impartiality, thus requiring the district judge's disqualification under 28 U.S.C. § 455(a).
The test of impartiality under § 455(a) is straightforward: "First, a charge of partiality must be supported by a factual basis.... Second, disqualification is appropriate only if the facts provide what an objective, knowledgeable member of the public would find to be a reasonable basis for doubting the judge's impartiality." In re United States, 666 F.2d 690, 695 (1st Cir.1981). See El Fénix de Puerto Rico, 36 F.3d at 140. *27 However, the correct application of this test requires sensitivity to the values that § 455(a) seeks to promote and protect. The Supreme Court has made it clear that "[t]he problem ... is that people who have not served on the bench are often all too willing to indulge suspicions and doubts concerning the integrity of judges. The very purpose of § 455(a) is to promote confidence in the judiciary by avoiding even the appearance of impropriety whenever possible." Liljeberg v. Health Services Acquisition Corp., 486 U.S. 847, 865, 108 S. Ct. 2194, 2205, 100 L. Ed. 2d 855 (1988). Similarly, "subsection [455](a) safeguards not only the litigants' constitutional entitlement to an unbiased adjudication ... but the public's perception of the integrity of the judicial process." El Fénix de Puerto Rico, 36 F.3d at 142 n. 7.
In this case, notwithstanding the fact that the district judge denied having sought or relied upon Fisher's opinions in reaching his decision, the facts before the Court create an appearance of partiality that is not easily dispelled. The Court finds it is impossible to ignore Fisher's testimony, in which he states that he most probably did inform the district judge that he found Luis Varona's testimony more credible than the other witnesses'. Although there is no evidence that the district judge sought Fisher's opinions, the fact remains that the public could reasonably question whether the district judge did rely on Fisher's appreciation of the testimony. In addition, from the point of view of a reasonable member of the public, the trial judge's denial does not address the possibility that Fisher's biases might have colored the district judge's assessment of the credibility of the witnesses. Such doubts can only increase with the knowledge that Fisher could very well have been biased against Vaello, given the latter's alleged undervaluation of Fisher's yachts. In sum, the introduction of doubt as to the Court's impartiality required the trial judge's disqualification from further proceedings in that case.
Having found a violation of § 455(a), at least, the Court must determine what remedy is most appropriate.[4] As the Supreme Court has noted, "[a]lthough § 455 defines the circumstances that mandate disqualification of judges, it neither prescribes nor prohibits any particular remedy for a violation of that duty. Congress has wisely delegated to the judiciary the task of fashioning the remedies that will best serve the purpose of the legislation." Liljeberg, 486 U.S. at 862, 108 S.Ct. at 2204. In that same case, the Court concluded that "in determining whether a judgment should be vacated for a violation of § 455(a), it is appropriate to consider the risk of injustice to the parties in the particular case, the risk that the denial of relief will produce injustice in other cases, and the risk of undermining the public's confidence in the judicial process." Id. at 864, 108 S.Ct. at 2204.
In the case at hand, the proper remedy is for this Court to order that the judgment issued on February 19, 1993, be vacated. First, the risk of injustice is greater if the Court does not vacate the judgment than the reverse, for if the judgment is not vacated, then the plaintiffs will have to pay defendants the full value of the policy. Second, providing relief in this case will not lead to unfairness in future cases; to the contrary, future litigants will benefit from having a bright-line rule to guide them in dealing with similar situations. Third, the very credibility of the Court is at risk here; the public must be reassured that judicial decisions are based exclusively on evidence presented on the record where all litigants are granted the opportunity to cross-examine. Finally, in a trial such as the one at bar, where no physical evidence is available and the Court must *28 therefore decide the result solely on the basis of credibility determinations, anything that might cast doubt on the impartiality of such determinations places the fairness of the entire trial in jeopardy.
III. Conclusion
Fisher's deposition statements leave the Court with no alternative. For the reasons discussed above, the judgment entered in this case on February 19, 1993, is vacated, and a new trial shall be held. The parties are hereby ordered to attend a status/scheduling conference in chambers on December 27, 1996, at 3:00 p.m., to discuss any other pending matters and prepare a new schedule for trial.
IT IS SO ORDERED.
NOTES
[1] The text of Judge Acosta's recusal order reads, in pertinent part as follows: "The Court invited both Mr. and Mrs. Bob Fisher, long time personal friends, to attend a public trial ... prompted by the fact that the Fishers are both boat aficionados and Mr. Fisher, who is currently retired, would enjoy the trial. To conclude from the presence of Mr. and Mrs. Fisher that the Court somehow surreptitiously connived to seek the opinion of a nonwitness to make its decision is a strained conclusion to say the least. Plaintiff's argument on this issue has the tenor of a dubious strategy influenced by an unfavorable result. The Court's decision in this action, stated for the record at the conclusion of the evidence, was based exclusively on the evidence presented by both parties and in great part based on specific credibility determinations. Nevertheless, given the fact that the impartiality of this judge has been put at issue by plaintiff, I hereby DISQUALIFY myself from further participating in this case. It is further ORDERED that the Judgment issued is hereby VACATED AND SET ASIDE." Order of March 11, 1993.
[2] Subsection 455(a) reads: "[a]ny justice, judge, or magistrate of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned."
[3] In his deposition, Fisher constantly qualified his assertions, which is only to be expected given that the deposition was taken two years after the events in question. The upshot, however, is that it cannot be concluded with certainty that Fisher commented to the district judge that he found Luis Varona's testimony more credible. Had he done so, then disqualification would have been required under § 455(b)(1), which provides that "[the judge] shall also disqualify himself ... [w]here he has a personal bias or prejudice concerning a party, or personal knowledge of disputed evidentiary facts concerning the proceeding." (Emphasis added).
[4] The Court notes in passing that El Fénix's motion was timely. El Fénix de Puerto Rico, 36 F.3d at 141 n. 6. See, e.g., E. & J. Gallo Winery v. Gallo Cattle Co., 967 F.2d 1280, 1295 (9th Cir.1992). Counsel for El Fénix was informed for the first time of Fisher's presence at trial at the end of the second day in a four day trial. Moreover, there was not sufficient evidence to sustain a recusal order at that time, as the Court of Appeals so clearly stated. Such evidence only became available after Fisher was deposed. In fact, El Fénix had requested in its recusal motion leave to depose Fisher as alternative relief, in case the district judge declined to recuse himself. Given that the recusal motion was granted, no deposition was necessary nor possible until after the case was appealed and remanded.
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954 F. Supp. 9 (1996)
William J. LEHRFELD, Plaintiff,
v.
Margaret Milner RICHARDSON, et al., Defendants.
Civil Action No. 94-238 (EGS).
United States District Court, District of Columbia.
December 10, 1996.
*10 Bruce L. Stern, Washington, DC, for William J. Lehrfeld.
Eric S. Goldstein, Jean H. McMahon, Paul, Weiss, Rifkind, Wharton & Garrison, New York City, Michael Joseph Salem, U.S. Dept. of Justice, Tax Division, Washington, DC, for Margaret Milner Richardson, I.R.S.
Eric S. Goldstein, Jean H. McMahon, Paul, Weiss, Rifkind, Wharton & Garrison, New York City, Erika A. Kelton, Phillips & Cohen, Washington, DC, for South Africa Free Elections Fund, Theodore C. Sorenson.
MEMORANDUM OPINION
SULLIVAN, District Judge.
This matter is before the Court on the defendant Internal Revenue Service's ("IRS") motion for summary judgment and plaintiff's cross motion for partial summary judgment pursuant to Federal Rule of Civil Procedure 56(c). Upon consideration of the pleadings and the arguments of counsel, defendant's motion for summary judgment is GRANTED and plaintiff's motion for partial summary judgment is DENIED.
I. FACTS
In a September 7, 1993 letter to the IRS, plaintiff, through his attorney, Bruce L. Stern, requested documents relating to the application of the South African Free Election Fund ("SAFE") for tax-exempt status. The letter specifically made the request pursuant to Section 6104 of the Internal Revenue Code ("IRC"). The letter made no mention of the Freedom of Information Act ("FOIA"). Included with the letter was a complete IRS Form 4506-A, which named Bruce Stern as the requester.
In response to plaintiff's request, IRS personnel located SAFE's administrative exemption application file and provided disclosable background material to plaintiff. In a September 27, 1993 letter to the IRS, Stern acknowledged receipt of some documents, but stated that he had not received all of the documents that should have been in SAFE's IRS file. This letter again referenced Section 6104 as the authority for release of the requested documents. While Stern did not specifically cite to FOIA in this letter, he did request documents that were outside the scope of 6104; Stern also requested a Vaughn Index of documents withheld.
In a December 2, 1993 letter to Stern, the IRS acknowledged that it had not provided to plaintiff some of the documents available *11 and transmitted those omitted documents with the letter. In that letter, the IRS also stated that certain documents could not be released because they were outside the scope of Section 6104 and protected from disclosure under Section 6103. The specific documents withheld include:
(1) request for IDRS Input for BMF/EO Entity Change (Form 2362-A);
(2) internal "Technical Screening" memorandum providing recommendation on exemption application;
(3) cover sheet indicating priority status of the application because of 26 U.S.C. § 7428 (1988) applicability;
(4) Exempt Organization Record (Form 5548), which records information identifying application and pertinent information regarding its status;
(5) internal memorandum from the Baltimore District Director to Exempt Organizations, National Office, forwarding SAFE's exemption application for National Office consideration;
(6) internal routing slip to the file regarding the location of SAFE's books and records;
(7) internal tracking sheet tracking SAFE's exemption application while at the Baltimore district office;
(8) Special Handling Notice (Form 3198) prepared as application was being forwarded from Baltimore District to National Office;
(9) internal Exempt Organization Case Transmittal Sheet;
(10) Case Chronology Record (Form 5464); and
(11) EO Technical Screening Sheet.
Plaintiff filed this action against IRS alleging violations of FOIA and IRC § 6104.[1] Defendant IRS has moved for summary judgment. Plaintiff cross-motioned for partial summary judgment on the FOIA issue and he opposes IRS's motion for summary judgment on the Section 6104 issue on the ground that the reasonableness of IRS's search is a genuine issue of material fact.
In its motion for summary judgment, the IRS contends that plaintiff did not make a FOIA request, but only requested the documents under Section 6104. It is clear that the letters submitted by plaintiff's attorney requesting the documents, specifically made reference to Section 6104, and failed to specifically reference FOIA as the authority under which the documents were being requested. Plaintiff did, however, request documents that are only available under FOIA, and also requested a Vaughn Index of the documents withheld. Although the Court is not entirely convinced that plaintiff's request should have been construed as a FOIA request by IRS, in view of the Court's conclusion that the documents are exempted from disclosure under FOIA, the Court assumes, without deciding, that plaintiff's request was one for documents under both FOIA and Section 6104.
II. STANDARD OF REVIEW
In seeking summary judgment, the moving party must show that no genuine dispute of material fact exists and that it is entitled to summary judgment as a matter of law. Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). Summary judgment is available to the defendant in a FOIA case when the agency proves that it has fully discharged its obligations under FOIA by showing "that each document that falls within the class requested either has been produced, is unidentifiable, or is wholly exempt from the Act's inspection requirements." National Cable Television Ass'n, Inc. v. Federal Communications Comm'n, 479 F.2d 183, 186 (D.C.Cir.1973); see also Perry v. Block, 684 F.2d 121, 126 (D.C.Cir.1982). If the government agency seeks summary judgment based on a claim that the withheld documents are exempt under FOIA, the agency "must provide a relatively detailed justification, specifically identifying the reasons why a particular exemption is relevant *12 and correlating those claims with the particular part of a withheld document to which they apply." Mead Data Cent., Inc. v. United States Dept. of Air Force, 566 F.2d 242, 251 (D.C.Cir.1977). Moreover, the adequacy of an agency's search for requested documents is judged by a standard of reasonableness, i.e., "the agency must show beyond material doubt ... that it has conducted a search reasonably calculated to uncover all relevant documents." Weisberg v. U.S Dept. of Justice, 705 F.2d 1344, 1351 (D.C.Cir. 1983). The search need only be reasonable, not exhaustive. See, e.g., Shaw v. U.S. Department of State, 559 F. Supp. 1053, 1057 (D.D.C.1983).
The appropriate standard of review of a request for documents under Section 6104 of the IRC has not been articulated by Congress or the courts. IRS claims that the appropriate standard of review is the "arbitrary and capricious" standard. Plaintiff claims that the Court should apply the same "reasonableness" standard which is applied to FOIA requests. In the Court's view, the arbitrary and capricious standard and the reasonableness standard are essentially similar standards of review. Indeed, in the context of this case, application of either would produce the same result. Because plaintiff is alleging that IRS's search was not reasonable, the Court will apply the reasonableness standard of review to IRS's search for documents pursuant to plaintiff's Section 6104 request.
III. DISCUSSION
A. Request For Documents Under FOIA
Plaintiff argues that IRS improperly withheld certain tax exemption application documents. The IRS contends that the documents withheld are exempt from disclosure under FOIA pursuant to Exemption 3 and Section 6103 of the IRC. Exemption 3 exempts from FOIA, public records "specifically exempted from disclosure by statute." 5 U.S.C. § 552(b)(3). Section 6103 provides that returns and return information shall be confidential and prohibits "except as authorized" the disclosure of return or return information. 26 U.S.C. § 6103(a). It is well-settled that Section 6103 is an exemption statute under Exemption 3 of the FOIA. See Church of Scientology of California v. Internal Revenue Service, 792 F.2d 146, 149-50 (D.C.Cir.1986), aff'd, 484 U.S. 9, 11, 108 S. Ct. 271, 272-73, 98 L. Ed. 2d 228 (1987).
Plaintiff does not dispute that Section 6103 constitutes an exemption under FOIA, but rather, argues that Section 6103 is inapplicable to tax-exempt organizations. Plaintiff has failed to cite any authority for such a proposition. Indeed, the case law suggests otherwise. See Breuhaus v. Internal Revenue Service, 609 F.2d 80, 83 (2d Cir.1979) (holding that a letter in reference to a tax-exempt organization was not subject to disclosure because it constituted confidential return information under Section 6103); Belisle v. Commissioner, 462 F. Supp. 460, 462 (W.D.Okl.1978) (holding that IRS investigation results of a tax-exempt corporation were confidential under Section 6103). The Court, therefore, rejects plaintiff's claim that because SAFE is a tax-exempt organization, it is not protected under Section 6103 from disclosure of confidential returns and return information.
Plaintiff also contends that even if Section 6103 is applicable to tax-exempt organizations, the documents withheld in this case are not exempt under Section 6103 because they cannot be characterized as "returns" or "return information." While IRS agrees that the documents withheld are not "returns," it contends that they are "return information."
Section 6103(b) (2)(a) defines "return information" as
a taxpayer's identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments, or tax payments, whether the taxpayer's return was, is being, or will be examined or subject to other investigation or processing, or by any data, received by, recorded by, prepared by, furnished to, or collected by the Secretary with respect to a return or with respect to the determination of the existence, or the possible existence of liability (or the amount thereof) of any person *13 under this title for any tax, penalty, interest, fine, forfeiture, or other imposition, or offense....
26 U.S.C. § 6103(b)(2).
In arguing that the documents withheld are not "return information", plaintiff maintains that the tax-exempt application documents cannot be characterized as "return information" because they "relate solely to the IRS' initial determination as to whether SAFE qualified for tax-exempt status and do not relate to a determination as to whether SAFE is liable for any tax, penalty, interest or fine nor to whether its returns are under examination." Pl. Opp. at 35 (emphasis in original). IRS argues, and the Court concurs, that the proceeding involving the determination of an organization's tax-exempt application is an investigation of the taxpayer by the IRS directly related to that organization's tax liability. "Return information" is defined broadly by the statute to include almost any information compiled by the IRS in connection with its determination of a taxpayer's liability. An official inquiry into the qualification of an organization for tax-exempt status, even the initial inquiry, is an IRS investigation related to that organization's tax liability. Thus, the Court holds that the broad definition of "return information" is sufficient to include documents produced during an initial IRS investigation of an organization seeking tax-exempt status. The Court concludes, therefore, that the documents withheld by IRS are exempt from FOIA under Exemption 3 and Section 6103 and were properly withheld.
B. Request For Documents Under Section 6104
IRS also seeks summary judgment on plaintiff's claim that IRS failed to comply with the statute when plaintiff requested documents pursuant to Section 6104 of the IRC. Plaintiff claims that IRS failed to conduct a reasonable search and that the reasonableness of IRS's search is a genuine issue of material fact that precludes the Court from granting IRS's motion for summary judgment on this issue. Plaintiff claims that IRS should have conducted a search for all documents submitted in support of SAFE's tax exemption application. In support of his claim that IRS was required to search for all documents submitted in support of SAFE's application, plaintiff contends that the statutory language of Section 6104 requires production of "any" document in support of the tax exemption application.
Section 6104(a) (1)(A) provides that "the application filed by the organization ... together with any papers submitted in support of such application, and any letter or other document issued by the Internal Revenue Service ... shall be open to public inspection." 26 U.S.C. § 6104(a)(1)(A). The regulations promulgated pursuant to Section 6104 provide that "the application for tax exemption upon which the determination [of tax exemption] is based, together with any supporting documents, is open to public inspection." 26 C.F.R. § 301.6104(a)-1(a). The term "supporting documents" is defined by the relevant regulation as "any statement or document not described in paragraph (d) of this section that is submitted by an organization in support of its application." 26 C.F.R. § 301.6104(a)-1(e) (emphasis added). Thus, reading the statute and regulation together, the only documents available for disclosure under Section 6104 are the tax-exempt application and the documents submitted by the organization seeking tax-exempt status.
Plaintiff urges the Court to disregard the limiting language in the regulation, arguing that the statute is clear and unambiguous, and that the regulations conflict with the language of the statute. Precedent of long-standing, however, precludes the Court from reaching the conclusion advocated by plaintiff. The Supreme Court has held that "Treasury regulations ... long continued without substantial change, applying to unamended or substantially reenacted statutes, are deemed to have received congressional approval and have the effect of law." Cottage Savings Ass'n v. Commissioner, 499 U.S. 554, 561, 111 S. Ct. 1503, 1508, 113 L. Ed. 2d 589 (1991) (quoting Helvering v. Winmill, 305 U.S. 79, 83, 59 S. Ct. 45, 46, 83 L. Ed. 52 (1938)). Section 6104 was amended on two occasions after the Department of the Treasury promulgated § 301.6104(a)-1. *14 Because Congress did not override the regulation, Congress has in essence approved the interpretation by the Department of Treasury. See id. Having not been overridden by Congress, the regulation in this case should have the effect of law. See id. Pursuant to the statute and regulations, therefore, IRS must disclose supporting documents submitted only by the tax-exempt organization, itself, not by third parties. 26 U.S.C. § 6104(a)(1)(A); 26 C.F.R. § 301.6104(a)-1(a), (e).
In searching for documents filed by SAFE in support of its exemption application, the IRS searched the file maintained to contain such informationSAFE's tax exemption application file. Plaintiff was provided with all but eleven documents that were appropriately withheld as confidential under Section 6103. The Court concludes that IRS's search for documents requested under Section 6104 was reasonable.
IV. CONCLUSION
Defendant IRS's motion for summary judgment is GRANTED. Plaintiff's motion for summary judgment is DENIED.
NOTES
[1] Plaintiff initially named SAFE as a defendant in this action, but voluntarily dismissed the complaint against SAFE on September 26, 1996.
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923 F. Supp. 164 (1996)
Bruce DOWNEY, Petitioner,
v.
Joseph CRABTREE, Warden, Federal Correctional Institution, Sheridan, Oregon, Respondent.
Civil No. CV 95-1801-HA.
United States District Court, D. Oregon.
February 22, 1996.
Stephen R. Sady, Federal Public Defender, Portland, Oregon, for Plaintiff.
Kristine Olson, United States Attorney, District of Oregon, Kenneth C. Bauman, Assistant United States Attorney, Portland, Oregon, for Defendant.
OPINION
HAGGERTY, District Judge:
The petitioner, Bruce Duane Downey, is an inmate at the Federal Correctional Facility at Sheridan, Oregon. The respondent, Joseph H. Crabtree, is the warden of Federal Correctional Institute at Sheridan, Oregon and is therefore inmate Downey's custodian and the proper respondent in this action. *165 The petitioner asserts that his statutory and due process rights are being violated by the Bureau of Prison's revocation of his eligibility for reduction of his period of custody under 18 U.S.C. § 3621(e).
ANALYSIS
For the following reasons, this court concludes that petitioner is entitled to a reduction. Petitioner alleges that since he has completed the residential drug and alcohol treatment program authorized under 18 U.S.C. § 3621(b), he should have his guideline sentence reduced by one year as authorized under 18 U.S.C. § 3621(e)(2)(B). The Bureau of Prisons (BOP) has refused to give petitioner such a reduction pursuant to its Program Statement 5330.10, (drug abuse program's inmate manual, May 25, 1995), and Program Statement 5162.02, (definition of "crimes of violence", July 24, 1995).
1. Exhaustion of Administrative Remedies
Respondent contends that petitioner's request should be denied on grounds that he has failed to exhaust his administrative remedies. Petitioner asserts that if he were to pursue his administrative remedies, it would be futile. Petitioner relies on Dougherty v. Crabtree, 812 F. Supp. 1089 (D.Or.1991), affirmed 981 F.2d 1258 (9th Cir.1992). The District Court stated:
`The requirement that federal prisoners exhaust administrative remedies before filing a habeas Corpus petition was judicially created; it is not a statutory requirement.' Therefore, failure to exhaust administrative remedies does not divest this court of jurisdiction in this habeas corpus case.
Id. at 1091, quoting Brown v. Rison, 895 F.2d 533, 535 (9th Cir.1990).
This court finds that it would be futile to require petitioner to make further administrative efforts.
2. Eligibility
There is no dispute that petitioner has successfully completed a residential drug abuse treatment program and received the requisite certificate. The BOP has denied petitioner's request for the one year guideline reduction after determining that petitioner had been convicted of a "crime of violence." Petitioner was convicted of possession with intent to distribute methamphetamine in violation of 21 U.S.C. § 841(a). The Ninth Circuit, on numerous occasions, has held that such a violation is not a conviction of a crime of violence. See United States v. Arrellano-Rios, 799 F.2d 520 (9th Cir.1986). Respondent argues that decisional case law is inapplicable here because the BOP is carrying out a rehabilitative program authorized by Congress and that therefore, the court should give deference to their definition. Congress, however, used the term "convicted of a nonviolent offense" without defining the term. This court believes that the categorical approach approved by the Ninth Circuit is the proper way to interpret the language. See United States v. Amparo, 68 F.3d 1222, 1224 (9th Cir.1995); United States v. Canon, 993 F.2d 1439, 1441 (9th Cir.1993).
In Canon, the BOP had used the enhancement for the possession of a weapon during a drug trafficking offense as a basis to deny petitioner's eligibility. The Ninth Circuit specifically held that possession of a firearm by a felon is not a "crime of violence" under § 924(c).
CONCLUSION
Based on the foregoing, I find that petitioner is eligible for the one year reduction in his guideline sentence. I hereby direct the Bureau of Prisons to give him such credit. Accordingly, petitioner's Petition for Writ of Habeas Corpus is granted.
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86 F. Supp. 201 (1949)
FARMERS COOPERATIVE CO.
v.
BIRMINGHAM, Collector of Internal Revenue.
Civ. No. 537.
United States District Court N. D. Iowa, W. D.
September 19, 1949.
As Amended October 8, 1949.
*202 *203 Alan Loth (of Loth & Melton), Fort Dodge, Iowa, for plaintiff.
Tobias E. Diamond, United States District Attorney, Wm. B. Danforth, Assistant United States District Attorney, Sioux City, Iowa, and Ruppert Bingham, Special Assistant to Attorney General, for defendant.
GRAVEN, District Judge.
Suit by a taxpayer for refund of federal income, excess profits and declared value excess profits taxes and interest thereon paid pursuant to a deficiency assessment by the defendant Collector against the taxpayer for the fiscal year of the taxpayer ending October 31st, 1944, involving the question of the exclusion of a patronage dividend from the taxable income of the taxpayer. This action was originally brought in the Southern District of Iowa. It was transferred to this District under the provisions of Section 1404(a) of the Revised Judicial Code, 28 U.S.C.A.
Plaintiff, hereinafter referred to as taxpayer, is a farmers cooperative association whose place of business is at Greenfield in Adair County, Iowa. The taxpayer was originally organized as a stock corporation under the chapter of the Iowa Code relating in general to the incorporation of organizations for pecuniary profit and it continued under that form of organization until February 8th, 1944. On February 8th, 1944, at a stockholders' meeting the taxpayer reorganized as a nonstock agricultural cooperative under Section 8512.43 of Chapter 390.1 of the Code of Iowa 1939, presently Chapter 499 of the Code of Iowa 1946, I.C.A. § 499.43. The taxpayer was both an agricultural marketing and agricultural purchasing cooperative organization handling livestock, grain, farm supplies and equipment, and similar merchandise. At the time of its reorganization provision was made for the exchange of membership and interest certificates for all outstanding shares of stock. Prior to October 31st, 1944, this plan was carried out, so that on October 31st, 1944, the taxpayer had no capital stock outstanding, and there were on that date no obligations existing or claimed arising out of the reorganization, either to any stockholder or to any other person.
On November 3d, 1944, three days after the close of taxpayer's fiscal year, an accountant employed by the taxpayer completed his audit of taxpayer's books, and at a special directors' meeting held on that date the following motion was adopted: "Motion by Sieg seconded by Shirk that a deferred dividend be set up to the members at the rate of a cent a bushel on grain eight percent on merchandise and six-tenths of one percent on livestock. Motion carried." Though the taxpayer reports on the accrual basis no action had been taken by its directors prior to November 3d, 1944, with respect to the declaration or allocation of any dividends for taxpayer's fiscal year ending October 31st, 1944.
The deferred dividend provided by taxpayer's board of directors amounted to $5913.14 and was set up on taxpayer's books as "Patronage Dividend Payable." Each member's share was computed and credited to his individual account on the patronage ledger of the taxpayer as of November 4th, 1944. In computing the dividend of the members, they were given credit for the amount of business done with the taxpayer for the period from February 8th, 1944, to October 31st, 1944, which was the period during which the taxpayer was operating under the Iowa laws relating to cooperatives. In addition, they were given credit for the amount of business done with the taxpayer during the period from November 1st, 1943, to February 8th, 1944, when they were stockholders of the taxpayer while it was operating as a stock corporation. A portion of the taxpayer's profit for its fiscal year 1943-1944 came from transactions with nonmembers. It is the claim of the taxpayer that it withheld from the patronage dividend an amount equal to the profits made from transactions with nonmembers, so that no profits from business transacted with non-members was included in the dividend. The members were informed of the credits to their accounts at the annual membership meeting in February, 1945. Pursuant to appropriate resolutions of taxpayer's board *204 of directors dated January 5th, 1946, and November 6th, 1946, 60 percent of the deferred dividend was paid to the members on January 31st, 1946, and the balance was paid on February 17th, 1947.
The taxpayer's earnings before taxes for the year ending October 31st, 1944, amounted to $16,372.53. On January 16th, 1945, the taxpayer paid corporation income, excess profits and declared value excess profits taxes on its taxable income for its fiscal year ending October 31st, 1944, in the amount $2619.21. In computing its taxable income the taxpayer excluded therefrom the dividend credited to its members on November 4th, 1944, in the sum of $5913.14. The Commissioner disallowed this exclusion and on January 2d, 1947, imposed a deficiency assessment against the taxpayer in the amount of $4627.25. The taxpayer paid the deficiency. On November 20th, 1947, the taxpayer filed a claim for refund with the Commissioner. No action was taken by the Commissioner during the ensuing six months' period. On June 18th, 1948, the taxpayer brought this action to recover $4324.96. The difference between the amount of the deficiency assessment and the amount sought to be recovered is occasioned by adjustment of minor items. All of the $4324.96 sought to be recovered by the taxpayer in this action arises from additional taxes assessed by the Commissioner because of the denial by him of the taxpayer's claim for exclusion from its income of the patronage dividend in question.
Since taxpayer transacted business with both members and nonmembers but only allocated patronage dividends to member patrons, it was not entitled to and does not claim the statutory exemption accorded some farmer cooperatives by Section 101 (12) of the Internal Revenue Code, 26 U.S. C.A. § 101(12). The controversy between the defendant Collector and the taxpayer is as to whether the taxpayer could exclude from its taxable income the amount allocated and subsequently paid as a patronage dividend. The said patronage dividend was derived from the earnings of the taxpayer for the period from November 1st, 1943, to October 31st, 1944.
The defendant Collector contends that the taxpayer could not legally include in the patronage dividend any amount derived from business transacted with the present members prior to February 8th, 1944. In support of this position the Collector points out that merely being a stockholder in the original stock corporation does not confer on that stockholder, who subsequently becomes a member of the reorganized successor, cooperative corporation, the status of a member toward the income earned by the organization while it was a stock corporation. In other words, it is the claim of the defendant Collector that membership in the cooperative has no retroactive effect for any period prior to the time such membership was obtained and so far as the present members are concerned the income of the stock corporation for the period November 1st, 1943, to February 8th, 1944, was derived from transactions with nonmembers. The Collector further argues that during the period the taxpayer functioned as a stock corporation it was under no obligation either by statute or its articles of incorporation to pay any of its stockholders any patronage dividends.
The taxpayer and the Collector are also in disagreement as to the exclusion of that amount of the dividend credited to the members based upon business transacted by the members during the period the taxpayer functioned as a cooperative from February 8th, 1944, to the end of its fiscal year on October 31st, 1944.
It has been heretofore noted that the corporate action of the taxpayer relating to the declaration of the patronage dividend in question was not taken until after the end of the taxpayer's fiscal year and that the patronage dividend was not credited to the member patrons until after the end of such fiscal year. It is the contention of the taxpayer that no corporate action formally declaring such patronage dividend was necessary to make it excludable for federal income tax purposes since under the applicable Iowa statute and its own articles of incorporation the taxpayer was obligated to allocate patronage dividends to its member patrons.
*205 The Collector's position on this point is that neither the applicable state statutes nor taxpayer's articles of incorporation created an obligation on the part of the tax-payer to pay or to allocate to its member patrons the patronage dividend in question and that until the board of directors acted there was neither an obligation on the part of the taxpayer to allocate a patronage dividend nor a right in its member patrons to receive such a dividend. In addition, the Collector claims that the statutes and articles vested such discretion in the taxpayer's board of directors that they had the right to declare or not to declare distributions of earnings to members, as they saw fit, thus further negativing any pre-existing obligation to allocate its earnings to member patrons which taxpayer might claim to have.
The determination of the questions involved in the present case would seem to require a study of considerable of the history and background of farmer cooperatives and the numerous statutory provisions relating to them.
The growth of farmer cooperatives throughout the United States has been very rapid, and it is estimated that today from one-third to one-half of the nation's farmers are cooperative members. Voorhis, Recent Trends in Urban Cooperative Development, 13 Law and Contemporary Problems 458, Duke University (1948). In 1913 there were 2,988 farmer marketing cooperative associations and 111 farmer purchasing cooperatives. Two years later, in 1915, these had increased to 5,149 farmer marketing cooperatives with a membership of 591,683 and 275 farmer purchasing cooperatives with 59,503 members. By the years 1943-1944 there were 7,522 farmer marketing cooperatives with 2,730,000 members and 2,778 farmer purchasing cooperatives with 1,520,000 members, or a total membership of 4,250,000. In 1913 farmer marketing cooperatives did an estimated $304,385.00 business while farmer purchasing cooperatives did $5,928.00 business. This had increased in 1943-1944 to $4,430,000,000.00 for farmer marketing and $730,000,000.00 for farmer purchasing cooperatives. House Report No. 1888, 79th Cong., 2nd Sess. (April 7th, 1946) Competition of Cooperatives with Other Forms of Business Enterprise, and authorities cited therein. It has been estimated that by 1947 there were approximately 1,040 farm cooperatives in Iowa, with about the same number of nonfarm cooperatives, most of the latter being consumer cooperatives. See Note 34 Iowa Law Review 340, 341 (1948). Farmer cooperatives have been and are of increasing economic importance. It is of interest to note that a case book dealing with cooperatives and their organizational, functional, and legal problems is now available for a law school course. Stedman, Bunn's Cases and Materials on Cooperative Associations (2nd ed., 1942). Cooperatives in general and their relation to the tax laws in particular have been and are subjects of wide interest and about which much has been written. For an especially valuable discussion dealing with various phases of cooperatives and cooperative law see 13 Law and Contemporary Problems 391-551, Duke University (1948). For discussions of state statutes and Tax Commission regulations pertaining to farmers' cooperatives under the Iowa income and property tax laws see Notes, 33 Iowa Law Review 123 (1947), and 34 Iowa Law Review 340 (1949). For rulings on certain of the requirements which an Iowa cooperative must comply with, see [1944] Opinions of the Iowa Attorney General, p. 40; [1942] Opinions of the Iowa Attorney General, p. 65. For an extensive discussion of the arguments for and against the taxation of cooperative receipts see, Sowards, Should Cooperatives Pay Federal Income Taxes?, 19 Tennessee Law Review 908 (1947). See also, House Report No. 1888, supra; Bradley, Taxation of Cooperatives, Harvard Business Review 576 (Autumn, 1947); Packel, The Law of The Organization and Operation of Cooperatives (2nd ed. 1947), reviewed by Professor L. K. Tunks in 33 Iowa Law Review 437 (1948); Packel, Cooperatives and the Income Tax, 90 University of Pennsylvania Law Review 137 (1941); Note, 34 Virginia Law Review 314 (1948) and Comment, 50 Harvard Law Review 1321 (1937). The writers of the Virginia and Harvard Law Review articles cited above suggest that in case exclusion *206 of patronage dividends was denied a cooperative, it could still avoid being taxed on its earnings by charging patrons less than cost for its products or paying more than the market price to producers so that there would be a deficit at the end of the year rather than a surplus. Operating capital which would offset this deficit could allegedly be secured by requiring capital investments from patrons on the basis of their patronage. There are a number of A.L.R. annotations on the subject of cooperatives. See annotations to the cases of Phez Co. v. Salem Fruit Union, 1921, 103 Or. 514, 201 P. 222, 205 P. 970, 25 A.L.R. 1090; Tobacco Growers' Co-operative Ass'n v. Jones, 1923, 185 N.C. 265, 117 S.E. 174, 33 A.L.R. 231; Tobacco Growers' Co-operative Ass'n v. Harvey & Son Co., 1925, 189 N.C. 494, 127 S.E. 545, 47 A.L.R. 928; Watertown Milk Producers Co-operative Ass'n v. Van Camp Packing Co., 1929, 199 Wis. 379, 225 N.W. 209, 226 N.W. 378, 77 A.L.R. 391; Neith Co-operative Dairy Products Ass'n v. National Cheese Producers' Federation, 1934, 217 Wis. 202, 257 N.W. 624, 98 A.L.R. 1403; Yakima Fruit Growers' Ass'n v. Henneford, 1935, 182 Wash. 437, 47 P.2d 831, 100 A.L.R. 435; Tigner v. State of Texas, 1940, 310 U.S. 141, 60 S. Ct. 879, 84 L. Ed. 1124, 130 A.L.R. 1321.
It seems apparent that some of the public confuse the question of the so-called "cooperative exemption" from federal income tax with the question of the exclusion from a cooperative's gross income of what are commonly known as "patronage dividends" for federal income tax purposes. Congress has made specific statutory provision for the exemption from federal income tax of those cooperatives which meet certain specified requirements. However, there is no federal statute which specifically authorizes the exclusion of patronage dividends for federal income tax purposes. Such exclusion has been permitted by Treasury Department rulings and by decisions of federal courts other than the United States Supreme Court. The United States Supreme Court has never passed upon the legality of excluding patronage dividends for federal income tax purposes.
While the matter of the so-called "cooperative exemption" is dissimilar from the matter of the exclusion of patronage dividends by cooperatives for federal income tax purposes, yet the statutes, rulings, and decisions relating to the so-called "cooperative tax exemption" do throw light on questions having to do with patronage dividends.
The so-called cooperative exemption from federal income tax, which is only extended to those cooperatives meeting certain requirements, has been included in one form or another in all the federal revenue acts passed since the adoption of the Sixteenth Amendment.
Section II G(a) of the first Federal Revenue Act of 1913, 38 Stat. 172, exempted from income tax agricultural and horticultural cooperative marketing associations and Article 92, Regulations 33 promulgated under the 1913 Act provided for the exemption of cooperative dairies meeting certain standards. The Treasury Regulations of the Revenue Acts of 1916-1918 gave rather liberal interpretations to the less specific terms of the Revenue Acts for those years in exempting from income tax those farmers' and fruit growers' marketing associations which could show that they had no net income upon their own account and that the entire proceeds of their sales, less selling expenses, were returned to their members upon the basis of the quantity of products furnished by them. This was in line with recognized practice since the function of a treasury regulation is to consistently and reasonably carry into effect the will of Congress as generally expressed but not explicitly stated in the statute. Manhattan General Equipment Co. v. Commissioner, 1936, 297 U.S. 129, 56 S. Ct. 397, 80 L. Ed. 528, rehearing denied 297 U.S. 728, 56 S. Ct. 587, 80 L. Ed. 1010. See also Korth v. Mountain City Copper Co., 10 Cir., 1949, 174 F.2d 295.
The Revenue Act of 1921, Section 231 (11), 42 Stat. 253, contained provisions similar to the 1918 Act, 40 Stat. 1057 et seq., but in addition specifically exempted farmers' purchasing cooperatives from income tax.
*207 The Treasury Regulations promulgated under the 1921 and 1924 Acts further liberalized the provisions of the earlier regulations by providing that (a) the maintenance of reasonable reserves for depreciation or possible loss, or a sinking fund, or surplus to provide for the erection of buildings or facilities required in the business, or for the purchase and installation of machinery and equipment, or to retire indebtedness would not destroy the exemption, and (b) farmer cooperatives would not lose their exemption by virtue of having capital stock upon which they paid a dividend not exceeding the legal rate, or 8 percent per annum, nor (c) because they marketed the products of nonmembers, provided the value of the products marketed for nonmembers did not exceed the value of products marketed for members. Section 231(11), Revenue Act of 1924, 43 Stat. 282, was substantially the same as Section 231(11) of the 1921 Act, and Section 231 (12) of the Revenue Act of 1926, 44 Stat. 40, followed largely the liberal regulations promulgated under the 1924 Act.
The corresponding provisions in the Revenue Acts and the Treasury Regulations down to the present day have been substantially the same. Section 101(12) of the present Internal Revenue Code, 53 Stat. 4, 33, 26 U.S.C.A. § 101(12), establishes the requirements for tax exemption of cooperatives for federal income tax purposes as follows:
1. They must be organized by farmers on a cooperative basis.
2. They must operate as a marketing or purchasing agency on a cost basis, ultimately turning back all net proceeds to member and non-member patrons.
3. Substantially all stock except nonvoting, nonprofit-sharing preferred stock must be owned by producers or purchaser member patrons.
4. Dividends may not exceed 8 percent or the legal rate in the state of incorporation, whichever is greater.
5. Only reserves required by state law, or reasonable reserves for a necessary purpose may be accumulated.
6. Neither the cooperative nor its member patrons may gain a discriminatory advantage on non-member business.
7. Non-member business must not exceed member business and purchasing cooperatives are limited in their purchases for non-member nonproducer patrons to 15 percent of their total business.
Section 29.101(12)-1 as amended by T. D. 5458, June 15th, 1945, is the applicable Treasury Regulation and among other things retains the provision limiting this exemption to farmer cooperatives, for subsection (d) provides that, "Cooperative organizations engaged in occupations dissimilar from those of farmers, fruit growers, and the like, such as marketing building materials, are not exempt."
The association must be organized and operated in the prescribed manner and for the purposes specified to be tax exempt. Burr Creamery Corp. v. Commissioner, 1931, 23 B.T.A. 1007, affirmed 9 Cir., 1932, 62 F.2d 407, certiorari denied, 1933, 289 U.S. 730, 53 S. Ct. 527, 77 L. Ed. 1479; Producers' Creamery Co. v. United States, 5 Cir., 1932, 55 F.2d 104; Riverdale Co-operative Creamery Ass'n v. Commissioner, 9 Cir., 1931, 48 F.2d 711. However, if the cooperative is organized in such a way that it can meet the requirements of the statute in regard to equality of treatment between member and non-member patrons, the presence of additional charter powers will not cause the cooperative to lose its exemption. I.T.1914, C.B. III-1 (1924) 287; S.M. 2286, C.B. III-2 (1924) 236. In Fruit Growers' Supply Co. v. Commissioner, 1930, 21 B.T.A. 315, affirmed 9 Cir., 1932, 56 F.2d 90, page 91, the court stated: "It is conceded that the corporate powers of the petitioner are a great deal broader than those indicated in the statute, but it is correctly contended that, where the organization actually operated as a purchasing agent for the purposes defined in the statute, it is entitled to exemption, notwithstanding the fact that its powers exceeded those found in the statute (cit.)."
The mere fact that a farmer cooperative is organized under state cooperative statutes *208 is not sufficient in and of itself to bring such organization within federal statutes exempting farmer cooperatives from taxation. Farmers Union Co-operative Co. v. Commissioner, 1935, 33 B.T.A. 225, affirmed 8 Cir., 1937, 90 F.2d 488. And where the cooperative discriminates between member and non-member patrons in the allocation or distribution of its earnings the exemption will be denied. Fertile Co-operative Dairy Ass'n v. Huston, 8 Cir., 1941, 119 F.2d 274; Farmers Cooperative Co. of Wahoo, Neb., v. United States, 1938, 23 F. Supp. 123, 87 Ct. Cl. 154; Producers' Creamery Co. v. United States, supra; Council Bluffs Grape Growers Ass'n v. Commissioner, 1941, 44 B.T.A. 152; Farmers Mutual Cooperative Creamery v. Commissioner, 1935, 33 B.T.A. 117; Central Cooperative Oil Ass'n v. Commissioner, 1935, 32 B.T.A. 359; Cf. San Joaquin Valley Poultry Producers Ass'n v. Commissioner, 9 Cir., 1943, 136 F.2d 382. However, such discrimination is not violative of the rights of the patrons discriminated against. Mooney v. Farmers' Mercantile & Elevator Co., 1917, 138 Minn. 199, 164 N.W. 804.
The exemption may de denied because of inequality in the treatment of member patrons. Farmers Union Cooperative Oil Co. v. Commissioner, 1938, 38 B.T.A. 64. But in the case of a non-member patron a cooperative can apply on the payment for a share of stock for the non-member patron or for his membership in the association that part of its earnings which accrue to the business of such a nonmember, and not lose its exemption. G.C.M. 11068, C. B. XII-1 (1933) 122; I.T. 2791, C.B. XIII-1 (1934) 77. A federated type of cooperative may be exempt if it qualifies otherwise, I.T. 2000, C.B. III-1 (1924) 290; S.M. 2595, C.B. III-2 (1924) 238; S.M. 2286, C.B. III-2 (1924) 236, but where a cooperative was composed in part of consumer cooperatives it was held non-exempt. Co-operative Central Exchange v. Commissioner, 1932, 27 B.T.A. 17. A cooperative association which paid a 10 percent dividend to its stockholders and which also accumulated large surplus and reserve accounts was denied an exempt status because of such actions in South Carolina Produce Ass'n v. Commissioner, 4 Cir., 1931, 50 F.2d 742. Transacting more than the prescribed volume of business with nonmembers may also cause the cooperative to lose its exempt status. Farmers Union Co-operative Ass'n v. Commissioner (1941) 44 B.T.A. 34; Farmers Co-operative Grain & L. Ass'n v. Hildreth (1942) B.T.A.Memo., Docket No. 98281, P. H., par. 42,030.
The Attorney General of Iowa has ruled that ordinary corporations for profit, cooperative associations not organized under Chapter 390.1, Code of Iowa 1939, Chapter 499 Code of Iowa 1946, I.C.A. § 499.1 et seq., partnerships, cities, towns, counties or townships are not eligible for membership in a cooperative association organized under Chapter 390.1, Code of Iowa 1939. [1946] Opinions of Iowa Attorney General, p. 21.
There is no partial tax exemption. Farmers Union Cooperative Oil Ass'n v. Commissioner, supra. Either the cooperative meets the requirements for exemption as stated in the statute and regulations, or the most that it can claim is an exclusion from gross income of that part of its earnings allocated or distributed as a patronage dividend in accordance with the administrative practice of the Treasury Department and court decisions recognizing that practice.
It is important to note that to comply with the cooperative exemption statute the cooperative may not market products or purchase supplies for nonmembers in a greater amount than that marketed or purchased for members. And purchases made for persons who are neither members nor producers must not exceed fifteen percent of the value of all purchases. These requirements would seem to be among the most difficult for cooperatives to comply with, for Justice Brandeis in his dissent in Frost v. Corporation Commission, 1929, 278 U.S. 515, 528, page 545, 49 S. Ct. 235, page 246, 73 L. Ed. 483, stated that, "Experience has demonstrated * * * that doing business for nonmembers is usually deemed essential to the success of a cooperative (cit.). More than five-sixths of all the farmers' co-operative associations *209 in the United States do business for nonmembers." It might be noted here parenthetically that this differs greatly from the English situation, for a writer in an English publication stated that only two percent of the business of English cooperatives was conducted with nonmembers. Crichton, Cooperative Societies and the Income Tax, 38 Law Quarterly Review 48 (1922).
Because of these and other statutory restrictions, "A surprisingly large number of farmer cooperatives have elected not to qualify for income tax exemption, but operate as taxpaying corporations. Apparently, farmers owning such cooperatives do not care to be fettered or restricted by the rigid limitations imposed by law on exempt cooperatives." House Report No. 1888, supra at p. 16. Of the 10,300 agricultural cooperatives doing business in 1945 the Treasury Department reported that approximately 54 percent qualified for tax exemption. House Report No. 1888, supra at p. 19 fn. 3.
The provision in Section 499.30 of the Code of Iowa 1946, I.C.A., set out infra, that patronage dividends can only be allocated to members would seem to further increase the difficulties of an Iowa cooperative attempting to attain an exempt status under Section 101(12) of the Internal Revenue Code, 26 U.S.C.A. § 101 (12), which, as stated previously, requires equality of treatment between member and non-member patrons as one of the prerequisites for exemption. It would seem that an Iowa cooperative must specifically provide in its charter or its by-laws that no business will be transacted with nonmembers, or it must be able to prove that its business was conducted only with members, in order to meet the requirements both of Section 499.30 and Section 101(12). In Eugene Fruit Growers Ass'n v. Commissioner, 1938, 37 B.T.A. 993, the Board of Tax Appeals held that the fact that no provision was made for profit sharing by nonmembers did not affect petitioner's exempt status where all of its contracts were with members. And apparently a nonmember patron would be unsuccessful in an attempt to force the cooperative to distribute a portion of its earnings to him, in the absence of any provision in the cooperative charter or by-laws allowing such distribution, for the court in Farmers Truck Ass'n v. Strawberry & Vegetable Auction, Inc., La.App., 1935, 163 So. 181, held that a non-member patron could not compel the association to pay him a patronage dividend where its organization papers and procedure did not provide for doing so. Since apparently only a few Iowa cooperatives, notably organizations handling dairy products, do not transact business with at least some nonmembers, the major problem so far as the tax situation for federal income tax purposes of Iowa cooperatives is concerned would not seem to be one occasioned by the so-called cooperative exemption, but rather the matter of the excludability of patronage dividends from the gross income of those cooperatives claiming such exclusions under the administrative practice of the Treasury Department, and court decisions in accord therewith.
One writer has made an interesting analysis in general terms of the relative advantages of farmer cooperatives exempt and non-exempt from federal corporate income tax. Foley, 25 Taxes 197, 199 (1947).
"Non-Exempt Exempt
1. Must file regular 1. Must obtain letter
corporate income of exemption
tax Form (1120). from Commissioner
and then
file Form 990 annually.
2. Must pay tax on 2. Does not pay
such taxable income such taxes.
as:
a. Non-operating a. No tax.
or extraneous
income or capital
gains.
b. Reserved operating b. No tax, but
earnings. subject to limitations.
c. All operating c. Must allocate
earnings not operating savings
distributed in to all patrons
prescribed on a patronage
manner. basis.
d. All earnings d. No tax, but
distributed as subject to limitations.
interest or
dividends on
capital stock.
e. All earnings e. May distribute
done for U. S. to all other patrons,
A. or its agencies, or (sic)
if not refunded patronage basis.
to
them.
*210
3. Must purchase 3. Not required.
and affix excise
stamps to certain
documents.
4. No Social Security 4. Have very limited
preference. exemption on
this tax.
5. Must maintain 5. Must adhere to
each year its legal requisites for exemption
and corporate basis at all
for excluding time during subject
refunds from year.
gross income.
6. May pay any rate 6. Rate is limited to
of dividend or interest state rate or 8%.
on capital
shares (but is
taxed on amounts
so paid or accrued).
7. May have unlimited 7. Must limit such
capital reserves reserves and allocate
(after income them to
tax thereon patrons on patronage
is paid). basis.
8. Must maintain 8. Must maintain
patronage records. patronage and allocation
records.
9. Owned and controlled 9. Must be substantially
by anyone. controlled
by producer-patrons.
10. May operate in 10. Must operate
part commercially 100% cooperatively.
and in part cooperatively.
11. May engage in 11. Must adhere to
any type of business. requisites for exemption.
12. May do business 12. Must adhere to
with anyone. requisites for exemption.
13. Regular two-year 13. More flexible
carry-over and treatment for
carry-back provision losses of any
on losses. year."
The foregoing brings sharply into focus the distinction between those cooperatives which enjoy the cooperative exemption from federal income tax and cooperatives which do not have such exemption but seek to exclude patronage dividends from their taxable income for federal income tax purposes. It must be kept in mind that it is only those cooperatives which do not desire or are unable to meet the statutory requirements for cooperative exemption which are interested in availing for themselves patronage dividend exclusions.
What constitutes a cooperative and a determination of the class of organization to which it belongs are matters which have given rise to some difficulty. While cooperatives today are generally incorporated, according to the latest available report about 10 percent of all farmer cooperatives are still unincorporated. A Statistical Handbook of Farmers Cooperatives, Farm Credit Administration, p. 8 (1939). The first incorporated cooperatives were formed as stock companies under statutes which had not been enacted specifically for the incorporation of cooperative organizations. Statutory provision for the organization of nonstock cooperatives was a later development. Nieman, Revolving Capital in Stock Cooperative Corporations, 13 Law and Contemporary Problems 393, 394, Duke University (1948). It was stated informally in argument in the present case that the largest distributors of patronage dividends in Iowa are not incorporated under the Iowa laws relating to cooperatives.
An eminent jurist has said that any definition of a cooperative is not too practical because no one plan of organization is to be labeled as truly cooperative to the exclusion of others. Justice Brandeis in a dissenting opinion in Frost v. Corporation Commission, 1929, 278 U.S. 515, 546, 49 S. Ct. 235, 246, 73 L. Ed. 483, 499 commented on in 29 Columbia Law Review 833 (1929). It has been stated that an agricultural cooperative is a unique type of business organization operated for the mutual benefit of its members on the basis of their patronage with the association rather than because of any financial investment made therein, and that the primary purpose of a farmer cooperative is either to market the products of each producer patron and to return to him as much as possible for the product he sells, or to provide each purchasing patron with the kind and quantity of farm supplies needed at the lowest possible cost; or to accomplish both of these objectives. Paul, The Justifiability of The Policy of Exempting Farmers' Marketing and Purchasing Cooperative Organizations from Federal Income Taxes, 29 Minnesota Law Review 343 (1945). Incorporated cooperatives on occasion have been distinguished from the ordinary business corporation. In Doss v. Farmers' Union Cooperative Gin Co., 1935, 173 Okl. 70, page 71, 46 P.2d 950, page 951, the Court *211 stated, "* * * a co-operative corporation is a special and peculiar form of business enterprise which is not within the class of corporation designed purely and solely for money profit." The Arkansas Supreme Court held that a cooperative corporation was not liable for the torts of its employees in Arkansas Valley Cooperative Co-op. Rural Electric Co. v. Elkins, 1940, 200 Ark. 883, 141 S.W.2d 538. It is indicated that cooperative corporations in general possess many of the essential attributes of ordinary business corporations, the most noticeable differences being in the matters of voting power and the basis of distribution of their net earnings. In the cooperative corporation each member or stockholder has one vote regardless of the number of shares he may hold, whereas each share of stock is entitled to one vote in the ordinary business corporation. There are also nonstock cooperatives which issue membership certificates to their members. The business corporation usually divides part of its profits among its shareholders in proportion to the shares owned, while a cooperative corporation, after distributing part of its profits to shareholders in the form of a dividend not exceeding a rate generally fixed by statute, distributes the remainder in proportion to the volume of members' purchases and sales. Because of a definite and limited return accruing to an investor in a cooperative, his status has been distinguished from that of a stockholder in a business corporation and analogized rather to that of a bondholder. Albrecht, Economic Theory of Consumers' Cooperation, 191 Annals of the American Academy of Political and Social Science 17 (1937). See also, Justice Brandeis' dissent in Frost v. Corporation Commission, supra. The United States Courts of Appeal for the Sixth and Seventh Circuits in the cases of In re Wisconsin Cooperative Milk Pool, D.C. E.D. Wis.1940, 35 F. Supp. 787, reversed 7 Cir., 1941, 119 F.2d 999, certiorari denied Wisconsin Co-op. Milk Pool v. First Wisconsin Nat. Bank of Milwaukee, 314 U.S. 655, 62 S. Ct. 105, 86 L. Ed. 525, and Schuster v. Ohio Farmers' Co-op. Milk Ass'n, 6 Cir., 1932, 61 F.2d 337, analogized a cooperative to an ordinary business corporation for purposes of determining the cooperative's amenability to the Bankruptcy Act, 11 U.S.C.A. § 1 et seq. In Lake Region Packing Ass'n v. United States, 5 Cir., 1944, 146 F.2d 157, a cooperative was held to be subject to the provisions of the Social Security Act, 42 U.S.C.A. § 301 et seq., like an ordinary corporation. The ordinary business corporation is taxed on its income and its stockholders are also taxed on that portion of the corporate earnings distributed to them by way of dividends. Likewise, both the non-exempt stock cooperative and its stockholders are taxed on amounts which the non-exempt cooperative distributes as dividends on its capital stock. Sacred Heart Cooperative Mercantile Co. v. Commissioner, 1925, 2 B.T.A. 24; Farmers Cooperative Ass'n v. Commissioner, 1926, 5 B.T.A. 61; Trego County Cooperative Ass'n v. Commissioner, 1927, 6 B.T.A. 1275; S.M. 2595, C.B. III-2 (1924) 238. However, the nonexempt cooperative may escape taxation on amounts distributed as patronage dividends if certain conditions are met. See Treasury rulings and cases cited infra.
It has been the policy in general of both Congress and the legislatures of the different states to enact legislation favorable to the formation and growth of farmer cooperatives. Tigner v. State of Texas, 1940, 310 U.S. 141, 60 S. Ct. 879, 84 L. Ed. 1124, 130 A.L.R. 1321; Liberty Warehouse Co. v. Burley Tobacco Growers' Co-operative Marketing Ass'n, 1928, 276 U.S. 71, 48 S. Ct. 291, 72 L. Ed. 473 (containing extensive citations of cases indicating general state approval of a policy favoring rural cooperatives); Stark v. Brannan, D.C. 1949, 82 F. Supp. 614, 617; Note, 22 Notre Dame Lawyer 413 (1947). Today every state has passed rather broad agricultural cooperative association acts. For a collection of the state statutes see Jensen, The Bill of Rights of U.S. Cooperative Agriculture, 20 Rocky Mountain Law Review 3, 13 fn. 29 (1948).
A distinction should be noted between "farmer cooperatives" and "consumer cooperatives" as each phrase has acquired *212 a distinct meaning through judicial interpretation and through usage in legal writings. Stedman, Bunns' Cases and Materials on Cooperative Associations, supra, p. 41, contains a quotation to the effect that state legislators in some instances have not had this distinction in mind and consequently have lumped the two types together under the inclusive term of "cooperatives." Farmer cooperatives consist only of those associations which market agricultural products or purchase supplies and equipment for those engaged in marketing agricultural products. National Outdoor Advertising Bureau v. Helvering, 2 Cir., 1937, 89 F.2d 878; Sunset Scavenger Co. v. Commissioner 9 Cir., 1936, 84 F.2d 453. A further distinction should be noted between farmer marketing cooperatives and farmer purchasing cooperatives. In the case of marketing cooperatives a patronage dividend has the effect of increasing the amount received for products marketed, while in the case of consumer or purchasing cooperatives a patronage dividend has the effect of reducing the cost of merchandise purchased. Farmer cooperatives similar to the taxpayer in the present case frequently act in the dual capacity of both a marketing cooperative and a purchasing cooperative. They are not thereby considered as forfeiting any claim they might otherwise have to either the cooperative exemption or the exclusion of patronage dividends from gross income. As heretofore noted, there is no federal statute which expressly provides for the exclusion of patronage dividends, but the exclusion of such dividends under certain conditions has been the administrative practice of the Treasury Department and the Bureau of Internal Revenue. T.D. 2737, June, 1918; I.T. 1499, C.B. I-2 (1922) 189; I.T. 1566, C.B. II-1 (1923) 85; A.R.R. 6967, C.B. III-1 (1924) 287; S.M. 2288, C.B. III-2 (1924) 233; S.M. 2595, C.B. III-2 (1924) 238; G.C.M. 12393, C.B. XII-2 (1933) 398; G.C.M. 17895, C.B. 1937-1, 56; I.T. 3208, C.B. 1938-2, 127.
This practice has in turn been recognized and approved by the courts. "* * * there is no * * * statutory provision for the deduction of patronage dividends from the gross income of a cooperative association. The Treasury Department, however, * * * has allowed such deductions `to the end that substantial justice may be done. * * *'" Midland Cooperative Wholesale v. Commissioner, 1941, 44 B.T.A. 824, 830. See also, Co-operative Oil Ass'n v. Commissioner, 9 Cir., 1940, 115 F.2d 666; Anamosa Farmers Creamery Co. v. Commissioner, 1928, 13 B.T.A. 907; United Cooperatives, Inc., v. Commissioner, 1944, 4 T.C. 93, and other cases discussed infra.
The first Treasury Department ruling pertaining to the exclusion of patronage dividends or refunds made by cooperatives to its patrons, T.D. 2737, supra, did not purport to be based upon a specific section or sections of any Revenue Act. I.T. 1499, supra, and several of the subsequent Treasury Department rulings cited above were apparently issued under those sections of the Revenue Acts for the respective years providing for the exemption for federal income tax purposes of those farmer cooperatives meeting certain qualifications. It is interesting to note that the so-called "Iowa ruling," I.T. 3208, supra, which is the most recent ruling on the excludability of patronage dividends from a cooperative's gross income, was issued under Section 22 (a) of the Internal Revenue Code, 26 U.S.C.A. § 22(a), and is entitled, "What included in gross income." These Treasury Department rulings do not exist in a legal vacuum sealed off from the Internal Revenue Code, and they are not legal Robinson Crusoes isolated from that Code. Since they do not pertain to the statutory exemption granted some cooperatives by Section 101 (12) of the Internal Revenue Code, 26 U.S.C.A. § 101(12), they must relate to some other section of the Revenue Code. The fact that earnings are not taxable under some specific section of the Revenue Code does not preclude the possibility of their being taxed under the provisions of Section 22(a) of the Revenue Code, 26 U.S.C.A. § 22(a), relating to the taxability of income in general. See, Commissioner v. Smith, 1945, 324 U.S. 177, 65 S. Ct. 591, 89 L. Ed. 830, rehearing denied *213 324 U.S. 695, 65 S. Ct. 891, 89 L. Ed. 1295; Mallinckrodt v. Nunan, 8 Cir., 1945, 146 F.2d 1, certiorari denied 324 U.S. 871, 65 S. Ct. 1017, 89 L. Ed. 1426, rehearing denied 325 U.S. 892, 65 S. Ct. 1084, 89 L. Ed. 2004; Helvering v. Edison Bros. Stores, 8 Cir., 1943, 133 F.2d 575, certiorari denied 319 U.S. 752, 63 S. Ct. 1166, 87 L. Ed. 1706; United States v. Anderson, 6 Cir., 1942, 132 F.2d 98, certiorari denied 318 U.S. 790, 63 S. Ct. 994, 87 L. Ed. 1156, rehearing denied 319 U.S. 781, 63 S. Ct. 1156, 87 L. Ed. 1725. Thus it would seem that those Treasury Department rulings providing for the exclusion of patronage dividends from the gross income of cooperatives meeting certain conditions set forth in such rulings apparently relate to the provisions of Section 22(a) of the Internal Revenue Code, 26 U.S.C.A. § 22(a), which establishes a general definition of gross income for federal income tax purposes.
The exclusion of patronage dividends for federal income tax purposes is sometimes referred to as being a matter of "administrative grace" or "administrative liberality." It is believed that the use of such terminology makes for confusion, for it is obvious that no official of the Government is vested with the "grace" or "liberality" to exclude from a taxpayer's income that which is legally taxable to him under the federal income tax statutes. It would seem that the crucial question involved in determining the taxability of patronage dividends is whether they constitute income to the cooperative, or to the patrons, or to both, similar to the amounts distributed as dividends by ordinary corporations. One writer contends that it is the income of neither. See O'Meara, The Federal Income Tax in Relation to Consumer Cooperatives, 36 Illinois Law Review 60 (1941). The Commissioner of Internal Revenue and the officials of the Treasury Department in a multitude of situations must determine whether particular amounts constitute income and to whom such income is taxable for federal income tax purposes; and that is what they have to determine in the case of patronage dividends. In New Colonial Ice Company v. Helvering, 1934, 292 U.S. 435, 440, 54 S. Ct. 788, 790, 78 L. Ed. 1348, 1352, the United States Supreme Court stated, "* * * a taxpayer seeking a deduction must be able to point to an applicable statute and show that he comes within its terms." See also, White v. United States, 1938, 305 U.S. 281, 59 S. Ct. 179, 83 L. Ed. 172. As noted, there are no applicable statutes providing for the exclusion of patronage dividends for income tax purposes.
It is the view of some that provisions obligating a cooperative to pay over to its patrons all or a portion of its net receipts to be earned in the future should be regarded similarly to anticipatory assignments of income or trust agreements governing income to be earned in the future and should fall within the scope of those decisions refusing to recognize such assignments of income or trust agreements for federal income tax purposes. See Adcock, Patronage Dividends: Income Distribution or Price Adjustment, 13 Law and Contemporary Problems 505, 514, Duke University (1948). There are numerous decisions dealing with such assignments and agreements. Helvering v. Horst, 1940, 311 U.S. 112, 61 S. Ct. 144, 85 L. Ed. 75, 131 A.L.R. 655; Lucas v. Earl, 1930, 281 U.S. 111, 50 S. Ct. 241, 74 L. Ed. 731; Fontana Power Co. v. Commissioner, 9 Cir., 1942, 127 F.2d 193; Saenger v. Commissioner, 5 Cir., 1934, 69 F.2d 631; Porter Royalty Pool, Inc. v. Commissioner, 1946, 7 T.C. 685; Comer v. Davis, 5 Cir., 1939, 107 F.2d 355; Balkwill v. Commissioner, 6 Cir., 1935, 77 F.2d 569, certiorari denied 1935, 296 U.S. 609, 56 S. Ct. 127, 80 L. Ed. 432. However, no case has been found in which a court determined the applicability or inapplicability of such decisions to a cooperative's distribution of patronage dividends under a pre-existing obligation. The exclusion of patronage dividends for federal income tax purposes has not been placed upon the ground that cooperatives are special creatures of statute under the tax laws, but is justified rather upon the theory that patronage dividends are in reality rebates on purchases or deferred payments on sales, allocated or distributed pursuant to a pre-existing obligation of the cooperative, *214 and thus do not constitute taxable income to the cooperative. Cooperative Oil Ass'n v. Commissioner, 9 Cir., 1940, 115 F.2d 666; Midland Cooperative Wholesale v. Commissioner, 1941, 44 B.T.A. 824; Treasury Department Rulings, supra.
The view is advanced by some that cooperatives take as agents or trustees only with no claim of right on their part to the patronage dividend and that the cooperative is therefore a mere conduit through which the income flows to its patrons, hence such income is excludable from its gross income for federal income tax purposes. See Jensen, The Collecting and Remitting Transactions of a Cooperative Marketing Corporation, 13 Law and Contemporary Problems 403, Duke University (1948) and cases cited in footnote 4 therein; Paul, The Justifiability of the Policy of Exempting Farmers' Marketing and Purchasing Cooperative Organizations from Federal Income Taxes, 29 Minnesota Law Review 343, 369 (1945). In the case of Saenger v. Commissioner, 5 Cir., 1934, 69 F.2d 631, 633 the United States Court of Appeals for the Fifth Circuit stated, "* * * if compensation paid to one is paid to him as the agent or servant in fact, not in fiction, of another, that income is taxable, not to the servant or agent as earner, but to its real earner, the principal (cit.)." The Court cites in support of that statement cases dealing with community property or family partnership relations. The Mississippi Supreme Court in State v. Morgan Gin Co., 1939, 186 Miss. 66, 189 So. 817, used the theory advanced in the Saenger case to uphold a cooperative's exclusion of patronage dividends from its income subject to state income tax. Though no patronage dividends were involved, the United States Supreme Court in Commissioner of Internal Revenue v. Wilcox, 1946, 327 U.S. 404, 66 S. Ct. 546, 90 L. Ed. 752, 166 A.L.R. 884, stated that in order for receipts to constitute taxable income to a taxpayer there must be (1) the presence of a claim of right to such receipts, and (2) the absence of a definite, unconditional obligation to pay the same to another. See also, North American Oil Consolidated v. Burnet, 1932, 286 U.S. 417, 52 S. Ct. 613, 76 L. Ed. 1197; Haberkorn v. United States, 6 Cir., 1949, 173 F.2d 587. In the case of Trinidad v. Sagrada Orden de Predicadores, 1924, 263 U.S. 578, 44 S. Ct. 204, 68 L. Ed. 458, the United States Supreme Court emphasized that in tax matters the destination rather than the source of income is the controlling factor. See also, Commissioner v. Orton, 6 Cir., 1949, 173 F.2d 483, 486.
In a very recent case, National Carbide Corp. v. Commissioner, 1949, 336 U.S. 422, 69 S. Ct. 726, 93 L.Ed. ___, petitioners claimed a reduction in their income and excess profits taxes on the theory that by virtue of a contract with their controlling (Airco) corporation they were only agents of Airco to the extent of all their earnings in excess of expenses and a six percent payment on their outstanding capital stock. The United States Supreme Court denied petitioners' claims, holding that complete ownership of the subsidiary corporation and the control primarily dependent upon such ownership are no longer of significance in determining taxability. The Court went on to point out that the existence of the "agency contracts" requiring petitioners to pay all their profits above a nominal return to Airco did not conclusively determine that the income "belonged to Airco." However, the possibility that a true agency relationship might exist was not absolutely foreclosed, for the Court stated, 336 U.S. page 437, 69 S.Ct. page 734, that, "What we have said does not forclose a true corporate agent or trustee from handling the property and income of its owner-principal without being taxable therefor. Whether the corporation operates in the name and for the account of the principal, binds the principal by its actions, transmits money received to the principal, and whether receipt of income is attributable to the services of employees of the principal and to assets belonging to the principal (cit.) are some of the relevant considerations in determining whether a true agency exists. If the corporation is a true agent, its relations with its principal must not be dependent upon the fact that it is owned by the principal, if such is the case. Its business purpose must be the carrying on of the normal duties *215 of an agent (cit.)." See also, Railway Express Agency v. Commissioner, 2 Cir., 1948, 169 F.2d 193, certiorari denied 336 U.S. 944, 69 S. Ct. 808, 93 L.Ed. ___.
It has been asserted that a cooperative cannot meet these tests of true corporate agency; that the cooperative cannot really be an agent for its patrons since when a patron makes a sale of commodities to the cooperative or a purchase of goods from it, title to such commodities or goods passes to the purchaser upon execution of the sale in both instances.
"The cooperative does not act as the true agent of any particular patron. When a patron makes a sale of commodities to the cooperative or a purchase of goods from it, title to such commodities or goods passes to the purchaser upon execution of the sale in both instances. After a marketing cooperative purchases the commodities, acquiring title thereto, it treats the commodities as its own, commingling such commodities with those of others, mixing, processing, handling, and in some cases manufacturing them without any requirement that an individual accounting be made to each patron for each particular commodity handled.
"* * * A general analysis of the business operations of cooperatives reveals the impracticability if not the impossibility of relating patronage dividends to gain or loss upon any particular transaction with any particular patron.
"To say, in effect, that a sale remains open until the end of an accounting period to permit the payment of an addition to the price does not recognize facts. For example, during 1946 there were extremely wide fluctuations in the price of flaxseed, the price increasing from $3.00 to $6.00 per bushel in just a few days. Many farmers sold flaxseed to cooperative grain elevators both before and after the price increase. In the case of a farmer who before the price increase sold flaxseed which the cooperative sold after the price increase, the theory that the former sale was not closed but was in fact open pending receipt of the additional price would require that an additional payment of almost $3.00 per bushel be made. The farmer who had received $6.00 initially and whose flaxseed was sold by the cooperative at $6.00 plus freight and margin would not be entitled to receive additional payment. But cooperative corporations do not return to each farmer the net proceeds of the sales of his produce less necessary expenses; instead, they determine the over-all net profits for flaxseed and these profits are shared by all flaxseed patrons in proportion to their patronage.
"The fact that cooperatives do not, by patronage dividends, adjust their prices so as to do business at cost is clearly seen in the case where transactions with a particular patron result in a loss. Assume, for example, that one patron sold only durum wheat to the cooperative, all of which was disposed of at a loss. The greater the patronage of this member, the greater is the cooperative's loss on his business, and paradoxically, the greater is his share in the cooperative's over-all net profit.
"* * * A further example will illustrate the true nature of the patronage dividend. A cooperative may maintain branches in town A and town B. Because of inefficient management or lack of sufficient volume at town B a net loss for the year may be incurred by the branch there, while a profit may be realized at the branch in town A. The patronage dividend paid to members dealing with the branch in town B represents nothing but a shifting to them of profits on transactions with an entirely different set of customers in town A. It is thus an absurdity to call the patronage dividend paid to the members in town B an adjustment to the price of produce already handled by that branch at a loss." Adcock, Patronage Dividends: Income Distribution or Price Adjustment, 13 Law and Contemporary Problems 505, 520 et seq. Duke University (1948).
Several Courts on the other hand have not regarded the formalities of purchase and sale as of determinative importance in construing the contract between a cooperative and its patrons. In Texas Certified Cottonseed Breeders' Ass'n v. Aldridge, 1933, 122 Tex. 464, pages 473-474, *216 61 S.W.2d 79, page 82; the Texas Supreme Court stated, "The farmers as a group form the association, and appoint it to act as their selling agent. They turn over to the association their commodities to be pooled and sold on the market to the best advantages. * * * The contract upon this point [transfer of title] is clothed in the terminology of a sale. The relation of consignor and factor has been abandoned. The logical and practical object of the members, as expressed in the contract, is to clothe the transaction in the language of a sale for the purpose of permitting the exercise of all powers named in the contract [,] rather than a consignment [,] in order to enable the association to enter bona fide transactions free from the embarrassment arising out of an incomplete title. * * * It being the clear intention of the members to create a true cooperative marketing association, under the powers enumerated by law and by the contracts, to perform certain services exclusively for its members, and to hold in the face of this intention that the delivery of the seed to the association was an absolute sale would destroy it as a cooperative marketing association." And in Rhodes v. Little Falls Dairy Co., Sup.Ct. 1930, 230 A.D. 571, 245 N.Y.S. 432, affirmed 1931, 256 N.Y. 559, 177 N.E. 140, involving a suit by a patron against the cooperative for distribution of patronage dividends pursuant to a marketing agreement between the parties, the Court stated, 245 N.Y.S. page 434, "We do not agree with the Special Term that the contract is the ordinary one of purchase and sale. Even though title may have passed, still the arrangement is for co-operative marketing. The status of the parties partakes of a trust or fiduciary character, and is not the simple relation of vendor and vendee; the fund derived from the marketing of the product being subject to distribution among the various producers, sales of whose product had gone to make it up (cit.)." In Johnson v. Staple Cotton Co-op. Ass'n, 1926, 142 Miss. 312, 107 So. 2, it was held that the cooperative marketing contract between the association and a member created the relation of principal and agent; the association being a sales agency operating for the benefit of its members. In an extensive opinion, Bowles v. Inland Empire Dairy Ass'n, D.C.E.D. Wash.1943, 53 F. Supp. 210, the Court recognized the existence of a contract between the cooperative and its patrons by virtue of the cooperative's by-laws which provided, 53 F.Supp. page 212, footnote 1, that the patron agreed to "sell and deliver to the Association" and the Association agreed to "buy and receive such milk or cream." In spite of this plain language of purchase and sale in the by-laws, the Court held that defendant cooperative acted merely as its patrons' agent in selling their products to the ultimate consumers, and did not buy such products. Although the above cases deal only with marketing cooperatives, it could be argued that the conclusions stated would hold true for purchasing cooperatives also, in view of the general language used by Courts in construing these cooperative contracts. In addition to the cases cited, see also, California & Hawaiian Sugar Refining Corp. v. Commissioner, 9 Cir., 1947, 163 F.2d 531, certiorari denied 1948, 332 U.S. 846, 68 S. Ct. 350, 92 L. Ed. 417; Irvine Co. v. McColgan, 1945, 26 Cal. 2d 160, 157 P.2d 847, 167 A.L.R. 934; Burch v. South Carolina Cotton Growers' Cooperative Ass'n, 1936, 181 S.C. 295, 187 S.E. 422; City of Owensboro v. Dark Tobacco Growers' Ass'n, 1927, 222 Ky. 164, 300 S.W. 350. But see, Central Co-operative Oil Ass'n v. Commissioner, 1935, 32 B.T.A. 359; Maryland & Virginia Milk Producers' Ass'n v. District of Columbia, 1941, 73 App.D.C. 399, 119 F.2d 787. Where under the applicable state statutes a cooperative is authorized to act both as agent and purchaser, the parties may abandon the agency relationship and expressly adopt by agreement and practice the seller-purchaser relationship in order to derive economic advantages thereby. See Clinton Co-op. Farmers Elevator Ass'n v. Farmers Union Grain Terminal Ass'n, 1947, 223 Minn. 253, 26 N.W.2d 117. Writers have also argued that the co-operating members are the real parties in interest in any transaction undertaken by the association; that *217 the cooperative is a legal entity and takes legal title to goods in order to adapt itself to the usages of trade and that this legal title preserves the rights of members and exists only for a special and limited purpose, i. e., for the benefit of those who deal with the association in good faith and in the normal course of business. Henderson, Cooperative Marketing Associations, 23 Columbia Law Review 91 (1923); Note, 23 Notre Dame Lawyer 342 (1948). For a consideration of the passage of title under cooperative agency and sale type contracts, see Goldsmith, Passage of Title under Co-operative Marketing Contracts, 18 Oregon Law Review 157 (1939).
Some confusion apparently exists as to whether a patronage dividend is properly termed a "deduction" or an "exclusion" from cooperative gross income. It is in fact considered by the Treasury Department as an exclusion from gross income. G.C.M. 17895, C.B. 1937-1, 56; I.T. 3208, C.B. 1938-2, 127. It is believed that the use of the term "exclusion" instead of "deduction" makes for clarity. See Bradley, Taxation of Cooperatives, Harvard Business Review 576, 577 (Autumn, 1947).
On occasion patronage dividends have been referred to generally as "rebates," with no distinction being made between those distributions to purchasing patrons of a cooperative and the distributions to patrons who market their products through a cooperative. A. Ladru Jensen, a Professor of Law at the University of Utah and a well-known writer in the field of cooperatives, in a Report on Terminology in Proceedings of the Section of Corporation, Banking and Mercantile Law of the American Bar Association in 1948, stated that the phrase "patronage dividend" originated more from historical accident than from any analogy to stock dividends of ordinary business corporations and that the usage of that phrase has contributed to misunderstanding. He recommends the use of the term "patronage payment" in the case of marketing cooperatives and the use of the term "patronage refund" in the case of a purchasing cooperative.
In the instant case neither the Iowa statute nor taxpayer's articles of incorporation make this distinction. In both instances an allocation of its earnings by a cooperative to its member patrons is referred to as a "deferred patronage dividend," whether such allocation is derived from earnings on purchases made by patrons or on sales transacted for them.
In Uniform Printing & Supply Co. v. Commissioner, 1936, 33 B.T.A. 1073, reversed 7 Cir., 1937, 88 F.2d 75, 109 A.L.R. 966; commented on in, 37 Columbia Law Review 872 (1937), and in 50 Harvard Law Review 1321 (1937), a printing corporation with stock outstanding which did business on a cost-plus basis and returned its excess earnings to its customers, who were also its stockholders, in proportion to the business they did with it, was held exempt from income tax on the amounts returned on the ground that they were refunds rather than dividends. The Court stated, 88 F.2d page 76, that:
"Had the taxpayer given a customer (whether stockholder or outsider) a discount promptly after filling the order, no one would call it a dividend. If a rebate were given promptly upon the customer's business reaching a certain volume, the same conclusion as to its character would follow. To make cost estimates and adjust them at or near the end of each year returning the excess payment to the customer should not change the reasoning which leads to this conclusion. Nor should the fact that the customer is a stockholder materially affect the result.
"Perhaps a single refund coming at the end of each year would lessen the irrestibility of the inferences, but the conclusion would still fit the facts better than one founded on a dividend assumption. It is true the taxpayer is not a nonprofit corporation in a legal sense. It is subject to a tax upon the profits by it made. Nevertheless, net profits in its case must depend upon the facts. Payment to the customers, who are also taxpayers, of sums called refunds based upon the volume of business transacted and in no way dependent upon stock ownership, is the determinative factor.
"Considering all the facts we conclude that the payments in issue were made as *218 refunds rather than as dividends to stockholding customers."
In the case of In re General Film Corp., 2 Cir., 1921, 274 F. 903, a return by the corporation to users of its film based on the amount of film used during the year was held not to be a distribution of net profits but rather a payment of rent or an expense of operation to the corporation and thus not includable in its taxable income. See also, Boulevard Theatre and Realty Corp. v. Commissioner, 1931, 23 B.T.A. 905.
Plaintiff corporation in Greene County Farmers Sales Ass'n v. United States, 1944, 102 Ct. Cl. 105, 55 F. Supp. 123, was organized and operated under by-laws which required it to return a certain part of its annual earnings to those members who did business with it, in proportion to the business transacted. However, its business was not restricted to members. The majority opinion allowed these distributions to members to be excluded from income on the ground that they were rebates to purchasers doing business with the corporation. The Court expressly stated that plaintiff was not a cooperative but rather a corporation organized for profit, and that rules relating to cooperatives were not applicable. The dissenting opinion, 55 F.Supp. page 127, pointed out that these distributions were in realty patronage dividends and only to the extent that they were paid to members on the basis of business done, in accordance with the corporation's by-laws, should they be excluded from gross income. The dissent further stated that the amounts distributed to members which were derived from business done with nonmembers could in no sense be considered rebates or discounts and should be taxed to the corporation. For other cases which do not deal specifically with the question of the exclusion of patronage dividends from a cooperative's gross income, but which do contain related discussions see, George La Monte & Son v. Commissioner, 2 Cir., 1929, 32 F.2d 220; Valley Waste Disposal Co. v. Commissioner, 1938, 38 B.T.A. 452; Anderson-Clayton Securities Corp. v. Commissioner, 1937, 35 B.T.A. 795; Grey Bull Corp. v. Commissioner, 1933, 27 B.T.A. 853; Growers Cold Storage Co. v. Commissioner, 1929, 17 B. T.A. 1279; Plymouth Brewing & Malting Co. v. Commissioner, 1929, 16 B.T.A. 123. One writer has stated that patronage dividends are dependent upon the success of the enterprise and are subject to its hazards and thus should be distinguished from rebates. Bunn, Chas., Consumers' Cooperatives and Price Fixing Laws, 40 Michigan Law Review 165 (1941).
Another theory advanced for the exclusion of patronage dividends from gross income is that the cooperative is thereby taxed similarly to partnerships which make up the numerical majority of its competitors. See Rumble, Cooperatives and Income Taxes, 13 Law and Contemporary Problems 534, 543, Duke University (1948); Foley, Farmer Cooperatives, 25 Taxes 197, 204 (1947). It was stated in House Report No. 1888, supra at p. 23, that farmer cooperatives have the attributes of a partnership even though organized in corporate form.
A close analogy can be drawn between the tax positions of partnerships and true cooperatives which distribute all their net earnings to all their patrons in proportion to the business each has transacted and which qualify as tax-exempt for federal income tax purposes. In each case only one tax may be paid. The partnership is not a taxable entity, Section 181 of the Internal Revenue Code, 26 U.S.C.A. § 181, but the partner is required to include his share of partnership income in his personal return whether such income is distributed to him or not. Section 182 of the Internal Revenue Code, 26 U.S.C.A. § 182. This is the same as the obligation which the patron of the true cooperative, who makes his returns on the accrual basis, has to include patronage dividends of the cooperative which have been declared but not actually distributed, in his individual return. In a sense, therefore, both the partnership and the true cooperative are regarded as tax accounting rather than taxable entities. See Dockendorff v. United States, Ct.Cl.1949, 84 F. Supp. 372, 381. It has been stated that the treatment by Congress of partnerships for tax purposes is *219 unique. Haskell, Capital Contributions and "Business Purpose" in Family Partnerships, 33 Minnesota Law Review 714, 720 (1949).
As heretofore noted, there is no federal statute specifically relating to the matter of the exclusion of patronage dividends for federal income tax purposes. In the case of Helvering v. Edison Bros. Stores, 8 Cir., 1943, 133 F.2d 575, 579, the Court stated, "* * * nor can Congress, without apportionment, tax as income that which is not income within the meaning of the Sixteenth Amendment (cit.)." The theory has been advanced that if sums representing patronage dividends are not in economic realty income of the cooperative, it would be beyond the power granted Congress by the Sixteenth Amendment to tax the same as income of the cooperative. That argument was made by counsel in the case of Farmers Union Co-op. Co. of Guide Rock, Neb., v. Commissioner, 8 Cir., 1937, 90 F.2d 488, but the Court of Appeals for the Eighth Circuit did not consider it necessary to pass upon the question. It is the view of some of the members of the bar that the sweeping effect given to federal tax statutes in the more recent decisions of the United States Supreme Court and the announcement by that Court of the rule of construction to be followed in regard to such statutes have rendered it uncertain whether patronage dividends, heretofore excluded, might not be swept into the scope of the federal income tax statutes. In the case of Commissioner v. Wodehouse, June 13, 1949, 337 U.S. 369, 378, 69 S. Ct. 1120, 1124, the Court, in holding that certain income was taxable under the Revenue Act, quoted in support of its holding from another of its decisions: "`The general object of this act is to put money into the federal treasury; and there is manifest in the reach of its many provisions an intention on the part of Congress to bring about a generous attainment of that object by imposing a tax upon pretty much every sort of income subject to the federal power.'"
In a dissenting opinion, Justice Frankfurter stated, page 404 of 337 U.S., page 1136 of 69 S.Ct., that the majority had adopted the "urgent need for revenue" rule of construction insofar as the Internal Revenue Code was concerned. In Home Furniture Co. v. Commissioner, 4 Cir., 1948, 168 F.2d 312, 313, the Court of Appeals for the Fourth Circuit stated that, "Economic realities, not legal formalities, determine tax consequences; income is taxable to its creator and controller, not to its collector (cit.)." Whatever the future may bring in respect to the taxability of patronage dividends, either by Congressional action or by decision of the United States Supreme Court, it is clear that their exclusion under certain conditions is, at present time, in accord with Treasury Department rulings and long established administrative practice.
The Treasury Department rulings or portions thereof which would seem to be pertinent to the present case are as follows:
T.D. 2737, June, 1918: "Cooperative societies which make a periodical refund sometimes called a dividend to members or to prospective members or to patrons generally, in proportion to the purchases made by the recipient, are not within any of the exceptions or exemptions of the Act of Sept. 8, 1916 * * * and are subject to its provisions. Where such refund payments are made in accordance with by-laws or published rules regularly adhered to, they are to be regarded as discounts or rebates, tending to reduce the taxable net income of the organization. Like discounts generally they should appear as an added item of [its] cost. This ruling is in accordance with settled practice in the administration of the income-tax laws, adopted because the real purpose of such organizations is to furnish goods at cost."
I.T. 1499, C.B. I-2 (1922) 189-191: "This office has consistently held that * * * cooperative associations, even though not exempt from taxation, may deduct from gross income for the years 1917, 1918, 1919, and 1920 the amounts returned to their patrons whether members or non-members, upon the basis of purchases or sales, or both, made by them * * *. In the case of purchase, instead of allowing a discount at the time of purchase, the *220 full price is collected, and the discount is allowed by way of rebate. In the case of sales of produce * * * the refunds * * * are in reality only part payment for the produce furnished. If the association is organized in accordance with the laws governing farmers' and other cooperative associations in the State in which it operates and if its constitution or by-laws provides for refunds or rebates to its patrons * * * upon the basis of goods purchased or produce furnished, or if it actually conducts its business upon such basis, the refunds or rebates so made, may be deducted by the association in computing net income under the Revenue Acts of 1917 and 1918. It is to be understood of course that any profits made on the business of nonmembers, which may be distributed to members in the guise of rebates are taxable to the association and the members."
I.T. 1566, C.B. II-1 (1923) 85: "A cooperative * * * which pays rebates * * * based on the purchases made during the taxable year preceding that in which the payments are actually made, and which keeps its books on an accrual basis, should take as a deduction the rebates so paid for the taxable year in which the purchases are made rather than the year in which the rebates were paid."
S.M. 2288, C.B. III-2 (1924) 233: after holding certain cooperatives not tax exempt, provides: "* * * But rebates made to patrons in proportion to their purchases may be excluded from gross income in computing the income subject to tax."
Gen. Counsel Mem. 12393, C.B. XII-2 (1933) 398: "* * * true patronage refunds are recognized by the Bureau to be discounts or rebates on purchases made in case of farmers' cooperative purchasing organizations, or part payment for produce furnished in the case of farmers' cooperative marketing organizations * * *. However, to the extent that such distributions are made from profits transacted with or for others than the distributees, they are not true patronage dividends [refunds] and are subject to the excise tax on dividends imposed by Section 213 of the National Industrial Recovery Act [48 Stat. 206]."
Gen. Counsel Mem. 17895, C.B.1937-1, 56: "So-called patronage dividends have long been recognized by the Bureau to be rebates on purchases made in case of a cooperative purchasing organization, or an additional cost of goods in case of a cooperative marketing organization, when made with respect to purchases made by, or sales made for the account of, the distributees. For purposes of administration of the Federal income tax laws, such distributions have been treated as deductions in determining the taxable net income of the distributing cooperative organization. Such distributions however, when made pursuant to a prior agreement between the cooperative organization and its patrons are more properly to be treated as exclusions from the gross income of the cooperative organization (cit). It follows, therefore, that such patronage dividends, rebates or refunds due the patrons of a cooperative organization are not profits of the cooperative organization notwithstanding the amount due such patrons can not be determined until after the closing of the books of the cooperative for a particular taxable period."
The following I. T. is generally referred to as the "Iowa ruling." It was originally issued in the form of a letter from the Commissioner of Internal Revenue to counsel for an association of Iowa cooperatives.
I. T. 3208, C.B.1938-2, 127: "Reference is made to your letter dated October 12, 1937, relative to the deduction of so-called deferred patronage dividends of cooperative corporations organized and operating under Chapter 390-G1 of the 1935 Code of Laws of the State of Iowa. You discuss the manner in which the corporations operate and request a ruling as to the deductibility of the so-called deferred patronage dividends for Federal income tax purposes.
"Under long established Bureau practice amounts payable to patrons of cooperative corporations as so-called patronage dividends have been consistently excluded from the gross income of such corporations on the ground that such amounts in reality *221 represent a reduction in cost to the patron of goods purchased by him through the corporation, or an additional consideration due the patron for goods sold by him through the corporation. As such amounts are not includable in gross income of the corporation, they are obviously not deductible by it, though, where they have been erroneously included in gross income in the first instance, the correcting adjustment is sometimes loosely termed a deduction. Where patronage dividends are payable only to members or stockholders (or the members receive larger patronage dividends than non-member patrons on identical transactions) the excess of the payments over the amounts due them on a patronage basis represents ordinary income to the corporation from business carried on by it for the joint profit of the members, and, consequently, distributions thereof to the members are essentially ordinary dividend payments.
"A careful study of the questions presented leads this office to the conclusion that there is a distinction between the instant patronage dividends and the payments ordinarily termed `patronage dividends.' However, like ordinary patronage dividends those in question do not represent gross income of the corporation. If the sums you refer to as patronage dividends have been erroneously included in gross income, their elimination therefrom is by way of exclusion rather than by way of `deduction' in the correct sense of that word as used in the revenue acts. In view of the distinction between ordinary patronage dividends and those under discussion it is believed advisable to outline the views of this office as to the status of the instant `dividends' for income tax purposes.
"Cooperative corporations organized and operated under the above-cited Code are not authorized by the Code to make `patronage dividend payments' within the usual comprehension of that term. The Code by section 8512-g30 [I.C.A. § 499.30] provides that corporate earnings in excess of operating expenses (which include specified reserves, stated additions to surplus, permitted additions to an educational fund and payment of fixed dividends on stock or memberships) shall be allocated to a revolving fund and shall be credited to the account of members in proportion to the business done with the association during the year. Such credits which are referred to as `deferred patronage dividends' must be applied against unpaid or stock membership subscriptions, if any.
"The directors are permitted by section 8512-g33 [I.C.A. § 499.33] to use the revolving fund to pay debts or add to the capital of the association or retire its preferred stock. If so used, the deferred patronage dividend credits constitute a charge on the fund and on the corporate assets, subordinate to creditors and preferred stockholders then or thereafter existing. The cited section also provides that deferred patronage dividends for any year shall have priority over those for any subsequent year.
"Section 8512-g34 [I.C.A. § 499.34] provides that the association may issue transferable or nontransferable certificates for deferred patronage dividends.
"Section 8512-g35 [I.C.A. § 499.35] provides that such dividend credits or certificates issued therefor shall not mature until the dissolution or liquidation of the association but shall be callable by it in the order of their issuance.
"Section 8512-g48 [I.C.A. § 499.48] provides that on dissolution or liquidation, the association shall first pay liquidation expenses, then its obligations other than patronage dividends and the remaining assets shall be distributed in the following order (1) to preferred stockholders to the extent of their capital plus accrued dividends; (2) to holders of deferred patronage dividend credits or certificates issued therefor; (3) to members or common stockholders to the extent of their capital plus accrued dividends; and (4) the remaining assets to members in proportion to their deferred patronage dividend credits.
"A sample Participation Certificate issued by one of the corporations in question purports to certify that it has an established revolving fund credit on its books in the amount stated to the person named. It is stated thereon that such credits are non-interest bearing and payable at dissolution *222 but the association reserves the right to retire the certificate in whole or in part at any time. Such certificate further states that it represents capital contributed to the revolving fund from patronage dividends, and that all money, property and assets representing revolving fund credits need not be segregated or allocated and this certificate shall remain subject and inferior to the rights and claims of all creditors, common, secured or preferred.
"It seems manifest under the terms of the Code in question that the amounts credited to the members as `deferred patronage dividends' represent contributions to the working capital of the corporation involved rather than an indebtedness of such corporation. The members thus credited are entitled to receive the amount of such credit only at retirement, upon call by the corporation prior to liquidation, or upon liquidation if the assets of the corporation are sufficient to pay off such credits after paying off prior claims. Such credits do not mature during the life of the organization, they do not bear interest and are made subordinate to the claims of preferred stockholders. The holders of such credits divide accumulated earnings of the corporation after payment of preferred and common stock plus accrued dividends thereon. The holders are thus made a third class of shareholder in the corporation. As the status of a shareholder in a corporation is not dependent upon the actual issuance of stock, the stated conclusion does not depend upon the issuance of participation certificates evidencing the credits in question.
"Accordingly, in the opinion of this office patrons of the corporations in question are required by the terms of the Code to take stock of the corporation in lieu of the usual patronage dividends. As such credits represent contributions for capital stock, the amount thereof is not income to the corporation but the value thereof is income to the patrons credited. That is, a patron member of the instant corporations agrees to buy or sell through the corporations with the understanding that in addition to the fixed consideration passing at the time of the transaction, his proportionate share of the proceeds of the corporation over its statutory operating expenses shall be credited to his capital account with the corporation.
"The above conclusion holds true only to the extent that the credits involved represent earnings or receipts in excess of operating expenses on transactions with patron members. Apparently under section 8512-g3 of the Code the corporations may deal with nonmembers, but patronage dividend credits may be made only to members. Accordingly, to the extent such credits represent earnings or receipts in excess of operating expenses on transactions with nonmembers, the amount thereof is ordinary income to the corporation and the credits therefor to members should be treated as the issuance of stock dividends to members."
It is interesting to note the development through the years of these various administrative rulings of the Treasury Department. Treasury Decision 2737, supra, issued in 1918 and providing for the exclusion of patronage dividends made by purchasing cooperatives to their patrons, did not base such exclusion upon any statutory provision of the Internal Revenue Code or upon any Treasury Regulation. I. T. 1499, supra, issued in 1922, referred to T. D. 2737, and to Article 522, Regulations 45 promulgated under Section 231 of the Revenue Act of 1918, as allowing exclusions from taxable income of patronage dividends or refunds made by those cooperatives acting as purchasing agents for their patrons. However, I. T. 1499 extended this exclusion privilege to marketing cooperatives and also stated that the exclusion could be availed of by a cooperative which distributed patronage dividends or refunds pursuant to a provision in its constitution or by-laws, or if it actually conducted its business upon such basis. (Emphasis added.) I. T. 1499 contains a statement limiting its applicability to cooperative gross income for the years 1917 to 1920 inclusive. Subsequent Treasury Department rulings contain no references to Treasury Regulations but seem rather to base the exclusion of patronage dividends upon these various administrative rulings of the Treasury *223 Department. See G. C. M. 12393 and 17895, and I. T. 3208, set out above.
In addition it should be noted that these later regulations contain no provision for the exclusion of distributions to patrons made by a cooperative which "actually conducts its business upon such basis," but rather seem to require a prior agreement or pre-existing obligation on the part of the cooperative to make such allocation or distribution. Thus it seems clear that an exclusion will be allowed only to the extent the cooperative is under a pre-existing obligation to allocate or distribute a portion or all of its earnings to its patrons in accord with the amount of business each has transacted during the year.
That statutes, articles of incorporation or by-laws of a corporation may create a contractual obligation between the corporation and its members or stockholders has been recognized in Iowa as well as other jurisdictions. O'Connor v. Home Savings & Loan Ass'n, 1938, 224 Iowa 1127, 278 N.W. 636; Wabash Ry. Co. v. Barclay, 1930, 280 U.S. 197, 202, 50 S. Ct. 106, 74 L. Ed. 368, 67 A.L.R. 762; Crocker v. Waltham Watch Co., 1944, 315 Mass. 397, 53 N.E.2d 230.
The Court in American Box Shook Export Ass'n v. Commissioner, 1945, 4 T.C. 758, affirmed 9 Cir., 1946, 156 F.2d 629, held that all the petitioner's income was taxable to it as its own since it was formed under the general corporation laws of California and neither the statute, its articles of incorporation, nor its by-laws required patronage dividends. There was evidence of an "informal understanding" to that effect between petitioner and its stockholders, but the Court concluded that this was not a legally binding obligation requiring the petitioner to repay to its stockholders all income after deducting expenses and a reserve for future claims.
A claim that distribution of earnings to its stockholders on the basis of their business with the petitioner was a patronage dividend and should be allowed as a deduction (exclusion) from its gross income was disallowed by the Court in Peoples Gin Co. v. Commissioner, 1940, 41 B.T.A. 343, affirmed 5 Cir., 1941, 118 F.2d 72. The bylaws providing for the distribution had been adopted near the end of petitioner's fiscal year, just prior to the distribution and the Court in denying any exclusion based its conclusion upon the fact that, 118 F.2d page 73, "When this income was received by the corporation there was no obligation to make refunds or rebates to stockholders." The Commissioner of Internal Revenue again attempted to tax the company's patronage dividends at the corporate level in a subsequent year, but on this occasion the Tax Court recognized that the by-laws which had been adopted in a previous year obligated the company to make the payments involved and decided that it was therefore entitled to deduct such payments from its gross income. Peoples Gin Co. v. Commissioner, 1943, 2 T.C.M. 325.
The directors of petitioner in Fountain City Co-op. Creamery Ass'n v. Commissioner, 1947, 9 T.C. 1077, affirmed 7 Cir., 1949, 172 F.2d 666, had the discretion under a Wisconsin statute to apportion the net proceeds of the business at least once annually, but since they had apparently retained a large portion of the proceeds in prior years for other purposes than required surplus, the Court determined that a "Patrons' Equity Reserve," which allegedly contained sums belonging to patrons, was in reality the property of the cooperative and taxable to it. Again the basis for the disallowance of any exclusion seemed to be the Court's failure to find a positive obligation on the part of the cooperative to pay this reserve to its patrons, for the Court stated, 172 F.2d page 667, "What part, if any, should go to the patrons rested in the discretion of the board of directors or a majority of the stockholders (cit.)." Thus the Court determined that until there was a more positive appropriation for the patrons than a mere credit to a "Patrons' Equity Reserve" the sum belonged and was taxable to the cooperative. It is interesting to note that petitioner in that case was organized in 1900 under a Wisconsin statute providing for cooperative corporations. However, it had neither allocated nor paid any patronage dividends up to the time in 1943 when it credited *224 the "Patrons' Equity Reserve" account referred to above, which gave rise to this action. The Tax Court held that petitioner never qualified as a cooperative organization under the Wisconsin statute. The Tax Court further pointed, 9 T.C. page 1081, to the wide discretionary powers vested in petitioner's directors in the disposal of the association's income. The declaration of a patronage dividend was thus held to be entirely within the discretion of the directors, and any obligation to allocate or distribute patronage dividends was thus negatived in the Tax Court's opinion.
A seemingly opposite result was reached in Midland Cooperative Wholesale v. Commissioner, 1941, 44 B.T.A. 824, where the Board of Tax Appeals held that a credit to a "Patrons' Equity Reserve" account was correctly excluded by the cooperative from its gross income. The by-laws of the Midland Cooperative had provided that all the net earnings after certain deductions for expenses, surplus, an educational fund and dividends on capital stock should go to the patrons. The Board recognized the liberality of the Treasury Department in allowing exclusions of patronage dividends from the gross income of cooperatives and further recognized the existence of a legal obligation on the part of the cooperative to its patrons by virtue of its by-laws, so that no further corporate action was required, other than this credit to a "Patrons' Equity Reserve," in order to appropriate these amounts to the patrons. Thus the Fountain City and the Midland cases could be distinguished on the basis of the presence of a pre-existing obligation in the Midlands case and the absence of one in the Fountain City case. The courts have seemed much in accord in construing wide discretionary powers in the directors as negativing the existence of any contractual obligation on the part of the cooperative toward its patrons, and in such cases as the latter have denied exclusions even for patronage dividends actually distributed.
In Associated Grocers of Ala. v. Willingham, D.C.N.D.Ala.1948, 77 F. Supp. 990, an amendment to the corporation's by-laws made mandatory the distribution of patronage dividend certificates, but a subsequent amendment to its articles of incorporation just a week later provided that the directors could declare patronage dividends or not, in their discretion. In denying the corporation's claim for exclusion of patronage dividends actually distributed the Court held the latter amendment was controlling and since the discretion vested in the directors by virtue of such amendment negatived any pre-existing obligation on the part of the corporation toward its patrons, the distributions were treated similarly to ordinary dividend payments of a business corporation.
Petitioner in Co-operative Oil Ass'n v. Commissioner, 9 Cir., 1940, 115 F.2d 666, claimed a deduction (exclusion) for the entire amount of its earnings though only a portion had been distributed to its patrons. The Court allowed an exclusion for those sums actually paid out and in denying an exclusion for the sums retained by the cooperative pointed out, 115 F.2d page 668, that no statute allowed such exclusion and the administrative practice had been to permit cooperative associations to exclude from gross income only those amounts actually paid out as patronage dividends. Though there was no reference in the opinion to any contractual obligation on the part of the cooperative to its members as regards the undistributed earnings, it is apparent from the by-laws and membership agreements that, to the extent of such earnings, no obligation existed. The by-laws provided, 115 F.2d page 667, that, "Before distribution of patronage dividends herein provided for it shall be the duty of the board of directors, and they shall have the right to retain and accumulate out of the net earnings of the corporation such amounts as, in the judgment of said board of directors are necessary and proper to create a reserve or reserve funds necessary to provide working capital and the proper facilities for carrying on the business of the corporation." Similar provisions were embodied in the membership agreements.
In Fruit Growers' Supply Co. v. Commissioner, 1930, 21 B.T.A. 315, affirmed 9 Cir., 1932, 56 F.2d 90, petitioner contended that *225 it was entitled to exclusions from gross income for sums which were undistributed and unallocated but which it claimed it was obligated by its charter to return to members on the basis of business transacted. The by-laws provided, 56 F.2d page 93, that it should be the duty of the directors to, "* * * `declare dividends out of surplus profits when such profits shall, in the opinion of the directors, warrant the same, * * *.'" Another section authorized the directors to prescribe the time and manner of readjustment with or refund to its patrons. The conclusion of the Board of Tax Appeals below, 21 B.T.A. page 326, that, "A reasonable interpretation of the foregoing would seem to be that corporate action is required before patronage dividends accrue, * * *" was upheld by the Court of Appeals for the 9th Circuit, which affirmed the Board in denying petitioner's claim. A major factor in the Court's decision was the absence of an obligation arising by virtue of statute, by-laws, etc., which would cause the patronage dividends to accrue without corporate action setting them apart as a liability of the corporation to its members.
In Midland Cooperative Wholesale v. Ickes, 8 Cir., 1942, 125 F.2d 618, certiorari denied 316 U.S. 673, 62 S. Ct. 1045, 86 L. Ed. 1748, rehearing denied 316 U.S. 712, 62 S. Ct. 1289, 86 L. Ed. 1777, and 317 U.S. 706, 63 S. Ct. 67, 87 L. Ed. 563, the Court stated that petitioner, a nonprofit wholesale cooperative, was obligated by the Minnesota laws and its own by-laws to distribute patronage dividends, but since it could not qualify as a true (or as the Court termed it, "bona fide and legitimate") farmers' cooperative, it could not purchase coal for resale at a discount to its cooperative members within the terms of the Bituminous Coal Act of 1937, cited infra. The Court went on to discuss the nature of patronage dividends and on page 635 of 125 F.2d stated, "The patronage dividend is as much a part of the transaction as the price itself." Thus the Court supported the position that statutes and by-laws or other agreements may create a contractual liability on the part of a corporation toward its patrons which cannot be repudiated by the corporation. This obligation is also binding on the patron. Rusconi v. California Fruit Exchange, 1929, 100 Cal. App. 750, 281 P. 84.
The petitioner in Clay Sewer Pipe Ass'n v. Commissioner, 1 T.C. 529, affirmed 3 Cir., 1943, 139 F.2d 130, claimed a deduction for a certain reserve fund it had established on the theory that it had received that money from its members as a prepayment for services and was under an obligation to use the money only in the manner provided in contracts with its subscribers. But the Court could not find that the terms of these "contracts" had been incorporated in the formal articles of agreement or elsewhere and denied the deduction. The Court went on to state, 139 F.2d page 133, "* * * the ordinary restrictions upon corporate activity due to the charter powers of the corporation, * * * are not tantamount to restrictions which will render monies received non-taxable for income tax purposes (cit.)."
In Farmers Union Co-op. Co. of Guide Rock, Neb., v. Commissioner, 8 Cir., 1937, 90 F.2d 488, the cooperative contended that the balance of its earnings above actual costs was "accumulated patrons' savings" and as such was not the property of the cooperative and never was. It was claimed that by virtue of an obligation created by state statute and its own by-laws this balance was held by the cooperative as a bailee for its patrons and that it must be returned when the cooperative transaction was completed unless used for a legal purpose. The United States Court of Appeals for the Eighth Circuit rejected this argument however, pointing out, 90 F.2d page 491, that the cooperative was a separate legal entity a corporation and that according to the state statute and its by-laws it could use these earnings for dividends on its stock and for other purposes before distributing them as patronage dividends, thus such earnings belonged to the cooperative just as much as did the property it owned. The interest of those entitled to patronage dividends was likened to that of ordinary stockholders of a corporation with some declaration by the corporation being necessary to give such persons ownership in the *226 earnings. The Nebraska statute defined a "cooperative company", 90 F.2d page 489, as being one, "`which authorizes the distribution of its earnings in part, or wholly, on the basis of, or in proportion to the amount of property bought from or sold to members, or of labor performed, or other service rendered to the corporation.'" The by-laws of the corporation provided, 90 F.2d page 490, that the directors should, "* * * set aside from time to time such sums from the net profits as in their judgment they shall deem desirable for a surplus." The decisive factor in the case seemed to be the fact that the receipts of the cooperative could be used for stock dividends and other purposes and only needed to be distributed in part as patronage dividends. (Emphasis added.) The discretion in the disposal of the cooperative's earnings vested in the directors thus negatived any pre-existing obligation on the part of the cooperative to distribute its earnings to its patrons. Cf. Penn. Mutual Life Ins. Co. v. Lederer, 1920, 252 U.S. 523, 40 S. Ct. 397, 64 L. Ed. 698.
In a number of cases the Tax Court has recognized that a "liability" may exist by virtue of state statutes, articles of incorporation, by-laws, or other agreements, on the part of the cooperative to its patrons for that amount of its net earnings over which the directors have no discretionary powers of appropriation. Exclusion of such amounts from the gross income of the cooperative organizations concerned has been consistently allowed on the theory that this "liability" is a contractual obligation on the part of the cooperative to its members and the declaration or payment of the patronage dividends is a mere recognition of this obligation. In United Cooperatives, Inc., v. Commissioner, 1944, 4 T.C. 93, the by-laws of petitioner provided that all net income other than certain reserves and an 8 percent stock dividend (in the directors' discretion) should be distributed to patrons. The Tax Court allowed an exclusion for that amount of the net earnings remaining after deduction of those sums which the directors were either obligated or had the discretion to distribute. In holding that a legal obligation existed only to the extent of those amounts over which the directors had no discretion the Court stated, 4 T.C. page 106, "However, this practice of excluding patronage dividends from gross income has been limited to those cases in which the right of patrons to such dividends arises by reason of the corporation charter, or bylaws, or some other contract, and does not depend upon some corporate action taken subsequent to its receipt of the money later so distributed, such as the action of the corporation's officers or directors." See also, Midland Cooperative Wholesale v. Commissioner, supra; Valparaiso Grain & Lumber Co. v. Commissioner, 1941, 44 B.T.A. 125; Farmers' Union Co-operative Ass'n v. Commissioner, 1928, 13 B.T.A. 969; Anamosa Farmers Creamery Co. v. Commissioner, 1928, 13 B.T.A. 907; Home Builders Shipping Ass'n v. Commissioner, 1927, 8 B.T.A. 903; Western Colo. Producers Cooperative v. Commissioner, 1943, T.C.M., P.H. par. 43,107; Farmers Union Coop. Exchange v. Commissioner (1944) T.C.M., P.H. par. 44,384. To the same effect see Hulbert, Legal Phases of Cooperative Association, 1942, at p. 266 and House Report No. 1888, supra, at p. 16.
In Farmers Union State Exchange v. Commissioner, 1934, 30 B.T.A. 1051, no by-laws were put in evidence and the Board of Tax Appeals held that petitioner's articles of incorporation providing for the distribution of earnings in whole or in part to members on the basis of business done was not sufficient to create a definite liability each year, and on that ground exclusions for undeclared and unpaid patronage dividends were denied.
Directors of defendant cooperative were allowed to declare a patronage dividend and then rescind their action in Callaway v. Farmers' Union Co-op. Ass'n of Fairbury, 1929, 119 Neb. 1, 226 N.W. 802. The Court upheld their action stating that the by-laws of the cooperative made the disposal of earnings discretionary with the directors and that the by-laws must be enforced as a contract between the cooperative and its members.
A strong case supporting the theory that where an obligation to distribute net earnings *227 to patrons exists the cooperative does not own its net proceeds but only holds them as agent or trustee for its members is San Joaquin Valley Poultry Producers' Ass'n v. Commissioner, 9 Cir., 1943, 136 F.2d 382. Petitioner was organized as a nonprofit cooperative association incorporated under the Agricultural Code of California. Its by-laws provided, 136 F.2d page 384, footnote 11, that, "`The "net proceeds" shall be such funds as are derived from overcharges on sales and as are left after all expenses shall have been paid, or provided for, all at the discretion of the directors. The "net proceeds" resulting from the operation of the business, if any, shall belong to the members * * * and shall be prorated to them in proportion to the amount of business each member has transacted with (petitioner) * * *.'" The directors had established three reserve funds with part of the net proceeds of the business and in holding that these reserve funds were not the property of the petitioner and thus were excludable from its gross income the Court stated, 136 F.2d page 385, that, "The sums so placed in these reserves * * * never became the property of petitioner, but were and are the property of the members (cit.). * * * The fact that the sums were not payable to the members on demand, or at any fixed time, does not alter the fact that they were their property and not petitioner's. Petitioner held them, not as owner, but as agent or trustee for the members (cit.). Since none of the sums ever belonged to petitioner, they could not be, and were not, income of petitioner."
Although it has been stated that any organization which would render services at cost can receive the same tax exclusion privileges accorded cooperatives, House Report No. 1888, supra at p. 40; Note, 32 Minnesota Law Review 785, 789 (1948), the Board of Tax Appeals in at least one case refused to grant an exclusion to a non-cooperative corporation which handled farm products and contracted to distribute all its net profits to contract holders on the basis of business transacted with the corporation. Juneau Dairies, Inc., v. Commissioner, 1941, 44 B.T.A. 759. See also, Flagg, Associations Taxable as Corporations, 13 Tax Magazine 589 (1935); Taxability of Unincorporated Corporate Equivalent, 92 University of Pennsylvania Law Review 296 (1944). But see, Uniform Printing & Supply Co. v. Commissioner, 7 Cir., 1937, 88 F.2d 75, 109 A.L.R. 966. Other organizations similar to cooperatives have been granted tax exemption under Section 101 of the Internal Revenue Code, 26 U.S.C.A. § 101. See also, Palmer, Income Tax Exemption of State Savings & Loan Association, 6 John Marshall Law Quarterly 271 (1940).
The so-called "command of income" theory enunciated in recent United States Supreme Court decisions could have some relation to the obligation which, under the Treasury rulings, must exist prior to the allocation or distribution of a patronage dividend by a cooperative organization in order for the cooperative to exclude such amounts from its gross income. In the case of Commissioner of Internal Revenue v. Tower, 1946, 327 U.S. 280, 66 S. Ct. 532, 90 L. Ed. 670, 164 A.L.R. 1135; the United States Supreme Court stated, page 290 of 327 U.S., page 537 of 66 S.Ct., "It is the command of the taxpayer over the income which is the concern of the tax laws. Harrison v. Schaffner, 312 U.S. 579, 581, 582, 61 S. Ct. 759, 761, 85 L. Ed. 1055. And income earned by one person is taxable as his, if given to another for the donor's satisfaction. Helvering v. Horst, 311 U.S. 112, 119, 61 S. Ct. 144, 148, 85 L. Ed. 75, 131 A.L.R. 655." See also, Commissioner v. Culbertson, 1949, 337 U.S. 733, 69 S. Ct. 1210; Lusthaus v. Commissioner, 1946, 327 U.S. 293, 66 S. Ct. 539, 90 L. Ed. 679; Corliss v. Bowers, 1930, 281 U.S. 376, 50 S. Ct. 336, 74 L. Ed. 916; Helvering v. Clifford, 1940, 309 U.S. 331, 60 S. Ct. 554, 84 L. Ed. 788, and Helvering v. Gordon, 8 Cir., 1937, 87 F.2d 663. If an organization at the time the income was received by it was under no obligation to allocate or distribute it as a patronage dividend but later did so, it could be claimed that in so doing it was distributing the income by virtue of its command over such income and was in effect the donor of the income. In the case of Associated Grocers of Ala. v. Willingham, D.C.N.D.Ala.1948, 77 F. Supp. 990, petitioner *228 claimed certain patronage dividends paid by it should be excluded from its gross income for federal income tax purposes. The Court, in denying petitioner's claim, stated, 77 F.Supp. page 992, that, "For the plaintiff to recover, it must be established that there was an obligation by the corporation to make refunds or rebates to member patrons when the incomes for the respective years were received by the corporation. Peoples' Gin Co., Inc., v. Commissioner of Internal Revenue, 5 Cir., 118 F.2d 72." The Court of Appeals for the Seventh Circuit has held that where a cooperative credited a portion of its earnings to a "Patrons' Equity Reserve" and issued certificates to its patrons, since that reserve against which the certificates were issued was still apparently subject to the command or control of the cooperative, the latter could claim no exclusion for such reserve. Fountain City Co-op. Creamery Ass'n v. Commissioner, 7 Cir., 1949, 172 F.2d 666.
The question of the validity of the obligation for federal income tax purposes could be of importance in this regard also. The mere creation of an obligation to distribute one's income to another does not usually relieve the obligor of tax liability. See Lucas v. Earl, 1930, 281 U.S. 111, 50 S. Ct. 241, 74 L. Ed. 731; Shelley et al. v. Commissioner, 1943, 2 T.C. 62, and other cases having to do with anticipatory assignments of income and trust agreements covering income to be earned in the future, cited supra. If the self-imposed obligation of a cooperative to distribute its earnings as a patronage dividend is regarded as being a valid one and as not falling within the scope of those decisions negativing the efficacy for federal income tax purposes of anticipatory assignments of income, then by virtue of such obligation the cooperative no longer commands the income so obligated. However, if a cooperative distributes its earnings as a patronage dividend without any previous obligation to do so, it could be claimed that in making such distribution the taxpayer was exercising its own command over the income and was in effect acting as donor of the same.
Notwithstanding the importance attached to the matter of a pre-existing obligation, it would seem that it does not constitute the sole matter for consideration in determining the excludability of patronage dividends for federal income tax purposes, although it is one of the matters to be considered in determining the economic realities of the situation. Neither the Treasury Department nor the courts have based the excludability of patronage dividends for federal income tax purposes of those cooperatives not fulfilling the statutory requirements for exemption upon any enactment of Congress. Therefore, it would seem that Treasury Department rulings excluding patronage dividends for federal income tax purposes must be based, as they apparently are, upon the theory that under certain conditions a part or all of the earnings of a cooperative are in economic reality not the income of the cooperative but the income of its patrons. It would seem that to put it upon any other basis would in effect be to say that Congress by silent reflection upon those Treasury rulings had thereby spread upon the statute books provision for the exclusion of patronage dividends.
It should be noted that the matter of a cooperative exemption from federal income tax is dealt with by statute and by Treasury Regulations, whereas the matter of the exclusion of patronage dividends from a cooperative's gross income is provided for by administrative rulings of the Treasury Department in the form of T.D.'s, I.T.'s, S.M.'s, G.C.M.'s and letters from Treasury Department officials.
It appears well settled that Treasury Regulations may have the force and effect of statute, and must be sustained unless unreasonable or plainly inconsistent with revenue statutes. Commissioner of Internal Revenue v. South Texas Lumber Co., 1948, 333 U.S. 496, 501, 68 S. Ct. 695, 92 L. Ed. 831; rehearing denied 334 U.S. 813, 68 S. Ct. 1014, 92 L. Ed. 1744; Boehm v. Commissioner, 1945, 326 U.S. 287, 291, 292, 66 S. Ct. 120, 90 L. Ed. 78, 166 A.L.R. 708; rehearing denied 326 U.S. 811, 66 S. Ct. 468, 90 L. Ed. 495; Helvering v R. J. *229 Reynolds Co., 1939, 306 U.S. 110, 115, 59 S. Ct. 423, 83 L. Ed. 536.
Treasury Department and Bureau of Internal Revenue rulings on the other hand are not entitled to as great weight or consideration as are Treasury Department Regulations. Bartels v. Birmingham, 1947, 332 U.S. 126, 132, 67 S. Ct. 1547, 91 L. Ed. 1947, 172 A.L.R. 317; Higgins v. Commissioner, 1941, 312 U.S. 212, 215, 61 S. Ct. 475, 85 L. Ed. 783; Helvering v. New York Trust Co., 1934, 292 U.S. 455, 468, 54 S. Ct. 806, 78 L. Ed. 1361; Aluminum Co. of America v. United States, 3 Cir., 1941, 123 F.2d 615, 621; Van Antwerp v. United States, 9 Cir., 1937, 92 F.2d 871, 875.
However, although not binding on the courts, administrative rulings and administrative practices of the Treasury Department, consistent and generally unchallenged, are entitled to high respect and should not be overturned except for very cogent reasons. Citizens Nat. Trust and Savings Bank of Los Angeles v. United States, 9 Cir., 1943, 135 F.2d 527, 529; Biddle v. Commissioner, 2 Cir., 1936, 86 F.2d 718, 721, affirmed 302 U.S. 573, 58 S. Ct. 379, 82 L. Ed. 431; United States v. Maryland Casualty Co., 7 Cir., 1931, 49 F.2d 556, 558; Continental Assurance Co. v. United States, 1934, 8 F. Supp. 474, 483, 79 Ct. Cl. 756. See also, Norwegian Nitrogen Products Co. v. United States, 1933, 288 U.S. 294, 315, 53 S. Ct. 350, 77 L. Ed. 796; United States v. Missouri P. R. Co., 1929, 278 U.S. 269, 280, 49 S. Ct. 133, 73 L. Ed. 322; Minnesota Tea Co. v. Commissioner, 8 Cir., 1935, 76 F.2d 797, 800, 801, affirmed Minnesota Tea Co. v. Helvering, 302 U.S. 609, 58 S. Ct. 393, 82 L. Ed. 474; Bowring v. Bowers, 2 Cir., 1928, 24 F.2d 918, 923.
This Court is not prepared to hold that long established Treasury rulings to the effect that under certain specified conditions earnings of a cooperative which are excluded as patronage dividends are in economic reality the income of the patrons and not of the cooperative are so unreasonable or erroneous as to be disregarded. Economic realities in general are to be arrived at from a consideration and examination of the total factual situation. The United States Supreme Court in Commissioner of Internal Revenue v. Culbertson, 1949, 337 U.S. 733, 69 S. Ct. 1210, stressed the fact that economic realities are of great importance in the solution of tax problems. To the same effect see, Home Furniture Co. v. Commissioner, 4 Cir., 1948, 168 F.2d 312, 313. For the test of economic realities for Social Security Tax purposes, see United States v. Silk, 1947, 331 U.S. 704, 67 S. Ct. 1463, 91 L. Ed. 1757.
The recission or revocation of the Treasury Department rulings in question would not of necessity be determinative on the question of the exclusion of patronage dividends for federal income tax purposes. Even without such rulings a cooperative could still litigate the question whether the amount it had allocated or distributed as a patronage dividend was or was not in economic reality the income of the cooperative.
Although Congress has never made provision for the exclusion of patronage dividends from a cooperative's gross income, apart from patronage dividends that body has included specific provisions relating to cooperatives in many of its enactments over a period of years. Rural cooperatives have been excluded from the operation of antitrust laws, Section 1 of the Capper-Volstead Act (1922) 42 Stat. 388, 7 U.S.C.A. § 291; Section 6 of the Clayton Act (1914) 38 Stat. 730, 15 U.S.C.A. § 12, 38 Stat. 731, 15 U.S.C.A. § 17; Tigner v. State of Texas, supra; United States v. Rock Royal Cooperative, 1939, 307 U.S. 533, 59 S. Ct. 993, 83 L. Ed. 1446 (state court cases collected); United States v. Dairy Co-op. Ass'n, D.C. Or.1943, 49 F. Supp. 475, and have been the objects of specific provisions in other legislative acts. Agricultural Credit Act of 1913, 42 Stat. 1479, 12 U.S.C.A. § 351; Grain Futures Act of 1922, 42 Stat. 1001, 7 U.S.C.A. § 6a, upheld in Board of Trade of City of Chicago v. Olsen, 1923, 262 U.S. 1, 43 S. Ct. 470, 67 L. Ed. 839, and as amended by Commodities Exchange Act (1936) 49 Stat. 1499, 7 U.S.C.A. § 10a; the Cooperative Marketing Act (1926) 44 Stat. 802, 7 U.S.C.A. § 451 (establishing a cooperative division in the Department of *230 Agriculture); Section 3(a) (5) of the Securities Act of 1933, 48 Stat. 74, 76, 15 U.S.C.A. § 77c(a)(5); the N.I.R.A. 48 Stat. 195 (see in conjunction with Exec. Order No. 6355, Oct. 23, 1933); the Agricultural Marketing Act of 1929, as amended by the Farm Credit Act of 1933 creating a central and twelve regional Banks for Cooperatives, 48 Stat. 257, 49 Stat. 317, 12 U.S.C.A. §§ 1134 et seq., 1141 et seq.; Section 203(b) of the Motor Carrier Act of 1935, 49 Stat. 545, 49 U.S.C.A. § 303(b); the Rural Electrification Act of 1936, 49 Stat. 1365, 7 U.S.C.A. § 904; Section 4, II(i) of the Bituminous Coal Act of 1937, 50 Stat. 81, 15 U.S.C.A. § 833i (expired 1943, 57 Stat. 84); the Agricultural Adjustment Act of 1938, 52 Stat. 31, 7 U.S. C.A. § 1281. Section 4 of The Robinson-Patman Act (1936) 49 Stat. 1528, 15 U.S. C.A. § 13b, refers to cooperatives generally in excluding distributions of net earnings or surplus by such organizations from the other provisions of that Act which prohibited any rebates which had the effect of lessening competition or creating a monopoly. See Quality Bakers of America v. Federal Trade Commission, 1 Cir., 1940, 114 F.2d 393. See also, 36 Opinions of Attorneys General 326, 332-336 (August 11th, 1930).
Under the Treasury Department rulings referred to and set out above, a number of conditions must be met before that Department will regard the amount allocated or distributed by a cooperative as a patronage dividend excludable from the cooperative's gross income.
So far as pertinent to the present case those conditions are:
1. That the cooperative must have been under a pre-existing obligation to allocate a patronage dividend in the amount that was allocated or distributed.
2. That the patronage dividend allocated to member patrons shall not include profits realized from transactions with non-members.
It is the claim of the defendant Collector that at the time the patronage dividend in question was declared the taxpayer was under no pre-existing legal obligation to allocate its earnings to its member patrons. The Collector contends that the obligation to allocate the dividend in question arose only upon the passage of a motion to that effect by taxpayer's board of directors on November 3d, 1944, three days after the expiration of taxpayer's fiscal year on October 31st, 1944. The exclusion of the patronage dividend in question is claimed by the taxpayer for its fiscal year ending October 31st, 1944. A portion of the argument in the present case was devoted to what the legal situation would have been if taxpayer's board of directors had in fact met on the evening of October 31st, 1944, and declared the patronage dividend in question. It was stated in the argument in behalf of the taxpayer that it is current and prudent business practice to have a yearly audit of the books and records of a cooperative and that manifestly such audit could not be made in the present case until after the end of the fiscal year on October 31st, 1944. Taxpayer contended that until such audit was made it would not be prudent business practice to fix the amount of the patronage dividend. It was further stated in argument that in some cases the board of directors of a cooperative meet just before the end of the fiscal year and adopt a general resolution relating to the declaration of a patronage dividend, leaving the exact amount to be determined following the yearly audit, upon the apparent theory that such action would have the same force and effect as a pre-existing obligation so far as the exclusion of patronage dividends from gross income was concerned. I. T. 1499, C.B. I-2 (1922) 189, noted above, provided that both marketing and purchasing cooperatives could exclude from their taxable income those amounts distributed as patronage dividends to their patrons when such distribution was made either pursuant to provisions in the cooperative's constitution or by-laws, or if the cooperative customarily followed the practice of distributing patronage dividends to its patrons. However, subsequent Treasury Department rulings did not contain any provision for the exclusion of patronage dividends from a cooperative's taxable income merely because the cooperative regularly *231 made such distributions, but seemed rather to require a pre-existing obligation on the part of the cooperative to allocate or distribute a portion or all of its earnings as patronage dividends before the cooperative could exclude such sums from its gross income. If a cooperative were under no pre-existing obligation to distribute or allocate any part of its earnings as a patronage dividend, but did just prior to the end of a particular fiscal year allocate its earnings for that year as a patronage dividend, it could be claimed that in so doing it was exercising its own command over its income and that it was in fact the donor of the amount involved and should be taxed thereon. See Peoples Gin Co. v. Commissioner, 5 Cir., 1941, 118 F.2d 72, and Peoples Gin Co. v. Commissioner, 1943, 2 T.C.M. 325. However, since the taxpayer in the present case did not declare the dividend in question until after the end of its fiscal year, the crucial question here was whether, under the applicable Iowa statutes and taxpayer's articles of incorporation, it was obligated to allocate the patronage dividend in question to its member patrons. Under the Treasury Department rulings and the decisions in accord therewith, the taxpayer could only exclude such a dividend from its gross income for the fiscal year in question if it was obligated to make such an allocation in the absence of corporate action on its part. Treasury Department ruling, supra; Cooperative Oil Ass'n v. Commissioner, 9 Cir., 1940, 115 F.2d 666; Midland Cooperative Wholesale v. Commissioner, 1941, 44 B.T.A. 824. In the present case such obligation would have to arise out of the state statutes under which taxpayer was organized or out of its own articles of incorporation, as no coroprate by-laws or special contracts with the members were introduced in evidence.
The Chapter of the Iowa Code under which the taxpayer is organized contains the following provisions:
"499.30 Distribution of earnings. The directors shall annually dispose of the earnings of the association in excess of its operating expenses as follows:
"To provide a reasonable reserve for depreciation, obsolescence, bad debts, or contingent losses or expenses.
"At least ten percent of the remaining earnings must be added to surplus until surplus equals either thirty percent of the total of all capital paid in for stock or memberships, plus all unpaid patronage dividends, plus certificates of indebtedness payable upon liquidation, or one thousand dollars, whichever is greater. No additions shall be made to surplus whenever it exceeds either fifty percent of such total, or one thousand dollars, whichever is greater.
"Not less than one percent nor more than five percent of such earnings in excess of reserves may be placed in an educational fund, to be used as the directors deem suitable for teaching or promoting cooperation.
"After the foregoing, to pay fixed dividends on stock or memberships, if any.
"All remaining net earnings shall be allocated to a revolving fund and shall be credited to the account of each member including subscribers described in section 499.16 ratably in proportion to the business he has done with the association during such year. Such credits are herein referred to as `deferred patronage dividends'.
"499.31 Control of allocation by members. The members may at any meeting control the amount to be allocated to surplus or educational fund, within the limits specified in section 499.30, or the amount to be allocated to reserves.
"499.32 Patronage dividends of subscribers. Patronage dividends to subscribers whose stock or membership is not fully paid in cash shall be applied toward such payment until it is completed. If the articles or bylaws so provide, subscriptions not fully paid within two years may be canceled and all payments or patronage dividends thereon forfeited.
* * * * * *
"499.34 Patronage dividend certificates. If its articles or bylaws so provide, an association may issue transferable or non-transferable certificates for deferred patronage dividends.
*232 "499.35 Time of payment. Credits or certificates referred to in sections 499.33 and 499.34 shall not mature until the dissolution or liquidation of the association, but shall be callable by the association at any time in the order of priority specified in section 499.33."
The articles of incorporation under which the taxpayer is organized provide in part:
"Articles VII
"Distribution of Earnings
"Section 1. The directors shall annually dispose of the earnings of the association in excess of its operating expenses as follows:
"a. Provide a reasonable reserve for depreciation, obsolescence, bad debts, or contingent losses or expenses.
"b. At least ten per cent of the remaining earnings must be added to surplus until surplus equals thirty per cent of the total of all capital paid in as membership fees, plus all unpaid patronage dividends, plus certificates of interest payable upon liquidation. No additions shall be made to surplus whenever it exceeds fifty per cent of such total, or $1,000.00, whichever is greater.
"c. Not less than one per cent nor more than five per cent of such earnings in excess of reserves may be placed in an educational fund, to be used as the directors deem suitable for teaching or promoting cooperation.
"d. If earned, interest will be paid on the Certificates of Interest at the rate of three per cent per annum. Interest shall not be cumulative.
"e. All remaining net earnings shall be allocated to a revolving fund and shall be credited to the account of each member (including subscribers described in Article V, Section 2), ratably in proportion to the business he has done with the association during such year, provided, however, that no such earnings shall be allocated to a revolving fund in a given year if the reserve provided for in Section b hereof is exhausted.
"Section 2. Patronage Dividends of Subscribers. Patronage dividends of subscribers whose membership fee is not fully paid shall be applied upon the balance due on such membership fee until it is paid in full.
"Section 3. Payment of Patronage Dividends. If the by-laws provide, the directors may issue nontransferrable (sic) certificates for deferred patronage dividends, credited as provided in Section 1, Article VII, provided that such credits or certificates shall not mature until the dissolution or liquidation of the association, but shall be callable by the association at any time in the order of priority specified in Article VIII."
The total net income of the taxpayer in the present case for its fiscal year ending October 31st, 1944, prior to federal taxes, was $16,372.53. There was on that date no capital stock outstanding. It had on hand capital paid in for memberships in the amount of $2310. Depreciation in the amount of $775.14 was set aside for the fiscal year ending October 31st, 1944. In accordance with the policy of previous years, no sum was set aside for educational purposes. No reserves for contingent losses or expenses had been established on the ground that the facts did not justify such a reserve. There was no showing that additional reserves were needed for purposes stated other than those for which taxpayer had provided. Taxpayer's surplus on November 1st, 1943, amounted to $40,169.10 and remained unimpaired and intact throughout the fiscal year in question and as of October 31st, 1944, it was $50,311.40. It is undisputed that after deduction for federal taxes (including the taxes involved in this action and other non-disputed items) the taxpayer had unencumbered net earnings of $6791.58. The patronage dividend in question in the amount of $5913.14 was allocated against that unencumbered balance.
As stated above, taxpayer was on the accrual basis of accounting and thus reports its income in the fiscal period in which it is earned, whether or not received, *233 and reports any deductions when they accrue, i. e., when taxpayer becomes liable for them, whether or not payment for them has actually been made during a fiscal period. Mobile Drug Co. v. United States, D.C.S.D.Ala.1930, 39 F.2d 940. See also I.T. 1566, C.B. II-1(1923) 85, a portion of which is set out above. Taxpayer may not accrue as a deduction an item the amount of which is unsettled or the liability for which is uncertain. Security Flour Mills Co. v. Commissioner, 1944, 321 U.S. 281, 284, 64 S. Ct. 596, 88 L. Ed. 725. Although the cases cited above deal with deductions, the principles stated therein would appear applicable insofar as the exclusion which is claimed by the taxpayer in the present case.
It is the claim of the taxpayer that under the applicable Iowa statutes and its articles of incorporation it was obligated to make the patronage dividend allocation without further corporate action on its part. It is the claim of the defendant Collector that certain provisions of those statutes and of the articles of incorporation negative and neutralize the obligation which the taxpayer claims to exist.
It will be noted that Section 499.30 of the Code of Iowa 1946, I.C.A., and Article VII of the taxpayer's articles of incorporation, hereinbefore set forth, enumerate the purposes for which taxpayer's board of directors may dispose of the earnings of the taxpayer in excess of operating expenses. It will be noted that both in said statute and in the said articles of incorporation the amount of cooperative earnings that the directors may add to surplus is limited to a definite percentage of the annual earnings and the total amount which taxpayer may carry as surplus is also limited. In addition, the amount that the directors may set aside for an educational fund is limited to a definite percentage of the annual earnings. Since taxpayer was organized as a nonstock cooperative there was no capital stock outstanding, nor did taxpayer have outstanding any interest-bearing certificates of interest. In addition to the above expenditures, the statute and articles of incorporation are substantially alike in providing that, "The directors shall annually dispose of the earnings of the association in excess of its operating expenses as follows: To provide a reasonable reserve for depreciation, obsolescence, bad debts, or contingent losses or expenses."
It is the contention of the defendant Collector that since there is no specified limitation as to the amount or percentage of taxpayer's earnings which may be set aside as a reserve for depreciation, obsolescence, bad debts, or contingent losses or expenses, there is such discretion vested in the board of directors as to render illusory any obligation on the part of the taxpayer to allocate any part of its earnings to its member patrons. It would seem that the claim of the defendant Collector is that such provision in the statute and articles of incorporation is virtually an "open-end" provision. The defendant Collector in support of his position cites cases involving the discretion of directors of ordinary business corporations. The discretion vested in the directors of an ordinary business corporation, even in the absence of any contract or charter provision governing their disposal of profits, is not unlimited and is subject to review by the courts to determine if it is reasonable and sound; though courts will not usually interfere in the absence of an abuse of that discretion by the directors acting in a fraudulent, wanton, oppressive or illegal manner. Liken v. Shaffer 8 Cir., 1944, 141 F.2d 877, 879, certiorari denied 323 U.S. 756, 65 S. Ct. 90, 89 L. Ed. 605; In re Brantman, 2 Cir., 1917, 244 F. 101, 103; Dodge v. Ford Motor Co., 1919, 204 Mich. 459, 170 N.W. 668, 3 A.L.R. 113; 18 C.J.S., Corporations, § 466, p. 1106. And where the stockholders of a business corporation are entitled to a dividend out of profits by virtue of statute, charter, bylaws, or other agreement, the directors are more closely limited in their discretion. Crocker v. Waltham Watch Co., 1944, 315 Mass. 397, 53 N.E.2d 230; Sexton v. C. L. Percival Co., 1920, 189 Iowa 586, 177 N.W. 83; 18 C.J.S., Corporations, § 466, pp. 1112-1113.
The discretion which the directors of a cooperative may assert in disposing of net earnings of the cooperative is seemingly subject to greater restraints than those imposed *234 upon the directors of ordinary business corporations. Seldom is there an express formula for the distribution of the earnings of an ordinary corporation. On the other hand the statute and charter or by-laws of the cooperative usually provide a definite formula and order for the disposal of the earnings of a cooperative. A failure to follow the prescribed order has been held to be beyond the power of the directors. Gallatin Farmers Co. v. Commissioner, 9 Cir., 1942, 132 F.2d 706. Doss v. Farmers' Union Co-operative Gin Co., supra, is contra on slightly different facts. The Iowa Attorney General has ruled that the use of the term "shall" in that portion of Section 8512.30 of the Code of Iowa 1939 (Section 499.30 of the Code of Iowa 1946, I.C.A.) providing for the allocation of cooperative net earnings to a revolving fund for member patrons makes the application of the statute mandatory. [1946] Opinions of the Iowa Attorney General, p. 22.
It is generally accepted that establishing reserves for depreciation is good business practice. See In re Kaplan's Will, Sur.Ct.1949, 195 Misc. 132, 88 N.Y.S.2d 851, text writers and cases cited 88 N.Y.S. 2d at page 860. The amounts which may be set aside as "reasonable reserves" for depreciation, obsolescence, bad debts, or contingent losses or expenses, though differing in each individual case, have for federal income tax purposes been rather well limited by Section 114 of the Internal Revenue Code, 26 U.S.C.A. § 114, which establishes the basis for depreciation and depletion of any property subject to such charges, and Treasury Bulletin F which sets out approved rates of depreciation for numerous items. Where questioned, the burden of reasonableness is on the association. Fertile Co-operative Dairy Ass'n v. Huston, 8 Cir., 1941, 119 F.2d 274, 277. The bylaws of petitioner cooperative in Producers Crop Improvement Ass'n v. Commissioner, 1946, 7 T.C. 562, provided that petitioner's directors could set aside "reasonable and adequate reserves" before paying stock dividends or patronage dividends. In spite of this provision, the Tax Court allowed petitioner a patronage dividend exclusion. It should be noted that Section 499.31 Code of Iowa 1946, I.C.A., provides, "The members may at any meeting control the amount to be allocated to surplus or educational fund, within the limits specified in section 499.30, or the amount to be allocated to reserves."
An obligation not capable of being enforced would be illusory in character. It has been held that where a cooperative wrongfully refuses to pay over a patronage dividend where an obligation to distribute it exists, the patron may bring an action to force the cooperative to distribute the patronage dividend. Rhodes v. Little Falls Dairy Co., Sup.Ct., 1930, 230 A.D. 571, 245 N.Y.S. 432, affirmed 1931, 256 N.Y. 559, 177 N.E. 140. See Midland Cooperative Wholesale, 1941, 44 B.T.A. 824, 832. See also O'Connor v. Home Savings & Loan Ass'n, 1938, 224 Iowa 1127, 278 N.W. 636, where a deviation from the statutory rights of members in a savings and loan association, allegedly made in good faith and for good motives, was held an abuse of discretion by the directors. It would seem that under the Iowa statute the discretion which the directors of an Iowa cooperative may exercise in disposing of its earnings is of a limited nature. The next question is whether even that limited discretion renders illusory the right of member patrons of the taxpayer to enforce the allocation of a patronage dividend. In the present case the board of directors of the taxpayer were, under the statute referred to and by its articles of incorporation, limited to expending a "reasonable reserve" for the purposes referred to. It is believed that a "reasonable reserve" under that statute and the taxpayer's articles of incorporation would be a reserve in accordance with prudent business practice. In the very recent case of Farmers and Merchants Bank of Ceresco, Neb., v. Commissioner, 8 Cir., 1949, 175 F.2d 846, the United States Court of Appeals for the Eighth Circuit in an analogous situation held that what amounts might be withheld by bank officials on the basis of prudent banking was "judicially testable." In that case, the Court, in reversing a decision of the Tax Court sustaining assessments made by the Commissioner *235 against the bank, held that a distribution of earnings by the bank to its former depositors pursuant to a reorganization agreement entered into the prior year could be excluded from the bank's taxable income. The reorganization agreement was held to create an obligation on the part of the bank to its former depositors who were said to have an "equitable lien" on the earnings of the bank. The Court went on to add, 175 F.2d at page 849, of the opinion, "What amount the bank had to set aside out of its earnings to satisfy statutory requirements would be readily establishable. Any right of the bank to withhold more, if it attempted to do so, on the basis of prudent banking in relation to its situation would also be soundly testable, to the extent at least of evidentially resolving the bank's arbitrariness or good faith in relation to the obligation of the agreement." The limitation imposed in that case upon the discretion of bank officials appears comparable to the limitations imposed upon the directors of the taxpayer in the present case.
In connection with the matter of the obligation of the taxpayer in the present case to allocate a portion of its earnings as a patronage dividend, it was stipulated that the patronage dividend included the sum of $1450.40 which represented profits derived from transactions with those present members of the taxpayer who transacted business with the taxpayer for the period from November 1st, 1943, to February 8th, 1944, during which time it functioned as an ordinary stock corporation. During that period the obligation of the taxpayer was to pay its stockholders dividends on the basis of their stockholdings rather than to pay members dividends on the basis of their patronage. On the right of stockholders of an ordinary business corporation to dividends out of accumulated profits of such corporation see, Cannon v. Wiscassett Mills Co., 1928, 195 N.C. 119, 141 S.E. 344; Holcomb v. Forsyth, 1927, 216 Ala. 486, 113 So. 516; Burk v. Ottawa Gas & Electric Co., 1912, 87 Kan. 6, 123 P. 857, Ann.Cas. 1913D, 772; Siegman v. Electric Vehicle Co., 1907, 72 N.J.Eq. 403, 65 A. 910; Belfast & M. L. R. Co. v. City of Belfast, 1885, 77 Me. 445, 1 A. 362. Since dividends of ordinary business corporations based upon stock ownership are not excludable from the gross income of such corporations for federal income tax purposes, it would seem that the taxpayer in the present case cannot exclude the sum of $1450.40 from its gross income for federal income tax purposes. It would seem that patron membership in the taxpayer after February 8th, 1944, would not be retroactive to the period between November 1st, 1943, and February 8th, 1944, and that the profits received by the taxpayer during that period of time in legal effect represent profits from transactions with nonmembers, which under the applicable Iowa law are not subject to allocation as a patronage dividend. Deducting the said sum of $1450.40 from the $5913.14 allocated by taxpayer as a patronage dividend, leaves in question the status of the balance of the amount allocated as a patronage dividend in the sum of $4462.74, which was derived from profits of the taxpayer on business transacted with it by member patrons between February 8th, 1944, and October 31st, 1944. It is the view of the Court that the said sum of $4462.74 meets the conditions for exclusion contained in the Treasury Department rulings cited supra.
According to the defendant Collector's figures in the present case, it appears that approximately 57 percent of the taxpayer's earnings were derived from transactions with member patrons and the balance of 43 percent was derived from transactions with nonmembers. In addition to other points of dispute noted above, the parties are in dispute regarding the computation of the amount that was subject to allocation, because of the feature of non-member business. It is the contention of the defendant Collector that the taxpayer could allocate as a patronage dividend only 57 percent of its earnings after making provision for the payment of federal taxes. Taxpayer disagrees with this contention. The United States Board of Tax Appeals has held that for purposes of computing a patronage dividend the percentage figure representing member business may be applied to the cooperative's net income without *236 reduction on account of federal taxes. Farmers Union Cooperative Exchange v. Commissioner, 1940, 42 B.T.A. 1200, 1201. Such holding is in accord with A.R.R. 6967, C.B. III-1 (1924) 287, which establishes a formula for the computation of patronage dividends. See, Valparaiso Grain & Lumber Co. v. Commissioner, 1941, 44 B.T.A. 125, 127. This ruling provides that from the net income of the cooperative there shall be deducted the fixed dividend on stock paid or payable in order to arrive at the "apparent net profits." The amount available for refund is that proportion of the apparent net profits, after deducting the fixed dividend on outstanding capital stock, which the amount of business transacted with members bears to the entire amount of business transacted. Up to this amount a distribution by a cooperative to its members on the basis of business done is said to be a true patronage dividend and excludable in computing taxable income. As stated above, the apparent net profit figure does not have to be reduced by federal taxes and penalties before calculating the amount available for refund.
A closely related problem to the taxation of patronage dividends actually distributed, and a problem of particular importance in Iowa, is the taxability of those amounts which the cooperative merely credits to a patron's reserve account. Patronage dividends actually distributed, whether in the form of cash, capital stock, certificates of indebtedness or notes, as well as those net margins of the cooperative distributed to capital reserves and merely credited or allocated to patrons under a pre-existing obligation are presently excludable from gross income. San Joaquin Valley Poultry Producers' Ass'n v. Commissioner, supra; United Cooperatives, Inc., v. Commissioner, supra; Midland Cooperative Wholesale v. Commissioner, supra; G. C. M. 17895, supra; I. T. 3208, supra. However the Treasury Department rule is that a certificate of interest or prompt notice to the patrons is required where a mere credit to patrons is entered on the books of the cooperative. Letters from Commissioner to Nat'l Council of Farmer Cooperatives in Hearings before Committee on Ways and Means on Proposed Revisions of the Internal Revenue Code, 80th Cong., 1st Sess., 2619, 2620 (1947). This is upon the theory that credits so made pursuant to contractual authority are actually capital contributions by the contributing patrons. That conclusion would seem to be based upon two assumptions, constructive receipt and constructive reinvestment. Cf. Weil v. Commissioner, 2 Cir., 1949, 173 F.2d 805, on the doctrine of constructive receipt of income. In Midland Cooperative Wholesale v. Commissioner, supra, the Board of Tax Appeals allowed the cooperative to exclude such reserves since they were withdrawable at the will of the patrons. Whether such reserves would be allowed as exclusions if they were not subject to immediate withdrawal by patrons, as they usually are not, has not been decided by the courts. Assets specifically furnished to an organization for capital purposes are not income to that organization. Edwards v. Cuba Railroad Co., 1925, 268 U.S. 628, 45 S. Ct. 614, 69 L. Ed. 1124. But funds received as income do not become capital from the standpoint of computing income taxes simply because an organization has elected to regard the funds as capital. Cooperative Oil Ass'n v. Commissioner, supra; Creasey Corp. v. Helburn, D.C.W.D.Ky.1932, 57 F.2d 204.
Reference is made in House Report No. 1888, supra at p. 18, and in Paul, The Justifiability of the Policy of Exempting Farmers' Marketing and Purchasing Cooperative Organizations from Federal Income Taxes, 29 Minnesota Law Review 343, 370 fn. 112 to a Treasury Decision of November 23d, 1943, aff'd February 22d, 1944, which makes these patronage dividends or refunds taxable to the patron though such refunds are only credited to the patron's account on the books of the cooperative. It has been stated that to the extent the exclusion of such reserves is allowed, income is probably escaping taxation entirely, for a patron usually does not regard such a credit on the books of the cooperative as income to him and thus does not report it in his income tax return. House Report No. 1888, supra at p. 18; 33 Minnesota *237 Law Review 785, 794 (1948); 13 Law & Contemporary Problems 403, 417, 431, 438, 526, 527, 533, 545, 546, Duke University (1948).
It should be noted in this connection that the so-called "Iowa ruling" (I.T. 3208, C.B.1938-2, 127) hereinbefore set forth, distinguishes between ordinary patronage dividends or refunds and the type of patronage dividends provided for by the Iowa Code. Section 499.30 of the Code of Iowa 1946, I.C.A., does not allow cooperatives actually to make patronage dividend payments but provides that excess net earnings shall be allocated to a revolving fund and credited to members in proportion to business transacted. Only member patrons may be credited with these "deferred patronage dividends," which are said to be contributions to capital by the member patrons and on this basis are excludable from the gross income of the cooperative, and includable by the member patrons in their returns. In the present case the patronage dividend in question was allocated by crediting the accounts of the member patrons in a patronage ledger maintained by the taxpayer. Under the Iowa statute and the so-called "Iowa ruling" based on that statute, that was the only proper way for the taxpayer to handle the patronage dividend.
It is the holding of the Court:
1. That the Treasury Department rulings providing that under certain conditions a cooperative may exclude from its gross income for federal income tax purposes amounts allocated as patronage dividends are not so unreasonable or so plainly inconsistent with the Internal Revenue Code as not to be followed.
2. That $4462.74 of the $5913.14 patronage dividend in question in this case met those conditions.
3. That $1450.40 of the $5913.14 patronage dividend in question in this case did not meet those conditions.
The sum of $4462.74 referred to in holding (2) represents that portion of the patronage dividend derived from taxpayer's transactions with its member patrons after its reorganization as a nonstock cooperative on February 8th, 1944. The sum of $1450.40 referred to in holding (3) represents that portion of the patronage dividend in question arising from taxpayer's earnings from November 1st, 1943, to February 8th, 1944, when it was functioning as a stock corporation.
It should be noted that the motion providing for the allocation of the patronage dividend in question established the following formula for the allocation of the dividend among taxpayer's member patrons, "a cent a bushel on grain eight percent on merchandise and six-tenths of one percent on livestock." It has been heretofore noted that some writers claim the application of the term "patronage dividends" to allocations to marketing and consumer patrons alike makes for confusion. Section 499.30 of the Chapter of the Iowa Code under which the taxpayer was reorganized on February 8th, 1944, as well as its own articles of incorporation provide for "patronage dividends" to be credited "ratably in proportion to the business * * * done" by the member patrons. These provisions would seem to make no distinction between marketing patrons and consumer patrons for patronage dividend purposes. These provisions would also seem to set up but one formula for the allocation of a patronage dividend. In the allocation made by the taxpayer in the present case those patrons marketing corn were credited with a fixed sum on a commodity unit basis, i. e., one cent per bushel; those patrons marketing livestock were credited with a definite percentage on a dollar volume basis, while consumer patrons were credited with a different fixed percentage on a dollar volume basis. Since no issue as to that matter was raised, this Court does not pass upon the question as to whether the formula used by the taxpayer in making the allocations to its member patrons was in accord with Section 499.30 and its own articles of incorporation. The holding of this Court in holding No. (2), supra, is only to the effect that the sum of $4462.74 was, as a whole, excludable from the gross income of the taxpayer for federal *238 income tax purposes, and is not to the effect that the said sum of $4462.74 was credited among the member patrons according to the proper formula.
Judgment will be entered in accordance with this opinion.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/2666486/
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________________
)
MICHAEL X. LUCKEY, )
Personal Representative of the )
ESTATE OF KELLY A. LUCKEY, )
)
Plaintiff, )
)
v. ) Civil Action No. 09-1338 (PLF)
)
BALBOA INSURANCE COMPANY, et al., )
)
Defendants. )
__________________________________________)
OPINION
This matter, which was removed to this Court from the Superior Court of the
District of Columbia pursuant to 28 U.S.C. § 1441(a), is a declaratory judgment action involving
the scope of coverage of two insurance policies issued by defendant Balboa Insurance Company
(“Balboa”). Now pending before the Court are the parties’ cross-motions for summary judgment
and the defendants’ motion to dismiss the plaintiff’s complaint against Balboa.
The complaint filed by plaintiff Michael X. Luckey originally named three
defendants in addition to Balboa: Sukai Prom-Jackson, the holder of the Balboa insurance
policies; John L. Prom, as the personal representative of the estate of Anthony J. Prom; and ACE
Private Risk Services (“ACE”).1 Ms. Prom-Jackson, Balboa, and ACE moved to dismiss the
1
Defendants state that “[t]he Complaint names ‘ACE Private Risk Services’ as defendant.
However, ACE Private Risk Services is neither a corporation nor a legal entity; it is a marketing
name. The actual entity in question is ACE American Insurance Company.” See Defendants’
Notice of Removal at 2 n.1. For purposes of the Court’s analysis, these two entities are treated as
one and the same.
complaint against them on July 27, 2009. While that motion was pending, the parties filed cross-
motions for summary judgment. After careful consideration of the parties’ papers and the entire
record in this case, the Court granted defendants’ motion to dismiss with respect to Ms. Prom-
Jackson and ACE by minute order dated January 15, 2010. By the same minute order, the Court
sua sponte dismissed the plaintiff’s complaint against John Prom. See Best v. Kelly, 39 F.3d
328, 331 (D.C. Cir. 1995) (“Complaints may . . . be dismissed[] sua sponte . . . whenever ‘the
plaintiff cannot possibly win relief.’”). Because plaintiff’s complaint contains no allegations
whatsoever against Ms. Prom-Jackson, John Prom, Anthony Prom, or ACE, plaintiff’s complaint
does not “state a claim for relief that is plausible on its face” against any of these defendants.
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also Best v. Kelly, 39 F.3d at
331. Accordingly, the Court dismissed the complaint against them under Rule 12(b)(6) of the
Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted.
The defendants’ motion to dismiss thus has been resolved with regard to all
defendants except Balboa. For the reasons explained in this Opinion, the Court now will deny
the defendants’ motion to dismiss with respect to Balboa, deny plaintiff’s motion for summary
judgment, and grant defendants’ motion for summary judgment with respect to Balboa.2
2
The documents before the Court in connection with these motions include: Defendants’
Motion to Dismiss (“Defs’ MTD”); Plaintiff’s Opposition to Defendants’ Motion to Dismiss
(“Pl’s Opp. to Defs’ MTD”); Defendants’ Reply Brief in Support of its Motion to Dismiss (“Def.
Reply MTD”); Plaintiff’s Motion for Summary Judgment (“Pl’s MSJ”); Pl’s MSJ, Ex. A
(Affidavit of John L. Prom) (“Prom Aff.”); Pl’s MSJ, Ex. B (Affidavit of Ida Fofana) (“Fofana
Aff.”); Pl’s MSJ, Ex. E (Deposition of Sukai Prom-Jackson) (“Prom-Jackson Dep.”);
Defendants’ Brief Opposing Plaintiff’s Motion for Summary Judgment (“Defs’ Opp. to Pl’s
MSJ”); Plaintiff’s Reply to Defendants’ Brief Opposing Plaintiff’s Motion for Summary
Judgment (“Pls’ Reply to Defs’ Opp. to Pl’s MSJ”); Pls’ Reply to Defs’ Opp. to Pl’s MSJ, Ex. B
(Affidavit of Victor A. Cuco) (“Cuco Aff.”); Defendants’ Motion for Summary Judgment
(“Defs’ MSJ”); Plaintiff’s Objection and Response to Defendants’ Motion for Summary
Judgment (“Pl’s Opp. to Defs’ MSJ”); and Defendants’ Reply Brief in Support of Their Motion
2
I. BACKGROUND
On March 16, 2008, a tragic automobile accident resulted in the deaths of Kelly
A. Luckey and Anthony Prom, a 28 year-old aspiring chef. See Pl’s SMF ¶ 13. The accident
occurred while Anthony Prom was driving a car owned and insured by Ms. Luckey. Id. ¶ 15.3
The car involved in the accident was not insured under any insurance policy issued by Balboa to
Sukai Prom-Jackson. Id. ¶ 16.
Beginning in July 2007 and until the accident in March 2008, Anthony Prom lived
in a house owned by his aunt, Sukai Prom-Jackson, at 1208 Tewkesbury Place, N.W.,
Washington, D.C. 20012 (“the Washington, D.C. house”). See Pl’s SMF ¶¶ 11, 12; Prom Aff.
¶ 2, Fofana Aff. ¶ 1. Ms. Prom-Jackson testified in her deposition that she did not require Mr.
Prom to pay rent for living in her house because he was working to establish himself as a sous
chef and he was struggling to pay other bills. See Prom-Jackson Dep. at 36-37, 43, 55. Despite
the fact that Ms. Prom-Jackson did not charge Mr. Prom rent, she testified in her deposition that
for Summary Judgment (“Defs’ Reply to Pl’s Opp. to Defs’ MSJ”). Plaintiff’s Motion for
Summary Judgment includes a Statement of Undisputed [Material] Facts (“Pl’s SMF”), as well
as Plaintiff’s Separate Statement of Undisputed [Material] Facts (“Pl’s Sep. SMF”).
The automobile policy issued to Ms. Prom-Jackson by Balboa Insurance Company
(Policy Number: 2667-01-05-40A) is Exhibit A to defendants’ motion for summary judgment
(hereinafter “Automobile Policy”). The umbrella policy issued to Ms. Prom-Jackson by Balboa
Insurance Company (Policy Number: 267-01-05-40U) is Exhibit B to defendants’ motion for
summary judgment (hereinafter “Umbrella Policy”).
The homeowners’ insurance policy issued by Travelers Insurance Company to Ms. Prom-
Jackson for the property at 1208 Tewkesbury Place, N.W., Washington, D.C. 20012, is attached
as Exhibit A to plaintiff’s reply to defendants’ brief opposing plaintiff’s motion for summary
judgment (“Travelers Home Policy”).
3
The insurance policy that Ms. Luckey purchased for the car involved in the accident is not
at issue in this case.
3
she did not share a close relationship with him, did not regularly speak to him, only saw him at
family events, and did not know personal things about his life. See id. at 29, 30.
Ms. Prom-Jackson also owned a house at 17510 Ashton Forest Terrace, Sandy
Spring, Maryland 20860. See Pl’s SMF ¶¶ 1, 8, 9. Ms. Prom-Jackson lived in the Washington,
D.C. house with her son and her husband, who is now deceased, until 2004, when she began
living exclusively in the house she owned in Maryland. See Prom-Jackson Dep. at 19, 31-34.
Ms. Prom-Jackson testified in her deposition that she rarely visited the Washington, D.C. house
after 2004, but that she maintained a homeowner’s insurance policy on the house from Travelers
Insurance. See Travelers Home Policy. This insurance policy is not at issue in this case.
Anthony Prom and Ms. Prom-Jackson never lived in the Washington, D.C. house during the
same period of time. See Pl’s SMF ¶¶ 11, 12; Prom-Jackson Dep. at 19, 31-34.
In October 2002, Ms. Prom-Jackson sponsored Ida Fofana, her distant cousin
from Gambia, to receive a G5 domestic visa. See Pl’s Sep. SMF ¶ 5. A G5 domestic visa is
issued to the “non-immigrant . . . household employees of representatives and staff members of
international organizations.” Cuco Aff. ¶ 4. Under federal immigration law, a G5 domestic
employee must “be employed exclusively by the sponsoring employer” and can perform only
“household duties” for that employer. Id. ¶ 5.
In 2002, Ms. Fofana began living at Ms. Prom-Jackson’s Washington, D.C. house
and working as a G5 domestic employee. Pl’s Sep. SMF ¶ 5. It is undisputed that Ms. Fofana
performed domestic work from October 2002 to June 2004 at the Washington, D.C. house, while
Ms. Prom-Jackson and her son lived there; this work “includ[ed] but [was] not limited to
housekeeping, house maintenance, shopping, childcare, cooking, cleaning, laundry and errands.”
4
Id. Although the parties dispute whether Ms. Fofana continued to perform domestic work at the
Washington, D.C. house after June 2004 when Ms. Prom-Jackson and her son moved to the
Maryland house, this fact is not material to the Court’s analysis. Regardless of this dispute, it is
clear from the record that Ms. Fofana and Anthony Prom both lived in the Washington, D.C.
house owned by Ms. Prom-Jackson from July 2007 until the accident in March 2008. See Pl’s
SMF ¶¶ 11, 12; Prom Aff. ¶ 2; Fofana Aff. ¶ 1.
II. RELEVANT INSURANCE POLICIES
A. Balboa Automobile Policy
Balboa is an insurance company that issued a series of insurance policies to Ms.
Prom-Jackson. See Pl’s SMF ¶¶ 1, 5. Balboa issued an automobile insurance policy to Ms.
Prom-Jackson, at 17510 Ashton Forest Terrace, Sandy Spring, Maryland 20860, for a policy
period from May 21, 2007, to May 21, 2008 (the “automobile policy”). See id. ¶ 1. The
automobile policy insured one car, a 2002 Honda Accord, and insured two drivers, Ms. Prom-
Jackson and her son, M’Buram. Id. ¶ 2, 3.
The terms of the automobile policy extended coverage beyond the named insured
individuals to Ms. Prom-Jackson’s family members if they were “residents of her household.”
See Pl’s SMF ¶ 4. The relevant language provided:
1. We Insure You
You are an insured person under any coverage in your Auto Policy. This includes
your spouse if he or she lives with you.
2. We Insure Your Family Members.
5
Your family members are also insured persons under every coverage in this
policy. This includes all of the following people, but only if they are residents of
your household:
• your children;
• your other relatives; and
• other people under 21 years of age, such as wards, who are in the care of
you or a family member.
Id.; see also Automobile Policy at 2 (emphasis in original).
B. Balboa Umbrella Policy
Balboa also issued an umbrella insurance policy to Ms. Prom-Jackson for the
same period, from May 21, 2007, to May 21, 2008 (“the umbrella policy”). See Pl’s SMF ¶ 5.
Like the automobile policy, the umbrella policy was issued to Ms. Prom-Jackson at 17510
Ashton Forest Terrace, Sandy Spring, Maryland 20860. Id. ¶ 6. The umbrella policy also
extended coverage to Ms. Prom-Jackson’s family members:
WHO WE INSURE
Under your Personal Umbrella Policy, insured person includes you, your family
members and . . .
Family member means any of these people, but only if they are residents of your
household:
• your children
• your other relatives
• other people under 21 years of age, such as wards, who are in the care of
you or a family member
Id. ¶ 7 (emphasis in original); see also Umbrella Policy at 4, 8. In its terms and conditions
section, the umbrella policy defined “residence” as “a one, two, three or four-family house,
6
condominium, cooperative unit, apartment or any other type of residence you own or rent to live
in.” See Umbrella Policy at 6. There was no similar definition in the automobile insurance
policy.
III. DISCUSSION
A. Defendants’ Motion To Dismiss
As noted, the Court previously granted Sukai Prom-Jackson and ACE’s motion to
dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a
claim upon which relief can be granted; it sua sponte dismissed the case against defendant John
Prom for the same reason. Defendants also originally moved to dismiss the case against Balboa
on the theory that District of Columbia law does not allow a direct action against an insurer by a
party who is not in privity with the insurance carrier. See Defs’ MTD at 3. In response, plaintiff
argued that Maryland law applied to this action and permits declaratory judgment actions by a
non-insured party against an insurer. See Pl’s Opp. to Defs’ MTD at 8-9. Defendants conceded
this argument in their reply brief and, as a result, they are “no longer contending that the Luckey
Estate cannot bring this declaratory judgment action [against Balboa.]” See Def. Reply MTD at
2. The Court therefore denies defendants’ motion to dismiss with respect to Balboa because
plaintiff has properly stated a claim against it.
B. Cross-Motions for Summary Judgment
1. Standard of Review
Both the plaintiff and the defendants have moved for summary judgment.
Summary judgment “should be rendered if the pleadings, the discovery and disclosure materials
7
on file, and any affidavits [or declarations] 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 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986); Holcomb v. Powell, 433
F.3d 889, 895 (D.C. Cir. 2006). “A fact is ‘material’ if a dispute over it might affect the outcome
of a suit under the governing law; factual disputes that are ‘irrelevant or unnecessary’ do not
affect the summary judgment determination.” Holcomb v. Powell, 433 F.3d at 895 (quoting
Anderson v. Liberty Lobby, Inc., 477 U.S. at 248). An issue is “genuine” if the evidence is such
that a reasonable jury could return a verdict for the nonmoving party. See Anderson v. Liberty
Lobby, Inc., 477 U.S. at 248; Holcomb v. Powell, 433 F.3d at 895. “[T]he evidence of the non-
movant is to be believed, and all justifiable inferences are to be drawn in his favor.” Anderson v.
Liberty Lobby, Inc., 477 U.S. at 255; see also Mastro v. Potomac Electric Power Co., 447 F.3d
843, 849-50 (D.C. Cir. 2006); Aka v. Washington Hospital Center, 156 F.3d 1284, 1288 (D.C.
Cir. 1998) (en banc); Washington Post Co. v. Dep’t of Health and Human Services, 865 F.2d
320, 325 (D.C. Cir. 1989).
The nonmoving party’s opposition, however, must consist of more than mere
unsupported allegations or denials and must be supported by affidavits, declarations 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 (1986). If the nonmovant’s
evidence is “merely colorable” or “not significantly probative,” summary judgment may be
granted. Anderson v. Liberty Lobby, Inc., 477 U.S. at 249-50; see Scott v. Harris, 550 U.S. 372,
380 (2007) (“Where the record taken as a whole could not lead a rational trier of fact to find for
the non-moving party, there is ‘no genuine issue for trial.’”) (quoting Matsushita Electric
8
Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). To defeat a motion for
summary judgment, a plaintiff must have more than “a scintilla of evidence to support [the]
claims.” Freedman v. MCI Telecommunications Corp., 255 F.3d 840, 845 (D.C. Cir. 2001). On
a motion for summary judgment, the Court must “eschew making credibility determinations or
weighing the evidence.” Czekalski v. Peters, 475 F.3d 360, 363 (D.C. Cir. 2007).
2. The Parties’ Arguments
With respect to both the automobile policy and the umbrella policy, plaintiff first
argues that the Balboa policies failed to explicitly define “resident of your household” and that
coverage therefore is not limited to those family members who physically resided with Ms.
Prom-Jackson at the Maryland property. See Pl’s MSJ at 17. Under plaintiff’s reading of the
policies, Balboa did not use “any limiting or qualifying language to define resident relatives as
those who live with Ms. Prom-Jackson even though Ms. Prom-Jackson owned two houses at
which her relatives resided at the time the policy was in effect.” Id. (emphasis in original).
Plaintiff asserts that the policies either expressly extended coverage to Anthony Prom or are
ambiguous as to whether they extended coverage. Plaintiff further argues that Ms. Prom-Jackson
created a second “household” at her Washington, D.C. house to which the policies applied by
allowing her G5 domestic employee Ida Fofana to work and live there. Id. at 21-24.
Defendant Balboa offers three arguments in response and in support of its own
cross-motion. See Defs’ MSJ at 7, 8, 14. First, Balboa asserts that Anthony Prom was not a
household resident of Ms. Prom-Jackson’s at the time of the accident because under Maryland
law a person is required “to live together with the named insured as a family” in order to qualify
as a household resident. Id. at 8-10. Second, Balboa argues, Anthony Prom does not fall within
9
the narrow exception to this rule that considers persons to be residents of a household if they are
not physically residing there so long as their absence is temporary and they continue to operate as
a family with the named insured. Id. at 10-14. According to Balboa, Anthony Prom does not
satisfy this exception because he never lived under the same roof as Ms. Prom-Jackson as part of
her family. Id. Third, Balboa claims that courts in other jurisdictions have consistently held that
a relative is not a resident of the named insured’s household simply because he or she lives in a
second home owned by the insured. Id. at 14-17. Without addressing or necessarily agreeing
with each of Balboa’s arguments, the Court finds that because the undisputed facts show that
Anthony Prom was never a resident of Ms. Prom-Jackson’s household, he was not a “family
member” under the unambiguous terms of the two insurance policies and thus was not covered
by the policies. The Court therefore will grant summary judgment for defendant Balboa.
3. Applicable Maryland Law
As both parties have agreed, Maryland law governs the interpretation of the
insurance policies at issue here. See Pl’s Opp. to Defs’ MTD at 8-9; Def. Reply MTD at 2.
When determining the scope of coverage under an insurance policy, under Maryland law the
“primary principle of construction is to apply the terms of the contract itself.” Bausch & Lomb
Inc. v. Utica Mut. Ins. Co., 625 A.2d 1021, 1031 (Md. 2003); see also Medical Mut. Liability Ins.
Society of Maryland v. Goldstein, 879 A.2d 1025, 1034 (Md. 2005). “Maryland adheres to the
principle of the objective interpretation of contracts.” Cochran v. Norkunas, 919 A.2d 700, 710
(Md. 2007). Under this principle, where the language employed in a contract is unambiguous, a
court must give effect to its plain meaning, and there is no need for further construction by the
court. Wells v. Chevy Chase Bank, F.S.B., 768 A.2d 620, 630 (Md. 2001). Unless there is an
10
indication that the parties intended to use the terms at issue in a special or technical sense, courts
will interpret the words to have “their usual, ordinary, and accepted meaning.” Cheney v. Bell
National Life, 556 A.2d 1135, 1138 (1989); see also Bausch & Lomb, Inc. v. Utica Mut. Ins. Co.,
625 A.2d at 1031. “A word’s ordinary signification is determined by what meaning a reasonably
prudent layperson would attach to the term.” Id. Maryland has not adopted the rule used in
many jurisdictions that an insurance policy is to be construed most strongly against the insurer.
Cheney v. Bell National Life, 556 A.2d at 1138. Rather, as with contracts in general, the parties’
intent is to be ascertained from the policy as a whole. Id.; see also Kendall v. Nationwide Ins.
Co., 702 A.2d 767, 771 (Md. 1997).
Maryland courts have consistently held that the term “resident of the household”
in an insurance policy is unambiguous language. See Peninsula Ins. Co. v. Knight, 255 A.2d 55,
63 (Md. 1969) (“The words [resident of the same household] themselves are clear, simple and in
general use. Put together they express a simple, homely, familiar concept.”); Willis v. Allstate
Ins. Co., 591 A.2d at 896, 901 (Md. Ct. Spec. App. 1990) (“[T]he lack of ambiguity in the word
‘resident’ [in the phrase ‘resident in your household’] has been determined by many
jurisdictions”) (citing cases from California, Connecticut, Florida, Michigan, and Minnesota);
Rydstrom v. Queen Ins. Co. of Am., 112 A. 586, 587 (Md. 1921) (“[W]hen used as a qualifying
word … [resident of the household means] pertaining or belonging to the house or family”). See
also Cheney v. Bell Nat’l Life Ins. Co., 556 A.2d at 1135 (“[L]anguage which is merely general
in nature or imprecisely defined is not necessarily ambiguous”). In light of these decisions and
the objective, plain meaning approach of the Maryland courts to contract interpretation, and
because neither policy at issue contains any express indication that the parties intended to ascribe
11
a special or technical meaning to the phrase “resident of your household,” the Court rejects
plaintiff’s ambiguity argument and will give the term its ordinary and accepted meaning as used
and understood by a “reasonably prudent layperson.” See Bausch & Lomb Inc. v. Utica Mut. Ins.
Co., 625 A.2d at 1031.
Several courts in Maryland have interpreted household residency requirements in
insurance policies similar to the ones in this case. See, e.g., Mundey v. Erie Ins. Group, 914
A.2d 1167, 1178-80 (Md. 2006); Forbes v. Harleysville Mut. Ins. Co., 589 A.2d 944, 951-2 (Md.
1991); Peninsula Ins. Co. v. Knight, 255 A.2d at 56. In doing so, they have adopted a “totality of
the circumstances” test for determining household residency under such policies. Mundey v. Erie
Ins. Group, 914 A.2d at 1180. Under that test, actual residence under a common roof is only one
factor to be considered but not “the controlling element.” Forbes v. Harleysville Mut. Ins. Co.,
589 A.2d. at 952. In evaluating the “totality of the circumstances” or the “aggregate details of the
living arrangements of the parties,” id., Maryland courts have examined a number of related
factors including, but not limited to, “the abandonment of a prior residence, close familial ties,
the dwelling of the family under one roof with shared enjoyment of the living facilities, and the
alleged resident being supported by the head of the household.” See Willis v. Allstate Ins. Co.,
591 A.2d at 900.
In Forbes v. Harleysville Mut. Ins. Co., 589 A.2d 944 (Md. 1991), for example, a
wife who had recently separated from her husband was killed in an automobile accident. Id. at
945. Her husband sought a declaratory judgment that she remained a household resident under
his automobile insurance policy, even though she had recently moved out of the family home. Id.
Under the “totality of the circumstances” test, the Court of Appeals of Maryland agreed that Mrs.
12
Forbes remained a resident of the household. Id. at 951. The court considered the following
factors: while the parties were separated, they remained married at the time of the accident; no
divorce discussions or proceedings had begun; the duration of the separation was relatively brief;
the address on the wife’s driver’s license and voter registration remained at the family home; and
her new living arrangements were temporary. Id.4
In Peninsula Ins. Co. v. Knight, 255 A.2d 55 (Md. 1969), the Court of Appeals of
Maryland considered similar factors in determining that an adult son was a resident of his
parent’s household. The court emphasized that the son was a resident because he had
permanently left his former home and now lived under one roof with his parents, contributed to
the family budget, did not buy or cook his own food, and stored all of his possessions in the attic
of his parents’ house. Id. at 63. Similarly, in Willis v. Allstate Ins. Co., 591 A.2d 896 (Md. Ct.
Spec. App. 1991), the court found the following facts relevant to the determination that an adult
daughter was a resident of her parents’ household: she had abandoned her prior residence with
no intention of returning, contributed to the family budget, lived in a close family environment
with her parents, and shared meals with them. Id. at 900.
4. The Balboa Insurance Policies
Both the Balboa automobile policy and the Balboa umbrella policy issued to Ms.
Prom-Jackson extended coverage to “residents of [Ms. Prom-Jackson’s] household” but failed to
expressly define this term. See Automobile Policy at 2; Umbrella Policy at 2, 6. The only
4
The court reasoned that “[i]t would be an unreasonable construction of the ‘household
residence’ language in automobile insurance policies . . . to hold that during every such period of
separation, no matter how brief, the spouse who leaves the marital home automatically becomes
uninsured with regard to the family car.” Forbes v. Harleysville Mut. Ins. Co., 589 A.2d at 951.
13
notable difference between the two policies is that the umbrella policy defines the term
“residence” as “a one, two, three or four-family house, condominium, cooperative unit,
apartment or any other type of residence you own or rent to live in,” see Umbrella Policy at 6,
whereas the automobile policy includes no such definition. See Automobile Policy at 14. Giving
the language its usual, ordinary, and accepted meaning, Cheney v. Bell National Life, 556 A.2d
at 1138, it seems logical to the Court that a relative living in a home owned by the insured would
not be considered by a “reasonably prudent layperson” to be a “resident of [the insured’s]
household,” Bausch & Lomb, Inc. v. Utica Mut. Ins. Co., 625 A.2d at 1031, in a situation where
the policyholder lived in one house (in this case in Maryland) and the asserted family member in
another (in the District of Columbia) during the entire period covered by the policy. As noted,
the undisputed evidence shows not only that Anthony Prom never lived at Ms. Prom-Jackson’s
Maryland address but that he never lived in any house owned by Ms. Prom-Jackson at the same
time she did. Accordingly, Anthony Prom was not a resident of Ms. Prom-Jackson’s household
under the plain meaning of either insurance policy.
Other than the fact that Sukai Prom-Jackson was Anthony Prom’s aunt, there are
no facts in the record that show that Anthony Prom and Ms. Prom-Jackson ever operated as a
household. The only facts plaintiff has shown are that Anthony Prom lived in a Washington,
D.C. home owned by Ms. Prom-Jackson from July 2007 to March 2008, see Pl’s SMF ¶¶ 11, 12,
and that Ms. Prom-Jackson allowed him to live in that home without paying rent. She lived
separate and apart from him in an entirely different house in Maryland during the entire period,
she did not have a close relationship with him, and they had almost no personal interaction where
she “called him [or] spoke to him [or] knew personal things about him.” Prom-Jackson Dep. at
14
29-30; see Pl’s SMF ¶¶ 11,12. The mere fact that Anthony Prom lived rent-free in a home
owned by Ms. Prom-Jackson in which she did not live is not enough to establish household
residency under Maryland law.5 The Court concludes that in these circumstances Anthony Prom
was not a resident of Ms. Prom-Jackson’s household under either policy.
Plaintiff makes the separate, subsidiary argument that Ms. Prom-Jackson
somehow extended her household to include the Washington, D.C. property by hiring Ms. Fofana
as a G5 domestic employee who worked and lived in the Washington, D.C. property while
Anthony Prom lived there, even though Ms. Prom-Jackson lived in Maryland. Plaintiff claims
that the G5 employee contracts between Ms. Prom-Jackson and Ms. Fofana show that Ms. Prom-
Jackson considered her “household” to encompass both the Washington, D.C. and the Maryland
properties. See Pl’s MSJ at 5. In effect, the plaintiff asserts that Ms. Prom-Jackson’s
representations in these contracts to the federal government now estop her from claiming the
opposite with respect to the insurance policies. Id. Plaintiff fails to cite any case law to support
his argument that Ms. Fofana’s status has any relevance to the question whether Anthony Prom
was a resident of Ms. Prom-Jackson’s household under the terms of the insurance policies. This
argument is an irrelevant distraction and completely misses the point of insurance policy contract
interpretation at issue in this case. No decision that the Court has found — in Maryland or in any
other state — has ever examined the relationship between a third party and the named insured in
5
As defendants point out, “the undisputed facts show that [he] was an independent,
emancipated adult, who came and went as he pleased, was employed as a chef . . . and was not
subject to any control by Ms. Prom-Jackson as the head of his household.” Defs’ Reply to Pl’s
Opp. to Defs’ MSJ at 3-4.
15
order to determine whether an entirely different person was a resident of the insured’s household.
Plaintiff’s reliance on Ms. Fofana’s status therefore is misplaced, and this argument fails.6
For these reasons, the Court will deny defendants’ motion to dismiss with respect
to Balboa Insurance Company, grant defendants’ motion for summary judgment with respect to
Balboa, and deny plaintiff’s motion for summary judgment. An Order consistent with this
Opinion will issue this same day.
SO ORDERED.
_________/s/______________________
PAUL L. FRIEDMAN
United States District Judge
DATE: February 12, 2010
6
Plaintiff submitted an affidavit from an “immigration law expert.” See Cuco Aff. This
affidavit, however, does nothing to support plaintiff’s argument. Although both the G5 contracts
and the insurance policies use the term “household,” they use this word in two entirely different
ways and therefore references to the word do not necessarily mean the same thing in both
documents. Whatever meaning “household” may have had for purposes of the G5 contracts has
no relevance to the interpretation of the insurance policies at issue in this case.
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
J.A., et al. )
)
Plaintiffs, )
)
v. ) Civil Case No. 09-0239 (RJL)
)
DISTRICT OF COLUMBIA, et al. )
)
Defendants. )
~
UMORDER
(February _ ,2010) [# 8,10]
This case concerns plaintiffs' claims for declaratory and injunctive relief under
the Individuals with Disabilities Education Act of2004, 20 U.S.C. §§ 1400, et seq.
("IDEA"). Plaintiffs have moved to amend their Complaint to add a count alleging
that the District failed to provide an adequate transcript of the due process hearing
from which plaintiffs appeal. Defendants oppose the motion. Based on the parties'
pleadings, applicable law, and the entire record herein, plaintiffs' Motion to Amend is
DENIED.
Plaintiffs seek to amend their Complaint under Rule 15(a)(2) of the Federal
Rules of Civil Procedure. While the Court is encouraged to grant leave freely "when
justice so requires," Fed. R. Civ. P. 15(a)(2), it is within the Court's discretion to deny
leave for "surticient reason, such as ... 'futility of amendment. '" Firestone v.
Firestone, 76 F.3d 1205,1208 (D.C. Cir. 1996) (quoting Farnan v. Davis, 371 U.S.
178, 182 (1962». Indeed. amendment is futile if the proposed amended claim would
not survive a motion to dismiss. James Madison Ltd. v. Ludwig, 82 F .3d 1085, 1099
(D.C. Cir. 1996). Such is the situation here.
Plaintiffs' proposed amendment would be futile because the count they seek to
add to their Complaint would not survive a motion to dismiss. Simply put, plaintiffs'
claim regarding the inadequacy of the transcript they received from the District is not
cognizable in this jurisdiction. At best, the District's failure to provide an adequate
transcript amounted to procedural error under the IDEA. See 20 U.S.c.§ 1415(h)(3)
(providing parents "the right to a written ... verbatim record"); a. a. v. District 0/
Columhia. 573 F. Supp. 2d 41. 48 (D.D.C. 20(8). Procedural errors, however, do not
amount to viable claims under the IDEA unless they affect a student's substantive
rights. Lesesne v. District o/Columbia. 447 F.3d 828, 834 (D.C. Cir. 2006). Indeed,
the proposed Amended Complaint does not even allege that J.A.' s substantive rights
suffered in any way as a result of the incomplete transcript. Accordingly, it is hereby
ORDERED that plaintiffs Motion to Amend 1#81 is DENIED, and it is further
ORDERED that defendant's Motion to Remand 1# 101 is GRANTED. The
matter is REMANDED to the J learing Officer to determine the appropriateness of
DCPS' proposed placement of the student at Janney Elementary School for school
year 2008-2009.
SO ORDERED.
United States District Judge
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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Chief Judge Wiley Y. Daniel
Civil Action No. 09-cv-02990-WYD-MEH
WILDEARTH GUARDIANS,
Plaintiff,
v.
KEN SALAZAR, in his official capacity as Secretary, U.S. Department of the Interior,
Defendant.
MINUTE ORDER
ORDER ENTERED BY CHIEF JUDGE WILEY Y. DANIEL
On February 4, 2010, this case was reassigned to me. Accordingly, Plaintiff’s
Motion for Summary Judgement [6], filed February 2, 2010, is DENIED WITHOUT
PREJUDICE as it does not comply with my Practice Standards. The parties are
ordered to review and comply with all directives contained in my practice standards.
Dated: February 5, 2010.
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947 F.Supp. 15 (1996)
INTERNATIONAL LONG TERM CARE, INC., d/b/a Peninsula Health Care, Plaintiff,
v.
Donna E. SHALALA, et al., Defendants.
Civil Action No. 96-1956 (PLF).
United States District Court, District of Columbia.
November 27, 1996.
*16 Gene A. Bechtel, Bechtel & Cole, Washington, DC, for plaintiff.
Fred E. Haynes, Assistant United States Attorney, Washington, DC, William Charles Bailey, Dept. of Health and Human Services, Baltimore, MD, for defendants.
OPINION
PAUL L. FRIEDMAN, District Judge.
Plaintiff, who operates a long term skilled nursing facility in Menlo Park, California, seeks to prevent the Health Care Financing Administration ("HCFA") of the Department of Health and Human Services from terminating its participation in the Medicare program. Plaintiff has moved for a temporary restraining order and a preliminary injunction and defendants have moved to dismiss the complaint.
On July 18, 1996, the California Department of Health Services surveyed the Peninsula Plaza Health Care Center and found that the facility was not in substantial compliance with Medicare regulations. The survey consisted of 159 pages and identified 53 deficiencies. On August 9, HHS informed plaintiff that it would be terminated from the Medicare program on August 24, 1996. Termination from Medicaid is automatic upon termination from Medicare. On or about August 22, plaintiff submitted a "plan of correction," and on August 23, it filed a motion for a TRO to prevent its termination from Medicare. On August 28, HHS modified its determination and advised plaintiff that it would be denied Medicare payments only for new admissions. It also authorized a revisit to Peninsula Plaza based on plaintiff's plan of correction. See Def.'s Mot., Ex. D.
A revisit and follow-up survey were conducted on October 9, 1996. The survey team concluded that plaintiff was still not in compliance although progress had been made. This survey, which was 57 pages long, found 24 deficiencies. Def.'s Mot., Ex. E. The State agency forwarded its recommendation to HHS. On October 29, 1996, HHS informed plaintiff that it would be terminated from Medicare on November 16, 1996, that the daily civil penalties imposed back in August would continue until termination, that payment would continue to be denied for new admissions, and that payment for admissions prior to August 23, 1996, would continue for 30 days from November 16. Plaintiff filed the instant motions on Friday, November 15, 1996. An expedited administrative hearing is scheduled to begin on December 17, 1996, the day after the payments are scheduled to stop, before Administrative Law Judge Steven T. Kessel. See Peninsula Plaza Health Care Center, Docket No. C-97-063, Order and Notice of Hearing (HHS Nov. 20, 1996) ("ALJ Order"), Pl.'s Reply, Ex. 1.
Plaintiff alleges that it is now in full compliance but that the State agency and HHS refuse to grant a resurvey. Plaintiff argues that it should be given another survey to allow it to demonstrate its full compliance, that the prior surveys were biased, and that HHS has failed to follow its own rules and regulations. Plaintiff proposes a wide variety of remedies and asks the Court variously to rescind the termination or the effective date of the termination, to order HHS or the State agency to immediately revisit the facility and conduct a resurvey, and/or to enjoin the termination of plaintiff's Medicare payments permanently or at least until it has obtained a decision from the ALJ.
Defendants respond that this is a dispute over Medicare benefits that is governed exclusively by the review provisions of 42 U.S.C. § 405(g), that this Court lacks jurisdiction because plaintiff has failed to exhaust its administrative remedies, and that in any *17 case plaintiff is not entitled to preliminary injunctive relief.[1]
I. STANDARD FOR INJUNCTIVE RELIEF
In deciding whether to grant emergency injunctive relief, the Court must consider (1) whether there is a substantial likelihood that plaintiff will succeed on the merits of the case, (2) whether plaintiff will suffer irreparable harm absent an injunction, (3) the harm to defendants or other interested parties, and (4) whether an injunction would be in the public interest or at least not be adverse to the public interest. Sea Containers Ltd. v. Stena AB, 890 F.2d 1205, 1208 (D.C.Cir. 1989); Washington Metro. Area Transit Comm'n v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C.Cir.1977).
Plaintiff is not required to prevail on each of these factors. Rather, under Holiday Tours, the factors must be viewed as a continuum more of one factor compensating for less of another. The necessary level or degree of likelihood of success will vary according to the court's assessment of the other factors; when the other three factors strongly favor interim relief, a court may grant injunctive relief when the moving party has merely made out a "substantial" case on the merits. Washington Metro. Area Transit Comm'n v. Holiday Tours, Inc., 559 F.2d at 843; see CityFed Financial Corp. v. Office of Thrift Supervision, 58 F.3d 738, 747 (D.C.Cir.1995) ("If the arguments for one factor are particularly strong, an injunction may issue even if the arguments in other areas are rather weak."); Cuomo v. United States Nuclear Regulatory Comm'n, 772 F.2d 972, 974 (D.C.Cir.1985) ("A stay may be granted with either a high probability of success and some injury, or vice versa.").
II. DISCUSSION
The Health Insurance for the Aged and Disabled program, popularly known as Medicare, was established by Title XVIII of the Social Security Act. 42 U.S.C. § 1395 et seq. This comprehensive statutory and regulatory scheme provides health care benefits for millions of elderly and disabled Americans. For many individuals it is their central resource in the battle against illness and economic hardship that may accompany old age. An important part of the Medicare scheme provides for reimbursement to skilled nursing home facilities that provide long term care for Medicare beneficiaries. The statute establishes elaborate requirements for these skilled nursing facilities and creates a survey and certification process that endeavors to enforce a high level of quality care. 42 U.S.C. § 1395i-3; see also 42 C.F.R. pt. 483 (governing health care provider eligibility); 42 C.F.R. pt. 488 (governing survey, certification and enforcement procedures). Of particular relevance to this litigation is 42 C.F.R. § 488.456(b), which states that a health care provider agreement may be terminated "if a facility is not in substantial compliance with the requirements of participation...."
Judicial review of Medicare benefits decisions is governed by 42 U.S.C. § 405(g), which provides for judicial review of a "final decision" of the Secretary of HHS. See 42 U.S.C. § 1395cc(h). Section 405(g) generally precludes judicial review of benefits determinations until plaintiffs have exhausted their administrative remedies. Heckler v. Ringer, 466 U.S. 602, 613-14, 104 S.Ct. 2013, 2020-21, 80 L.Ed.2d 622 (1984); National Kidney Patients Association v. Sullivan, 958 F.2d 1127, 1130-31 (D.C.Cir.1992), cert. denied, 506 U.S. 1049, 113 S.Ct. 966, 122 L.Ed.2d 122 (1993); Americana Healthcare Corp. v. Schweiker, 688 F.2d 1072, 1082 (7th Cir.1982). HHS argues that Section 405(g) completely precludes review in this case because ALJ Kessel has not yet completed his review and has rendered no final decision, and the complaint *18 therefore should be dismissed for failure to exhaust.
This is an unusual case. After the State agency conducted its second survey on October 9, 1996 and found some lingering and some newly identified deficiencies, plaintiff submitted a second plan of correction on October 25, explaining, according to plaintiff, that it had remedied all the deficiencies and was in full compliance. HHS did not officially respond to plaintiff's plan of correction, although it indicated in the papers it filed in this Court that in fact the agency has rejected the plan. See Declaration of Julie Sadovich ¶ 16 (Nov. 4, 1996), Def.'s Mot., Ex. B. Nevertheless, plaintiff urged HHS to perform yet another survey that it insists will confirm its claim that it is now in full compliance. See 42 C.F.R. § 488.110(l) ("[R]evisits are almost always necessary to ascertain whether the deficiencies have indeed been corrected."). Plaintiff also sought prompt administrative review of the termination decision. See 42 C.F.R. §§ 498.5, 498.40. And on November 20, ALJ Kessel took the unusual step of scheduling an expedited hearing to begin on December 17, 1996 and to last no more than three days. ALJ Order at 2.[2]
ALJ Kessel made clear in his Order that he felt obliged to schedule a hearing expeditiously "in view of the fact that [plaintiff's] participation in Medicare would be terminated on November 16, 1996." ALJ Order at 2. He went on to say:
I continue to find that it is imperative to give [plaintiff] a hearing expeditiously given the nature of the remedy that is being imposed by HCFA. [Plaintiff] persuasively argues that its federal funding will expire on or about December 16, 1996, and that it may be difficult or impossible for it to do business thereafter. The potential for damage to [plaintiff], should HCFA's determination to terminate [plaintiff's] participation be shown to be incorrect, is extraordinary, and outweighs any inconvenience that might result to employees of the Department or to State agency employees by my scheduling a hearing on short notice.
ALJ Order at 2. The ALJ further pledged personally that "in order to assure that [plaintiff] receive [sic] due process, ... I will do everything I can to reach a decision in this case as expeditiously as possible, ... I will order post hearing briefs ... on an expedited basis [and].... I will at least consider the possibility of issuing a decision in this case from the bench...." ALJ Order at 3.
Despite the ALJ's effort to reach a decision before plaintiff's funding terminates, plaintiff's funding will end on December 16, 1996, the day before the administrative hearing begins. As a result, plaintiff might well be forced to close its doors, and the residents might have to be transferred during the very period when the hearing and post-hearing briefing (assuming no decision from the bench) are taking place. This is just the sort of irreparable and unnecessary harm that carefully tailored, limited injunctive relief is intended to prevent. See Lake County Rehabilitation Center, Inc. v. Shalala, 854 F.Supp. 1329, 1336 (N.D.Ind.1994) (finding irreparable harm to nursing home where it might be forced to close). Or, as Judge Gasch described the harm in a similar case, "plaintiff's ability to render effective medical services to those in need would be significantly hampered by the suspension of regular payments to which plaintiff would otherwise be entitled." Beverly Enterprises v. Mathews, 432 F.Supp. 1073, 1079 (D.D.C. 1976). Both these courts recognized that the interests of health care providers and Medicare beneficiaries are closely intertwined. See Lake County Rehabilitation Center, Inc. v. Shalala, 854 F.Supp. at 1336; Beverly Enterprises v. Mathews, 432 F.Supp. at 1079.[3]
Of course, the Court does not know, nor would it be appropriate for it to determine, whether plaintiff is "otherwise entitled" to *19 Medicare payments since this is an issue for the ALJ to decide. If the ALJ eventually concludes, however, as his Order signals he might, that plaintiff should not be terminated from the Medicare program, it may be too late for plaintiff's business to recover. More importantly, the residents will have already undergone an unnecessary and potentially destructive transfer from which many of them may sustain significant physical or psychological trauma. See HCFA Resident Census and Conditions of Residents, Pl.'s Reply, Ex. A.[4] As the ALJ himself noted: "The potential for damage to [plaintiff], should HCFA's determination to terminate [plaintiff's] participation be shown to be incorrect, is extraordinary...." ALJ Order at 2. There is a clear showing in this case of irreparable harm to the residents and the health care provider by virtue of the funding cut-off on December 16.
The injury that flows from this scheduling mismatch essentially arises because the ALJ has no authority to issue an injunction and therefore lacks the power to maintain the status quo pending his decision even for a few days. HHS also asserts that the Secretary herself lacks authority to extend the 30-day grace payment period because the regulations provide that payment is available only "up to" 30 days after termination. See 42 C.F.R. § 489.55.[5] The irony here is that the Medicare statute is designed to protect the interests of residents of such nursing facilities, and yet it is these very residents who will suffer the most if they are unnecessarily transferred because of a few days' gap in plaintiff's funding or because, as plaintiff's evidence suggests, there are no long term care facilities within 150 miles to which the residents could be transferred. Supplemental Declaration of George H. Eslinger (Supp. Eslinger Decl.) ¶ 4 (Nov. 20, 1996). Thus, while the regulations contemplate a 30-day post-termination payment period precisely in order to smooth the transition for nursing home residents, and although ALJ Kessel has done everything in his power to minimize the possibility of unnecessary transitional upheaval, the accidents of timing may render these efforts for naught in the absence of a preliminary injunction.
It is true that plaintiff has little or no likelihood of success on the merits if "the merits" are understood as plaintiff's ability right now to obtain this Court's review of HHS's substantive decision to terminate before the ALJ has ruled. See 42 U.S.C. § 405(g) and (h); Heckler v. Ringer, 466 U.S. at 618, 104 S.Ct. at 2023. Plaintiff has, however, presented a sufficiently "substantial case" that it might well prevail on the merits after it has exhausted its administrative remedies. See Plaintiff's Second Plan of Correction, Exhibit 1 to Declaration of Patrick C. Clary (Nov. 20, 1996); Declaration of George H. Eslinger ¶ 3 (Nov. 13, 1996); Supp. Eslinger Decl. ¶¶ 2-3; Declaration of Veronica Russo ¶ 3 (Nov. 13, 1996). In view of the irreparable harm likely to be suffered by the residents, no more is required in order to obtain preliminary injunctive relief. CityFed Financial Corp. v. Office of Thrift Supervision, 58 F.3d at 747; Cuomo v. United States Nuclear Regulatory Comm'n, 772 F.2d at 974. Put another way,
... if the other elements are present (i.e., the balance of hardships tips decidedly toward plaintiff), it will ordinarily be enough that the plaintiff has raised questions going to the merits so serious, substantial, difficult and doubtful, as to make them a fair ground for litigation and thus for more deliberative investigation.
Washington Metro. Area Transit Comm'n v. Holiday Tours, Inc., 559 F.2d at 844. Since *20 the entire purpose to be served by a preliminary injunction in this case is to permit the ALJ to engage in "more deliberative investigation," injunctive relief is appropriate.
The only harm proffered by defendants is the theoretical disruption caused by a court interfering with the administrative process and the Secretary's interest in expeditious provider termination procedures. But expedition with the least disruption is precisely what ALJ Kessel is trying to provide. The Court does not perceive any harm to the government in permitting the ALJ to reach promptly the merits of a live controversy rather than forcing him to wait until after plaintiff is financially dysfunctional and the residents have already been moved. Indeed, an injunction will further the significant public interest both in the smooth functioning of the administrative process and in protecting the residents' interests, as suggested by the purposes of the Medicare statute. "[B]oth Congress and the Secretary have recognized the potential harm [in cutting off provider funding] and the compelling public interest in providing timely and uninterrupted health care funding." Beverly Enterprises v. Mathews, 432 F.Supp. at 1079. The ALJ has taken extraordinary steps to decide plaintiff's challenge as soon as possible in order to minimize disruption to the services provided to the residents. In view of the ALJ's determinations in this case, the interests of the residents in not being transferred unnecessarily, and the public interest in the smooth and efficient operation of the Medicare system, the Court concludes that funding for prior admissions should continue for the very brief period of time needed to permit ALJ Kessel to make his decision on the merits.
The Court rejects defendants' argument that any harm to the residents is irrelevant to the "irreparable harm" determination because they are not formally before the Court. Since the four-pronged test for emergency injunctive relief is to be treated as a fact-based continuum and not as four formalistic, hermetically sealed categories, Washington Metro. Area Transit Comm'n v. Holiday Tours, Inc., 559 F.2d at 844, in deciding whether to grant or withhold injunctive relief the Court must consider the potential harm to the residents, to the plaintiff and to the Medicare system as a whole, and not whether that harm is placed definitionally in the "irreparable harm" box or in the "public interest" box. The Court's equitable power to fashion injunctive relief is meant precisely to permit the Court to maintain the status quo pending an administrative decision such as this one, particularly where the failure to do so may result in the eviction of these elderly and infirm residents only days before the ALJ makes his decision. Otherwise, the administrative process would be rendered hollow and allow significant and unnecessary injury to the very individuals the statute is designed to protect. A brief stay of the termination of plaintiff's funds will facilitate exhaustion, not hinder it; it neither interferes with nor circumvents the administrative process. Rather, it will maintain the status quo and permit ALJ Kessel to do what he cannot do alone, namely, to rule on the merits of whether termination is appropriate before the issue becomes academic as a practical matter.[6]
With the decision to grant very limited injunctive relief, the Court expressly rejects plaintiff's principal contention that the administrative process provided by HHS and *21 the State of California somehow has been irregular or biased. The administrative process is entitled to a presumption of regularity, and plaintiff has provided no persuasive evidence that it is not being treated fairly by the State or federal government. The Court also denies the wide ranging relief sought by plaintiff, namely to rescind the termination, to permanently enjoin the withholding of funds and/or to order a resurvey, a matter clearly within the discretion of the Secretary. See 42 U.S.C. § 1395i-3(g); 42 C.F.R. §§ 488.110, 488.308. The substantive issues of plaintiff's eligibility and the sufficiency of the procedures followed are properly to be examined by the ALJ during the December 17 hearing, and the Court will not usurp the ALJ's decision making authority in this arena. See Heckler v. Ringer, 466 U.S. at 615, 104 S.Ct. at 2021-22. Rather, the Court finds that very limited injunctive relief will best serve the purposes of the administrative process given the unusual circumstances presented by this case.
ALJ Kessel has set an accelerated hearing and post-hearing schedule with time and page limitations designed to speed up the process as much as possible. In that spirit, the Court will enter an order preserving plaintiff's funding for prior admissions only until ALJ Kessel renders his decision as contemplated by his own Order or until January 15, 1997, whichever comes earlier. The January 15 cutoff date ensures that plaintiff will have no incentive to stall the proceedings while its funding remains protected by Court order. The stay will end upon the entry of Judge Kessel's decision resulting from the December 17 hearing or on January 15; it will not apply to any further appellate or any other proceedings before Judge Kessel or any other tribunal, administrative or judicial, initiated by any party.
An Order consistent with this Opinion is entered this same day.
SO ORDERED.
ORDER
This case is before the Court on plaintiff's motion for a temporary restraining order and a preliminary injunction and defendants' motion to dismiss. Having carefully considered all of the briefs, affidavits and declarations, the arguments of counsel and the entire record in this case, and for the reasons stated in the accompanying Opinion issued this same day, it is hereby
ORDERED that plaintiff's motion for a temporary restraining order is DENIED as moot; it is
FURTHER ORDERED that plaintiff's motion for a preliminary injunction is GRANTED in part and DENIED in part. The termination of Medicare and Medicaid payments to plaintiff on behalf of residents of Peninsula Plaza who were admitted prior to August 23, 1996, is preliminarily enjoined until Administrative Law Judge Steven T. Kessel renders a decision following the hearing now scheduled to begin on December 17, 1996 or until January 15, 1997, whichever comes earlier; and it is
FURTHER ORDERED that defendants' motion to dismiss the complaint is DENIED.
SO ORDERED.
NOTES
[1] Plaintiff also relies on 28 U.S.C. § 1331, 28 U.S.C. § 1651 (the All Writs Act) and 28 U.S.C. § 1361 (mandamus), but defendants point out that Section 405(h) provides:
The findings and decision of the Secretary after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of the Secretary shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No action against the United States, the Secretary, or any officer of employee thereof shall be brought under section 1331 or 1346 of Title 28 to recover on any claim arising under this subchapter.
42 U.S.C. § 405(h).
[2] Indeed, the ALJ originally set the hearing tentatively for December 3, 1996, but the government objected and the ALJ agreed that HCFA needed more time to prepare its case.
[3] Defendants' argument that termination would not harm the plaintiff because it can continue to treat private patients is disingenuous. Defendants know full well that 120 of plaintiff's 130 residents are Medicare or Medicaid patients.
[4] According to the HCFA resident census, of the 130 residents of Peninsula Plaza (120 of whom are Medicaid or Medicare beneficiaries), 100 are confined to a bed or chair all or most of the time while only 30 are independently ambulatory. At least 85 are frequently or occasionally incontinent, and at least 49 suffer from dementia or have some other documented psychiatric diagnosis. HCFA Resident Census at 1.
[5] While the Court finds it hard to accept the proposition that the Secretary's broad discretion under the Medicare statute and regulations would not permit her to grant an extension in an individual case, counsel for HHS has unequivocally taken this position. Presumably he speaks for the Secretary, whose interpretation of her own regulations, even if somewhat implausible, is entitled to deference. See Gardebring v. Jenkins, 485 U.S. 415, 430, 108 S.Ct. 1306, 1314-15, 99 L.Ed.2d 515 (1988).
[6] In a post-hearing submission, defendants brought to the Court's attention the Supreme Court's decision in O'Bannon v. Town Court Nursing Center, 447 U.S. 773, 100 S.Ct. 2467, 65 L.Ed.2d 506 (1980), noting the holding that residents of a Medicare facility lack standing to challenge the decertification of that facility and, particularly, Justice Blackmun's concurring opinion questioning the existence of the phenomenon known as "transfer trauma." 447 U.S. at 803-05 & n. 13, 100 S.Ct. at 2484-86 & n. 13 (Blackmun, J., concurring in the Judgment). The Court notes, however, that Justice Stevens' majority opinion expressly recognized "that such a revocation [of a nursing home's certification] may be harmful to some patients." Id. at 775, 100 S.Ct. at 2470. "Some may have difficulty locating other homes they consider suitable or may suffer both emotional and physical harm as a result of the disruption associated with the move." Id. at 787, 100 S.Ct. at 2476. Like Justice Stevens, the Court "assumes for purposes of this discussion that there is a risk that some residents may encounter severe emotional and physical hardship as a result of a transfer." Id. at 784 n. 16, 100 S.Ct. at 2475 n. 16; see Supplemental Declaration of Veronica J. Russo ¶ 3 (Nov. 22, 1996).
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August 04, 2004
Mr. Shawn Casey
Law Office of Shawn Casey
5433 Westheimer, Suite 920
Houston, TX 77056-5375
Ms. Barbara K. Runge
5615 Kirby Drive, Suite 920
Houston, TX 77005
Mr. John F. Nichols Sr.
Law Office of John F. Nichols
1301 McKinney, Suite 3636
Houston, TX 77010
RE: Case Number: 03-1180
Court of Appeals Number: 14-02-00481-CV
Trial Court Number: 1996-18979
Style: BYRON WALTER RUSK
v.
BARBARA K. RUNGE AND SHEILA SPENCER RUSK
Dear Counsel:
Today the Supreme Court of Texas issued the enclosed order in the
above referenced-cause. Justice Brister not sitting.
Sincerely,
[pic]
Andrew Weber, Clerk
by Nancy J. Vega, Chief Deputy Clerk
|cc:|Mr. Ed Wells |
| |Mr. Charles |
| |Bacarisse |
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01-03-2023
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09-02-2015
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https://www.courtlistener.com/api/rest/v3/opinions/4555635/
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Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
08/14/2020 08:08 AM CDT
- 124 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
LANHAM v. BNSF RAILWAY CO.
Cite as 306 Neb. 124
Alexander Lanham, appellant and
cross-appellee, v. BNSF Railway
Company, appellee and
cross-appellant.
___ N.W.2d ___
Filed June 12, 2020. No. S-19-114.
supplemental opinion
Appeal from the District Court for Lancaster County:
Robert R. Otte, Judge. Former opinion modified. Motion for
rehearing overruled.
Corey L. Stull and Jeanette Stull, of Atwood, Holsten,
Brown, Deaver & Spier, P.C., L.L.O., and Christopher H.
Leach, of Hubbell Law Firm, L.L.C., for appellant.
Nichole S. Bogen, of Lamson, Dugan & Murray, L.L.P.,
Wayne L. Robbins, Jr., of Robbins Travis, P.L.L.C., and
Andrew S. Tulumello, of Gibson, Dunn & Crutcher, L.L.P.,
for appellee.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke,
Papik, and Freudenberg, JJ.
Per Curiam.
This case is before us on a motion for rehearing filed by
the appellant and cross-appellee, Alexander Lanham, con-
cerning our opinion in Lanham v. BNSF Railway Co. 1 While
1
Lanham v. BNSF Railway Co., 305 Neb. 124, 939 N.W.2d 363 (2020).
- 125 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
LANHAM v. BNSF RAILWAY CO.
Cite as 306 Neb. 124
there is no substantive merit to the motion, Lanham correctly
points out that a statutory citation, also used by the district
court, addressed nonprofit corporations rather than for-profit
corporations such as BNSF Railway Company. This had no
effect upon the outcome of the appeal, as the two statutes
are substantially identical. We overrule the motion, but we
modify the original opinion to substitute the correct citation
as follows:
In syllabus point 11, 2 we withdraw the reference to “Neb.
Rev. Stat. § 21-19,152 (Reissue 2012)” and substitute “Neb.
Rev. Stat. § 21-2,209 (Cum. Supp. 2018).”
We make two changes in the background section. We with-
draw the phrase “Pursuant to Neb. Rev. Stat. § 21-19,152
(Reissue 2012),” in the fourth sentence of the third paragraph. 3
In the first sentence of the fifth paragraph, we add “Neb.
Rev. Stat.” before “§ 21-19,152” and “(Reissue 2012)” after
the statute. 4
We also modify the analysis section in five respects
under the subheading “Consent by Registration.” In the
eighth paragraph, 5 after the first sentence, we add “Because
§ 21-19,152 applies to nonprofit corporations, the district court
should have cited to Neb. Rev. Stat. § 21-2,209 (Cum. Supp.
2018), a nearly identical statute applicable to for-profit cor-
porations like BNSF.” We withdraw the ninth paragraph 6 and
substitute:
Section 21-2,209 provides:
. . . Each foreign corporation authorized to trans-
act business in this state must continuously maintain in
this state:
2
Id. at 125, 939 N.W.2d at 363.
3
Id. at 126, 939 N.W.2d at 366.
4
Id. at 127, 939 N.W.2d at 366.
5
Id. at 133, 939 N.W.2d at 370.
6
Id. at 133-34, 939 N.W.2d at 370.
- 126 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
LANHAM v. BNSF RAILWAY CO.
Cite as 306 Neb. 124
(1) A registered office that may be the same as any of
its places of business; and
(2) A registered agent, who may be:
(i) An individual who resides in this state and whose
business office is identical with the registered office;
(ii) A domestic corporation or not-for-profit domestic
corporation whose business office is identical with the
registered office; or
(iii) A foreign corporation or foreign not-for-profit cor-
poration authorized to transact business in this state whose
business office is identical with the registered office.
In the 10th paragraph, 7 we substitute “21-2,209” for “21-19,152”
in the first and third sentences. Finally, in the second sen-
tence of the last paragraph of the subsection, 8 we substitute
“21-2,209” for “21-19,152.”
The remainder of the opinion shall remain unmodified.
Former opinion modified.
Motion for rehearing overruled.
7
Id. at 134, 939 N.W.2d at 370.
8
Id. at 135, 939 N.W.2d at 371.
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85 F. Supp. 956 (1949)
STEED et al.
v.
DODGEN et al.
HEBERT et al.
v.
BUCKNER et al.
Civ. A. Nos. 365, 446.
United States District Court W. D. Texas, Austin Division.
April 2, 1949.
D. C. Bland, Orange, Texas, for plaintiffs Tom Steel and others.
Cecil & Keith, Beaumont, Texas, for plaintiffs J. J. Hebert and others.
Price Daniel, Attorney General of Texas, and David Wuntch, Assistant Attorney General of Texas, for defendants.
Before HUTCHESON, Circuit Judge, and KENNERLY and RICE, District Judges.
RICE, District Judge.
These consolidated causes, brought by seventy-two non-residents of the State of Texas, largely residents of the State of Louisiana, seek to enjoin the enforcement of the provisions of Article 934b 1 of the Penal Code of the State of Texas, Vernon's Ann.P.C. art. 934b1,[1] because they say *957 that such legislation, as applicable to non-residents of Texas, is unconstitutional in that it violates the spirit and the letter of Article IV, Section 2[2] (being the privileges and immunities clause); the Fourteenth Amendment; and the Interstate Commerce clause, art. 1, § 8, cl. 3; all of the Constitution of the United States.
The State of Texas has been and will continue to enforce the provisions of said Act as against non-residents of said State who fail to comply with its terms.
During the trial of these causes, the Attorney General of the State of Texas admitted that Section 10 of said Act is unconstitutional, as applied to non-residents of Texas. This section levies an inspection tax or fee of $10.00 for each one hundred pounds or fraction thereof, of any cargo of shrimp sought to be discharged or unloaded from any unlicensed commercial fishing boat or vessel within the territorial limits of Texas.
By the terms of Article 934a of the Penal Code of Texas, Vernon's Ann.P.C. art. 934a, a resident commercial fisherman, for the privilege of engaging in commercial fishing within the territorial waters of the State of Texas, is required to pay an annual license fee of $3.00; and, for the same privilege, an annual license fee for a commercial fishing boat owned by a citizen of Texas is set at either $3.00 or $15.00, depending upon the length of the vessel. On the other hand, and for the same privileges, there is levied by the terms of Article 934b 1 of said Code as against a non-resident commercial fisherman an annual license tax of $200.00, and as against a non-resident commercial fishing boat an annual license tax of $2500.00.
The resident and the non-resident commercial fishermen are engaged in the same common calling, using substantially the same means and methods; and there is not shown to be any real distinction between the fishing vessels owned and used by resident commercial fishermen and those *958 owned and used by non-resident commercial fishermen.
When the Steed case was filed in June, 1947, the State of Texas, acting through its Game, Fish and Oyster Commission, had refused and thereafter continuously refused until November 15, 1948, to issue a license to a non-resident commercial fisherman or non-resident commercial fishing vessel. On said last mentioned date a resolution was adopted by said Commission authorizing the Executive Secretary to use his discretion in issuing such license.
This record discloses that the distinction between the two types of licenses required by said Act is based solely upon citizenship. This being true, the Act comes squarely within the holding of Toomer v. Witsell, 334 U.S. 385, 68 S. Ct. 1157, 92 L. Ed. 1460.
The Supreme Court of the United States in the above mentioned cause held that the Act of the Legislature of South Carolina regulating commercial fishing within its territorial waters unreasonably discriminated against citizens of other States and was violative of Article IV, Section 2 of the Constitution of the United States. The facts of that case and the law under attack therein are in all respects material here substantially the same as in the causes under consideration. Because the Supreme Court, in a well reasoned opinion, has clearly expressed itself as to the constitutional question here raised, we, without further discussion, hold that the Toomer case rules these causes, and that for the reasons set forth therein Article 934b1 is violative of Article IV, Section 2 of the Constitution of the United States.
The State of Texas contends that the enforcement of the terms of said Act should not be enjoined if the Act be held unconstitutional because, it says, each of the petitioners has a full, adequate and complete remedy at law, in that under Article 7057b of Vernon's Texas Civil Statutes each of petitioners could pay, under protest, the fees imposed by Article 934b 1 and bring suit in a proper court in Travis County, Texas, for the recovery thereof. Said Article does not provide for the payment of interest on the funds withheld, except such as may be collected by the State. There is no assurance that any interest will be collected, nor is any rate provided. To relegate these petitioners to the terms of this Article for the enforcement of their rights under an unconstitutional law would, in all probability, result in a multiplicity of suits, as well as long, vexatious and expensive delays.
In reference to said Article, in passing upon the very point raised here, Judge Critz, speaking for the Supreme Court of Texas, said in Rogers et al. v. Daniel Oil & Royalty Co., 130 Tex. 386, 110 S.W.2d 891, 896:
"If equity jurisdiction can interfere to prevent a multiplicity of suits, the condition of this record presents such facts or conditions as to call for the exercise thereof. It would be a paradox to say that equity jurisdiction can be exercised to prevent a multiplicity of suits and at the same time say that a legal remedy is complete and adequate, although it leads to such multiplicity. To our minds, if a remedy at law, though otherwise complete and adequate, leads to a multiplicity of suits, that very fact prevents it from being complete and adequate."
Generally speaking, it is the duty of a Federal Court to withhold a decision on the merits of a State Statute and retain a bill until the State Courts have construed the State law. American Federation of Labor v. Watson, 327 U.S. 582, 66 S. Ct. 761, 90 L. Ed. 873. But this is not such a case. The Supreme Court of the United States has spoken, and its decision in respect to the matters here involved would control the decisions of the Courts of Texas.
Plaintiffs are entitled to the injunctive relief they pray for and an appropriate decree will be entered.
NOTES
[1] Article 934b-1 of the Texas Penal Code, under attack, has thirteen sections, summarized as follows:
Section 1, defines a Non-resident Commercial Fisherman.
Section 2, defines a Non-resident Commercial Fishing Boat.
Section 3, prescribes a license fee of $200.00 for Non-resident Commercial Fisherman.
Section 4, prescribes a license fee of $2500.00 for a Non-resident Commercial Fishing Boat.
Section 4A, further adds to the definition of a Non-resident Commercial Fishing Boat, and also sets out information the applicant is to furnish the Game, Fish and Oyster Commission in order to obtain a license.
Section 5, is the reciprocal provision giving the Game, Fish and Oyster Commission discretion in refusing or granting licenses "to the residents of any State that may now or hereafter refuse to sell or grant equal privileges or licenses to the citizens of this State."
Section 6, provides for the enforcement of this law within the tidal waters of the State of Texas extending three (3) marine leagues into the Gulf of Mexico.
Sections 7 and 8, make it unlawful for Non-resident Commercial Fishermen or Non-resident Commercial Fishing Boats to bring into Texas aquatic products for the purpose of sale, barter or exchange, without having first obtained the proper license.
Section 9, is the penalty provision of this Act.
In Section 10 there is a Legislative finding that "the taking of fish and marine life outside of the territorial waters of the State of Texas affects and endangers the supply within the State; and (that) the State of Texas has no adequate means of supervision and inspection of the sanitary conditions, and of sanitary control and inspection of the personnel of unlicensed boats or vessels operating outside of the territorial waters of this State and engaged in commercial fishing;" and sets out the procedure and requirements for the inspection tax of such cargo.
Section 10(e), sets out the venue for the prosecution of violations of the Act and sub-section f, is the severability and savings clause.
Section 11, instructs that the moneys collected because of fines, etc., shall be deposited in the State Treasury to the credit of the Game, Fish and Oyster funds.
Section 12, authorizes civil proceedings against corporation in enforcing the statute.
Section 13, is the repealing clause and also contains the severability and savings clause in the event any section or any part of the Act is found to be invalid or unconstitutional.
[2] "Art. 4. Section 2. The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States."
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Motion Granted; Order filed August 20, 2013
In The
Fourteenth Court of Appeals
____________
NO. 14-13-00101-CR
____________
JORGE GUERRERO, Appellant
V.
THE STATE OF TEXAS, Appellee
On Appeal from the 338th District Court
Harris County, Texas
Trial Court Cause No. 1354948
ORDER
Appellant filed a motion requesting the clerk’s record in this case to be
supplemented with the juvenile clerk's record in cause number 2012-00331J in the
314th Juvenile District Court.
The Harris County District Clerk is directed to file a supplemental clerk’s
record on or before September 20, 2013, containing the juvenile clerk's record in
cause number 2012-00331J in the 314th Juvenile District Court.
If the omitted item is not part of the case file, the district clerk is directed to
file a supplemental clerk’s record containing a certified statement that the omitted
item is not a part of the case file.
Appellant’s brief is due 30 days after the date the supplemental clerk’s
record is filed.
PER CURIAM
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Plaintiff alleged in his complaint that there became due him from defendant the sum of $1,000 for services rendered at the special instance and request of defendant and that only $600 had been paid. Judgment was rendered in plaintiff's favor in the sum of $400, in accordance with the prayer of the complaint. Defendant now contends that the evidence was insufficient to support the findings.
[1] The evidence was fragmentary and the witnesses did not clearly explain the transaction. A careful reading of the *Page 589
record discloses that plaintiff testified, in substance, that he was employed as a real estate salesman by defendant, who held a broker's license; that defendant held an option on a 20-acre tract of land and agreed to give plaintiff a certain commission for negotiating its sale; that plaintiff and one Brown were attempting to make a sale to one LaTow, but encountered difficulties in completing the transaction, and thereupon each agreed with the defendant that defendant should assist in consummating the sale and that they would reduce their commission so that plaintiff, Brown and defendant should each receive $1,000 of the total commission of $3,000; that defendant completed the sale and received in cash as part of his commission the sum of $300; that defendant at once gave $100 to plaintiff and $100 to Brown; that after the sale was made to LaTow defendant was about to go to Kentucky and plaintiff was in need of money; that thereupon, after some argument between the parties, defendant gave plaintiff a check for $500 and plaintiff signed a receipt which was written on a form commonly used in acknowledging receipts of deposits in real estate purchases, certain of the words being crossed out. As finally signed the receipt was as follows: "Received of G.M. Petty the sum of $500 Dollars As commission in full until 5 lots is sold on frontage in Tract 6812 Goodyear Heights than $400 is to be payed 20% now Frontage means San Pedro St."
Defendant testified that the total commission received for the sale of the 20-acre tract included certain lots besides the $300 received in cash; that he, plaintiff and Brown were to each sell a certain number of these lots; that when he made the $500 payment to plaintiff it was understood to be in full settlement and that plaintiff should receive the regular commission for any lot that he might thereafter sell; that plaintiff did in fact sell one lot for $2,500 and received a commission of $125 therefor; that defendant himself sold the other lots. Plaintiff denied that he ever agreed to take his commission "in lots." The testimony of defendant was in contradiction of the terms of the receipt accepted by him when he paid $500 to plaintiff. By the terms of this receipt plaintiff was to receive $400 additional when five lots should be sold. Both parties testified that all of the lots were in fact sold. The *Page 590
findings of the trial court, made upon conflicting evidence, are sustained and we are bound thereby.
The judgment is affirmed.
Conrey, P.J., and York, J., concurred.
A petition by appellant to have the cause heard in the supreme court, after judgment in the district court of appeal, was denied by the supreme court on July 2, 1928.
All the Justices present concurred.
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765 F.Supp.2d 403 (2011)
LEARNING ANNEX HOLDINGS, LLC and Learning Annex, LLC, Plaintiffs,
v.
WHITNEY EDUCATION GROUP, INC., Whitney Information Network, Inc., Wealth Intelligence Academy, Inc., Wealth Intelligence Agency, Rich Dad Education, LLC, Rich Global, LLC, The Rich Dad Company and CashFlow Technologies, Inc., And John Does #1-10 and XYZ Corp. #1-10, the said defendants consisting of individuals and/or entities whose identities are currently unknown and who are believed to have committed and/or derived from acts injurious to the Plaintiffs, Defendants.
No. 09 Civ. 4432 (SAS).
United States District Court, S.D. New York.
January 26, 2011.
*407 Eric P. Blaha, Esq., LaRocca Hornik Rosen, Greenberg & Blaha, LLP, John A. Coleman, Jr., Esq., Friedberg Cohen, Coleman & Pinkas, LLP, New York, NY, for Plaintiffs.
John D. Rapoport, Esq., John D. Rapoport, P.C., c/o Marulli, Lindenbaum, LLP, Deborah E. Lans, Esq., Ryan Weiner, Esq., Cohen Lans LLP, New York, NY, for Defendants.
OPINION AND ORDER
SHIRA A. SCHEINDLIN, District Judge.
I. INTRODUCTION
Learning Annex ("LA") brings this action against Rich Global, Rich Dad, and CashFlow Technologies (collectively, "RD"), and Whitney Education Group, Inc., Whitney Information Network, Inc., Wealth Intelligence Academy, Inc., and Rich Dad Education, LLC, (collectively, "Whitney"), following the collapse of their business relationship, alleging, inter alia, misappropriation of business opportunity, breach of fiduciary duties, breach of covenant to negotiate in good faith, breach of contract, promissory estoppel, equitable estoppel, unjust enrichment, quantum meruit, and fraud. LA subsequently stipulated to discontinue its action against Whitney with prejudice, and RD now moves for summary judgment. For the reasons stated below, summary judgement is denied as to Causes of Action 10, 11, and 14, and granted as to all other Causes of Action.
II. BACKGROUND[1]
In September of 2005, LA and RD met to discuss a business plan in which LA would promote and expand the RD brand in a number of ways, including implementing a free seminar program, creating a PBS show featuring RD, increasing RD's *408 presence at Learning Annex Expos, and introducing RD to potential business partners, in exchange for a share of the resulting increase in revenues.[2] Following this meeting, a number of material terms covering a potential future business relationship between LA and RD were memorialized in a Memorandum of Understanding dated September 7, 2005 ("MOU1") and signed by both LA and RD.[3] One week later, RD enthusiastically confirmed its expectation of working with LA in a follow-up letter ("License Agreement"), which explicitly authorized LA to work with sub-licensees to develop and conduct free Rich Dad seminars.[4]
Soon thereafter, LA began performing a number of its obligations under MOU1.[5] However, in December of 2005, RD grew concerned with the alleged conduct of the President and CEO of LA, William Zanker, on several occasions, and wrote Zanker two letters demanding an apology and temporarily halting the business relationship.[6] One week later, Zanker apologized in an email and in person,[7] and RD accepted the apology,[8] allowing "the business relationship [to] continue[] uninterrupted."[9]
Indeed, on January 11, 2006, LA arranged an all-day meeting in which it formally introduced Whitney to RD, after which RD approved Whitney as its sub-licensee for the free seminar business.[10] The results of this meeting were memorialized in a second Memorandum of Understanding ("MOU2"), which outlined a number of general provisions.[11] Subsequently, on January 24, 2006, the three parties met to resolve a number of material issues and set forth a course of action for a joint business venture.[12]
For one reason or another, on February 2, 2006, RD sent an email to LA stating that it "no longer want[ed] to be in business with [LA]" and that it was "stopping [] negotiations with Donald Trump and Russ Whitney,"[13] Almost immediately thereafter, and unbeknownst to LA,[14] RD sent an email to Whitney expressing its *409 interest in continuing to work with Whitney.[15]
On February 14, 2006, Zanker, still believing that all business relationships between the three parties had ended,[16] wrote to RD acknowledging the termination of the business relationship, and stated that LA would "accept whatever [RD] deem[ed] appropriate ... for the introduction of [] Whitney ... to the Rich Dad Organization."[17] RD declined to compensate LA[18] and continued business discussions with Whitney,[19] which culminated a few months later in a joint enterprise that ultimately generated an alleged $47.2 million profit in licensing fees for RD.[20]
Consequently, on December 29, 2008, LA filed a Complaint against RD and Whitney, alleging, inter alia, misappropriation of business opportunity, breach of fiduciary duties, breach of covenant to negotiate in good faith, breach of contract, promissory estoppel, equitable estoppel, unjust enrichment, quantum meruit, and fraud.[21] On October 13, 2010, LA stipulated to discontinue its action against Whitney with prejudice, and withdrew all claims against Wealth Intelligence Agency, leaving only the RD defendants.[22]
III. LEGAL STANDARD
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law."[23] "`An issue of fact is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. A fact is material if it might affect the outcome of the suit under the governing law.'"[24] "[T]he burden of demonstrating that no material fact exists lies with the moving party...."[25]
In turn, to defeat a motion for summary judgment, the non-moving party must raise a genuine issue of material fact. "When the burden of proof at trial would fall on the nonmoving party, it ordinarily is sufficient for the movant to point to a lack of evidence to go to the trier of fact on an essential element of the nonmovant's claim."[26] To do so, the non-moving party *410 must do more than show that there is "`some metaphysical doubt as to the material facts,'"[27] and it "`may not rely on conclusory allegations or unsubstantiated speculation.'"[28] However, "`all that is required [from a non-moving party] is that sufficient evidence supporting the claimed factual dispute be shown to require a jury or judge to resolve the parties' differing versions of the truth at trial.'"[29]
In determining whether a genuine issue of material fact exists, the court must "constru[e] the evidence in the light most favorable to the non-moving party and draw all reasonable inferences" in that party's favor.[30] However, "[i]t is a settled rule that `[c]redibility assessments, choices between conflicting versions of the events, and the weighing of evidence are matters for the jury, not for the court on a motion for summary judgment.'"[31] Summary judgment is therefore "appropriate only if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law."[32]
IV. APPLICABLE LAW
A. Type I/II Preliminary Agreement
Under New York Law, two types of preliminary agreements create binding obligations.[33] The first type, a Type I preliminary agreement, is fully binding "it is `preliminary ... only in the sense that the parties desire a more elaborate formalization of the agreement.'"[34] "A [Type 1] preliminary agreement binds both sides to their ultimate contractual objective in recognition that, `despite the anticipation of further formalities,' a contract has been reached."[35] Thus, even if the parties failed to produce a more formal agreement, a party to a Type I preliminary agreement may demand performance of the transaction.[36]
The second type of preliminary agreement, a Type II preliminary agreement, is binding only to the extent that the parties are committed to "negotiate together in good faith" to reach their ultimate contractual objective.[37] However, because a Type II preliminary agreement "does not commit the parties to their ultimate contractual objective," a party to a *411 Type II preliminary agreement has no right to demand performance of the transaction.[38] "Indeed, if a final contract is not agreed upon, the parties may abandon the transaction as long as they have made a good faith effort to close the deal and have not insisted on conditions that do not conform to the preliminary writing."[39]
To determine whether the parties have reached a Type I preliminary agreement, courts weigh four factors:
(1) whether there has been an express reservation of the right not to be bound in the absence of writing; (2) whether there has been partial performance of the contract; (3) whether all of the terms of the alleged contract have been agreed upon; and (4) whether the agreement at issue is the type of contract that is usually committed to writing.[40]
Of these four factors, the first is "the most important."[41] This factor "requires the Court to determine whether the language of the [document] discloses an intention by the parties to be bound to the ultimate objective," and "is frequently determined by explicit language of commitment or reservation."[42] "Indeed, if the language of the agreement is clear that the parties did not intend to be bound, the Court need look no further."[43]
On the other hand, to determine whether the parties have reached a Type II preliminary agreement, courts weigh five factors: "(1) the language of the agreement; (2) the context of the negotiations; (3) the existence of open terms; (4) partial performance; and (5) the necessity of putting the agreement in final form, as indicated by the customary form of such transactions."[44] Though some of these factors are the same as those applied to determine whether a document is a Type I preliminary agreement, "they `have a somewhat different significance....'"[45] For example, with regard to the first factor, the language of the document need only evidence "an intention to be bound to the [document] as a general framework in which the parties will proceed in good faith toward the [contractual] goal."[46] Similarly, while "the existence of open terms creates a presumption against finding a binding contract, ... these same omissions may actually support finding a binding Type II agreement."[47]
B. Joint Venture
To demonstrate the formation of a joint venture pursuant to New York law, a party must establish five elements:
(1) two or more persons must enter into a specific agreement to carry on an enterprise; (2) their agreement must evidence their intent to be joint venturers; (3) each must make a contribution of property, financing, skill, knowledge or effort; (4) each must have some degree *412 of joint control over the venture; and (5) there must be a provision for the sharing of both profits and losses.[48]
"The ultimate inquiry in determining whether a joint venture exists is whether `the parties have so joined their property, interest, skills and risks that for the purposes of the particular adventure their respective contributions have become as one and ... made subject to each of the associates on the trust and inducement that each would act for their joint benefit.'"[49] Because the creation of a joint venture imposes significant duties and obligations on the parties involved, "the parties must be clear that they intend to form a joint venture, which is a fiduciary relationship, and not a simple contract."[50] Therefore, "[t]he absence of any one of these elements is fatal to the establishment of a joint venture."[51]
C. Misappropriation of Business Opportunity
Under New York law, a claim for tortious interference with a prospective business relationship requires the plaintiff to show that: (1) the defendant interfered, (2) with a business relationship between the plaintiff and a third party, (3) using means that were dishonest, unfair, or improper, or for the sole purpose of harming the plaintiff, (4) causing an injury to that relationship.[52]
The court in Carvel Corp. v. Noonan clarified that the third element requires the plaintiff to show "more culpable" and "egregious" conduct.[53] This requirement means that, as a general rule, "the defendant's conduct must amount to a crime or an independent tort."[54] The one exception to this general rule is where "a defendant engages in conduct for the sole purpose of inflicting intentional harm on [the] plaintiffs."[55] However, if the defendant is motivated by legitimate economic self-interest, this exception does not apply.[56]
D. Promissory Estoppel
Under New York law, the doctrine of promissory estoppel has three principle elements; "[1] a clear and unambiguous promise; [2] a reasonable and foreseeable reliance by the party to whom the promise is made; and [3] an injury sustained by the party asserting the estoppel by reason of his reliance."[57]
E. Equitable Estoppel
Under New York law, the doctrine of equitable estoppel requires a showing of:
*413 (1) [a]n act constituting a concealment of facts or a false misrepresentation; (2) [a]n intention or expectation that such acts will be relied upon; (3) [a]ctual or constructive knowledge of the true facts by the wrongdoers; [and] (4) [r]eliance upon the misrepresentations which causes the innocent part to change its position to its substantial detriment.[58]
Importantly, this doctrine cannot be used to "create rights otherwise nonexistent."[59] Rather, it may be invoked only where a right legally and rightfully obtained would otherwise be defeated,[60] and "is to be invoked sparingly and only under exceptional circumstances."[61]
F. Quantum Meruit/Unjust Enrichment
Quantum meruit and unjust enrichment may be analyzed together as a single quasi-contract claim.[62] This is because "unjust enrichment is a required element for an implied-in-law, or quasi contract, and quantum meruit ... is one measure of liability."[63] It therefore stands to reason that a plaintiff must show unjust enrichment before it can recover under quantum meruit.
Under New York law, a plaintiff seeking relief under a theory of unjust enrichment must show "(1) that the defendant benefitted; (2) at the plaintiff's expense; and (3) that equity and good conscience require restitution."[64] In order to recover in quantum meruit, the plaintiff must then establish "(1) the performance of services in good faith[;] (2) the acceptance of the services by the person to whom they are rendered[;] (3) an expectation of compensation therefore[;] and (4) the reasonable value of the services."[65]
G. Fraud
To prove a claim for fraud under New York law, a plaintiff must show, by clear and convincing evidence, that: (1) the defendant made a representation, (2) as to a material fact, (3) that was false, (4) and known to be false by the defendant, (5) for the purpose of inducing reliance by the plaintiff, (6) who rightfully relied upon the representation, (7) and who was ignorant of the representation's falsehood, (8) to the plaintiffs injury.[66]
V. DISCUSSION
A. MOU1
1. MOU1 Is Not a Type I Preliminary Agreement
LA argues that MOU1 is a Type I preliminary agreement that should be *414 treated as an enforceable contract.[67] However, the "most important" first factor of the four-factor testthe language of the documentis dispositive of this question. MOU1 states, in clear, unambiguous language that "this Memorandum is not a binding legal obligation...."[68] There can be no clearer evidence, and no other possible interpretation, of what the parties intended by these words.[69]
LA's attempts to introduce ambiguity into this phrase are without merit. First, LA argues that MOU1 is binding because this phrase is followed by the statement that the Memorandum "will be followed up by the drafting of appropriate and legally binding agreements."[70] However, the contemplation of future "appropriate and legally binding agreements" actually reinforces, not undermines, the non-binding nature of MOU1. Second, LA argues that certain terms in MOU1 specifying term and geographical limitations would have "no point" if MOU1 were not legally binding.[71] However, this argument is logically unsoundthere is no reason why the inclusion of these terms negates the express language disclaiming the binding effect of the agreement. Third, LA argues that the phrase was "legal boilerplate, left in by mistake."[72] However, a finding of mutual mistake is "appropriate only in those limited instances where some absurdity has been identified."[73] There is nothing inherently absurd about this phrase; rather, the inclusion of such a phrase makes perfect sense to parties contemplating future negotiations.
LA also argues that MOU1 should be read in conjunction with the License Agreement to form a binding contract.[74] While it is true that a written contract may be formed from more than one writing, the ultimate question is still one of the parties' intent.[75] Here, neither of the documents references the other, and Zanker testified that he only requested the License Agreement so that he would not have to show potential sub-licensees MOU1.[76] Thus, even if these documents were read together, the License Agreement adds nothing to the terms of MOU1, and cannot transform the non-binding MOU1 into a binding contract.
Because MOU1 is neither a contract nor a Type I preliminary agreement, its terms are unenforceable, and LA's cause of action for breach of MOU1 as a contract must be dismissed. Further, LA's causes of action arising from the assumption that MOU1 is a valid, enforceable contract must also be dismissed. Therefore, summary judgment as to Causes of Action 13, 15, 16, 17, and 18 is granted in favor of RD.
*415 2. MOU1 May Be a Type II Preliminary Agreement
On the other hand, LA has raised a genuine dispute as to whether MOU1 is a Type II preliminary agreement. Indeed, if the evidence is construed in the light most favorable to LA, MOU1 is a Type II preliminary agreement. To begin with, the first factor, the language of the document, favors the finding of a Type II preliminary agreement. First, the phrase "this Memorandum is not a binding legal obligation" is not dispositive here because Type II preliminary agreements are not binding legal obligations. Second, the immediately following phrase describing the Memorandum as representing "the good faith intentions of the parties"[77] indicates the parties' intent to proceed in good faith toward the contractual goal. Third, even RD concedes that "MOU1 is a summation of points for future contract negotiations."[78]
The second factor, the context of the negotiations, may also support the finding of a Type II preliminary agreement. LA argues that the parties had "had dealings for years,"[79] and that MOU1 was "the culmination of several months of discussions and negotiations between [the parties]."[80] The parties' history of past business relationships and extended business discussions prior to MOU1 implies that future discussions to reach the ultimate contractual goals were contemplated. Therefore, the context from which MOU1 arose may also favor the finding of a binding good faith obligation to proceed towards the goals stated in MOU1.
The third factor, the existence of open terms, favors neither party. RD contends that "MOU1 contains many essential open terms, such as sharing of losses, consequences for failure to maintain the brand integrity, and remedies for breach of contract...."[81] However, the existence of open terms does not necessarily create a presumption against finding a binding Type II agreement; rather, the existence of open terms may actually support a finding that the parties were bound to proceed in good faith toward finalizing these terms.[82] Thus, with regard to MOU1's status as a Type II preliminary agreement, this factor favors neither party.
Partial performance, the fourth factor, may strongly favor the finding of a Type II preliminary agreement. LA asserts, and supports with evidence, that it performed many of the enumerated "obligations" listed in MOU1 and "relentlessly promoted the RD brand."[83] Indeed, even RD essentially concedes that "partial performance [] favors the plaintiffs."[84]
Finally, the fifth factor, "the necessity of putting the agreement in final form, as indicated by the customary form of such transactions,"[85] may also favor the finding of a Type II preliminary agreement. RD argues that "[t]his transaction was believed by all parties to have the potential to be a multi-million dollar venture.... These types of transactions are usually *416 committed to written contracts."[86] However, "the customary form of such transactions" also includes a consideration of the custom of dealings between the parties, and LA counters that "[t]hough RD and LA had dealings for years, they had only one other written contract. All other dealings among the parties had been based on oral agreements."[87] Thus, although the custom of the business may favor putting the agreement in final form, the disputed custom between the parties may undermine this argument and support a conclusion to the contrary.
In sum, because four of the five factors in the Type II preliminary agreement analysis may favor LA, there is a genuine dispute as to whether MOU1 is a Type II preliminary agreement giving rise to a duty to negotiate in good faith.
3. LA Has Raised a Genuine Dispute of Material Fact as to Whether the Duty to Negotiate in Good Faith Was Breached
RD further argues that even if MOU1 imposes a duty to negotiate in good faith, it did not breach its duty as a matter of law because "[it] continued discussions with LA for a reasonable time" and only "terminated the discussions because of differences in business philosophies and opinions...."[88] Indeed, the duty to negotiate in good faith does not guarantee that a final contract will be reached if good faith differences prevent the formation of a final contract.[89] However, LA has raised a genuine dispute as to whether RD acted in good faith throughout the course of their business negotiations.
Importantly, the circumstances leading up to and surrounding the final termination of the business relationship in February remain in dispute. To begin with, the February 2, 2006 Termination Email merely states that RD "no longer want[ed] to be in business with [LA]" because of LA's email to PBS, in which LA purportedly urged PBS to eliminate RD's DVD and book and to only support LA.[90] When viewed in isolation, this email sheds very little light on RD's good faith efforts, either past or present, to clarify any misunderstandings or to work toward the formation of a binding contract.
To justify its unilateral termination of the business negotiations, RD points also to the events culminating in the December Termination Letters to show that LA acted unreasonably and that LA and RD had fundamentally different business philosophies. However, LA has raised a genuine dispute as to whether RD's reactions to these events truly reveals incompatible good faith differences, or whether RD was unreasonably insisting on conditions to which it was not entitled.
First, RD argues that it was concerned with the "unprofessional" and "abusive" conduct of Zanker towards PBS on one occasion, and that it was "concerned that [Zanker] [would] damage [RD's] business."[91] RD further adds that its business philosophy was incompatible with LA's because it "cannot allow [LA] to dictate how [RD] [is] run."[92] Although LA does not deny that certain conduct occurred, it counters that RD "misconstrued" *417 Zanker's conduct.[93] LA maintains that Zanker's conduct on that particular occasion, though unfortunate, was neither improper nor related to RD, because PBS had violated a separate contractual agreement between LA and PBS.[94] LA further supports its argument with evidence that its business relationship with PBS did not deteriorate as a result of Zanker's conduct.[95] Finally, LA also contests, and there is little evidence to show, that it ever tried to "run" RD or its shows.[96]
Second, RD argues that LA acted dishonestly with regard to a potential book deal with Donald Trump, and that as a result, it "could no longer trust [LA]."[97] However, LA explains that RD's concerns arose from an honest misunderstanding on LA's part, and that it sincerely apologized for any perceived underhanded dealings.[98] Indeed, it appears that RD accepted LA's apology and explanation, and allowed the business relationship to continue uninterrupted.[99]
Finally, despite RD's argument that it had different business philosophies from those of LA, RD made a number of statements indicating that it appreciated LA's efforts and enjoyed working with LA.[100] Drawing all reasonable inferences in LA's favor, these statements undermine RD's argument that it terminated the business relationship as a result of good faith differences in business philosophies.
In sum, if the evidence is construed in the light most favorable to LA, there is a genuine dispute over whether RD made good faith efforts to enter into a contract with LA, or whether it unreasonably "insisted] on conditions that [did] not conform to the preliminary writing," before it finally terminated the business relationship in February 2006.[101] Therefore, summary judgment as to Cause of Action 14 is denied.
4. If RD Breached Its Duty to Negotiate in Good Faith, LA May Be Entitled to Damages
Finally, RD argues that even if it breached its duty to negotiate in good faith, "LA is not entitled to damages, including lost profits and reliance damages."[102] Although it is true that lost profits are generally not available where no agreement is reached,[103] out-of-pocket costs may still be appropriate.[104] Therefore, if LA prevails on its claim of a breach of duty to negotiate in good faith, it may be able to recover the out-of-pocket costs it incurred in its good faith partial performance of MOU1.
*418 B. MOU2
1. MOU2 Did Not Create a Joint Venture or Any Contractual Obligations
Contrary to LA's assertion, MOU2 did not create a joint venture because it fails to satisfy the second element, an intent to be joint venturers, the fourth element, joint control over the venture, and the fifth element, a provision for profit and loss sharing, LA summarily argues that the second element is satisfied because "LA, Whitney, and RD agreed that RDE would be owned equally," that the fourth element is satisfied because "[t]he parties agreed that each of them would have [a] one-third ownership interest with corresponding joint control of the business," and that the fifth element is satisfied because "[w]here there is anticipated equal ownership of a venture ... sharing of profits and losses is inferred."[105]
These arguments lack merit. First, it is wholly unclear that the parties intended to create a joint venture. Importantly, MOU2 itself only states that "[w]e agree[] to begin the process to license the Rich Dad brand...."[106] Nowhere does it mention or use the term "joint venture." Further, although the parties eventually agreed that the proposed entity would be jointly owned, "the ownership and relationship between the three companies" remained unclear.[107] Even LA concedes that it did not know the nature and type of relationship that would be formed following MOU2.[108] In the absence of clearer language of intent, it is improper to bind the parties to the obligations created by a joint venture.
Second, there is no evidence of an agreement regarding joint control of the proposed entity. Although the record is not entirely clear, it tends to suggest that Whitney would control the operations of the proposed entity.[109] Nowhere are the roles of LA or RD in controlling the proposed entity specified, and LA's bare assertion that "corresponding joint control of the business" would somehow automatically arise out of equal ownership lacks support.
Finally, LA's argument that an implied sharing of profits and losses necessarily arises from contemplated equal ownership is simply incorrect, both as a matter of law and as applied here. To begin with, it is unclear that LA ever intended to equally share profitsin its Complaint, LA asserts, contrary to its position here, that it was entitled to sixty percent of the revenues under MOU1.[110] Likewise, even though loss provisions may be implied in certain situations,[111] Zanker testified that he thought that each party would be subject only to the loss of its investment, and that he did not know how losses beyond *419 the initial contribution would be funded.[112] This alone defeats the requirement that "joint venturers must be subject to more than just the loss of their investment in the venture."[113]
Further, not only did MOU2 not create a joint venture, it also did not create any other separate binding contractual obligations. LA does not contest RD's argument that MOU2 is not a contract.[114] Moreover, in an MOU2 follow-up email, Whitney explicitly states that the parties needed to "[c]reate contracts...."[115]
Because MOU2 did not create a joint venture and was not in any way a binding contract, LA's cause of action for breach of contract must be dismissed. Further, LA's causes of action arising from the assumption that MOU2 created a joint venture must also be dismissed. Therefore, summary judgment as to Causes of Action 2, 4, 5, 6, and 7 is granted in favor of RD.
2. MOU2 Is Not a Type II Preliminary Agreement
Further, MOU2 is not a Type II preliminary agreement. Although the language of the agreement favors the finding of a Type II preliminary agreement,[116] LA has failed to raised a genuine dispute with regard to the other four elements.
First, MOU2 was written as a summary of the results of the first official meeting between all three parties, in which Whitney was formally introduced to RD. Though LA may have had prior longstanding business relationships with RD and/or Whitney, RD and Whitney did not have any relationship prior to LA's introduction. In light of the fact that RD and Whitney first met just two days prior to the issuance of MOU2, the context of the negotiations does not support a finding of any binding, good faith obligations.
Second, there is no genuine dispute over the existence of open terms in MOU2. Even though the existence of open terms does not necessarily create a presumption against the finding of a Type II preliminary agreement, MOU2's glaringly vague language and complete lack of definite terms indicate that at the time MOU2 was written, the parties were not yet even aware of which terms they needed to finalize in future discussions. Indeed, MOU2 appears to be nothing more than a broad outline of goals for a future business enterprise.
Third, there is no genuine dispute over the partial performance of MOU2. LA argues that it "contributed its introduction of Whitney" and that "[t]he parties commenced work on final agreements."[117] However, LA introduced Whitney to RD before MOU2 was written, and the mere fact that the parties commenced work on the final agreement, without more, is not partial performance of one of the ultimate contractual goals of MOU2. Moreover, it is undisputed that RD terminated the agreement less than a month later, so the window for partial performance by LA was extremely narrow.
*420 Finally, there is no genuine dispute as to the need to draft additional documents. LA concedes this point, and only argues that "the other factors are sufficient to bind the parties."[118] However, to the contrary, three of the other four factors fail to support the finding of any binding obligations.
In sum, although the first element favors LA, there is no genuine dispute that the other four elements favor RD. Accordingly, MOU2 is not a Type II preliminary agreement, and summary judgment as to Cause of Action 3, for breach of a duty to negotiate in good faith, is granted in favor of RD.
C. Misappropriation of Business Opportunity
LA has failed to raise a genuine dispute that RD misappropriated LA's business opportunity. First, LA points to no evidence whatsoever that RD engaged in "dishonest, unfair, or improper" means as defined by New York law, or that alternately, RD acted "for the sole purpose of harming [LA]."[119] Even if RD breached its duty to negotiate in good faith with LA, this is not the type of "egregious" and "more culpable" conduct that rises to the level of a crime or an independent tort, but is rather merely a breach of a contractual obligation.
Second, LA has failed to even show the existence of a third party business relationship with which RD interfered. Although Whitney is a third party with regard to the dealings between LA and RD, Whitney cannot be considered a third party to the proposed joint business enterprise because had it entered into a contractual relationship with LA, it would perforce also have entered into a contractual relationship with RD.
Therefore, because RD did not interfere, and could not have interfered, with LA's business opportunity, Causes of Action 1 and 12 are dismissed.
D. Promissory Estoppel
LA argues that RD made a "clear and unambiguous" promise to compensate LA for introducing Whitney to RD and promoting the RD brand through the free seminar business.[120] LA also argues that RD promised it that LA would be an equal owner in the proposed entity and share profits.[121] However, LA points to no evidence whatsoever to support its argument that RD ever clearly and unambiguously promised this alleged compensation. Rather, Zanker's testimony reveals that even if such promises were made, they were unclear as to what and how LA would be compensated for its services.[122] Therefore, because LA has failed to satisfy the first element of promissory estoppel, Cause of Action 8 is dismissed.
E. Equitable Estoppel
LA has similarly failed to point to any evidence that RD affirmatively concealed or misrepresented facts, the truth *421 of which it knew or should have known. LA alleges that "[RD] ... represented to Learning Annex that it would be compensated for the value of introducing Whitney to Rich Dad, as well as for the value of Learning Annex's promotion of the Rich Dad brand," but that "[d]espite their representations,... [RD] did not intend to compensate Learning Annex."[123] LA also alleges that "[RD] ... represented to Learning Annex that it was an equal owner of the joint venture," but that "[d]espite their representations, ... [RD] did not intend to give Learning Annex its equal share...."[124]
However, LA has failed to offer any evidentiary support for these allegations. The evidence reveals that at most, RD made some vague oral promises regarding compensation and/or joint ownership of the proposed entity.[125] LA points to no evidence whatsoever showing that at the time RD made its oral promises, RD did not intend to compensate LA or give LA a share of the proposed entity, or that RD knew or should have known it did not intend to do so. Therefore, because elements one and three are not met, LA does not have a claim for equitable estoppel, and Cause of Action 9 is dismissed.
F. Quantum Meruit/Unjust Enrichment
RD has failed to show the absence of a genuine dispute as to whether LA should be able to recover under quantum meruit/unjust enrichment for actions LA performed pursuant to MOU1. In its motion for summary judgment, RD simply joins Whitney's arguments[126] that LA should not be able to recover under quantum meruit/unjust enrichment because it "performed no services connected to the putative joint venture, at all."[127] However, this argument fails to address LA's contention that it "recommended that RD enter the free seminar business, located and conducted due diligence of potential licensees ultimately identifying Whitney," and tirelessly promoted RD, resulting in "significant revenues to RD based on increased coaching services and product sales" that would be "unjust for RD to retain...."[128] Indeed, if the evidence is viewed in the light most favorable to LA, LA performed valuable services for RD pursuant to MOU1 that RD encouraged and accepted, and for which LA expected to be but was not compensated. Therefore, there is a genuine dispute as to whether and for how much LA may recover under quantum meruit/unjust enrichment, and summary judgment as to Causes of Action 10 and 11 is denied.
G. Fraud
Although LA has raised a genuine dispute with regard to the legal effect, if any, of its Waiver Email, it cannot prevail on a claim of fraud because it has failed to show an injury aside from the potential harm to its ability to recover under its quasi-contract claims. LA argues that as a result of RD's Termination Email, "[it] was damaged by not pursuing and thus not receiving its share of license fees paid to RD and by not participating in the RDE business formed by RD and Whitney excluding LA."[129] However, LA has failed *422 to show by "clear and convincing evidence" how it suffered this injury as a result of its reliance on the Termination Email. Indeed, MOU2 is neither a contract, nor a Type I or Type II preliminary agreement, so regardless of the alleged false statements contained in RD's Termination Email, RD could have unilaterally terminated the joint venture talks had it decided that it no longer wanted to work with LA. At most, LA can show that as a result of the Termination Email, it was induced to send the Waiver Email and not pursue the alleged joint venture with RD and Whitney, but this injury is purely speculative. Therefore, summary judgment as to Cause of Action 19 is granted in favor of RD.
VI. CONCLUSION
For the foregoing reasons, RD's motion is denied as to Causes of Action 10, 11, and 14 and granted as to all other Causes of Action. The Clerk of the Court is directed to close this motion [Docket Nos. 51 and 54]. A conference is scheduled for February 14, 2011 at 4:30 PM.
SO ORDERED.
NOTES
[1] In a motion for summary judgment, a court construes the evidence in the light most favorable to the non-moving party and draws all reasonable inferences in that party's favor. See Sledge v. Kooi, 564 F.3d 105, 108 (2d Cir.2009).
[2] See Affidavit of Morris Orens, Counsel to LA, in Opposition to Motion for Summary Judgment ("Orens Aff.") ¶¶ 3-5.
[3] See MOU1, Ex. A to Declaration of John Rapoport, Counsel for RD ("Rapoport Decl.").
[4] See 9/15/05 Letter from Sharon Lechter, then-CEO of RD, to William Zanker, President and CEO of LA, Ex. B to Rapoport Decl.
[5] See Affidavit of William Zanker ("Zanker Aff.") ¶¶ 10-16; Affidavit of Samantha Del Canto, Executive Vice President and Program Director of LA ("Del Canto Aff.") ¶¶ 9-14.
[6] See 12/19/05 Letter from RD to Zanker, Ex. C to Rapoport Decl. ("Termination Letter 1"); 12/27/05 Letter from Robert Kiyosaki, joint owner of LA, to Zanker, Ex. D to Rapoport Decl. ("Termination Letter 2") (collectively, the "December Termination Letters").
[7] See 1/3/06 Email from Zanker to RD ("Apology Letter"), Ex. E to Rapoport Decl.
[8] See Deposition of Sharon Lechter ("Lechter Dep."), Ex. 13 to Declaration of Eric Blaha, Counsel for LA ("Blaha Decl."), at 53:11-53:15.
[9] Zanker Aff. ¶ 20.
[10] See Orens Aff. ¶¶ 19-24; Zanker Aff. ¶¶ 21-23.
[11] See MOU2, Ex. F to Rapoport Decl.
[12] See Orens Aff. ¶¶ 27-31; 1/27/05 Email from John Kane, Executive VP of Whitney Education Groups, to RD and LA ("Confirmation Email"), Ex. 5 to Blaha Decl.
[13] 2/2/06 Email from Lechter to Zanker ("Termination Email"), Ex. G to Rapoport Decl.
[14] See Zanker Aff. ¶ 28.
[15] See 2/2/06 Email from Lechter to Kane, Ex. 8 to Blaha Decl.
[16] See Zanker Aff. ¶ 28.
[17] 2/14/06 Email from Zanker to RD ("Waiver Email"), Ex. H to Rapoport Decl.
[18] See Zanker Aff. ¶ 30.
[19] See 2/21/06 Kane Email, Ex. 9 to Blaha Decl.
[20] See Affidavit of Clive Kabatznik, CEO of Biltmore Capital Group ("Kabatznik Decl.") ¶¶ 4, 6.
[21] See generally Amended Complaint ("Am. Compl."), Ex. O to Rapoport Decl.
[22] See 10/13/10 Stipulation of Partial Discontinuance (docket no. 60).
[23] Fed.R.Civ.P. 56(c).
[24] SCR Joint Venture L.P. v. Warshawsky, 559 F.3d 133, 137 (2d Cir.2009) (quoting Roe v. City of Waterbury, 542 F.3d 31, 34 (2d Cir. 2008)).
[25] Miner v. Clinton County, N.Y., 541 F.3d 464, 471 (2d Cir.2008) (citing McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 202 (2d Cir.2007)). Accord Vermont Teddy Bear Co. v. 1-800 Beargram Co., 373 F.3d 241, 244 (2d Cir.2004).
[26] Jaramillo v. Weyerhaeuser Co., 536 F.3d 140, 145 (2d Cir.2008). Accord In re September 11 Litig., 500 F.Supp.2d 356, 361 (S.D.N.Y.2007) ("Where the nonmoving party bears the burden of proof at trial, the burden on the moving party may be discharged by showingthat is, pointing out to the district courtthat there is an absence of evidence to support the nonmoving party's case.") (quotation marks omitted).
[27] Higazy v. Templeton, 505 F.3d 161, 169 (2d Cir.2007) (quoting Matsushita Elec. Indus, v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)).
[28] Jeffreys v. City of New York, 426 F.3d 549, 554 (2d Cir.2005) (quoting Fujitsu Ltd. v. Federal Express Corp., 247 F.3d 423, 428 (2d Cir.2001)).
[29] Kessler v. Westchester County Dep't of Soc. Servs., 461 F.3d 199, 206 (2d Cir.2006) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)).
[30] Sledge, 564 F.3d at 108 (citing Anderson, 477 U.S. at 247-50, 255, 106 S.Ct. 2505).
[31] McClellan v. Smith, 439 F.3d 137, 144 (2d Cir.2006) (quoting Fischl v. Armitage, 128 F.3d 50, 55 (2d Cir.1997)). Accord Anderson, 477 U.S. at 249, 106 S.Ct. 2505.
[32] Pyke v. Cuomo, 567 F.3d 74, 76 (2d Cir. 2009).
[33] See Adjustrite Sys., Inc. v. GAB Business Servs., Inc., 145 F.3d 543, 547-48 (2d Cir. 1998).
[34] Id. at 548 (quoting Teachers Ins. & Annuity Ass'n v. Tribune Co., 670 F.Supp. 491, 498 (S.D.N.Y.1987)).
[35] Id. (quoting Tribune, 670 F.Supp. at 498).
[36] See id.
[37] Id. (quotation marks and citation omitted).
[38] Id. (citation omitted).
[39] Id. (citation omitted).
[40] Id. at 549 (quoting Winston v. Mediafare Entm't Corp., 777 F.2d 78, 80 (2d Cir.1986)).
[41] Brown v. Cara, 420 F.3d 148, 154 (2d Cir.2005).
[42] Id.
[43] Cohen v. Lehman Bros. Bank F.S.B., 273 F.Supp.2d 524, 528 (S.D.N.Y.2003) (citations omitted) (emphasis added).
[44] Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69, 72 (2d Cir.1989) (citing Tribune, 670 F.Supp. at 499-503).
[45] Brown, 420 F.3d at 157 (quoting Tribune, 670 F.Supp. at 499).
[46] Id. at 158 (emphasis added).
[47] Id. (citations omitted).
[48] Dinaco, Inc. v. Time Warner, Inc., 346 F.3d 64, 67-68 (2d Cir.2003).
[49] Solutia Inc. v. FMC Corp., 456 F.Supp.2d 429, 445 (S.D.N.Y.2006) (quoting Independent Energy Corp. v. Trigen Energy Corp., 944 F.Supp. 1184, 1201 (S.D.N.Y.1996)).
[50] Kidz Cloz, Inc. v. Officially for Kids, Inc., 320 F.Supp.2d 164, 171 (S.D.N.Y.2004).
[51] Zeising v. Kelly, 152 F.Supp.2d 335, 347-48 (S.D.N.Y.2001).
[52] See, e.g., Lombard v. Booz-Allen & Hamilton, Inc., 280 F.3d 209, 214 (2d Cir.2002); Nadel v. Play-By-Play Toys & Novelties, Inc., 208 F.3d 368, 382 (2d Cir.2000).
[53] 3 N.Y.3d 182, 191, 785 N.Y.S.2d 359, 818 N.E.2d 1100 (2004) (quotation marks and citations omitted).
[54] Id.
[55] Id. (quotation marks and citation omitted).
[56] See id. (finding that the third element exception did not apply because "[plaintiff's] motive in interfering with the [business] relationships... was normal economic self-interest ....").
[57] Cyberchron Corp. v. Calldata Sys. Develop., 47 F.3d 39, 44 (2d Cir. 1995) (quotation marks and citations omitted). Accord Esquire Radio & Elec., Inc. v. Montgomery Ward & Co., 804 F.2d 787, 793 (2d Cir.1986).
[58] General Electric Cap. Corp. v. Eva Armadora, S.A., 37 F.3d 41, 45 (2d Cir.1994).
[59] Coggins v. County of Nassau, 615 F.Supp.2d 11, 23 (E.D.N.Y.2009) (emphasis added) (quotation marks and citations omitted).
[60] See id.
[61] Morgan Stanley High Yield Sec., Inc. v. Seven Circle Gaming Corp., 269 F.Supp.2d 206, 221 (S.D.N.Y.2003) (quotation marks and citation omitted).
[62] See Mid-Hudson Catskill Rural Migrant Ministry, Inc. v. Fine Host Corp., 418 F.3d 168, 175 (2d Cir.2005).
[63] Seiden Assoc., Inc. v. ANC Holdings, Inc., 768 F.Supp. 89, 96 (S.D.N.Y.1991) (rev'd on other grounds, 959 F.2d 425 (2d Cir.1992)). Accord Industrial Acoustics Co., Inc. v. Energy Servs., Inc., No. 93 Civ. 2865, 1995 WL 274432, at *7 (S.D.N.Y. May 9, 1995).
[64] Leibowitz v. Cornell Univ., 584 F.3d 487, 509 (2d Cir.2009).
[65] Mid-Hudson, 418 F.3d at 175 (quotation marks and citation omitted).
[66] See Apex Oil Co. v. Belcher Co. of New York, Inc., 855 F.2d 997, 1008 (2d Cir.1988) (citations omitted).
[67] See Plaintiff's Memorandum of Law in Opposition to Motion for Summary Judgment ("Pl. Opp.") at 5.
[68] MOU1 at 3 (emphasis added).
[69] See Greenfield v. Philles Records, 98 N.Y.2d 562, 570, 750 N.Y.S.2d 565, 780 N.E.2d 166 (2002) (noting that "[e]xtrinsic evidence of the parties' intent may be considered only if the agreement is ambiguous.").
[70] Pl. Opp. at 7-8. (emphasis in original).
[71] Id. at 8.
[72] Id.
[73] Wallace v. 600 Partners Co., 86 N.Y.2d 543, 547-48, 634 N.Y.S.2d 669, 658 N.E.2d 715 (1995).
[74] See Pl. Opp. at 9.
[75] See TVT Records v. Island Def Jam Music Group, 412 F.3d 82, 89 (2d Cir.2005).
[76] See Deposition of William Zanker ("Zanker Dep. 1"), Ex. N to Rapoport Decl., at 124:1-124:21.
[77] MOU1 at 3.
[78] Defendants' Memorandum of Law in Support of Motion for Summary Judgment ("Def. Mem.") at 10 (emphasis added).
[79] Pl. Opp. at 13.
[80] Plaintiffs' Counterstatement of Disputed Facts ("Pl. 56.1") ¶ 12.
[81] Def. Mem. at 7.
[82] See Brown, 420 F.3d at 157.
[83] Pl. Opp. at 9-10.
[84] Def. Mem. at 7.
[85] Arcadian Phosphates, 884 F.2d at 72.
[86] Id.
[87] Pl. Opp. at 13.
[88] Def. Mem. at 11.
[89] See Adjustrite Sys., Inc., 145 F.3d at 548.
[90] Termination Email, at p. 27 of Rapoport Exhibits.
[91] Defendants' Statement of Facts ("Def. 56.1") ¶¶ 26-27.
[92] Id. ¶ 26.
[93] Pl. 56.1 ¶ 33.
[94] Del Canto Aff. ¶ 19.
[95] See id.; Pl. 56.1 ¶ 26(d).
[96] See Del Canto Aff. ¶ 19.
[97] Def. 56.1 ¶¶ 28-29.
[98] See Apology Letter, at 3 (explaining that "I never thought you would have a problem with me sharing in the book. It seemed obvious that ... it was not an issue .... when the corporate attorney asked should he send it also to Rich Dad, I said ... [l]et's make sure Donald agrees first.").
[99] See Zanker Aff. ¶ 20.
[100] See Pl. 56.1 ¶ 26. See, e.g., Termination Letter 2, at p. 18 of Rapoport Exhibits ("We are in the same business . . . learning. I love having [LA] as part of our team and family. You guys are brilliant.").
[101] Adjustrite Sys., Inc., 145 F.3d at 548.
[102] Def. Mem. at 12.
[103] See Goodstein Constr. Corp. v. New York, 80 N.Y.2d 366, 374, 590 N.Y.S.2d 425, 604 N.E.2d 1356 (1992).
[104] See Arcadian Phosphates, 884 F.2d at 74 n. 2.
[105] Pl. Opp. at 20.
[106] MOU2 (emphasis added).
[107] Confirmation Email.
[108] See Deposition of Morris Orens ("Orens Dep."), Ex. 2 to Declaration of Deborah E. Lans ("Lans Decl."), counsel for Whitney, at 150:19-152:24.
[109] See Orens Dep. at 122:20-123:9 ("I think Whitney ... said that they would be ... running it because it would really be their back end so they would be managing the back end...."); Confirmation Email (memorializing the parties' agreement to "[c]reate a management agreement naming Whitney as the party responsible for the day to day operations of [the entity].").
[110] See Am. Compl. ¶ 267.
[111] See, e.g., SCS Comm'ns, Inc. v. Herrick Co., 360 F.3d 329, 342 (2d Cir.2004); Cosy Goose Hellas v. Cosy Goose USA, Ltd., 581 F.Supp.2d 606, 622 (S.D.N.Y.2008).
[112] See Deposition of William Zanker ("Zanker Dep. 2"), Ex. 1 to Lans Decl., at 262:10-262:18; 263:3-267:20. See also Orens Dep. at 127:24-128:12.
[113] Cosy Goose Hellas, 581 F.Supp.2d at 622.
[114] See generally Pl. Opp. at 19-23.
[115] Confirmation Email.
[116] See, e.g., MOU2 at 24 (stating that the parties "agreed to begin the process to license the Rich Dad brand....") (emphasis added); MOU2 at 25 ("Rich Dad Education will recognize through contract the value of the [parties]....") (emphasis added).
[117] Pl. Opp. at 22.
[118] Id.
[119] Lombard, 280 F.3d at 214.
[120] See Am. Compl. ¶ 205; see also Pl. Opp. at 19.
[121] See Am. Compl. ¶ 206.
[122] See Zanker Dep. 1, at 419:10-421:4 (testifying with regard to an alleged introduction fee that "[i]t was my recollection that somebody was going to figure out if it was not the same for a period of time so my idea was a two million.... Then the idea was a royalty which would be a royalty stream off the top and we were trying to figure out, we talked about it briefly, ... I think theypeople wanted to think about it...."); see also Zanker Dep. 1, at 488:2-490:2.
[123] Am. Compl. ¶¶ 212, 215.
[124] Id. ¶¶ 211, 214.
[125] See, e.g., Zanker Dep. 1 at 419:10-421:4.
[126] See Def. Mem. at 20.
[127] Whitney's Memorandum of Law in Support of Motion for Summary Judgment at 25.
[128] Pl. Opp. at 17.
[129] Id. at 24.
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01-03-2023
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10-30-2013
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The pertinent facts herein appear to be that defendant Lane executed and delivered to her co-defendants C.J. Powell and Odessa J. Powell (whose married name is now Odessa J. Brown) a promissory note which by its terms was made payable in installments and was secured by a trust deed on certain real property. Some time after its execution said promissory note was assigned by the payees thereof to plaintiffs by an indorsement on said note in the following words:
"For value received we do hereby transfer and assign to Harry D. Trout and Abbie D. Trout, as joint tenants, the within note, together with all rights accrued or to accrue under the Deed of Trust securing the same so far as the same relate to this note, with recourse on us."
Several of the installments on the promissory note were not paid either when due or at all. Thereupon, in order to protect the security for said note — the plaintiffs theretofore having been compelled to lay out certain moneys for taxes, etc., on the said property — in accordance with the authority provided by the terms of the trust deed, for the purpose of *Page 628
procuring payment to themselves of the principal and interest of said note and the said outlay of money by them, at the instance of plaintiffs the trustee named in said deed of trust regularly proceeded to and did sell said property. However, on such sale the property failed to bring money sufficient to meet the total amount owing to plaintiffs, with the result that an action was brought by plaintiffs against defendants for the purpose of recovering a judgment against them for the deficiency represented by the difference between the total debt owing to plaintiffs and the amount realized from the sale of the property. From a judgment rendered in favor of plaintiffs, defendants Powell appeal to this court.
[1] It is urged by appellants that for the reason that the complaint in the action contained no allegation in substance that at a seasonable statutory time the indorsers of the promissory note were notified of the nonpayment of each of the several installments of the promissory note, etc., no cause of action against said indorsers was stated in said complaint, and consequently, as against said indorsers, the judgment should be reversed.
The complaint in the action discloses no allegation in regard to the subject of said objection interposed by defendants. In that connection, no claim is made by respondents either that the promissory note was non-negotiable, or that the indorsers thereon were not entitled to "notice of dishonor", etc., as provided by statute. That in the absence of allegations to which appellants refer the complaint was insufficient as against the indorsers of the promissory note in question, see 19 Cal. Jur., p. 982 et seq.; also, sec. 3170, Civ. Code; Reeves v. Howe, 16 Cal. 152; Lightstone v. Laurencel, 4 Cal. 277; Merchants' Nat.Bank v. Bentel, 166 Cal. 473, 475 [137 P. 25]; Gartler v.First Nat. Bank of San Pedro, 88 Cal.App. 411, 414 [263 P. 566].
However, notwithstanding the said defect in the complaint as far as the indorsers of the note were concerned, neither within the answer of the defendants, nor on the trial of the action was any defense or objection interposed by either of the defendants on account of such infirmity. Nor not until appellants filed herein their "amended and supplemental opening brief" did either of them even suggest *Page 629
the point that because the complaint contained no allegation regarding "notice of dishonor" to defendants no cause of action against them had been stated. That such a defense was clearly an "afterthought" is made manifest by the fact that on the trial of the action, over the objection of plaintiffs, defendants
insisted on bringing out on cross-examination of one of the plaintiffs the details of their repeated "notices of dishonor" to each of the defendants. On the other hand, only on plaintiffs'
cross-examination of one of the defendants was it denied that plaintiffs had ever said anything to him "about the payments not being kept up". In addition thereto, at the trial defendants repeatedly admitted, and throughout their briefs on appeal appellants again admit, their liability as indorsers on the note in question for the sum of $1,049.71, which sum apparently is conceded by respondents to be the correct computation of unpaid principal and accrued interest on said note up to the date of rendition of judgment in the trial court. Considering such conditions, it becomes evident that the defect in the complaint of which appellants now complain was not only waived by them on trial of the action, but that, even though the point is now urged on appeal, its force is likewise waived by reason of the admission by appellants of their liability. It follows that, however potent the point might have been had it been properly and timely presented, without waiver of its effect, the situation as here presented effectually precludes the defendants from taking advantage of the infirmity of the complaint. (2 Cal. Jur. 242, sec. 71; 1928 Supp., p. 90; 1930 Supp., p. 46.)
[2] Concerning the effect which the assignment of the promissory note had on the rights of the assignee to reimbursement from the indorsers of the note for whatever outlays of money were necessary to protect the property secured in the deed of trust, by the terms of the assignment it appears that it covers "all rights accrued or to accrue under the deed of trust . . . as far as the same relate to this note". Appellants do not contend that any of the moneys paid by the plaintiffs were not authorized to be expended by the provisions of the deed of trust — the sole question being as to whether "the same relate to this note". From an examination of the deed of trust it appears that, as stated therein, its purpose was twofold: "First, payment of the *Page 630
indebtedness evidenced by the promissory note . . .; second, payment . . . of every obligation, covenant, promise, or agreement herein contained." It clearly appears that for the latter "purpose", the various expenditures were made by plaintiffs for which they seek reimbursement from defendants. On the other hand, it does not appear that any rights already accrued, or which thereafter were to accrue, under the deed of trust, either directly or indirectly, related to the promissory note. The so-called rights which in fact arose out of various expenditures for taxes and other like matters related not to the promissory note, but directly affected the property which was described in the deed of trust and which was security for the payment of the promissory note. It follows that defendants' indorsement of the note had the effect of guaranteeing its payment only, and that the said indorsement carried no assumption of liability for expenses incurred by the holder of the note in protecting its security.
It is ordered that the judgment herein be and it is modified so that, as against the appellants, it will be for the sum of $1,049.71 only. As thus modified, the judgment is affirmed.
Conrey, P.J., and York, J., concurred.
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07-05-2016
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lsd
FILED
AUG 2 6 2009
Clerk, U.S. District and
Bankruptcy Courts
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
DAVID KISSI,
Plaintiff, Civil Action No. 1
v.
CHRISTOPHER MEAD et al.,
Defendants.
MEMORANDUM OPINION
GRANT!NG THE PLA1NTIFF’S APPLICAT!ON T0
PRQCEED I1v FORMA PA UPER1s; DISMlSSlNG THE CQMPLA!NT
This matter is before the Court on its initial review of plaintiff’s pro se complaint and
application to proceed in forma pauperis. The application will be granted and the complaint will
be dismissed pursuant to 28 U.S.C. § l9l5A (requiring dismissal of a prisoner’s complaint upon
a determination that the complaint, among other grounds, is frivolous or fails to state a claim
upon which relief can be granted).
Plaintiff, an inmate at the Federal Correctional Institution Elkton in Lisbon, Ohio, sues
thirty-one defendants - mostly attorneys or law firms but also Google, Inc. - under the Racketeer
influenced and Corrupt Organizations ("RICO") Act, l8 U.S.C. §§ 1961 et seq. He alleges that
the defendants “were or are part of a broad conspiracy that chose to take the Plaintiff s assets
without compensation" and that they "sought to deprive, at one time or other, whether knowingly
or unknowingly, the Plaintiff of his civil rights and his right to life, liberty and happiness because
of his African origin[.]" Compl. at 4. Plaintiff seeks $l billion in monetary damages.
The plaintiff has not stated any facts to support his claim. See 18 U.S.C. § l96l(l)
(defming racketeering activity). Moreover, the complaint is so lacking "an arguable basis in law
and fact" as to be frivolous. Brandon v. District of Columbia Bd. of Parole, 734 F.Zd 56, 59
(D.C. Cir. 1984). An Order consistent with this Memorandum Opinion is separately and
contemporaneously issued this;zo'\}l*'day of August 2009.
(;@,.Y.\.»,is
RIEARDo M. URBINA
United States District Judge
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01-03-2023
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04-04-2014
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
CHS INDUSTRIES, LLC, :
:
Plaintiff, :
:
v. : Civil Action No. 06-2205 (GK)
:
UNITED STATES CUSTOMS AND :
BORDER PROTECTION, et al., :
:
Defendants. :
MEMORANDUM OPINION
Plaintiff CHS Industries, LLC (“CHS” or “Plaintiff”) brings
this action against Defendants United States Customs and Border
Protection (“Customs”), United States Environmental Protection
Agency (“EPA”), Unknown Employees of United States Customs and
Border Protection, and Unknown Employees of United States
Environmental Protection Agency (collectively, “Defendants”)
pursuant to Rule 41(g) of the Federal Rules of Criminal Procedure
(Count I) and Bivens v. Six Unknown Federal Agents, 403 U.S. 388
(1971) (Count II).
This case is now before the Court on Defendants’ Motion to
Dismiss. Upon consideration of the Motion, Opposition, Reply, the
entire record herein, and for the reasons set forth below,
Defendants’ Motion is granted.
I. Background1
Plaintiff is located and incorporated in Edgewater, Florida.
It purchases stationary generators with nonroad engines2 from Fuan
Lujuan Electrical Machinery Company, Limited (“Fuan”) in Fujian,
China and imports them into the United States. Fuan manufactures
the generators, packs and labels them, and delivers them to
Plaintiff’s Edgewater location. The generators have been sold to
buyers prior to their delivery to Edgewater.
On August 7, 2006, a container of generators destined for
Plaintiff’s facilities arrived in Port of Savannah, Georgia and was
detained by Customs.3 That same day, Plaintiff contacted Customs
to determine why the container was detained and how to procure its
release. On August 21, 2006, while Customs waited for the EPA to
review the shipment, it sent Plaintiff a Notice of Detention
regarding the container. In the Notice, Customs informed Plaintiff
1
For all purposes of ruling on a motion to dismiss, the factual
allegations of the complaint must be presumed to be true and
liberally construed in favor of the plaintiff. Aktieselskabet AF
21. November 2001 v. Fame Jeans Inc., 525 F.3d 8, 17 (D.C. Cir.
2008). Therefore, the facts set forth herein are taken from
Plaintiff’s Complaint unless otherwise noted.
2
Plaintiff does not define this term.
3
CHS uses this August 7, 2006 date in its Complaint but lists
the arrival date as August 4, 2006 in its Opposition to Defendants’
Motion to Dismiss. Pl.’s Opp’n to Def.’s Mot. to Dismiss (“Pl.’s
Opp’n”) at 1. The difference in dates has no significance for
purposes of this Motion.
-2-
that the wood shipping materials used in the container were not
permitted to enter the United States.
On September 21, 2006, Customs seized CHS’ “goods”4 because
they did not comply with 40 C.F.R. § 90.1003(a)(1)(i), which
requires a certificate of conformity with emissions regulations for
nonroad engines. Compl. ¶ 18. On September 27, 2008, Plaintiff
“submitted an application to manipulate and exported [sic] the
noncompliant wood packing materials.”5 Id. ¶ 17.
On October 11, 2006, Plaintiff submitted a petition for relief
to Customs. On November 13, 2006, Defendant Jeffrey A. Kodish
(“Kodish”),6 an Attorney-Advisor for the EPA, recommended to
Customs that it refuse to release the generators because they
failed to comply with 40 C.F.R. §§ 89.1003(a)(1)(ii) and
89.1003(a)(6), both of which also require a certificate of
conformity with emissions regulations for nonroad engines.
4
Plaintiff does not specify what the term “goods” references.
5
Plaintiff does not specify what agency or person received this
application, nor does it define or explain the term “application to
manipulate.”
6
There is a question as to whether Kodish has been effectively
made a Defendant in this case, as he has not been served or
included in the caption. See infra, p. 13.
-3-
On November 14, 2006, Defendant Frank Jaramillo
(“Jaramillo”),7 Area Port Director for Customs in Savannah, or
Defendant Mary C. Bensel Mills (“Mills”),8 a Fines, Penalties and
Forfeitures Officer at Customs’ Savannah location, denied
Plaintiff’s October 11, 2006 petition based on 40 C.F.R. §
90.1003(a)(1)(ii). However, he/she “permit[ted]” Plaintiff to
export the noncompliant wood, and to export the generators to a
non-contiguous country. Compl. ¶ 25, Ex. D. On June 13, 2007,
Customs sold the generators at auction. [Dkt. No. 5-3, filed June
12, 2009.]
Plaintiff alleges that, as a result of Defendants’ detention
of its container, it lost orders from customers, suffered “manifest
injustice” and “irreparable injury,” and had its business
“effectively shut[] down.” Compl. ¶¶ 29-30. It also alleges that
it lost $2592.50 as a result of needing to export the noncompliant
wood, three wholesale business accounts with potential annual sales
of $201,000 per year, and “all retail accounts which have a
potential net profit of $270,000 with a potential bill of $40,500
in potential service and a potential sales [sic] of $27,000 for
7
There is a question as to whether Jaramillo has been effectively
made a Defendant in this case, as he has not been served or
included in the caption. See infra, p. 13.
8
There is also a question as to whether Mill has been effectively
made a defendant in this case, as she has not been served or
included in the caption. See infra, p. 13.
-4-
replacement parts.” Id. ¶¶ 37-40. It further states that these
losses caused it to decrease its payroll, use credit to purchase
materials, and alter its normal course of business.
On December 26, 2006, Plaintiff filed the instant Complaint,9
alleging that it is entitled to “Return of Property Pursuant to
Rule 41(g)” of the Federal Rules of Criminal Procedure (Count I)
and “Monetary Damages Pursuant [t]o Bivens” (Count II). Id. at 5,
6. Plaintiff cites a violation of its Fifth Amendment rights as
the basis for its Bivens claim. See id. ¶¶ 1, 33, 35, 43.
In September 2007, Plaintiff filed an administrative petition
with Customs seeking the proceeds of the auction of the generators.
The record is not clear as to whether the petition has been
decided.10
On March 24, 2008, in response to a March 10, 2008 Order for
parties to submit praecipes regarding further proceedings,
Plaintiff filed an Amended Motion Opposing Defendants’ Motion to
Dismiss or in the Alternative to Transfer and its Points and
Authorities [Dkt. No. 16]. In this document, Plaintiff stated that
9
In addition to the questions about the named Defendants
discussed supra, notes 6-8, Plaintiff lists the United Stats as a
Defendant in paragraph 4 of its Complaint but also failed to effect
service of process or include the United States in the Complaint’s
caption or as a Defendant on ECF.
10
Defendants wish to proceed with a resolution of their Motion to
Dismiss regardless of the disposition of this petition. Def.’s
Praecipe at 2.
-5-
it seeks damages “as an equitable remedy or under the Federal Tort
Claims Act,” referencing Federal Rule of Criminal Procedure 41(g)
in its request for equitable relief.11 Pl.’s Am. Mot. Opp’ing at
2.
II. Standard of Review
To survive a motion to dismiss, a plaintiff need only plead
“enough facts to state a claim to relief that is plausible on its
face” and to “nudge[] [his or her] claims across the line from
conceivable to plausible.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007). “[O]nce a claim has been stated adequately, it
may be supported by showing any set of facts consistent with the
allegations in the complaint.” Id. at 579.
Under the standard set out in Twombly, a “court deciding a
motion to dismiss must not make any judgment about the probability
of the plaintiff's success . . . must assume all the allegations in
the complaint are true (even if doubtful in fact) . . . [and] must
give the plaintiff the benefit of all reasonable inferences derived
from the facts alleged.” Aktieselskabet AF 21.November 2001 v. Fame
Jeans Inc., 525 F.3d 8, 17 (D.C. Cir. 2008) (internal quotation
marks and citations omitted).
11
On March 23, 2009, Plaintiff filed a second suit in this Court.
CHS Indus., LLC v. U.S. Customs & Border Prot., C.A. No. 09-544
(GK). In that case, Plaintiff alleges that Customs and the EPA
violated the Federal Tort Claims Act, 28 U.S.C. § 2671, et seq.
-6-
III. Analysis
A. Count I Is Dismissed for Lack of Subject Matter
Jurisdiction
Our Court of Appeals has explained that “Rule 41(g) [of the
Federal Rules of Criminal Procedure] is applicable only when
property is seized ‘for use in a criminal prosecution.’” United
States v. Price, 914 F.2d 1507, 1511 (D.C. Cir. 1990) (quoting In
re Seizure Warrant, 830 F.2d 372, 374 (D.C. Cir. 1987)). In Price,
the court held that “once the Government initiates an
administrative forfeiture proceeding and the property is not the
subject of an ongoing criminal proceeding, the District Court has
no jurisdiction to resolve the issue of return of property.” Id.
at 1508, 1512.
Plaintiff cites to DiBella v. United States, 369 U.S. 121
(1962), in arguing that “Rule 41(g) motions may exist apart from
criminal actions.” Pl.’s Mem. in Support of Mot. Opp’ing (“Pl.’s
Mem.”) at 7. However, there is no conflict between DiBella and
Price. DiBella involved the interlocutory appealability of a pre-
trial motion to suppress evidence in a criminal prosecution. The
Supreme Court said nothing about the exercise of jurisdiction in a
civil case brought pursuant to Fed. R. Crim. P. 41(g).12 As our own
12
At the time DiBella was decided, the relevant Criminal Rule
under discussion was Rule 41(e).
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Court of Appeals stated in Price, if the seized property in
question is not the subject of a criminal proceeding in progress,
the court has no jurisdiction pursuant to Rule 41(g).
In this case, the government initiated administrative
forfeiture proceedings, the generators were auctioned, and
Plaintiff itself filed an administrative petition in response to
the sale. Plaintiff has introduced no evidence to show that this
case is a criminal proceeding. Therefore, Count I is dismissed for
lack of subject matter jurisdiction.
B. Count II Is Dismissed Because All Defendants Enjoy
Immunity from Suit
In Saucier v. Katz, 533 U.S. 194, 200-01 (2001), the Supreme
Court emphasized that qualified immunity is a question of law which
the court should decide “at the earliest possible stage in
litigation.” Therefore, although the parties dispute many legal
issues in this case, the Court must first address the immunity
question.
Defendants assert qualified immunity for the three named
individual Defendants and for all unnamed individual Defendants, as
well as sovereign immunity for all Defendants acting in their
official capacities. Plaintiff responds by citing the Second
Circuit opinion in Bivens v. Six Unknown Federal Agents, 456 F.2d
1339, 1341 (2d Cir. 1972), asserting that “[f]ederal employees,
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agents and officers performing their law enforcement functions have
no immunity to protect themselves from damages suits charging
violations of constitutional rights.” Pl.'s Mem. at 6.
However, the Supreme Court reversed the Second Circuit’s
decision in Bivens. See Bivens v. Six Unknown Federal Agents, 403
U.S. 388 (1971). In the wake of the Supreme Court’s decision, it
is now well-settled that qualified immunity is an appropriate
defense in Bivens litigation. See Rasul v. Myers, 512 F.3d 644,
652 n.3 (D.C. Cir 2008); Jones v. Yanta, 610 F. Supp. 2d 34, 43
(D.D.C. 2009).
1. The Agency Defendants and Agency Employees Acting
in Their Official Capacities Enjoy Sovereign
Immunity
Bivens created a cause of action against a federal officer
acting in her individual capacity in which the plaintiff may
collect monetary damages if the officer is found to have violated
plaintiff’s constitutional rights. 403 U.S. at 395-96. Bivens
only provides a cause of action against individuals. See Kauffman
v. Anglo-Am. Sch. of Sofia, 28 F.3d 1223, 1226 (D.C. Cir. 1994).
A Bivens claim may not be brought against the United States
government or its agencies because they have sovereign immunity.
See FDIC v. Meyer, 510 U.S 471, 484-86 (1994) (federal agency
cannot be sued in a Bivens claim). In this case, Plaintiff filed
suit against Customs and the EPA, both of which are federal
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agencies. Therefore, the Bivens claims against Customs and EPA are
dismissed on grounds of sovereign immunity.
2. The Individual Defendants Enjoy Qualified Immunity
In Pearson v. Callahan, ___ U.S. ___, 129 S. Ct. 808, 815
(2009), the Supreme Court gave a succinct overview of the qualified
immunity doctrine:
The doctrine of qualified immunity protects
government officials “from liability for civil
damages insofar as their conduct does not
violate clearly established statutory or
constitutional rights of which a reasonable
person would have known.” Harlow v.
Fitzgerald, 457 U.S. 800, 818 (1982).
Qualified immunity balances two important
interests -- the need to hold public officials
accountable when they exercise power
irresponsibly and the need to shield officials
from harassment, distraction, and liability
when they perform their duties reasonably.
The protection of qualified immunity applies
regardless of whether the government
official's error is “a mistake of law, a
mistake of fact, or a mistake based on mixed
questions of law and fact.” Groh v. Ramirez,
540 U.S. 551 (2004) (Kennedy, J., dissenting)
(citing Butz v. Economou, 438 U.S. 478 (1978)
(noting that qualified immunity covers “mere
mistakes in judgment whether the mistake is
one of fact or one of law”)).
In evaluating an official’s conduct, the inquiry centers “on the
objective legal reasonableness of [her] acts.” Harlow, 457 U.S. at
819. Immunity, if found, serves as a total immunity from suit, not
just “a mere defense from liability.” Mitchell v. Forsyth, 472
U.S. 511, 526 (1985).
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Under pre-existing precedent, the Court had required the trial
court to first determine whether the facts alleged by a plaintiff
made out a violation of a constitutional right and, if it did, to
then determine whether the asserted right was “clearly established”
at the time of the violation. Saucier, 533 U.S. at 201. In
Pearson, the Supreme Court “ruled that the Saucier sequence is
optional and that lower federal courts have the discretion to
decide only the more narrow ‘clearly established’ issue ‘in light
of the circumstances in the particular case at hand.’” Rasul v.
Myers, 563 F.3d 527, 530 (D.C. Cir. 2009) (quoting Pearson, 129 S.
Ct. at 818).
In this case, the Court will address the first question as to
what, if any, constitutional right has been violated. Plaintiff
alleges the individual Defendants violated the Fifth Amendment by
seizing its goods upon their arrival in the United States. The
Fifth Amendment states that “[n]o person shall be . . . deprived of
life, liberty, or property, without due process of law.” U.S.
Const. Amend. V. A Fifth Amendment violation does not occur unless
there is a “constitutionally protected property or liberty interest
at stake,” Giacobbi v. Biermann, 780 F. Supp. 33, 41 (D.D.C. 1992)
(citing Bd. of Regents of State Colls. v. Roth, 408 U.S. 564
(1972)), and the plaintiff must have a “legitimate claim of
entitlement” to the government conduct in question rather than a
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mere “unilateral expectation of it,” Roth, 408 U.S. at 577. The
underpinning of due process is “the opportunity to be heard ‘at a
meaningful time and in a meaningful manner.’” Mathews v. Eldridge,
424 U.S. 319, 333 (1976) (quoting Armstrong v. Manzo, 380 U.S. 545,
552 (1965)). Negligence or “mere lack of due care” resulting in
deprivation of property does not constitute a due process
violation. See Daniels v. Williams, 474 U.S. 327, 330-31 (1986).
Because some discussion of the merits is built into the first
step of the qualified immunity analysis, referring to a 12(b)(6)
framework provides guidance in evaluating whether a constitutional
right has been violated. In Twombly, 550 U.S. at 555, the Supreme
Court stated that, when facing a 12(b)(6) motion, “a plaintiff’s
obligation to provide the ‘grounds’ of his ‘entitl[ment] to relief’
requires more than labels and conclusions.” Some amount of facts
-- “rather than a blanket assertion” -- is necessary to provide
“plausible grounds” for and create a “reasonable expectation that
discovery will reveal evidence” of the alleged wrongdoing. Id. at
556. Furthermore, “courts ‘are not bound to accept as true a legal
conclusion couched as a factual allegation.’” Id. at 555 (quoting
Papasan v. Allain, 478 U.S. 265, 286 (1986)).
a. Named and Unnamed Customs Employees
It is well-established that Customs has the authority to
search and seize goods or merchandise that is noncompliant with
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U.S. law. See, e.g., 19 U.S.C. § 1602 (2006). As in this case,
seizures may be made if the “container” or “wrapping” of imported
goods is noncompliant. 19 U.S.C. § 1595(a)(1)(C) (2006). In
Fourth Amendment challenges to seizures by Customs, the Supreme
Court has held that Customs officials are not required to obtain
probable cause before conducting a search of people or merchandise
entering the United States. See, e.g., United States v. Ramsey,
431 U.S. 606, 616-17 (1977) (“That searches made at the border,
pursuant to the long-standing right of the sovereign to protect
itself by stopping and examining persons and property crossing into
this country, are reasonable simply by virtue of the fact that they
occur at the border, should, by now, require no extended
demonstration.”).
Plaintiff states that “the government violated its Fifth
Amendment Due Process rights because the government would not
permit entry of its seized generators after it had provided
assistance and information regarding the labeling procedure which
was utilized by CHS.” Pl.’s Mem. at 8. Assuming that Plaintiff is
including the individual Defendants in referring to “the
government,” it has failed to set forth any facts showing that
Customs officers acted beyond the bounds of their express statutory
authority, nor suggested any unreasonableness in their actions.
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To survive a motion to dismiss, a plaintiff must provide a
“‘showing’ rather than a blanket assertion of entitlement to
relief.” Twombly, 550 U.S. at 556 (quoting 5 Wright & Miller §
1202, at 94, 95). To make this showing, Plaintiff must offer
enough facts to establish the “plausibility” of the alleged
wrongdoing. Id. Like the Fourth Amendment cases, Plaintiff does
not make out a Fifth Amendment constitutional violation when it
alleges that Customs seized its goods and that the seizure was
conducted pursuant to its statutory authority. For these reasons,
Plaintiff fails to present a set of facts that plausibly allege a
constitutional violation.
b. Named and Unnamed EPA Employees
Under 40 C.F.R. § 89.1003, EPA has authority to enforce
regulations regarding emissions from nonroad engines. 40 C.F.R. §
89.1003 (2008). These regulations include, amongst other things,
compliance with certain labeling standards. See Indep. Equip.
Dealers Ass’n v. EPA, 372 F.3d 420, 422 (D.C. Cir. 2004). Because
many different types of engines are imported from abroad, importers
must also comply with EPA regulations in order to be allowed entry.
Id. For this reason, Customs and EPA may collaborate where both
agencies’ regulations are at issue. In addition, our Court of
Appeals has held that “we lack[] authority to review claims where
‘[the EPA] merely expresses its view of what the law requires of a
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party.’” Id. at 427 (quoting AT&T v. EEOC, 270 F.3d 973, 975 (D.C.
Cir. 2001)).
In its Complaint, Plaintiff includes only two factual
assertions regarding EPA and its employees: (1) that Plaintiff had
consulted EPA prior to purchasing the generators, and (2) that EPA
had recommended to Customs that the generators not be released.
Compl. ¶¶ 22, 24. Neither of these allegations reveals any
possible conduct which falls outside EPA’s statutory authority or
is in violation of the Constitution. Even if Plaintiff had
demonstrated a violation of its constitutional rights, EPA has done
nothing more than express its view of the law. Therefore, this
Court does not have jurisdiction to review Plaintiff’s challenge to
EPA’s recommendations. Indep. Equip. Dealers Ass’n, 372 F.3d at
427.
For these reasons, Plaintiff fails to pass the first step of
the Saucier test, and it is unnecessary to address the second step.
The individual Defendants from Customs and EPA must be dismissed
because they enjoy qualified immunity.
C. No Viable Bivens Claim Exists Because 19 U.S.C. § 1608,
et seq. Provides a Comprehensive Statutory and Regulatory
Remedy for Customs Seizures
The Tariff Act of 1930 provides that
[a]ny person claiming such . . . merchandise
. . . may at any time within twenty days from
the date of the first publication of the
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notice of seizure file with the appropriate
customs officer a claim stating his interest
therein. Upon the filing of such claim, and
the giving of a bond to the United States
. . . such customs officer shall transmit such
claim and bond, with a duplicate list and
description of the articles seized, to the
United States attorney for the district in
which seizure was made.
19 U.S.C. § 1608 (2006).
As Defendants point out, the Supreme Court has resisted
creating a remedy under Bivens where “an elaborate remedial system
that has been constructed step by step, with careful attention to
conflicting policy considerations” already exists. Def.’s Reply at
5 (quoting Bush v. Lucas, 462 U.S. 367, 388 (1983)).
Our Court of Appeals has concluded that, based on Bush, “the
more Congress has dealt in detail and over years with a class of
cases, the less free are the courts to imply such causes of action
without direct statutory support.” Siaca v. United States, 754
F.2d 988, 991 (D.C. Cir. 1985). In the case of Customs seizures,
that Court found that “[e]xisting law contains elaborate and
carefully articulated provisions dealing with the rights of persons
whose property has been seized, possibly illegally.” Id. at 992.
Plaintiff states that it cannot pursue forfeiture proceedings
but has failed to coherently set forth its argument or cogently
express why the remedies available under the Tariff Act are
insufficient. Because Congress has regulated Customs regulations
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since 1789 and provided a remedy for allegedly improper seizures
via statute, Siaca, 754 F.2d at 922, it is inappropriate to create
a Bivens cause of action in this case.
It is telling that in Plaintiff’s last court filing, it fails
to even mention its Bivens claim. Rather, it states that “[t]his
court mus [sic] now determine whether defendants’ conduct renders
them liable for damages either as an equitable remedy or under the
FTCA.” Pl.’s Am. Mot. Opp’ing at 4.
IV. Conclusion
For the reasons set forth above, Defendants’ Motion to Dismiss
is granted. An Order shall accompany this Memorandum Opinion.
September 10, 2009 /s/
Gladys Kessler
United States District Judge
Copies via ECF to all counsel of record
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832 F.Supp. 227 (1993)
NATIONAL SERVICE ASSOCIATION, INC., an Illinois corporation and S.B. Lexington, Inc., an Illinois corporation, Plaintiffs,
v.
CAPITOL BANKERS LIFE INSURANCE COMPANY, INC., a Minnesota corporation, Defendant.
No. 91 C 7040.
United States District Court, N.D. Illinois, E.D.
August 25, 1993.
*228 *229 David Bruce Simon, Law Office of David B. Simon, Chicago, IL, for National Service Ass'n and S.B. Lexington, Inc.
Kathryn Marie Gleason, U.S. Trustee's Office, Donald Christopher Pasulka, Ross & Hardies, P.C., Chicago, IL, Timothy J. Pike, Peterson, Johnson & Murray, Milwaukee, WI, for Capitol Bankers Life Ins. Co., Inc.
OPINION AND ORDER
NORGLE, District Judge:
Before the court is defendant Capitol Bankers Life Insurance Company's ("Capitol Bankers") motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). The motion is granted in part and denied in part for reasons stated below. The court grants leave to file an amended complaint in compliance with this opinion.
FACTS
Plaintiff National Service Association, Inc. ("National Service") is an Illinois insurance broker and is in the business of marketing and administering life insurance products. According to the complaint, Capitol Bankers entered into a written contract with National Service on April 1, 1984 providing that National Service was to perform marketing and administrative services on Capitol Bankers' behalf to facilitate the sale of Capitol Bankers' life insurance products. Plaintiff S.B. Lexington, Inc. ("Lexington") is in the business of selling life insurance. Lexington allegedly *230 contracted with Capitol Bankers on April 21, 1980 to act as a general agent for Capitol Bankers. This relationship lasted nearly nine years.
The complaint alleges that National Service performed its contractual obligations by assisting with and conducting marketing seminars with Capitol Bankers' sales agents and producers, by providing technical advice to Capitol Bankers' sales agents, and by creating and administering the Voluntary Employees' Beneficiary Associations ("VEBA") plans and trusts. The complaint states that National Service invested a large amount of time and money into marketing and recruiting insurance agents and clients for Capitol Bankers. Capitol Bankers, however, failed to compensate National Service according to the agreement, billed clients directly in violation of the agreement, failed to pay for the advertising, promotional, and sales material for which they were obligated to pay according to the agreement, failed to introduce its policy and the policy's use with the VEBA to general agents and producers, and improperly terminated the agreement. Furthermore, Capitol Bankers allegedly purloined the agents and clients recruited by National Service in order to sell a different, comparable life insurance product and in order to avoid paying commissions and fees to National Service.
Capitol Bankers notified National Service that their agreement was terminated and allegedly immediately ceased performing its obligations, although the contract provides that their obligations were to continue for another six months. The complaint alleges that, following the termination of the agreement, National Service continued to administer Capitol Bankers' insurance policies and procured the payment of premiums from insureds at the request of and for the benefit of Capitol Bankers.
The complaint also alleges that Lexington performed its obligations as general agent. Lexington hired insurance sales agents, conducted sales training, and provided office space and materials to agents for the purposes of producing sales of Capitol Bankers' life insurance products. Beginning around February of 1985, Capitol Bankers allegedly failed to pay Lexington for its sales of Capitol Bankers' life insurance products. Also, Capitol Bankers allegedly pirated agents and clients Lexington recruited in order to sell its products and avoid payment to Lexington. Following the termination of the agreement between Capitol Bankers and Lexington, Lexington allegedly continued to procure the payment of premiums from insureds at the request of and for the benefit of Capitol Bankers.
The eight-count second amended complaint filed by National Service and Lexington seeks an accounting, alleges breach of contract, alleges breach of covenant of good faith, alleges quantum meruit and unjust enrichment, claims intentional interference with National Service's prospective business advantage, and seeks recovery on behalf of Lexington for an account stated. Capitol Bankers filed the present motion to dismiss counts I through V, VII, and VIII of the second amended complaint.
DISCUSSION
This court must emphasize that, on a motion to dismiss, all well-pleaded factual allegations are accepted as true, as well as all reasonable inferences drawn from those allegations. Mid America Title Co. v. Kirk, 991 F.2d 417, 419 (7th Cir.1993). Because federal courts simply require "notice pleading," Leatherman v. Tarrant County Narcotics Intelligence & Coordination Unit, ___ U.S. ___, ___, 113 S.Ct. 1160, 1163, 122 L.Ed.2d 517 (1993), this court construes pleadings liberally. See Powell Duffryn Terminals, Inc. v. CJR Processing, Inc., 808 F.Supp. 652, 654 & n. 1, 655-56 (N.D.Ill.1992). A complaint's mere vagueness or lack of detail is not sufficient to justify a dismissal. Strauss v. City of Chicago, 760 F.2d 765, 767 (7th Cir.1985). In construing reasonable inferences, however, the court need not stretch allegations beyond their sensible and reasonable implications. Chan v. City of Chicago, 777 F.Supp. 1437 (N.D.Ill.1991). And although a complaint need not specify the correct legal theory to survive a motion to dismiss, Tolle v. Carroll Touch, Inc., 977 F.2d 1129, 1134-35 (7th Cir.1992) (citing Bartholet v. Reishauer A.G., 953 F.2d 1073, 1078 (7th *231 Cir.1992)), the complaint must allege all elements of a cause of action necessary for recovery, Ellsworth v. City of Racine, 774 F.2d 182, 184 (7th Cir.1985), cert. denied, 475 U.S. 1047, 106 S.Ct. 1265, 89 L.Ed.2d 574 (1986). A party fails to state a claim upon which relief may be granted only if that party can prove no set of facts upon which to grant legal relief, Ross v. Creighton Univ., 957 F.2d 410, 413 (7th Cir.1992).
Counts I and V seek, on behalf of National Service and Lexington respectively, an equitable accounting and alternatively damages for breach of contract. Because an accounting is an equitable remedy, the court possesses broad discretion to refuse to award such a remedy if the party has an adequate remedy at law. First Commodity Traders, Inc. v. Heinold Commodities, Inc., 766 F.2d 1007, 1011 (7th Cir.1985). National Service and Lexington can demonstrate that there is no adequate remedy at law if the accounts between them and Capitol Bankers are of such a complicated nature that resort can only be made to an equitable remedy. Dairy Queen, Inc. v. Wood, 369 U.S. 469, 478, 82 S.Ct. 894, 900, 8 L.Ed.2d 44 (1962); TMF Tool Co. v. H.M. Financiere & Holding, S.A., 689 F.Supp. 820, 825 (N.D.Ill.1988).
Capitol Bankers claims that the discovery in this case should have produced enough documents to make the measure of contract damages ascertainable, and therefore the equitable remedy of an accounting is inapplicable. Nonetheless, for the purpose of this motion to dismiss, the allegations in the complaint are true. The complaint establishes that both National Service and Lexington have not received information necessary to ascertain the amounts due them even after they demanded the information from Capitol Bankers. Further, though the complaint alleges in the alternative a claim for money damages for breach of contract, the complaint also alleges that the damages cannot be determined from the records that have been available to it in the course of discovery. See Heinold Commodities, 766 F.2d at 1011. Thus, a determination of damages may not be possible without the need for an equitable accounting, as is alleged.
Nevertheless, National Service and Lexington have not alleged the accounts are complicated as to be beyond the comprehension of a trier of fact. See TMF Tool, 689 F.Supp. at 825; Cleland v. Stadt, 670 F.Supp. 814, 818-19 (N.D.Ill.1987). The types of fees and commissions alleged in the complaintthe amount of which is unknown to National Service and Lexingtonmay be the type of information particularly susceptible to an equitable accounting. But the court will not deem the legal remedies inadequate merely because the measure of damages due National Service and Lexington necessitates a resort to business records. Zell v. Jacoby-Bender, Inc., 542 F.2d 34, 36 (7th Cir.1976). The court dismisses counts I and V on that basis but grants both plaintiffs leave to file an amended complaint. Leave should be granted because if the plaintiffs can, in compliance with Fed.R.Civ.P. 11, make an allegation concerning the complexity of the accounts, then their claims should stand.
Counts I and V of the complaint also allege claims for breach of contract. These counts allege essentially that neither plaintiffs were paid for the services they performed in accordance with their respective contracts. All quarrels as to the terms the plaintiffs use to describe their compensation aside, the complaint sufficiently places Capitol Bankers on notice that it allegedly owes National Service and Lexington for services performed in accordance with their respective contracts.
Additionally, the complaint states that National Service's contract was breached in various other respects, including that it was improperly terminated. That the contract was "improperly terminated" provides at least enough notice to withstand this motion to dismiss. It can reasonably be inferred that, because the term of the contract was one year, and thereafter terminable provided six months notice is given, there exists a set of facts upon which the court could grant relief. See, e.g., Grauer v. Valve & Primer Corp., 47 Ill.App.3d 152, 5 Ill.Dec. 540, 543, 361 N.E.2d 863, 866 (1977).
Although it is proper for a complaint to allege alternative theories, see Fed. R.Civ.P. 8(a), the accounting claims and the *232 breach of contract claims should nonetheless be asserted in separate counts. Therefore, both counts I and V are dismissed in their entirety, without prejudice, and leave is granted to file an amended complaint.
Counts II and VIII assert claims based on a breach of the covenant of good faith. Every express contract in Illinois includes an implied promise to act in good faith. Harrison v. Sears, Roebuck & Co., 189 Ill.App.3d 980, 137 Ill.Dec. 494, 502, 546 N.E.2d 248, 256 (1989), appeal denied, 128 Ill.2d 663, 139 Ill.Dec. 512, 548 N.E.2d 1068 (1990). Yet this covenant does not provide a person with a separate, independent cause of action. LaScola v. U.S. Sprint Communications, 946 F.2d 559, 565 (7th Cir.1991). On the contrary, courts rely on this duty only for assistance in interpreting other portions of contracts, especially those particular terms in a contract that furnish a party discretion. Dayan v. McDonald's Corp., 125 Ill.App.3d 972, 81 Ill.Dec. 156, 170, 466 N.E.2d 958, 972 (1984). Thus, the duty merely limits the exercise of discretion which the contract vests in one of the parties. Id.
The duty of good faith and fair dealing must be read consistent with the reasonable expectations of the parties and cannot be inconsistent with express terms. Harrison, 137 Ill.Dec. at 502, 546 N.E.2d at 256. Under this general principle, the implied duty of good faith and fair dealing does not limit the right of an employer to discharge an at-will employee. Id. 137 Ill.Dec. at 501, 546 N.E.2d at 255. However, if the contract provides for a duration of a year, there must exist good cause for its termination. Grauer, 5 Ill.Dec. at 543, 361 N.E.2d at 866. Additionally, if a party acts with an improper motive, such as to annul himself or herself from a contractual obligation, and refuses "to bring about a condition precedent," or acts with a motive to refuse "an employee of reasonably anticipated benefits" and terminates that employee, "that party is exercising contractual discretion in a manner inconsistent with the reasonable expectations of the parties and therefore is acting in bad faith." Dayan, 81 Ill.Dec. at 170, 466 N.E.2d at 972; see also LaScola, 946 F.2d at 566 (an employee may not be deprived of commissions earned prior to separating from employer by a discharge made in bad faith and intended to deprive employee of commissions).
The agreement between Capitol Bankers and National Service states that Capitol Bankers will not contract with other general agents or subagents to provide the same services National Service was to provide. National Service is allegedly granted the exclusive right to develop and market a particular Capitol Bankers product. The complaint alleges that Capitol Bankers "pirated" agents from National Service in order to sell a differentbut comparablelife insurance product. This type of interference with National Service's performance may be the basis for a breach of contract action for Capitol Bankers' violation of its duty to act in good faith. Additionally, the complaint alleges the agreement was wrongfully terminated within the first year of operation and that Capitol Bankers intended to avoid the payment of commissions and fees to National Service. Similarly, the complaint alleges Capitol Bankers "pirated" the agents and clients recruited by Lexington for the purpose of avoiding the payment of commissions and fees to Lexington. Therefore, the alleged facts could form the basis for a claim of breach of the contract for marketing services between Capitol Bankers and National Service or breach of the general agent contract between Capitol Bankers and Lexington. This is true if Capitol Bankers, in bad faith, interfered with both plaintiffs' abilities to perform their services by taking "agents" or "clients" away for its own use, or if Capitol Bankers deprived both plaintiffs of earned commissions by improperly terminating the agreements or by otherwise acting in bad faith. The counts, however, should not be plead as independent causes of action separate from the other allegations of breach of contract.
As the discussion above illustrates, the claims for equitable accounting should be asserted separately from the breach of contract claims. Further, the claims for breach of the duty of good faith should be asserted together with the other allegations of breach of contract. Because the court dismisses *233 counts I and V insofar as they fail to plead equitable accounting properly, and because counts II and VIII are improperly asserted separately from the breach of contract claims in counts I and V, the court dismisses counts II and VIII with leave granted to file an amended complaint consistent with this decision.
Counts III and VII assert a claim for quantum meruit and unjust enrichment. The complaint attempts to recover under this equitable theory for services performed "during the terms of the agreement." The complaint does not allege that the contracts between Capitol Bankers and both National Service and Lexington were void for any reason. It therefore appears that the plaintiffs are not attempting to plead in the alternative in case they fail to establish the express contract as in Business Development Servs. v. Field Container Corp., 96 Ill.App.3d 834, 52 Ill.Dec. 405, 413, 422 N.E.2d 86, 94 (1981). On the contrary, plaintiffs acknowledge the existence of the contracts in counts III and VII. As a result, the court strikes the allegations in counts III and VII insofar as they allege a claim for unjust enrichment and quantum meruit during the terms of the agreement.
Nonetheless, the complaint also alleges that after the respective contracts were terminated, both National Service and Lexington were asked by Capitol Bankers to continue to perform their services. In that case, the allegations of quantum meruit and unjust enrichment state a claim. See id. Capitol Bankers argues that the agreements provided that payments were to continue for a period of time after termination of the contracts and therefore a claim to recover for these services after termination must be asserted under the contract, not under the equitable theories of quantum meruit and unjust enrichment. The contract actually provides that services and payments were to continue for six months after notice of termination was provided. The complaint states that National Service and Lexington both continued working after their agreements were terminated. The complaint does not specify how long a period of time after termination or notice of termination that services continued. If Capitol Bankers permitted services to be performed after the agreements were terminated or after the time specified in the contracts, then recovery is available under the theory of quantum meruit. See id. 52 Ill.Dec. at 414, 422 N.E.2d at 95. The motion to dismiss counts III and VII is denied.
Last, count IV alleges a claim for intentional interference with National Service's prospective business advantage. To state a claim for tortious interference with prospective economic advantage, a plaintiff must allege (1) he or she possessed a reasonable expectation of entering into a valid business relationship; (2) the defendant knew of this expectancy; (3) the defendant purposefully interfered with the expectancy such that he or she prevented it from ripening into a valid business relationship; and (4) damages resulted from the interference. Fellhauer v. City of Geneva, 142 Ill.2d 495, 154 Ill.Dec. 649, 657, 568 N.E.2d 870, 878 (1991). The tort of interference usually lies against third-parties who interfere with the formation of a business relationship between other people. See, e.g., Belden Corp. v. Internorth, Inc., 90 Ill.App.3d 547, 45 Ill.Dec. 765, 413 N.E.2d 98 (1980) (discharge was result of intentional and unjustified action of another); see also Fellhauer, 154 Ill.Dec. at 657-58, 568 N.E.2d at 878-79 (one who induces another to breach contract with a third party will be liable).
The complaint and the agreement itself reveal that the agents with whom National Service was to perform its services were agents of Capitol Bankers. National Service was not contemplating entering into contracts or advantageous business relationships with these agents, but was to find and train these agents for the benefit of Capitol Bankers. The agents were to be the agents of Capitol Bankers and National Service's payment was to come from Capitol Bankers. As such, National Service was not contemplating any additional business or contractual relationship with these parties. This situation "does not present an instance of outsiders intermeddling maliciously in the contracts or affairs of other parties." Fellhauer, 154 Ill.Dec. at 658, 568 N.E.2d at 879 (citing *234 Loewenthal Securities Co. White Paving Co., 351 Ill. 285, 300, 184 N.E. 310 (1932)). Instead, the complaint reveals that Capitol Bankers made a decision to discontinue its relationship with National Service, a decision that did not affect any contracts or business with third parties. The motion to dismiss count IV is granted.
CONCLUSION
For the reasons outlined above, the court grants in part and denies in part Capitol Bankers' motion to dismiss. Counts I, II, V, and VIII are dismissed without prejudice. The court grants leave to file an amended complaint in accordance with this opinion. The court strikes the allegations in counts III and VII that state "during the performance of the Agreement." Last, count IV is dismissed with prejudice.
IT IS SO ORDERED.
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https://www.courtlistener.com/api/rest/v3/opinions/4156215/
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FILED
NOT FOR PUBLICATION
MAR 28 2017
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
CARMEN BLAIR, No. 15-55748
Plaintiff-Appellant, D.C. No.
2:13-cv-07478-CAS-FFM
v.
DAVID SHULKIN, Secretary, Department MEMORANDUM*
of Veterans Affairs,
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
Christina A. Snyder, District Judge, Presiding
Argued and Submitted March 6, 2017
Pasadena, California
Before: REINHARDT and NGUYEN, Circuit Judges, and EZRA,** District Judge.
Carmen Blair appeals the district court’s order granting summary judgment
in favor of the Department of Veterans Affairs (“VA”). Blair, a Protestant, filed an
action against the VA alleging that the Department violated Title VII by firing her
from her position as a chaplain on account of her Christian religion.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Under the McDonnell Douglas framework, a plaintiff must first establish a
prima facie case of discrimination, at which point the burden then shifts to the
employer to articulate a legitimate, non-discriminatory reason for the challenged
action. See McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802-803 (1973) If
the employer meets this burden, the plaintiff must then show that the defendant's
stated reason is pretext for unlawful discrimination. Id. at 804. In cases where the
same actor was responsible for both a plaintiff's hiring and the subsequent adverse
employment action, we apply the “same-actor inference,” and require that the
plaintiff make an “extraordinarily strong showing of discrimination.” Coghlan v.
Am. Seafoods Co. LLC, 413 F.3d 1090, 1097 (9th Cir. 2005).
Here, Blair introduced evidence that certain of her colleagues made
statements alleging that she was unable to minister effectively to patients of other
faiths. For the purposes of summary judgment, we follow the district court in
assuming that Blair has thus demonstrated a prima facie case of religious
discrimination.
The VA has in turn proffered legitimate, nondiscriminatory reasons for
dismissing Blair, namely that she failed to integrate with the other members of the
hospice unit’s interdisciplinary team, and that she did not maintain adequate patient
charts. The burden therefore shifts to Blair to show that there are genuine issues of
2
material fact as to whether the explanations offered by the VA are in fact
pretextual. See, e.g., Hawn v. Exec. Jet Mgmt., Inc., 615 F.3d 1151, 1155 (9th Cir.
2010).
A plaintiff may demonstrate that a defendant’s nondiscriminatory rationale
is pretextual “either directly by persuading the court that a discriminatory reason
more likely motivated the employer or indirectly by showing that the employer's
proffered explanation is unworthy of credence.” Tex. Dep’t of Cmty. Affairs v.
Burdine, 450 U.S. 248, 256 (1981). In this case, Blair additionally must overcome
the “same-actor inference,” as she alleges that Chaplain Vasquez and Dr.
Rosenfeld were responsible for both her hiring and her dismissal from the hospice
unit within a period of three months. Moreover, Chaplain Vasquez and Dr.
Rosenfeld knew that Blair was a Christian when they hired her for the position of a
“Protestant chaplain.” The very basis upon which Blair claims she was
discriminated against—her Christian faith—was a prerequisite for her initial
employment.
Here, Blair is unable to offer either direct or circumstantial evidence
sufficient to defeat the same-actor inference and to raise a genuine issue of material
fact as to whether the VA’s proffered nondiscriminatory rationales are pretextual.
Although we recognize that Blair has introduced evidence that certain patients
3
regarded her as a competent chaplain, this showing does not rebut the VA’s
assertion that it believed that Blair was unable to integrate into the hospice unit
team. To the extent that Blair claims that the VA impermissibly created a “secular”
work environment, she is unable to show that the Department acted out of animus
toward her religion.1 In light of Blair’s failure to present evidence of pretext, we
conclude that the district court properly granted summary judgment for the VA on
Blair’s claim of religious discrimination.
The district court decision is AFFIRMED.
1
The Seventh Circuit has held that the VA must “walk a fine constitutional
line” in providing spiritual care for its patients, and thus may institute an
“ecumenical approach to its chaplaincy.” Baz v. Walters, 782 F.2d 701, 709 (7th
Cir. 1986). As we do here, the court in Baz rejected the plaintiff’s Title VII claim
alleging religious discrimination, concluding that he was fired not due to his
religious beliefs, but because his “view of his function as a Veteran’s
Administration chaplain . . . was decidedly different from the demands of his
superiors.” Id. at 705.
4
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01-03-2023
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03-28-2017
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https://www.courtlistener.com/api/rest/v3/opinions/2668109/
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________________
)
JOHN PAUL CHARLTON, )
)
Plaintiff, )
)
v. ) Civil Action No. 08-0221 (PLF)
)
MICHAEL B. DONLEY, )
Secretary, United States Air Force, )
)
1
Defendant. )
__________________________________________)
ORDER
For the reasons stated in the Memorandum Opinion issued this same day, it is
hereby
ORDERED that Defendant’s Motion to Dismiss [4] is DENIED; and it is
FURTHER ORDERED that on or before May 14, 2009, the parties shall meet,
confer, and file a joint report informing the Court how they wish to proceed with the matter,
including whether they wish to be referred to settlement discussions before a magistrate judge or
court appointed mediator, as well as a joint proposed schedule complying with the requirements
of Local Rule 16.3.
SO ORDERED.
/s/_____________________________
PAUL L. FRIEDMAN
DATE: May 1, 2009 United States District Judge
1
The Court has substituted as the defendant Michael B. Donley, the current
Secretary of the Air Force, for former Secretary Michael W. Wynne pursuant to Rule 25(d) of the
Federal Rules of Civil Procedure.
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01-03-2023
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04-04-2014
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https://www.courtlistener.com/api/rest/v3/opinions/1502284/
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100 F. Supp. 504 (1951)
UNITED STATES
v.
IMPERIAL CHEMICAL INDUSTRIES, Limited, et al.
United States District Court S. D. New York.
September 28, 1951.
*505 *506 *507 J. Howard McGrath, Atty. Gen., Leonard J. Emmerglick, Sp. Asst. to the Atty. Gen. (Ephraim Jacobs, Burton R. Thorman, Bert C. Dedman, Jr., and Samuel B. Prezis, all of Washington, D. C., of counsel), for plaintiff.
Covington, Burling, Rublee, O'Brian & Shorb, Washington, D. C. (John Lord O'Brian, Gerhard A. Gesell and Charles F. Barber, Washington, D. C., of counsel), and Root, Ballantine, Harlan Bushby & Palmer, New York City (John M. Harlan, Edward L. Friedman, Jr., and Charles E. Stewart, all of New York City, of counsel), for E. I. duPont deNemours & Co., Lammot duPont and Walter Samuel Carpenter, Jr.
Coudert Brothers, New York City (Mahlon B. Doing and Joseph A. McManus, New York City, of counsel), and Hughes, Hubbard & Ewing, New York City (L. Homer Surbeck, Richard W. Hogue, Jr. and Powell Pierpoint, all of New York City, of counsel), for Imperial Chemical Industries, Ltd. and Imperial Chemical Industries (New York), Ltd.
Donovan, Leisure, Newton, Lumbard & Irvine, New York City (J. Edward Lumbard, Jr., Phillips S. Trenbath, Robert J. Dunne and John F. Seiberling, Jr., all of New York City, of counsel), for Remington Arms Co. and Charles Krum Davis.
RYAN, District Judge.[*]
*508 This suit was instituted with the filing of the complaint of the United States of America on January 6, 1944, against nine defendants four corporations and five individuals, officers of the corporate defendants. The action proceeded to trial on April 3, 1950; the trial was concluded on June 30, 1950. The issues were finally submitted to the court for determination in November, 1950.
I. The Defendants
Defendant Imperial Chemical Industries, Ltd. (ICI) is a corporation organized under the laws of the United Kingdom with offices and principal place of business in London. It was formed in 1926 as the successor to Nobel Industries, Ltd., which in turn was known from 1919 to 1921 as Explosives Trades, Ltd., and from 1915 to 1919 as Nobel Explosives, Ltd., and prior to 1915 as Nobel Explosives Company, Ltd. of Glasgow. ICI was formed by the consolidation of British Dyestuffs Corporation, Ltd., a producer of dyestuffs; Nobel Industries, Ltd., a producer of explosives, nitrocellulose products and non-ferrous metals; and Brunner-Mond & Co., Ltd. and United Alkali Co., Ltd., producers of alkali products. We have used the letters ICI herein to designate the defendant Imperial Chemical Industries, Ltd. as well as Nobel Industries and its predecessors. ICI is one of the largest British manufacturers and sellers of a general line of chemical and related products; it is one of the principal companies of its kind in the world.
Defendant Imperial Chemical Industries (New York), Ltd. [ICI(NY)] is a corporation organized and existing under the laws of the State of New York, with offices and principal place of business in New York City.
Defendant E. I. duPont deNemours and Company, Inc. (duPont) is a corporation organized under the laws of the State of Delaware. DuPont was founded in 1802 as a partnership, known as E. I. duPont de Nemours & Co., to manufacture gunpowder and other explosives. In 1903, E. I. duPont deNemours Powder Company was organized as a corporation under the laws of New Jersey to take over the business conducted by the partnership. In a decree of the United States Circuit Court for the Third Circuit (Delaware), entered on June 21, 1911, United States v. DuPont DeNemours & Co., 188 F. 127, it was adjudged that E. I. duPont deNemours Powder Company had acquired a monopoly of gunpowder and it was ordered that two new companies be formed. Pursuant to this direction, Hercules Powder Company and Atlas Powder Company were established and a portion of the duPont business sold to them. Thereafter, on or about September 4, 1915, defendant duPont was incorporated to take over and did take over the remainder of the explosive business. Since 1915, duPont has expanded its business; it now manufactures and sells many chemical products other than explosives. These products are sold and transported in commerce among the several states and between the United States and foreign nations. DuPont is a leading company in its field; it is one of the great chemical and industrial enterprises of the world.
Defendant Remington Arms Company, Inc. (Remington) is a corporation organized under the laws of the State of Delaware. It is a manufacturer of sporting arms and ammunition. The Remington trademark and the reputation of its products are favorably and internationally known. Its products are sold and transported in commerce among the several states and between the United States and foreign nations.
Defendants Lammot duPont and Walter S. Carpenter, Jr. are both residents of Wilmington, Delaware and long have been in the employ of and officers of duPont. They have actively participated in the management and direction of duPont and *509 have taken part for many years in the formulation and carrying out of the policies, agreements and undertakings of that company.
Defendant Charles Krum Davis is a resident of Fairfield, Connecticut and has been president and general manager of Remington since 1933.
Harry Duncan McGowan (now Lord McGowan), herein referred to as Sir Harry McGowan, and Henry Mond (Lord Melchett) are named as defendants but were not served with process. Sir Harry McGowan and Lord Melchett were at the time of the filing of the complaint residents and citizens of Great Britain. The former has been Chairman of the Board of Directors of ICI, since 1931 and for many years prior thereto had been one of the managing officials of Nobel Industries, Ltd. and of its predecessor companies. Lord Melchett was a director of ICI from 1928; he took an active part in the management of its affairs. He is now deceased.
The following foreign corporations, although not named defendants, are alleged to have been parties to the unlawful agreements set forth in the complaint:
Canadian Industries, Ltd. (CIL);
Explosives Industries, Ltd. (EIL);
Compania Sud-Americana de Explosivos (CSAE);
Industrias Quimicas Argentinas "Duperial," S. A. Industrial y Commercial (Duperial-Argentina);
Industrias Chimicas Brasileiras "Duperial," S. A. (Duperial-Brazil);
Bunge and Born Limitada, S. A. Commercial, Financiera y Industrial (Bunge & Born);
Dynamit Aktiengesellschaft (DAG). (DAG is controlled by I. G. Farbenindustries, A. G. as is Köln-Rottweil A. G. (Köln); DAG as used herein includes Köln, for whom DAG acted in making the various agreements.)
II. The Pleadings
The complaint was filed under Section 4 of the Act of Congress of July 2, 1890, c. 647, 26 Stat. 209, as amended 15 U.S.C.A. § 4 the Sherman Anti-Trust Act to restrain and prevent alleged continuing violations of Section 1 of the Act.
In essence, the complaint charges a conspiracy among the defendants, having as its purpose a division of world markets and the elimination of competition among themselves and between them and third parties in the trade and commerce of chemical products, sporting arms and ammunition. The complaint alleges the achievement of this purpose by the execution of unlawful contracts, agreements, arrangements and understandings and the establishment and maintenance of jointly-owned foreign companies; and the continued existence and accomplishment of this conspiracy and its purposes despite various temporary arrangements necessitated by the war. By reason of this, it is alleged that judicial remedy is necessary to restore competition among the defendants and between them and third parties. The complaint prays that the combination and conspiracy and the practices alleged be decreed unlawful and that defendants be perpetually enjoined from continuing, reviving or renewing any of the said violations.
Generally, the several answers of the defendants consist of a denial that any of them violated the anti-trust laws.
Specifically, the answer of the duPont defendants after admitting many of the transactions alleged, avers: that these activities had not for their purpose nor have they effected an unreasonable restraint of trade; that duPont never controlled or dominated the chemical business nor did it ever have the power to do so; that to meet the ever increasing rivalry among manufacturers in this rapidly advancing field it has had to steadily expand its research activities; that the agreements with defendant ICI had for their purpose the expansion of duPont's manufacture and commerce in the chemical industry and the facilitation of technological progress by the acquisition and exchange of patents, inventions and licenses not otherwise available to it. The answer further alleges that the licenses which it granted under these agreements represented lawful exercise of its rights and that these agreements did *510 not have a restrictive effect on trade, but, on the contrary, opened to each party new manufacturing and commercial opportunities. It is also alleged that the agreements were bona fide and not a device to cloak and conceal a division of markets, that their terms stated the full intent and purpose of the parties to them, that the parties, at all times, operated pursuant to such explicit terms in order to carry out their manifest purpose, and that any exchange or grant of information was subject to adequate and justifiable compensation.
DuPont further alleges that it has consistently sought to expand its foreign commerce, that because of numerous economic, political and business factors, it had to join with other interests; but that, at no time, did it cease to act with a view to the fullest possible development of its trade.
DuPont alleges that the creation of the jointly-owned foreign companies was made necessary by economic conditions, and did not represent an effort to restrict or divide trade; that there was no collusion with defendant ICI in the establishment of the prices at which duPont and ICI products were sold to these companies, but that, on the contrary, prices were fixed independently and separately by each with regard to market conditions and the best interests of their customers. The effect of this, it is alleged, could not be injurious to trade, since the alternative would have forced duPont, because of factors beyond its control, to yield markets it had previously serviced.
As to duPont's relation with Remington in the conspiracy charged, duPont points out that it acquired a majority interest in that company, and therefore necessarily exercised some control over its policies and management. However, duPont denies that it ever agreed with ICI to limit Remington's trade, and asserts that any agreement entered into had for its sole purpose the expansion of that company's trade.
The answer of the ICI defendants raises substantially the same defenses; their repetition will serve no purpose. In addition, ICI urges that this court lacks jurisdiction over it, in that it is a foreign corporation, not doing business in the United States, and therefore not amenable to the process of this court. It does admit that defendant ICI(NY) is found here, and that it is beneficially owned and controlled by ICI, but denies that ICI(NY) is its agent for the transaction of business.
The answer of the Remington defendants; besides denying participation in any conspiracy, also denies that any unlawful understanding existed since 1932 (at which time it became affiliated with duPont) between the other defendants, or that Remington knew of any such combination between the other defendants prior to that time.
Answering the Government's claim that acquisition by duPont of stock in Remington had for its purpose or effected the elimination of competition between Remington and ICI in the sale of sporting arms and ammunition and the bringing of this industry within the existing over-all conspiracy, Remington alleges: that at no time has duPont controlled its management, policies or activities, other than as a right incidental to stock ownership, but that Remington has continued to act independently; that its affiliation with duPont was necessary if Remington was to preserve and improve its competitive position in this field a policy from which it has never deviated. It is further alleged that as a result of economic conditions, acquisition by duPont of a majority interest in Remington was a logical solution to a serious economic problem confronting both companies, and that Remington has greatly benefited thereby.
With reference to its agreements with ICI, Remington alleges as their effect, not a curtailment, but an increase in its exports to and in its manufacture in the British Empire, as well as the improvement of its products, the addition and substitution of new ones and the saving of expense and time in research. Remington denies making any agreement whereby ICI was to or did curtail its exports to the United States, alleging that because of the extremely high tariffs in effect here, ICI could not, under any circumstances, have developed an extensive trade to this country.
The organization of the jointly-owned foreign companies by Remington with ICI, Remington alleges, was necessitated by political *511 and economic factors (tariffs and national trade barriers) which were effectively closing markets to Remington. Establishment of foreign plants to manufacture and distribute locally and to act as Remington's exclusive selling agents, it avers, was the only means by which it could continue to sell in these markets. Remington further alleges that all these agreements and arrangements with ICI were independently arrived at, motivated not by any conspiracy, but prompted solely by independent assessment of commercial factors.
The action was tried by the Court upon the issues thus framed.
III. Jurisdiction over ICI
By way of a separate and distinct defense in its answer, ICI has questioned the court's jurisdiction over it, asserting that it has not been properly served with process in this action. Service of process upon ICI was made, or attempted to be made, by service upon ICI(NY), a New York corporation wholly owned by ICI and having an office in the City of New York. The issue here presented is whether the relationship between ICI and ICI(NY), and the activities of the latter company in this district, are such that service upon ICI (NY) is effective to confer jurisdiction upon this court over the parent company.
This very question was raised by ICI in a prior litigation in which it was involved in this district. United States v. United States Alkali Export Ass'n, Inc. et al.,[1] S.D.N.Y.1946. The parties have stipulated herein that the jurisdictional issue should be determined on the basis of the record made in that case (hereinafter known as the Alkasso case), together with the evidence adduced herein. Moreover, ICI has rested its legal position on the arguments it advanced in its briefs in the prior litigation, which briefs it has resubmitted to the court.
We have carefully examined the factual evidence bearing on the jurisdictional issue submitted in the Alkasso case submitted herein, the briefs which have been submitted to the courts, and Judge Leibell's exhaustive opinion in the prior litigation. We are in complete agreement with Judge Leibell's determination that service of process upon ICI(NY) suffices to confer jurisdiction upon this court over ICI.
We find that the offices and staff maintained in this district by ICI(NY) were used solely for the purpose of carrying out the business of defendant ICI. The conclusion is inescapable that defendant ICI was doing business within this district through ICI(NY); and that the two were so inextricably associated that every move of the latter was directed by ICI. Consequently, we hold that service on ICI(NY) gave ICI notice of the institution of this suit. There is every "reasonable assurance that the notice will be actual." International Shoe Co. v. State of Washington, 326 U.S. 310, 320, 66 S. Ct. 154, 160, 90 L. Ed. 95.
It cannot be successfully contended that requiring ICI to defend here will work such an inconvenience as to result in a denial of due process. It is hard to conceive of a forum more convenient to plaintiff and to a defendant who has had such numerous, permanent contacts in this district contacts so essential to the continued conduct of its affairs. ICI has taken advantage of the opportunities offered here for its corporate activities; it has received the benefit of the laws of the United States; it must expect to be required to answer for their breach. International Shoe Co. v. State of Washington, supra, 326 U.S. at page 317, 66 S. Ct. 154; Latimer v. S/A Industrias Reunidas F. Matarazzo, 2 Cir., 175 F.2d 184, 185.
IV. Admissibility in Evidence of Certain Documents
Defendants duPont, Lammot duPont, and Walter S. Carpenter Jr. moved to strike certain of the plaintiff's exhibits on the ground that they are hearsay and not admissible under any exception to the hearsay rule. The moving defendants urge that even if it be assumed that a conspiracy has been shown, prima facie, by evidence aliunde, which they do not concede, the challenged documents are not in furtherance of the conspiracy, but are (1) *512 mere narrative statements of past events, or (2) internal ICI statements recording gossip, speculation, or opinion, or (3) ex parte interpretations of draft or final agreements, or (4) anonymous and other miscellaneous hearsay statements.
There is no disagreement as to the applicable law. If a conspiracy has been shown prima facie by evidence aliunde, declarations of co-conspirators in furtherance of the conspiracy are admissible against all. Since we have found that a conspiracy has been so proven, the sole issue is whether the challenged documents are declarations in furtherance of the conspiracy. Because of the nature of the conspiracy, and of its participants, we conclude that they are.
Whether a declaration is in furtherance of a conspiracy must perforce turn upon scope and extent of the conspiracy. When the alleged conspirators are large corporations, doing a world-wide business, with seats of authority geographically distant one from another, numerous internal communications within each corporation are necessary in order to apprise large numbers of corporate officers and employees of the nature of the negotiations, the attitudes of the representatives of other co-conspirators, the decisions reached, their import and the understanding of the agents of the corporation of the decisions reached. Otherwise, such a conspiracy would be inoperative.
Moreover, in a conspiracy which continues over many years, which has been adapted to changed conditions, which has altered techniques and tactics from time to time, and where the individuals operating the affairs of corporate members of the conspiracy have changed with the passing of years, the keeping of records of past agreements and understandings, the preparation of summaries of past relationships between the parties and the making of reports are in aid of the over-all purpose, persisting throughout, which the parties to the agreement have been intent upon accomplishing.
In addition, a broad agreement to divide world-wide markets such as is shown in this case, existing from as early as 1897, cannot be a static one, else it would find itself ineffective due to rapidly changing world conditions, and the new and frequent developments in technical fields. Revisions, alterations, adjustments, and expansion to new and attractive areas were necessarily part of the conspiracy here proven, and, indeed, at the very heart of its successful survival of altered external factors. Accordingly, the steps taken by each co-conspirator in suggesting alterations, preparing for conferences, reporting discussions among the representatives of the co-conspirators concerning proposed alterations, planning new means of effectuating the joint purpose, all are in furtherance of the conspiracy.
An agreement and conspiracy of the nature proven in this case is a vital, growing, adjustable enterprise, and this growth, vitality and adjustability further the purposes of the conspiracy, for without them, the conspiracy would become ineffectual and fail of its purposes.
All of the challenged documents are therefore held to be in furtherance of the conspiracy. The objections of the moving defendants go to the weight to be given particular parts of particular documents, and where a document contains conjecture or speculation as to the state of mind of individuals employed by a co-conspirator, or similar matter of slight probative value, little if any weight has been given to it.
The conclusion we have reached is in accord with the weight of authority. See United States v. U.S. Gypsum Co., 333 U.S. 364, 68 S. Ct. 525, 92 L. Ed. 746; Schine Chain Theatres v. United States, 334 U.S. 110, 68 S. Ct. 947, 92 L. Ed. 1245; Hitchman Coal & Coke Co. v. Mitchell, 245 U.S. 229, 38 S. Ct. 65, 62 L. Ed. 260; United States v. Hartford Empire Co., D.C.N.D.Ohio, 46 F. Supp. 541, affirmed 323 U.S. 386, 65 S. Ct. 373, 89 L. Ed. 322; United States v. General Electric Co., D.C.N.J., 82 F. Supp. 753, 902-905.
In light of the conclusion here reached it is apparent that six exhibits offered into evidence by the plaintiff during the trial and excluded as to the defendant Remington (with the reservation that in light of later developments, the ruling might *513 be changed), should be admitted generally. Each appears to be in furtherance of the conspiracy. Exhibits 1278, 1279, 1280, and 1281 are therefore admitted.
Exhibits 1269 and 1309 likewise appear in furtherance of the conspiracy provided only their authenticity as declaration by agents of ICI is established. Neither is signed and there is no proof as to their authorship. Nevertheless, since there is sufficient circumstantial proof to establish that they are authentic records and declarations of an agent of ICI, they are received in evidence. Both are from the files of ICI (cf. VII Wigmore on Evidence 2160 (1940 ed.)); the subject matter of both is corroborated by other evidence, and both, the first document especially, give every indication of having been prepared by a responsible agent of ICI. Indeed, the only logical explanation of their appearance in the ICI files if they are not authentic, is that the documents are forgeries, or spurious. Such an explanation is rejected as entirely improbable.
However, the weight to be given the documents, particularly to the second, is necessarily decreased. While they bear every indication that they were prepared by persons in a position to know of the matters set down, their anonymity must go to the weight to be given them. With this caveat, the two documents will be received.
We come now to examine the stenographic record of the trial consisting of over 5200 pages, the 1436 exhibits introduced by the Government and printed in 13 volumes, and the 2264 exhibits introduced by the defendants and printed in 17 volumes. We are grateful to counsel for their cooperation in expediting the presentation and introduction of the evidence, but we have approached the examination and evaluation of the multitudinous exhibits with the reflection that of them there were too many and too much. Perhaps, with knowledge born of this experience, a similar trial in the future will see the introduction of fewer exhibits. However, we have here considered all exhibits and from them and the testimony we make the following findings.
V. The Patents and Processes Agreements
A. The "Explosives Agreements"
The several types of agreement into which the defendants entered present important problems peculiar to each type. Therefore, although the complaint alleges that all the agreements entered into between the defendants reflect a continuing overall conspiracy, the distinct types will be separately examined. We will separately consider the various patents and processes agreements; the agreements affecting the jointly owned companies; and what might be characterized as miscellaneous selling arrangements. Throughout it must be borne in mind that the Government alleges the interconnection of all these agreements.
While reaching the fullest efflorescence in the 1929 and 1939 agreements embracing large categories of products, the patents and processes agreements were first developed with respect to explosives. In ascertaining the intent underlying the patents and processes agreements, a separate study of the explosive arrangements may prove useful. Evaluation of the intent of the parties in making these agreements will be facilitated by first setting forth summarily the content of the major earlier agreements.
1. Content of These Agreements
In 1897, duPont and various other American companies entered into an explosives agreement with Vereinigte Köln-Rottweiler Pulverfabriken, of Cologne, and Nobel-Dynamite trust of London (predecessor of ICI), the latter companies being designated "the European factories." The spirit of the agreement was set forth in the preface: "Whereas, the parties hereto own or control a large number of companies and works engaged in the manufacture and trade of explosives, and whereas, it has been deemed advisable to make arrangements, so as to avoid anything being done which would affect injuriously the common interest" (Ex. 1410, pp. 11148 E, F).
The agreement provided substantially as follows: with respect to Black Powder and Smokeless Sporting Powder, "the *514 American Factories undertake not to erect factories in Europe, and the European factories undertake not to erect factories in the United States of America. Both parties, however, were to be free to import into the other party's territory" (Ex. 1410, p. 11148 G, H).
With respect to detonators it was provided that "the European Factories shall abstain from erecting detonator works in the United States of North America," and would discontinue works then in the process of construction (Ex. 1410, p. 11148G). In consideration of this undertaking the American Factories agreed to order at fixed prices a certain number of detonators per year. "With regard to Smokeless Military Powder it is hereby agreed that the European Factories undertake not to erect any factories in the United States of America, and that the American Factories undertake not to erect any factories in Europe. Whenever the American Factories receive an enquiry for any Government other than their own, either directly or indirectly, they are to communicate with the European Factories through the Chairmen appointed, as hereinafter set forth, and by that means to ascertain the price at which the European Factories are quoting or have fixed, and they shall be bound not to quote or sell at any lower figure than the price at which the European Factories are quoting or have fixed. Should the European Factories receive an enquiry from the Government of the United States of North America, or decide to quote for delivery for that Government, either directly or indirectly, they shall first in the like manner ascertain the price quoted or fixed by the American Factories and shall be bound not to quote or sell below that figure" (Ex. 1410, p. 11148 H).
The provisions of the 1897 agreement most pertinent to this suit are those involving high explosives, defined as "all explosives fired by means of detonators," as to which it was "agreed that the United States of North America, with their present or future territories, Possessions, Colonies, or Dependencies, the Republics of Mexico, Guatemala, Honduras, Nicaragua, and Costa Rica, as well as the Republics of the United States of Colombia and Venezuela, are to be deemed the exclusive territory of the American Factories, and are hereafter referred to as `American Territory'. All the countries in South America not above mentioned, as well as British Honduras and the Islands in the Caribbean Sea, which are not Spanish possessions, are to be deemed common territory, hereinafter referred to as `Syndicated Territory'; the rest of the world is to be the exclusive territory of the European Factories, hereinafter referred to as `European Territory'. The Dominion of Canada and the Islands appertaining thereto, as well as the Spanish possessions in the Caribbean Sea, are to be a free market unaffected by this Agreement.
"The American Factories are to abstain from manufacturing, selling, or quoting, directly or indirectly, in or for consumption in any of the countries of the European Territory, and the Europeans are to abstain in like manner in any of the countries in the American Territories. With regard to the Syndicated Territory neither party are to erect works there, except by a mutual understanding, and the trade there is to be carried on for joint account in the manner hereinafter defined" (Ex. 1410, pp. 11148-H-I).
It was further provided that the American and the European Factories were each to designate a Chairman, who were to agree upon and fix a basis price for each market in the Syndicated Territory, to include cost of manufacture, and all charges, as well as a stipulated "contribution towards the Common Fund." The Chairmen were empowered likewise to fix a selling price for each market, below which no sales were to be effected; the difference between the basis price and the selling price was to be deemed the "Syndicate" profit, and to be divided in equal shares by the American Factories and the European Factories (Ex. 1410 p. 11148 1 et seq.).
This 1897 Agreement was cancelled by the parties in 1906, one year before the filing of a government monopoly suit against duPont which resulted, inter alia, in its judicial condemnation. United States v. *515 E. I. DuPont DeNemours & Co., C.C., 188 F. 127.
In 1907, DuPont entered into the first of the patents and processes agreements (Ex. D. 1271). The other parties to the contract were Köln-Rottweiler and Nobel Dynamite Trust, Ltd. (the European factories). Many of the provisions of this first of the patents and processes agreements were adhered to in the later agreements.
In it the words "invention" or "inventions" were understood to include American inventions and European inventions. "Explosives" were defined "as including Black Powder and Nitrate mixtures in all their varieties; smokeless propellants, whether for military or sporting purposes; disruptive explosives of any kind, whether for industrial or warlike purposes; * * * and generally all devices for initial detonation or ignition, as also ammunition of every kind, as well as the ingredients and component parts of all the above insofar as they are applicable to explosives."
To the "Americans" were allocated the United States of America and their present and future territories, possessions, colonies, or dependencies, Mexico, Guatemala, Honduras, Nicaragua, Costa Rica, Panama, Colombia and Venezuela. To the "Europeans" were assigned all countries not allocated to the "Americans," except the balance of South America, British Honduras, Islands of the Caribbean, the Dominion of Canada and Newfoundland.
The agreement provided for the exchange of patented and secret processes; each granted to the other exclusive rights for the grantee's territory and non-exclusive rights in all other territories (Ex. D-1271, pp. 8213, 8214).
Each party further agreed that if it acquired during the term of the Contract any rights under any patents or secret processes relating to the manufacture of explosives in any territory in which it has not granted its "inventions" to the other, "such party shall co-operate and use its best endeavours to obtain such similar rights, licences, etc., for the other party as will enable the other party to use the same in territory in which rights have been granted to it hereunder, but neither party is under obligation to purchase or pay for any such rights for the benefit of the other" (Ex. D-1271, p. 8215).
It was also provided that "For the purpose of making effective the grants hereby made, each party shall disclose to the other immediately, or in any event within twelve months from the date of this Contract, full particulars in regard to all `inventions' employed by such party, and shall furnish the other with copies of all patents owned or controlled by such party, and wherever necessary shall execute such assignments and licences under such patents as may be necessary to carry out the intent of this Agreement, and each party shall appoint one or more competent and trustworthy persons experienced in the business for the purpose of receiving information from the other party as to all secret processes now used by either party to this Contract, and shall notify the other of such appointment, and immediately after receipt of such notification, or in any event within twelve months thereafter, each party shall disclose to the appointees of the other party all such information concerning any secret process used, owned or controlled by such party as may be necessary to carry out the intent of this Agreement. Each party agrees from time to time during the continuance of this Agreement to transfer any `invention' hereafter owned or controlled by it, and to disclose all such information in regard to any such `invention' whenever the same may reasonably be required under the terms of this Agreement. Each party agrees to use its best endeavours to keep secret any disclosures made by the other party to it, but shall not be liable in damages for failure so to do, Each party will further supply such experienced chemists, engineers, foremen, and other experts as the other party may require to assist such other party in availing itself of any such `invention' and practically applying it, all of which assistance, however, shall be at the expense of the party availing itself thereof, and such assistance shall be afforded by each party to the other from time to time as required" (Ex. D-1271, p. 8215).
Finally, of special significance in this 1907 Agreement was the provision for payment *516 for the licenses granted, which read: "It being impossible to compute the detailed value to each of the parties of the `inventions' hereby granted, the patents hereby conveyed not having been applied in the business of the grantees, and the secret processes being at present unknown to each grantee hereunder, a proper and fair compensation by each party to the other can most accurately be reached by basing the payment to be made by the parties to each other on the increase in their profits as compared with the profits earned in 1906, providing for the normal increase independent of the adoption of the `inventions' hereby granted by allowing 6 per cent on all and any increase in the earnings capital, on the assumption that any increase in the normal profits must call for a corresponding increase in capital" (Ex. D-1271, pp. 8216, 8217).
We find that the purpose and effect of this agreement of 1907 was to eliminate competition in the various explosive markets of the world.
Early in the summer of 1913, duPont counsel "urged upon the Executive Committee the danger of the continuance of this agreement in view of the injunctive provisions of the decree in the government suit." Conferences were held and the 1907 agreement was cancelled (Ex. 39, p. 213). A new agreement was drawn, which was not executed due to the outbreak of World War I (Ex. 1); however, duPont and the British Nobel Company continued to cooperate during the war and accepted the unsigned draft as if in effect between them during the war. The 1914 draft followed the familiar pattern; it was in the form of an agreement to exchange present and future patents, processes and inventions relating to military and commercial explosives; the allotment of exclusive territories was identical to that made in the 1907 agreement (Ex. D-1271, p. 8213; Ex. 1).
The 1913 document was drawn in the light of the recognition "that previous agreements had been based on sound business considerations" and of duPont's position that "it is not good business to attempt an expansion in certain directions if such an act is bound to result as a boomerang of retaliation" (Ex. 37, p. 198). It was drafted to replace the 1907 agreement with a document which gave outward service to the law of the United States. The negotiations left Judge Laffey, duPont general counsel, who had participated in the conference which brought it forth, with the impression that, "* * * we were getting our house in order legally, abolishing all contract relations that might be construed in restraint of trade, but that, as a matter of voluntary policy, nothing would be done by either party that under the 1907 agreement would constitute a violation of the contract" (Ex. 39, p. 213).
It was also noted by Judge Laffey that, "It was well understood by both parties that there was no legal obligation under the Sherman Law to compete and that even natural competitors in the same territory might as a voluntary policy refrain from competition" (Ex. 39, p. 213).
The evil, however, lay in that here the competitors were by collateral understanding effectuating a purpose to refrain from competing with each other (Ex. 37, pp. 197-99; Ex. 39, p. 213; Ex. D-1275 to 1280-C).
In 1920, duPont entered into an agreement with Explosives Trades Ltd., successor to Nobel, which again repeated the pattern of the 1913 Agreement. It was provided that products other than explosives might be added if the parties so elect (Ex. 3, pp. 55-56). It was called by the parties the "General Explosives Agreement of 1920." The German companies were not made parties; World War I had intervened. This agreement Sir Harry McGowan of ICI referred to on September 19, 1923 as "a camouflage to cover all relationships between the two companies" (Ex. 43, p. 228).
2. The Intent of the Parties
These agreements represent the major Patents and Processes Agreements involving explosives. The claim of the Government with respect to this phase of the case simply stated is:
The 1897 Agreement was at least in part an open effort to divide markets. Recognizing its illegality under the Sherman Anti-Trust Law, 15 U.S.C.A. §§ 1-7, 15 *517 note, the parties sought to achieve the same purpose through a patents and processes agreement which it was hoped would give a color of legality to the unlawful operation. Through their lack of experience with this technique of evasion, however, they included provisions which exposed its unlawful purpose. When apprised of this by counsel, they eliminated the offending provisions, but did not, however, change the essential purpose of the arrangement or the suitability of the agreement to that purpose.
The position of the defendants may be stated as follows: the 1897 Agreement was an illegal one and for that reason was cancelled; the Patents and Processes Agreement of 1907 was not a continuation of that arrangement but a genuine effort to achieve the benefits of exchange of technology; its illegal aspects did not represent an effort to continue the 1897 Agreement, but resulted from inexperience with the legal requirements of such agreements; and in any event, if there had been any illegal purpose originally, it was abandoned in the subsequent Agreements.
A basic issue in the conflicting analyses is, of course, the role played by the Patents and Processes Agreement of 1907. A comprehension of this is facilitated by examination of a factor of central significance in the patents and processes phase of the alleged conspiracy; the utility of these Agreements as instruments of territorial division. This can be appreciated by observing the operation of the agreements with respect to patents and secret processes involving techniques or methods in the production or utilization of nonpatented products. All may compete in the production or sale of such commodities. Under the agreements the granting or acceptance of a license to such a technique results directly in the elimination of competition. The accepting party is given the exclusive right to utilize the technique in producing a non-patented commodity in its allocated exclusive territory; but it may not utilize the technique in the territory reserved by the grantor. Similarly, the granting party may not utilize the technique in the territory reserved to the other. It is plain that, acting in strict accordance with the terms of the patents and processes agreements, parties so disposed could effectively eliminate competition between themselves.
We here assume that the patents and processes agreements are not invalid on their face. The burden thus devolves upon the Government to prove that the defendants entered into these agreements with an illegal purpose, or that they operated to achieve an illegal result.
It should be noted again that both agreements were cancelled by the parties on advice of counsel that it was illegal. The correctness of this opinion can scarcely be doubted, nor do we understand the defendants to dispute it now. The immediate question is whether the illegality of the 1907 Agreement reflected only innocent inexperience with the legal requirements or whether it also represented a deliberate effort to continue the purpose of the prior 1897 Agreement.
In this connection, several facts seem reasonably apparent. The 1897 Agreement was a palpable effort to eliminate competition among the contracting parties. In part, this was to be accomplished by a division of territories. It was cancelled because the parties recognized it to be illegal. A reading of the 1897 and 1907 Agreements convinces that the latter Agreement was worded and designed to effectuate the purpose of the former. Some of the incriminating similarities were well pointed out by counsel in urging the cancellation of the 1907 Agreement: "The parties to the Agreement of 1907 are substantially the same parties to the Agreement of 1897; the territorial division is the same in both Agreements; what was European territory under the old Agreement is European territory under the present Agreement; what was American territory under the old Agreement is American under the present Agreement; much of the phraseology of the old Agreement is found in the new Agreement" (Ex. D-1279, p. 8283).
The single most illuminating provision of the 1907 Agreement concerned payments for the mutual exchange of patents and *518 processes. This exchange of patent and process licenses, coupled with territorial limitations, can be considered legal only on the theory that it represents a legitimate exploitation of a legal monopoly. An essential element of such legitimate exploitation is that a bona fide effort be made to exact royalties proportioned to value. Thus, if a patent and process agreement of the kind involved here was to provide for exchanges of licenses with no remuneration at all, absent an exchange equal in value, its efficacy as an instrument to divide markets could scarcely be questioned. What the parties did do in the 1907 Agreement was hardly preferable. In substance, they provided that one-half of the increase of profits subsequent to the exchange of licenses would be attributed to the use of the licensed inventions, and paid to the licensing party. The effect of this provision was to eliminate all possible inducement between the parties to compete. The explanation that, absent experience as to the value of the licenses, these provisions represented a bona fide effort to assess value, does not merit consideration. Its destructive effect on competition is too plain to admit of doubt.
The inherent utility of the 1907 Patents and Processes Agreement as an instrument of trade division, the nature of the 1897 Agreement, the similarity between the two agreements, the special profit sharing provisions, and the historical recordings and writings lead us to conclude that the 1907 Agreement was designed to effectuate the purposes of the illegal 1897 Agreement.
The weight to be accorded duPont's declarations, which recur throughout the relationships of the parties, that the agreement was to be considered on its face, and no subterraneous intent was to be imported therein will be considered later. It suffices to say that they do not successfully rebut the inference here drawn with respect to the 1907 Agreement. Nor is this conclusion rebutted by evidence purporting to indicate a genuine desire to achieve the advantages and exchange of technology. So long as a major purpose of the agreement was an illegal one, a complementary legitimate purpose does not immunize the parties from Anti-Trust prosecution. See U. S. v. National Lead Co., D.C., 63 F. Supp. 513, 524.
Not only are the patents and processes agreements susceptible to being apt instruments of territorial divisions, but the very first such agreement was deliberately entered into with a view to effectuating that illegal purpose.
From the finding above that the 1907 Agreement was intended to achieve an illegal purpose it does not necessarily follow that all the subsequent patents and processes agreements were similarly motivated. It thus becomes necessary for us to determine whether or not the subsequent agreements are expressions of the same basic policy. In this inquiry two factors must be borne in mind: first, as we have noted, the 1913 and 1920 Agreements deleted those provisions which in the 1907 Agreement gave clear internal corroboration of the parties' unlawful intent; second, the potentiality of the patents and processes agreements for territorial allocation is inherent in the structure of the agreements, and is in no way dependent upon the omitted provisions. If a material consideration in inducing the agreement was to divide markets and restrain United States imports and exports the agreements were unlawful. We turn then to examine the circumstances surrounding these agreements and to inquire into the manner in which they were carried out.
DuPont points to vigorous statements by their executives to the effect that they would not agree to any effort to use the agreements as a tool of territorial division and repudiating any construction of these agreements as designed to achieve territorial allocation. Defendants urge these duPont statements as decisive on the question of intent; the Government asserts that they are purely record making statements, and merit no consideration whatsoever. The weight to be accorded these contemporaneous utterances may be most profitably considered in an examination of a dispute between the parties, concerning the proper interpretation of these agreements, which arose later in connection with its military explosives aspects.
*519 However the following may be noted here. It is established in law that the agreements were unlawful if entered into with an unlawful intent and to accomplish an unlawful purpose. U. S. v. Columbia Steel Co., 334 U.S. 495, 522, 68 S. Ct. 1107, 92 L. Ed. 1533. The evidence is that counsel fully advised defendants that the law so provided (Ex. D-1279, p. 8284). Under these circumstances it is reasonable to assume that if the parties had the unlawful intent ascribed to them, they would have sought to conceal that fact by statements of the kind here made. This does not mean, of course, that such statements are to be considered evidence of guilt (as the Government appears to urge), but it does mean that they must be weighed carefully in their context and measured against the course of events.
In connection with the 1913 and 1920 Agreements, the Government points to, as important evidence of duPont intent and purpose, a memorandum drawn up by Lammot duPont in 1919 setting forth a proposed duPont export policy. He embraced within the projected policy four categories of products: (1) explosives, accessories and ingredients; (2) artificial leather; (3) dye stuffs and intermediates; and (4) all other products. With respect to each of these categories three distinct trade areas were proposed, varying slightly with each of the categories of materials, and paralleling the areas set forth in the various patents and processes agreements. The three areas are designated: (1) Active Territory "Territory where duPont or subsidiaries expect to and will endeavor to, become the leading source of supply"; (2) Representative Territory "Territory where duPont company or subsidiaries expect to do business now or later, but do not expect to become the leading seller"; (3) Inactive Territory "Territory where duPont company or subsidiaries do not expect to do any business and will not attempt to supply in any way. Inactive Territory includes all above in which we have given to other manufacturers, through Agreements, exclusive rights to our own Patents and Processes" (Ex. 2, p. 36).
The Government urges that this document establishes the "camouflage" nature of the patents and processes agreements; that this policy (which Lammot duPont asserted to be already in effect) represented fulfillment of the agreements. The position of duPont, apart from denial of the secret understanding underlying the patents and processes agreements and the claim that Lammot duPont misstated past policy, and that his recommendations were not accepted, is that the document, at worst, indicated a unilateral policy dictated by business considerations; which, if the fact, would admittedly not be within the purview of the Sherman Act. In support of this, duPont points out that the policy concerned commodities not within the scope of any agreement. Furthermore, duPont does not dispute that the agreements inevitably involved some territorial withdrawal, but urges that the surrendered territory was competitively difficult, and that the technological benefits outweighed the loss of markets. Thus, Lammot duPont's export policy might be explained as reflecting the same view of the competitive unremunerativeness of the "Inactive Territories," as was reflected in the patents and processes agreements themselves.
This ingenious interpretation becomes difficult to sustain, however, when considered with other language in the same document. Lammont duPont also wrote: "As far as placing an obligation upon the company is concerned it appears to me that we are practically obligated to this policy now, insofar as it limits our activities" (Ex. 2, p. 34). This language is subject to several possible interpretations. One is that the exchange of licenses under the patents and processes agreements had been so complete that under the terms of the agreements complete territorial division had already taken place. Nothing in the record indicates this to be the fact. But, if this be considered the fact, it would afford striking confirmation of the utility of the patents and processes agreements as a device for dividing territories, and its identification in the minds of the parties with that result. Another interpretation and in our view *520 the more probably correct one is that Mr. duPont understood that his company was under an obligation not to compete in the "Inactive Territory." Under the circumstances, such an over-all obligation must have involved an agreement with Nobel. Whether the obligation became effective irrespective of the granting of licenses, or whether it was intended to make it effective upon interchange of licenses intended to achieve that purpose, is not here important.
The claim that the memorandum misstated duPont policy and that its recommendations were never adopted, is a subject for further inquiry. What is presently significant is that an important duPont executive apparently understood, twelve years after the termination of the 1897 Agreement, and six years after the termination of the 1907 Agreement, that his company was committed to a policy of territorial division.
This conclusion, almost irresistible upon close study of the memorandum in the light of surrounding circumstances, casts a curious light on previous disavowals of such purpose by duPont executives, and indeed, on the weight to be accorded subsequent statements of similar import. It is particularly important in view of the fact (which will receive more detailed consideration), that ICI executives later persisted in the same understanding of the nature and effect of the patents and processes agreements.
Another feature of this memorandum deserving of note is the inquiry addressed by Lammot duPont as to whether anything in his memorandum "would be objectionable as a matter of record" (Ex. 2, p. 34), a statement which may well be taken as an indication of a policy of concealment by duPont.
In 1923, a controversy between duPont and ICI resulted from sales in Europe by duPont of I. M. R. powder (a new form of nitro-cellulose powder). Unfortunately, the factual background of this disagreement is not entirely presented by the evidence but it appears that duPont had offered licenses for the I. M. R. powder to ICI which they had declined. Military authorities had interposed objections to the licensing of some secret military inventions, but whether this objection extended to I. M. R. powders does not appear. DuPont had discontinued licenses in this area allegedly with a view to freeing itself to sell military products abroad; but what licenses these were, and to what products in Europe they related, and what the sales picture was with respect to those products remains obscure. Another element in the factual melange was the pressure to which duPont was subjected by American Army officers to sell abroad in order to keep works in operation, and skilled personnel on the job, in preparation for any emergency.
The controversy was initiated by ICI in a letter from Sir Harry McGowan (Ex. 33, pp. 186-7). Subsequently, ICI's position was fully stated in a memorandum in which they noted that: "Nobel have always interpreted the arrangement with duPont by reference to the sequence of agreements and arrangements dating back to 1897 and not merely on a strict reading or interpretation of the present Patents and Processes Agreements, * * *." (Ex. 36, p. 193).
In this connection, the language of Barksdale, duPont's counsel, describing the 1913 Agreement as an effort to maintain the spirit of the 1907 Agreement, was cited (Ex. 36); the memorandum continued:
"2. Nobel have no desire, nor do they see any necessity, to make any change in the existing arrangements which have worked all this time so satisfactorily, leading as they have done to a free and frank exchange of ideas on all sorts of subjects to the mutual benefit of both parties.
"3. If duPont consider that any altered conditions have arisen, which call for a change in the business policies of the parties and also possibly of the actual agreement, as it now exists, then it would appear to be a matter for duPont to put forward their proposals, in the promulgation of which it seems advisable to keep the following points in mind:
"(a) According to Mr. Felix duPont, the reason for the development of the duPont ideas is based on a desire to keep their powder factories employed with orders from the European markets. It must be *521 borne in mind that our American friends are not alone in this, because many of the European manufacturers (apart altogether from Nobel) have unemployed capacity not only in military powders but also in other commercial products, which they are all equally anxious to fill.
"Note at this point if duPont seek business in European markets it will be no longer possible for Nobel to hold the European manufacturers off in the manner which we have been able to do so far.
"(b) From our knowledge of the European markets, which duPont are investigating, it seems that most if not all such countries have now or will have in the near future factories adequate for the production of normal needs, and that only in case of emergency or of special circumstances will orders be placed with outsiders. In such cases the Governments in question will be influenced entirely by the presence of stocks and will place the business with whichever supplier has the goods available. Spain, for instance, where duPont claim to have sold, only bought because of and at the time of the Moroccan troubles, and we have recently been assured that the factories existing in that country and owned by the Union Espanola and by the Government are adequate for all normal needs and that no business will be placed outside which can be filled from those sources.
"(c) Nobel have no desire to sustain an arrangement which will preclude duPont from supplying anything which they themselves or the local people are unable to supply, and some machinery might be devised dealing with emergencies or special demands, should duPont be approached, but Nobel hold strongly that the introduction of an active campaign in the European markets is a violation of the spirit of the understanding which must have far-reaching effects on the general business of both parties, and which cannot possibly lead to any regular trade, and certainly not to a volume of business sufficient to employ duPont plants economically or regularly" (Ex. 36, pp. 193-95).
Finally, it is observed, "* * * if the subject is to be governed by a strict reading of the existing agreement, Nobel has the right to take the I. M. R. manufacturing rights for European markets (subject to the Government Prohibition Clause), but it is felt by Nobel that the agreement should not be construed on its exact phraseology, but rather on the broad lines of interpretation which have always governed the dealings between the parties" (p. 195).
This memorandum was relayed by Crane, then in duPont's London office, to Haskell, vice-president of duPont. He prepared a response by letter to Crane. It is not entirely clear whether it was intended that the letter was to be shown by Crane or whether it was designed merely to guide Crane in conversations with Nobel officials (Ex. 36, p. 192).
Mr. Haskell commenced by repudiating the interpretation placed on Barksdale's language by ICI to the effect that the Patents and Processes Agreement referred back to the 1897 Agreement; but he acknowledged that the previous arrangements had been based on sound business considerations; that mutual benefits had come from friendly relations, and that expansion in certain directions might well result in harmful retaliation (Ex. 37, p. 198).
He takes issue with the Nobel "camouflage" view of the agreement which he states to be contrary to the fact, in that the 1907 Agreement was cancelled and its place taken by the 1913 Agreement which "was complete in itself and represented all that could be done legally, and was so accepted by the parties" (Ex. 37, p. 198).
Mr. Haskell then notes that the sale by duPont of military powders to Europe was at the base of the controversy. He recalls that on several previous occasions duPont had sold military powders to Europe without protest from Nobel. He considered the "present situation" to be an outgrowth of the First World War when duPont supplied European requirements which in turn developed new buyers who preferred duPont powder. He observed that while Nobels disclaim any desire to act the part of dog in the manger, they are really so acting, for they "`hold strongly' that we should not sell nitrocellulose powder something they do not themselves manufacture *522 in Europe" (Ex. 37, p. 203). Furthermore, he points out:
"* * * the kind of powder required by European buyers is the same as that formerly produced by the Germans. It also happens that the territory in question is to a very large extent the same territory the Germans enjoyed before the war. Therefore, in introducing a campaign in Europe to sell nitrocellulose powder, we are really entering the countries formerly sold by the Germans in which Nobel powder (Cordite) was never in demand.
"Since we are supplying something the Nobels have not yet manufactured to countries formerly supplied by the Germans, it seems rather far-fetched to evoke the spirit of a contract which would have expired in 1921 and to which the Germans were previously a party but which was cancelled in 1913 and by the Germans never renewed, and use this as a basis for excluding duponts from the former German markets and preclude their selling nitrocellulose powder something Nobels have never themselves manufactured" (p. 205).
Mr. Haskell points out the change in conditions over the years, and that "I.M.R. powder was unknown in those years and the present trade conditions resulting from the War were then undreamed of" (p. 207).
The divergence in interpretation of the 1920 Agreement, he attributes to Nobels' inability to understand the Sherman Act, and, finally, he summarized his conclusions as follows:
"1. The Patents and Processes Agreement signed in 1919 means what it says and not more or less.
"2. Experience has indicated that friendly cooperation between such concerns as duPonts and Nobels is preferable to antagonism. The word `friendly' is used in its widest sense and embraces not only the give-and-take of every day life but also rivalry and competition having due regard for fair play and the ethics of the game. * * *
"3. It must be recognized that new conditions constantly arise and that in composing differences in point of view it is of first importance to have full information as to the facts and to clear away misconceptions of facts and then adjust differences in accordance with the principles set forth in the preceding paragraph, considering each case on its merits and with relation to the whole" (Ex. 37, pp. 208-09).
Haskell's letter was submitted to duPont counsel, Judge Laffey, before being transmitted to Crane. Judge Laffey confessed that he was unable to understand precisely what policy Haskell was advocating and that he was uncertain as to the policy he would advocate (Ex. 39, p. 211).
He emphatically stated that duPont was under no legal or contractual obligation to abstain from sale of explosives in Europe absent the granting of exclusive licenses, "* * * but I feel, as I think we all feel, that we must look at this matter from the moral or ethical standpoint. In the light of what has gone before and in view of the fact that the Nobels are partners not only in Canada and Chile but in the automobile field, we must look at it with a view, I should think, of avoiding what, for the want of a better name, are often called `unfriendly acts'" (Ex. 39, p. 212).
Judge Laffey described as the "strongest point" in Haskell's letter the assertion that the territory interested in duPont powder was substantially that previously served by the Germans. He urged, "* * * it would be logical for us to contend that this territory should be treated as so-called neutral territory, or to put it another way as `spoils' belonging to the British and ourselves as allies in the late war" (Ex. 39, p. 215). He then suggested that duPont should, "* * * either say to Nobels we will as a matter of voluntary policy do nothing in European territory that, under the 1907 agreement, would be contrary thereto, or we should do what I am inclined to think we can properly do, take the position that the dropping out of the German company should leave the territory supplied by the Germans neutral territory in which we have equal rights. That would leave us free to sell nitrocellulose powders wherever the Germans sold them" (Ex. 39, pp. 215-216). Finally, he suggested three alternative courses, but, again, indicated his preference that duPont adopt the position *523 that the territory supplied by the Germans during the existence of the 1907 Agreement should be neutral territory.
A meeting was held on April 29, 1924, minutes of which record that Irenee duPont stated, with respect to the interpretation of the 1920 Agreement, that it did not obligate the parties to abstain from sales to the other's exclusive territory where no license had been granted or accepted. It was also recorded that "the Nobel representatives accepted Mr. duPont's statements as being the proper interpretation of the understanding. * * *" (Ex. 48, p. 252).
The position of the duPont defendants concerning this episode is as follows: in the conviction that the 1920 Agreement did not obligate them to abstain, absent licenses, duPont sold, first I. M. R. powders, and then other military nitro-cellulose powders, to Europe. When Nobel objected to these sales and described the agreement as a camouflage, duPont unequivocally rejected that construction. Ultimately, duPont exacted from Nobel acquiescence in its construction of the agreement, as reflected in the minutes and confirmed by the undisputed fact that duPont continued to export military products to Europe. This sequence of events, duPont insists, completely refutes the Government charge of a continuing conspiracy to divide markets.
We hold that analysis of the evidence sustains an entirely different interpretation of the dispute.
The first major document was the note of September 19, 1923, sent by Sir Harry McGowan of ICI to Carpenter of duPont, which set forth the position that the 1920 Agreement was a "camouflage," intended to be interpreted with reference to prior agreements extending back to 1897 (Ex. 43, p. 228). It is to be noted that the Nobel interpretation succeeds various apparently unequivocal statements by duPont executives, preserved in the records, that the patent and processes agreements were just that and not a territorial agreement (e.g. Ex. D.-1280, p. 8288). These documents to which duPont points as probative of its innocence, were apparently regarded by their business associates of many years' standing as mere record serving statements. That duPont had been unable to impress upon Nobel this understanding of the agreements, assuming them to be free of territorial implications, seems a remarkable circumstance. It is no answer to say that Nobel had difficulty in understanding the nature of the Sherman Act and the significance of duPonts' comments with respect to it. That fact and its possible dangers had been understood from the beginning and it is inconceivable that duPont did not state its position with that difficulty in mind.
The view expressed by Nobel as to the camouflage nature of the agreements should be compared with the understanding of the agreement indicated by Lammot duPont in the document previously discussed (Ex. 2), and also with the significant comment of Carpenter of duPont that "there is much right in McGowan's position" (Ex. 37). Haskell's letter to Crane and Judge Laffey's comment on it, must be read with recognition of the fact that duPont, at all times, realized that their agreements and dealings with Nobel contained the seeds of possible trouble as far as the anti-trust laws were concerned, and that records should be completely free of language which might give color or support to such an accusation. Confronted with a document like the Nobel note, it became essential for duPont, irrespective of their actual position, to state on the record dissent from the Nobel view, and, indeed to require Nobel to place on the record acceptance of the duPont construction. These observations are made, not to discount in advance all duPont's disavowals of guilt, but rather to emphasize the necessity for careful scrutiny of the correspondence and records.
Haskell first repudiated the Nobel "camouflage" theory but thereafter he intimated duPont's recognition of the desirability of cooperation. Repeating his repudiation of any territorial connotation, he emphasized the greatly changed conditions resulting from the war with respect to military explosives, the essential lack of competitiveness between the duPont military product and the Nobel product, the circumstance that the territory primarily interested in *524 the duPont military product was that formerly serviced by Germany and in which Nobel powder was never in demand.
If Haskell were flatly repudiating any theory of territorial abstention, the question arises as to why he should refer to cooperation and lay such heavy emphasis on other justifications for duPont sales of military powder to Europe. Perhaps, this might be explained in part by the fact that duPont did not wish to offend Nobel unnecessarily, but this explanation is not entirely satisfactory. The Nobel note indicated to Haskell that Nobel continued to regard the patents and processes agreement as a camouflage. Moreover, Nobel was aware that duPont considered itself under a necessity to keep out of its records language savoring of a territorial arrangement. Under these circumstances, the Haskell memorandum certainly involved the danger that Nobel would consider it an attempt to modify a territorial arrangement with respect to a particular type of product rather than a denial of the existence of any territorial arrangement. Why Haskell should have used language capable of such construction, when he could hardly have been unaware of such a possibility, is difficult to understand.
It is important to note, again, that Judge Laffey, general counsel to duPont and a man intimately familiar with the history of the duPont-Nobel dealings, to whom the Haskell letter was referred for consideration, confessed himself "in doubt as to just what you advocate should be the position of the duPont company." He himself believed that duPont was under no legal or contractual obligation to abstain, but from the "ethical" standpoint it was a different matter.
Nor may we fail to give weight to Judge Laffey's report of his understanding of the 1913 Agreement, that the parties were getting their house in order legally, but that, "as a matter of voluntary policy, nothing would be done by either party that under the 1907 agreement would constitute a violation of the contract." It must be recalled, too, that the defendants have insisted that the 1907 Agreement was not intended to continue to effectuate the purposes of the 1897 Agreement, but that it was cancelled and replaced by the 1913 Agreement only because certain provisions gave it an air of illegality. We are unable to discover in the 1907 Agreement a provision absent from the 1913 Agreement, such that a course of action might constitute a violation of the first agreement without constituting a violation of the second. The conclusion is inevitable, particularly in view of the context of Judge Laffey's letter, that he understood the 1907 Agreement to mask a territorial understanding, and that the 1913 Agreement was to be interpreted in accord with the earlier understanding. Any doubts on this score would seem to be dispelled by Judge Laffey's further statement that it was "well understood by both parties that there was no legal obligation under the Sherman Law to compete and that even natural competitors in the same territory might as a voluntary policy refrain from competition" (Ex. 39, p. 213). Under the circumstances, such a mutual understanding can be viewed only as a euphemistic description of an agreement not to compete.
There is no record of any reply to Judge Laffey's letter. Notwithstanding his comments, which made clear the basic ambiguity in duPont's position as set forth by Haskell, the Haskell letter was transmitted. Subsequent documents add little to the picture, looking forward to the resolution of the dispute after discussions held on the highest levels.
No record of these discussions was maintained other than the minute wherein Nobel suddenly appeared to acquiesce in the supposed duPont view. The matter was recognized to be of such fundamental importance that it could not be resolved either by correspondence or by discussion among subordinates (Ex. 42, p. 223). Its resolution was deferred pending the convenient assemblage of the higher officials of the two companies. It is inconceivable that the memorandum of agreement (Ex. 48, p. 251) had not been preceded by detailed discussions over the history and operation of the agreement. During their long association other discussions and negotiations were recorded with meticulous care. If duPont genuinely rejected the territorial theory, *525 and if it brought ICI over to its view, it is difficult to understand why no records of these particular discussions were preserved. This gap in the records becomes particularly important in the light of the fact that Nobel, after formally acquiescing in the duPont view, continued to regard the agreement as a camouflage (Ex. 179, p. 824).
We are unable to accept at face value the document in which Nobel apparently acquiesced in the duPont construction of the agreement (Ex. 48), nor do we regard duPont's continued sales of such military explosives as decisive of the non-existence of territorial restriction. The basic facts are at least equally consistent with another view, namely, that the real disagreement arose out of an effort by duPont to modify the territorial arrangement.
It should be noted that the disagreement involved solely military explosives. DuPont was under pressure from the government to maintain in operation their military facilities. Moreover, their military commodity was not in direct competition with the Nobel military product. The main European market for their product was one previously serviced by Germany, and where Nobel had made no sales of note. In urging duPont's right to sell, Judge Laffey certainly regarded these considerations as the decisive ones. Haskell was, at best, ambiguous as to the ultimate basis of his position under circumstances in which ambiguity can only be considered unfavorably to the defendants. The mere fact of duPont's continued sales of military products to Europe is as consistent with the existence of an underlying territorial arrangement as with its nonexistence. We are persuaded that the military explosives dispute, far from disclosing the abandonment of a territorial arrangement, serves only to confirm its continued vitality.
Any substantial doubt on this score would seem to be resolved by an arrangement into which the parties entered during November, 1925 (Ex. 51) and which they made public in 1926. This agreement was the first of four related to military explosives on the European continent. Here, we confine our interest to the first of these arrangements solely for the light it sheds on the Patents and Processes Agreement of 1920. In substance, the arrangement provided that "duPont was to have the priority on nitro-cellulose powder business, and that Nobel Industries would have the priority on T.N.T. and nitroglycerine powders" (Ex. 51, p. 259). Nobel was also to limit its sales of nitro-cellulose powder to three hundred tons a year.
Apparently, after duPont secured Nobel's consent to its sale of military powders in Europe, some competition had developed between the two. The nature of this competition is not detailed in the documents, but, at least, in part, it followed Nobel's apparent entrance into the nitro-cellulose field. It is not, however, a permissible inference from the fact of this competition that duPont had previously insisted on its right to sell military explosives to Europe irrespective of competition with Nobel. In fact, a key argument in the duPont position had been that at that time little or no competition would follow from its entry into the European military explosive field.
That the agreement here described was illegal, if within the jurisdiction of the Sherman Act, can scarcely be questioned. It is apparent that the parties then thought that the agreement was not within the jurisdiction of the Act, and that they were free to embody in writing their real understanding. This jurisdictional question does not presently concern us, for we are now interested in that agreement solely to the extent that it illuminates the preceding dispute.
The fundamental fact is that after a prolonged dispute involving military explosives, the parties entered into an agreement to divide the European market between themselves. Originally, Nobel had contended that duPont was foreclosed from the European market and duPont had claimed the contrary, but ultimately, both parties agreed upon a division of that market between themselves. This development adds still greater weight to the position that the earlier dispute in fact involved only a disagreement as to the nature of the territorial arrangement and not as to the fact of a territorial arrangement. It is contended by the defendants that this latest agreement, succeeding *526 by a year and a half the "termination" of the previous dispute, was quite unrelated to it. But it is significant to note that at the very inception of the prior controversy, Carpenter, for duPont, had suggested as a possible and desirable solution that the nitro-cellulose business be reserved to duPont and the cordite to Nobel (Ex. 34, p. 189). In connection with this, note must be taken of a still later expression of the duPont view after the acceptance of special European arrangements for military explosives. A minute of a duPont Foreign Relations Committee conference, held February 7, 1928, reports as follows: "The above should not be taken to mean that Nobels are dissatisfied with the present arrangement; as they have done very well on their T.N.T. sales. They seem to have accepted our position of being in Europe; i. e., that the business we are enjoying formerly belonged to the Germans and that we have as much right to it as they have" (Ex. 60, p. 302).
The conclusion is difficult to avoid that the entire "controversy" indicated, not the non-existence of a territorial arrangement, but a dispute against the background of altered trade conditions as to an appropriate division of the European military explosives market.
3. Expansion of Conspiracy to Embrace DAG
During 1924-1926, various discussions took place between duPont, ICI and various German companies headed by DAG. In part these discussions concerned plans for the elimination of competition between the companies in South and Central America; this phase will be considered later. To the extent that they involved patents and processes agreements, consideration is presently appropriate. The result of these discussions were the following agreements entered into in 1926:
(1) A patents and processes agreement was drawn up between duPont and DAG, which followed the now familiar pattern, with DAG receiving as its exclusive license territory the following area carved out of the previous ICI exclusive license area: Germany, Holland, Poland, Austria, Denmark, and Bulgaria (Ex. 85, pp. 424-427). Due to objections from DAG, this agreement was never signed (Ex. 98; Ex. 634). The Government claims that it was nevertheless carried out; duPont denies this, and insists that whatever exchanges of licenses took place were worked out separate and apart from this agreement. We deem it unnecessary to decide this question.
(2) DuPont and ICI entered into a new patents and processes agreement replacing the earlier 1920 Agreement and embracing substantially the same products (Ex. 97, p. 499). Only two changes from the earlier agreement are of note. Military explosives were not included and the territory assigned to DAG under the separate agreement was excised from ICI territory. Otherwise the 1926 Agreement was substantially the same as the one in 1920.
(3) ICI and DAG entered into a patents and processes and trade abstention agreement (Ex. 96, p. 480). The exclusive license territories under the patents and processes agreement were identical with the territories set off for each other in the trade abstention part of the agreement. The territories set apart for the German company included those countries assigned as German exclusive territory under the duPont-DAG agreement (Ex. 85), and several others.
DuPont was well aware that ICI and DAG were interested in achieving agreement, and indeed did achieve agreement, dividing trade areas between themselves. More precisely duPont was aware that this division of territory pertained to the subject matter of its patents and processes agreement with ICI and that the territory in question was that assigned under its earlier agreement to ICI. Not only was duPont aware of this, but it entered into separate agreements with DAG and ICI in which the exclusive license territories assigned these companies dovetailed neatly with, and was obviously planned to dovetail with, the territorial division which the latter companies had entered upon between themselves. Together with these circumstances, it must be noted (and this will receive more ample comment later) that duPont joined with both companies in arrangements *527 looking forward to the elimination of competition in South and Central America arrangements which involved only exports and were therefore probably believed by duPont to be outside the purview of the Sherman Act.
On the one hand, then, we find a network of agreements, into some of which duPont openly entered, looking forward to the elimination of competition. On the other hand, precisely at the point beyond which it was believed the jurisdiction of the Sherman Act extended, we have patents and processes agreements which the parties now urge were solely concerned with the exchange of technology. And we find these latter agreements, allegedly motivated solely by technological considerations, fit with miraculous neatness into the general pattern of territorial arrangements. We are unable to accept the proposition that this happy harmony was the result of sheer coincidence. This pattern of arrangements furnishes proof that the patents and processes agreements represented, in major part, an effort to camouflage an illegal trading arrangement under an appearance of legality.
We have found that the agreements, heretofore examined, primarily involving explosives, reflect an underlying conspiracy between the defendants duPont and ICI to divide markets between them. The 1907 patents and processes agreement, the first real utilization of that device, was an attempt to effectuate the purposes of the illegal 1897 Agreement, under the color of legality provided by its patent features. The cancellation of that agreement, and its replacement by more carefully drawn patents and processes provisions, in no way altered the underlying motivations of the earlier agreements.
4. The Addition of Products to the "Explosive Agreements"
DuPont and ICI, originally commenced as explosives companies, expanded the scope of their operations over a period of time, particularly during 1920-1929, until they became great chemical combines, producing large varieties of chemical products. Both the 1920 and 1926 agreements provided that new products might be added to the agreement by mutual consent. This was done with respect to a number of products (Ex. 37, pp. 205, 206). These additions simply relate to the number of products within the patents and processes agreement and do not help to define the nature of the agreements.
With respect to other products, also not within the scope of the original agreements, arrangements other than mere exchanges of licenses were undertaken. In accordance with its contention that the patents and processes agreements masked a territorial division, the Government insists that these other products were brought within the scope of the conspiracy to divide markets. In form these other arrangements, relating to the exclusive territories, were similar to the devices employed in the non-exclusive territories, and we shall consider them in connection with our discussion of the jointly-owned companies.
B. The 1929 and 1939 Agreements
With the growth of duPont and ICI the desirability of expanding their patents and processes arrangements to embrace the numerous new products became apparent. The agreements we are about to consider represent the fruits of this determination.
It must be remembered that the patents and processes agreements did, according to their terms, involve a division of territories; that is not disputed. It is the contention of the defendants, however, that this division of territories is a mere by-product of a legitimate exploitation of valid patent and secret invention monopolies. With respect to this, it is clear that the parties were not primarily interested in exploiting their monopolies in order to get royalties. As set forth in the 1929 Agreement, and amplified in argument, the defendants claim that they entered into these arrangements with the purpose of securing for themselves the benefits of an exchange of technology.
The query then, is whether the agreements were entered into with a view to dividing territories, or to securing the benefit of technology; or, if both motives were present, whether the unlawful motive *528 was a material consideration. The imposition of territorial division was not necessary to achieve the benefits of an exchange of technology. The same benefits could be equally well achieved without any territorial allocation.
It is argued in justification for the assignment of territories that the parties deemed exclusive license territories necessary so that they would not be faced with competition utilizing their own inventions. Let us see how this worked out under the terms of the patents and processes agreements. Until 1934, every licensing of a patent or invention had a dual aspect: the licensee could not utilize the invention in the territory of the licensor, and to that extent the contention has support; but, on the other hand, the licensor could not utilize his own invention in the licensee's territory. This territorial restriction, included in every patents and processes agreement until 1934, cannot be explained by the need to protect a party against the adverse use of its own technology. Unless this territorial restriction can be otherwise satisfactorily explained, it opens to the severest scrutiny the authenticity of the entire technological justification for these agreements.
Similarly, it may be noted that the patents and processes agreements provided for nonexclusive licenses in areas other than those set up as exclusive. In those areas the parties were willing to permit their technology to be used against themselves. Oddly enough, the non-exclusive areas, as the duPont documents themselves emphasize, were areas in which the conditions for effective competition between the parties existed to a far greater extent than in the exclusive territories, and in which licensed technologies could be more effectively used against the licensor. This apparent contradiction, duPont seeks to dispel by the argument that their exclusive market, though less vulnerable, was also more important to promote. While this might be considered satisfactory on the surface, we must observe that the situation it describes is equally susceptible to another interpretation, that pressed by the Government, namely the exclusive territories were considered so important to the respective parties that they sought to protect them, not against adverse use of technology, but against competition.
Nor can we accept the defendant's explanation that by the territorial restriction in the patents and processes agreements until 1934 upon the licensor with respect to its own inventions in the licensee's exclusive territory, the parties restricted themselves because they determined that the best way to exploit their inventions was through royalties flowing from licenses, and that to compete with respect to that territory would simply reduce its royalties value. The decisive inquiry would appear to be whether or not the bulk of inventions licensed had, or were expected to have, any appreciable royalty value. The proof demonstrates that many of the inventions licensed did not have such value, but were nevertheless made the basis for a territorial allocation. The inference necessarily follows that the territorial division was the real purpose of the arrangement.
The discussions pertaining to extension of the duPont-Nobel relations to the newly formed ICI were initiated in July 1927 when duPont sent to Europe a delegation headed by Lammot duPont. The purpose behind the formation of ICI was to monopolize the British chemical industry; Sir Harry McGowan described it as the first step in a "scheme to rationalize chemical manufacture of the world" (Ex. 122, D-2235 to D-2238). Further steps were to be development of the existing intimate contact with duPont (Ex. D-2236, p. 11504) and arrangements with I. G. Farben and Allied Chemical and Dye Co. of the United States (Ex. 122, pp. 607-608; Ex. D-2236, p. 11504). Earlier in the year, ICI had commenced discussions with I. G. Farben looking forward to a "cooperative arrangement" involving the world's chemical industry. DuPont also separately engaged in conversations with I. G. Farben. While their discussions proceeded independently, ICI and duPont kept each other informed of the results. In December, 1927 both came to the conclusion that an agreement could not be reached with I. G. Farben for the time being, and that they *529 ought to proceed independently to expand their own patents and processes agreements, leaving I. G. Farben arrangements to the future (Ex. 124; Ex. 125).
The documents dealing with the discussions and negotiations preceding and following the duPont-ICI agreement of 1929 are extremely voluminous and varied. A large variety of products, presenting individual and difficult problems, are involved. A complete and exhaustive recital of all pertinent material would be impractical. We have made an effort to recite and synthesize what we regard as the most significant portions.
1. Negotiation of the 1929 Agreement
a. The Internal duPont Discussions
Preparatory to entering negotiations both parties undertook to ascertain the views of those within their organizations directly familiar with the individual products. With duPont this took the form of meetings of its Foreign Relations Committee with representatives of the separate departments.
On February 6, 1928, a meeting of the Foreign Relations Committee was held (Ex. 179). The chief topic of discussion was ICI's proposed entrance into the plastic field, which duPont urged should be done through the purchase of the British Xylonite Company, if done at all. The duPont Viscoloid Company had dealings with the British Xylonite Company which consisted of "an exchange of technical information without any understanding on markets whatsoever." The disadvantages to duPont of the ICI purchase were pointed out; it was felt that "the ICI were not an aggressive research and development concern" and that "if they took over the Xylonite Co. it was likely that we (duPont) would receive less rather than more technical aid than under the present arrangement." It was also believed that "If an agreement were made with ICI, they would undoubtedly ask for a territorial arrangement" (Ex. 179, p. 823). The real interest of "Viscoloid" in the English market was that it was "the largest export market of the Italian subsidiary companies" and duPont opposition to withdrawal from England was recorded because "such withdrawal would not be of benefit to the ICI as the business would be taken by the Germans" (Ex. 179, p. 823). The minutes then note that
"* * * In this connection the question of our withdrawing from English and European markets whenever we competed with I.C.I. was discussed, and the precedents of military powders and Fabrikoid were mentioned.
"The question as to DuPont's attitude if I.C.I. should put this subject on a broad basis, and ask for an exchange of information on all subjects was then discussed. Mr. Crane thought that the Brunner-Mond crowd wanted such an agreement but he thought that a Patents and Processes agreement had meant and still meant to Sir Harry McGowan and his associates a camouflage to cover a division of territory. Our attitude continues to be that such an agreement means exactly what it says. It was agreed that from the broad company standpoint it is desirable that we act as friendly advisors, but that if the Patents and Processes agreement were extended it should not carry any implication of limitation of territory on non-patented products" (Ex. 179, pp. 823, 824).
A further meeting of the committee was held the next day; the agenda included discussion of the extension of the patents and processes agreement, and the competitive situation existing in Great Britain between a duPont subsidiary, National Ammonia Company, and an ICI subsidiary, the Standard Anhydrous Ammonia Company.
It is reported that "Mr. Crane stated that * * * ICI has intimated that the National Ammonia Company should cease selling in England. The point of view of the latter company is that they should continue in competition to maintain a trading position, i. e., that they would be willing to withdraw on some such basis as money compensation or an understanding whereby Standard would agree not to compete with the National Company's Canadian subsidiary" (Ex. 180, p. 826).
Further, it was noted that the "real basis of discussion with ICI is the extension *530 of the Patents and Processes Agreement. If this is brought up, we can discuss withdrawing from selling anhydrous in England on terms; if it is not, then there is no basis for discussing the point of withdrawal at all" (Ex. 180, p. 827).
It is clear that ICI's interest in withdrawals was strictly to eliminate competition and that the officials of the subsidiaries were entirely willing to negotiate a territorial division; the subsequent reference to the patents and processes agreement as the only basis of withdrawal illuminates the way in which that agreement was viewed by both duPont and ICI. The significance of this is not altered by the statement that both parties might profit technologically, or that the future of the duPont Company in England was insecure.
On February 14, 1928, another meeting discussed the proposed extension of the patents and processes agreement with reference to paint, lacquer and chemical technology. A duPont official pointed out that through Nobel Chemical Finishes, Ltd. all products of the Paint, Varnish and Lead and Chemical products division were already covered.
Later it was recorded that "Mr. Crane asked why we withdrew from England on Fabrikoid without compensation. This was done because the President felt it was right from a broad company standpoint, and also it was found that we had been bad price cutters and were disturbing the market. All agreed that they should not be considered a precedent for future withdrawals" (Ex. 181, p. 830).
The insincerity of this duPont resolution to leave behind their evil ways is plain; there was never a firm purpose of amendment; these were but empty words and not the precursor of a new and different duPont-ICI era.
Of particular interest is the record of another meeting of the duPont Foreign Relations Committee called to discuss the extension of the patents and processes agreement to dyestuffs (Ex. 182); this, as well as other documents bearing on dyestuffs, must be read in the light of defendants' claim that acquisition of I. G. Farben technology was a major factor inducing duPont to enter into these arrangements.
It is recorded that
"As a background Mr. Harrington reviewed the situation with I. G. Farben. The ideal situation is to be let alone:
"1. The Germans to refrain from making any large investments in this country.
"2. Competition with the Germans in present export markets We are perfectly willing not to open any new offices.
"3. Germans to cease an attempt to break down our tariff.
"4. Patents and Processes Agreement with I.G. would be very advantageous. This is of little interest to the Germans as they are seeking a market for their product, and not for their processes. An alternative but less desirable arrangement would be the formation of an American partnership with the I.G., although any consideration of this must be on the basis of complete control by duPont Company" (Ex. 182, pp. 832, 833).
DuPont's primary concern with respect to I. G. Farben and dyestuffs was to eliminate their competition. The entire program was in elaboration of the statement of "the ideal situation," which was "to be let alone." Three of the points involve restriction on competition, two of them in American markets, and one of them in export markets. While a patents and processes arrangement would be desirable, it was apparently precluded by I. G.'s refusal to abstain from American markets. The possibility of acquiring I. G.'s eminently desirable technology without imposing territorial abstention did not even occur to duPont!
The alternative to the first program an American partnership with I. G. was obviously set forth as a device to eliminate competition in the American market.
The minutes then report consideration of an arrangement with ICI and note the following stumbling blocks:
"1. Any real international understanding must include the I.G. and we should not make commitments with the ICI that might preclude future conversation leading to an understanding with them. * * *
*531 "2. Territorial Limitations: if such an understanding becomes impossible and it becomes necessary for us to fight the I.G. in their export markets due to an increase in their aggressiveness in this country, we must have a free hand. The ICI would undoubtedly ask for the British Empire, possibly recognizing our market in Canada. It is extremely doubtful whether we should sacrifice our rights to sell in India, this being one of I.G.'s most important markets" (Ex. 182, p. 833).
This still further demonstrates the complete trade psychology which dominated duPont's view of the I.G. dyestuff problem. Continuation and intensification of the duPont dyestuffs business in India was viewed solely as a technique to force I.G. to a territorial arrangement. But if that was duPont's controlling consideration with respect to I.G. concerning dyestuffs what then can we think about their understanding of the ICI relationship? (See Ex. 184.)
Another meeting was held February 18, 1928 to discuss matters to be taken up with ICI (Ex. 185). It was noted at this meeting held in Lammot duPont's office on February 18, 1928, that "Any extension would probably be based on N.A. (excluding Canada) as exclusive territory for duPont, as against British Empire as exclusive territory for ICI. Mr. Lammot duPont questioned the eventual fairness of this decision, suggesting that S.A. should also be included in duPont territory. It was recognized, however, that ICI could fairly point to a large number of industries in which the United States was half the world's market (Ex. 185, pp. 851, 852).
This last comment is of considerable significance. Both parts of the defendants' explanation for the use of exclusive territories self-protection against adverse use of technology and the superiority of licensing where competitive possibilities are limited hinge upon the concept that there were territories in which one party had strong competitive advantages and other territories where the other party enjoyed such advantages. These quoted paragraphs indicate that a significant factor in determining exclusive territories was to divide trade evenly between the parties. The vitality of such a consideration is inconsistent with the claims asserted, and lends further support to the view that they regarded the patents and processes agreement as a camouflage for a territorial division.
Immediately following this revealing quotation, the minutes of the meeting of February 18, 1928 continued: "The implications of a Patents and Processes agreement should be included in the Minutes. It means exactly what it says and is not a camouflage for a sales arrangement" (Ex. 185, p. 852).
The weight to be accorded such declarations has been previously discussed. To us, it reads as an expression of a consciousness of guilt of wrongdoing, a protestation of innocence in the absence of an accusation, an attempt to create an explanation or defense prior to detection.
Preliminary meetings were then held at Wilmington in March, 1928, attended by duPont executives and an ICI delegation headed by Sir Harry McGowan. With respect to the extension of the patents and processes agreement certain complicating factors were pointed out: the I. G. situation; ICI's stock interest in Allied Chemical and desire to maintain friendly relations with them in various world markets; ICI's relation with Newport Chemical Company, which "would of necessity cause duPont's information to be passed along to Newport." In response to a query by Sir Harry McGowan as to the possibility of getting together to form a tri-partite agreement with Allied Chemical, duPont was of the opinion that "any agreement between A.C. D. and duPont would cause so much hostile criticism as to preclude the subject from consideration" (Ex. 186, p. 861).
b. The Internal ICI Discussions
Like duPont, ICI also held preparatory internal discussions. Letters were sent to the various ICI product groups (Ex. 194). It was pointed out that: "The existing agreement in effect gave (1) North America (excluding Canada) to duPonts; (2) British Empire to Nobels, and (3) The remainder of the world is common" (Ex. 194, p. 896).
*532 The new agreement was to be explored preliminarily on the basis of the same general demarcation. To get a clear picture, answers were sought to the following questions:
"(1) What agreements have ICI or the subsidiaries with concerns in U.S.A. or elsewhere which might cut across any extended arrangement with duPonts?
"(2) What in effect are the provisions of such arrangements?
"(3) Where, if at all, are duPonts competing with us in the British Empire?
"(4) Is any such competition serious? In other words, can a view be taken on the probability of duPont's agreeing readily to withdraw from any such British markets?
"(5) In what countries under (3) i.e., `the remainder of the world' can ICI claim to have all, or a large share of the market? In other words, to which countries do ICI attach importance?
"(6) Can a view be taken of the countries in (3) to which duPonts are likely to attach importance?
"Replies to these queries are only desired in general terms. If the relatively simple markets can be eliminated, it may be necessary to go into specific situations in detail.
"It is only proposed at this stage to ask one question affecting the technical situation, viz:
"In what technical fields can ICI claim to be ahead of duPonts? In other words, where are we likely to have more to give than to get?" (Ex. 194, pp. 897-98).
These letters initiating ICI preparation for the negotiations with duPont placed primary emphasis on the commercial situation. It is possible that this arose from a belief in the importance of such considerations in working out an effective, legitimate patents and processes agreement, but the whole approach of the letter suggests the contrary. The evidence substantially confirms the territorial view as representing ICI's dominant attitude.
The responses to this ICI letter from their department heads reflect the belief of ICI that it had considerable information of great value to give duPont. To that extent, they rebut the Government's contention that ICI's technology was so far behind that duPont could not possibly have been genuinely interested in its acquisition. Note should be taken, however, of various comments in the answering letters which disclose an interesting pattern.
In the response of the British Leather Cloth Manufacturing Co., Ltd. (The British Pluvium Co. Limited), it is reported that duPont is competing in South America, but that the competition is not serious, and it is not "desirable that duPonts should withdraw from this market at this stage." A list of countries in which ICI has a large share of the trade is appended and it is indicated that duPont would attach importance to the trade in five countries, all of which are on the ICI list (Ex. 195). Another letter disclosed that ICI's leathercloth business in the United States, "* * * is comparatively small and that any question of ICI withdrawing from that market would not be one of major importance. You will appreciate, of course, that nothing will be given away without some quid pro quo, although in comparatively minor issues the quid pro quo might be obtained in some general sense or affecting another industry in ICI" (Ex. 196, p. 903).
It was pointed out in an ICI memorandum of February 8, 1929, that,
"* * * in actual trading there are many modifications to the general statement that the remainder of the world is common.
"We have in mind such arrangements as apply in the case of China and Japan, whereby the Americans quote considerable higher prices than ours, if called upon to do so, thereby in effect giving us protection in these markets also. We merely cite this as an example but our point is that the Patent and Processes Agreement is generally looked upon as a guide in the matter of trading and that in any revision of the agreement care should be taken to safeguard the position from a trading point of view. This may even have to be done in a manner verbally but it is necessary to keep it in mind. A general statement to *533 the effect that the position applying at present in regard to high explosives would also apply in the future ought to be sufficient as our American friends do not like to put things too concretely in writing in view of the Anti-trust regulation in the States" (Ex. 201, pp. 917-18).
c. The Joint duPont ICI Discussions
It was finally determined in October, 1928, at a meeting of the duPont Foreign Relations Committee that duPont should approve of extending its agreement with ICI to cover products other than explosives, "provided suitable territorial arrangements can be made" (Ex. 190, p. 888). Dr. Fin Sparre, with Mr. John K. Jenney as his secretary, was designated the duPont negotiator; ICI named Messrs. George W. White and Francis Walker (Ex. 191; Ex. 192). Later, at a duPont meeting, it was resolved that the existing Explosives Patents and Processes Agreement between duPont and ICI should be suggested to the negotiating committee as a form for the new agreement, "it probably being the only legal method of effecting the purpose of the two companies" (Ex. 205, p. 927).
With this background, the patents and processes negotiations took place in two sections: first, preliminary conferences in New York, and then later conferences in London. It is our purpose here to determine what light these discussions cast upon the intent of the parties.
At the first meeting held at Wilmington on March 4, 1929 of the "sub-committee" appointed by duPont and ICI to consider the extension of the patents and processes agreements, a dispute arose concerning the basic territorial allotments. It was recorded that:
"I.C.I. raised the broad principle that its logical markets were its export markets, while duPont's logical market was the United States. They therefore suggested that duPont's exclusive territory be North America (except Canada), that South America be non-exclusive, and the rest of the world exclusive territory for I.C.I.
"Dr. Sparre replied that duPonts could never accept this principle. It was his contention that the size and competitive situation in the United States market could not be considered as an argument against duPont's equity in other markets. He also pointed out that duPont had an international position which had cost considerable time and expense to build up, and that duPont would never accept the principle that it must confine itself to the American hemisphere" (Ex. 205, p. 932).
Finally, it was "* * * decided to carry on discussions from the standpoint of recognizing United States as duPont's exclusive territory (duPont representatives entered the reservation that they considered North America exclusive of Canada as being the proper division), against the British Empire (exclusive of Canada) as exclusive I.C.I. territory, the rest of the world to be non-exclusive. It is recognized that on individual products, exclusive territories will not be necessarily confined to these territories" (Ex. 205, p. 932).
Dr. Sparre's statement that duPont would not confine itself to the American hemisphere is interesting in its revelation of a fact made clear throughout the record, namely, that the parties recognized that the assignment of a territory as exclusive to one party meant the elimination of the other party from that territory.
The minutes further record that "The British Empire being I.C.I. territory, duPont would expect to withdraw when I.C.I. is prepared to take over its business. Proper compensation will be arranged by the Heads of Industries concerned" (Ex. 205, p. 933).
The reference to withdrawal, unqualified by any allusion to the granting of licenses, in terms seems to disclose a territorial understanding. The defendants insist, however, that patents and processes licenses were an unstated but generally accepted qualification of such language. Since substantially similar language was used in the London Draft of the Agreement, and the same difference of interpretation there arises, this question can be best examined in that context.
Two observations, however, may be presently made: (1) even if licenses were in the minds of the parties, it is clear that *534 they understood the agreement to entail withdrawal from present business in the other's exclusive territory, and to preclude future or potential business therein; and (2) it seems plain that by arrangement for proper compensation, the parties had in mind payment for withdrawal from business rather than payment for the value of patents. If in fact consideration was to be paid for the value of surrendered business, independently of payment for the value of technology, the inference is strong that the primary concern of the parties was to divide territories, and not to exchange patent technology.
At a second meeting of the Committee held the following day, "It was decided to proceed in discussions along the lines of attempting to reduce neutral territory to a minimum. A list of the interests and commitments of both parties in this connection as far as the members of the subcommittee had knowledge, was submitted" (Ex. 206, p. 934).
At this meeting, the first of a series of discussions concerning provisions for particular products was held.
With respect to coated textiles, it was reported that: "DuPont has a certain export business in the British Empire * * *, from which it might withdraw, at such time as ICI could supply, for suitable territorial compensation elsewhere" (Ex. 206, p. 935).
Assuming that the withdrawal was envisaged as occurring only upon licensing of inventions, it is difficult to relate the projected transaction to any legitimate patents and processes agreement purpose. The business in question must be assumed to have been profitable, else there would seem no reason why withdrawal should be conditioned upon territorial compensation. Thus, the parties here, as elsewhere throughout their relationship, contemplated the direct elimination of competition between themselves; and that fact has significance independent of the actual intent of the parties. But, in addition, the proposed exchange cannot fit into the defendants' rationale for assigning exclusive territories.
That rationale assumes that there were territories wherein one party had natural economic advantages and that these territories should be assigned to the preferred party as exclusive license territories for the reasons: (1) that party should not be required to permit its technology to be used adversely in their main markets; and (2) the parties preferred to forego their individual right to exploit their own invention where the competitive possibilities were limited in exchange for the right to exploit the other party's technology in its own territories. Assuming that the British Empire was properly deemed the exclusive territory of ICI, and so deemed even with respect to products made the basis for a profitable business therein by duPont, the question arises how the surrendered business can be made the basis for assignment of additional territories to duPont. The assignment of territory as exclusive to one party simply to compensate it for a prospective loss of business is difficult to reconcile with the needs of a legitimate technological agreement. Such a territorial assignment, however, does fit into the pattern of a commercial understanding. The approach here disclosed, echoed throughout the record of negotiations, strongly supports the conclusion that at least one major objective of the patents and processes agreement was to eliminate competition.
A major topic of discussion throughout the negotiations, and one to be read in the context of the preceding consideration, was also alluded to in the following language: "DuPont would agree to withdraw from India when ICI was in a position to supply duPont trade there and upon suitable compensation" (Ex. 206, p. 937).
Note should also be taken of the immediately following comment.
"It was agreed that it would not be desirable for either party to withdraw from China or Japan, but that the two parties could gain material advantages by close collaboration. Mr. White suggested the feasibility of DuPonts considering the I.C.I. Trading Companies in those countries for their agents" (Ex. 206, p. 937).
*535 A territorial agreement was reached with respect to exclusive and non-exclusive areas. The dominant consideration underlying the assignment of exclusive areas was stated as follows: "* * * it is recognized that for most efficient operations, licenses and rights under this agreement should be exclusive in areas having close relationships with the home country of each company" (Ex. 208, p. 949).
With respect to non-exclusive areas, the following was tentatively agreed upon: "(5) For the same existing operations in which both companies are engaged, nonexclusive licenses will be granted by one company to the other for all other countries not in exclusive territory, but it shall be the duty of the heads of each industry of each company to endeavor to formulate mutually acceptable plans for either joint operations or further extension of exclusive rights under patents and processes to the end that the maximum value of such patents and processes be realized" (Ex. 208, p. 950).
The reference to joint operations is omitted from the final agreement; whether or not the jointly owned companies subsequently effectuated the above understanding remains open for later inquiry.
Certain it is that the parties were not happy to have much of the world embraced in the non-exclusive license area.
"It is recognized that the granting of non-exclusive licenses to each other in large and important countries must lead to some conflicting developments and lessen the efficiency in operation and value of processes. * * * It is therefore necessary to devise means whereby to reduce to comparative unimportance conflicts or inefficiency caused by mutual non-exclusive licenses. Therefore, * * * it is further agreed to extend the countries of exclusive licenses as follows:
"(A) Explosives this industry to follow the present explosives patents and processes agreement.
"(B) All other products and industries to be examined in detail in order to propose extensions of the exclusive license countries so that the exclusive territory of each company will comprise countries in addition to those designated in Section 4" (Ex. 208, pp. 951, 952).
A subsequent duPont letter indicates that discussion of the proposed extensions could not be entered into during the early part of the negotiations because ICI did not have the commercial information necessary for its discussion at that time (Ex. 209, p. 956).
We find of considerable interest a letter written at this time to Dr. Sparre, duPont's Chief negotiator, by E. G. Robinson, Ass't General Manager of the duPont Dyestuff's department. The opinion is there expressed that "As far as dyes and intermediates are concerned, we are very definitely of the opinion that the information which we could furnish them would be of very much greater value than that which we could expect to receive" (Ex. 210, p. 962).
This statement is particularly interesting in light of duPont's claim that a primary objective of the agreement was the acquisition of dyestuffs technology. However, defendants point out that the ICI dyestuff's people had expressed the contrary view (Ex. 200, p. 916), and suggest that the Robinson statement was in the nature of puffing. Moreover, Robinson himself goes on to indicate that a pooling of technology would be of benefit.
The most interesting comment in the Robinson letter is the following: "In the case of the original Patents and Processes Agreement applying to the explosives Department, it is our belief that the arrangement was attractive and continues to be attractive because of the extent to which an allocation of territory between duPont and ICI, can be made effective, due to the absence of other important competitors. In the case of dyes and intermediates, because of the great importance of the Germans in this field, any agreement which can be reached between I.C.I. and ourselves as to allocation of world territory, is of much less significance" (Ex. 210, p. 962).
The presence or absence of important competitors would seem quite clearly to be immaterial if the objective of the agreement was to secure to the parties the benefit of each other's technology. Patents and processes received under the agreement do not lose their technological utility because *536 of the existence of a competitor. The existence of outside competition was relevant to the patents and processes agreement only if a principal purpose of that agreement was to eliminate competition between the parties. In that event, the presence of a competitor not subject to the agreement would, of course, reduce to the parties the benefits of eliminating competition inter se. It is plain that Robinson considered the then existing agreements to be motivated by an effort to eliminate competition, and was objecting to any attempted application of that principle to dyes and intermediates.
On April 18, 1929, a preliminary draft agreement was drawn up (Ex. 212, p. 976); many of its provisions embrace points previously considered, but a few of the provisions merit mention.
It was set forth that: "4. Such granting of exclusive licenses should be made as each company may become in a position to undertake business in new territory inasmuch as otherwise, one company might lose business which the other company might not be able to secure" (Ex. 212, p. 979).
Putting to one side any question of an underlying purpose to divide markets, it is made perfectly clear by this statement, as well as by numerous others in the record, that an effect of the proposed agreement was expected to be the elimination of existing competition between the parties.
The draft agreement also declared that in at least two instances duPont was assigned additional exclusive territory in part as compensation for business which was to be surrendered to ICI (Ex. 212, p. 982).
During the London conferences, Dr. Sparre sent to Lammot duPont, who was fully informed of the course of the negotiations, a letter on the progress of the conferences which contained a reference of interest: "Salt Cake has bothered me quite a little bit. Approximately 75,000 tons annually are exported to the U. S. jointly by German and English manufacturers under a pooling arrangement. All the Salt Cake exported to the U. S. is of German manufacture and export, although I.C.I. share in the profit and place their quota in other markets. I think that when it comes to drafting the agreement, good care should be given to this point, but no doubt Mr. Mudge will consider this is a difficult situation to handle, and I do not have a suitable solution to propose at this time" (Ex. 218, p. 1052).
Dr. Sparre was concerned with the salt cake situation because it involved competition with duPont in the American market, and he was desirous of eliminating that competition. The objective could not be achieved because the product was of German manufacture and export; although the profits were shared by ICI, the patents and processes agreement could not be utilized to effect this purpose. This statement from duPont's chief negotiator is further proof that the parties considered the patents and processes agreement an instrument for elimination of competition.
A consolidated minute was prepared for meetings occurring May 6, to May 11, 1929. At the outset of the meetings, "Dr. Sparre outlined the legal situation relative to agreements between companies in the United States of America. It was agreed that the agreement must conform to the laws of the United States and for this reason the agreement must take the form of an agreement to purchase and sell exclusive and non-exclusive licenses to patents and secret processes and for that reason the phraseology of the agreement would be left to the duPont Legal Department" (Ex. 219, p. 1059).
The words "the agreement must take the form of" necessarily implies that the parties were seeking to achieve an objective other than that implicit in an exchange of technology. The facts and circumstances of the arrangements make it plain that the other objective was a division of territory.
This is followed by: "It is understood that references in these Minutes to `territories' refer to territories in which licenses to patents and secret processes are to be granted by one party to the other and that such terms as `existing business', `trade', `exports', etc. refer only to such products as are covered by patents or secret processes owned by one party or the other" (Ex. 219, p. 1059).
*537 Further on it is recorded with respect to coated textiles that duPont will receive Germany, France and Italy for exclusive territory. However, it was provided that ICI could continue certain business in those countries which it was conducting through agents until such time as duPont could take over the business. This presents still another instance in which one of the parties was to withdraw from a business which it was competitively able to sustain. That this is so is indicated by the further statement that ICI volunteered to give duPont "such detailed information on customers, qualities and prices as would give duPont an opportunity to go after this business" (Ex. 219, p. 1063).
Similar provisions were made with respect to paints and varnishes.
The same minutes also record a continuation of the discussion concerning duPont's dyestuff business in India: "In view of duPont's desire to maintain an aggressive sale policy in all important markets as a tactical weapon against the I.G. it was agreed that duPont should continue its existing business in India. DuPonts conceded that India, as part of the British Empire, should be exclusive I.C.I. territory but requested that they be given a non-exclusive trading license until such time as the I.G. situation might be settled, at which time they would withdraw for adequate compensation in money and/or territory" (Ex. 219, p. 1067).
It, thus, is evident that duPont continued to regard its Indian dyestuff business as a tactical trading weapon to be used against I. G. Farben and in the light of previous duPont discussions it is apparent that the weapon was intended to force I.G. to a territorial arrangement. DuPont's contemplated withdrawal was to be compensated for, not on the basis of the value of the patents given, but rather on the basis of the value of the business to be surrendered. Indeed, the projected withdrawal is no way conditioned upon, or discussed in terms of licenses. Assuming licenses to be implicit in the discussion, it seems perfectly obvious that where business withdrawal is theoretically conditioned upon the granting of exclusive licenses but compensation in fact is based upon the value of the surrendered business the licenses simply constitute a subterfuge for a territorial understanding. Certainly, with respect to the duPonts' Indian dyestuff business, the underlying arrangement was an illegal territorial one.
A very similar arrangement was noted with respect to rubber chemicals: "Mr. Walker stated duPont should be free to take steps to expand this business until the situation vis-a-vis prior commitments should be cleared up. DuPonts should bear in mind the eventual inclusion of these products under the general agreement, at which time they should expect to withdraw from the British Empire for proper compensation" (Ex. 219, p. 1070).
At the end of the negotiations, the representatives of the two parties drew up a draft agreement, known as the "London Draft" which was to be submitted for final approval and rephrasing to the executives of the two companies (Ex. 221). Considerable controversy arose at the trial with respect to this draft and in particular Section 3(a), which reads:
"While British Possessions in North and Central America and the West Indies as coming within the British Empire is exclusive I.C.I. territory, except Canada, duPont may be in a favorable position to export certain products to these British possessions, and for this purpose, wherever it may be mutually agreed that duPont can advantageously handle such trade it will be free to continue its activities in this British territory. However, such concession to duPonts may be terminated on reasonable notice by I.C.I., whenever the latter is in a position to assume such trade.
"It is recognized that in certain cases exports to the exclusive territory of one company can be handled more advantageously by the other company and may be so permitted by mutual consent for such purpose only, until such permission may be terminated (upon reasonable notice if an established business) by the company having such exclusive right, whenever it may be in a position to assume such business" (Ex. 221, p. 1080).
When granting exclusive licenses the grantee may not be able for some period *538 of time to take over the business of the grantor; in such event the grantor will continue its established business until the grantee is in a position to assume the business. However, it was provided that, "In no case under this subsection is there any change intended in territorial rights, but each company will enjoy the results of its operations whenever established and permitted under this agreement" (Ex. 221, p. 1081).
In the ultimate agreement prepared by the duPont legal department this provision was re-worded so that territorial withdrawal was conditional upon the granting of exclusive licenses. However, the record makes it clear that both parties regarded the re-wording as working no material alteration in the original arrangement.
The Government explains this on the theory that the London Draft set forth the real understanding between the parties, that this understanding was an illegal territorial one, and that the ultimate agreement, acknowledge by duPont officials to work no real alteration, was merely a camouflage. The defendants position is that the London Draft was a rough understanding in which limitation of withdrawal to licenses was tacitly understood, and that the ultimate arrangement simply made it explicit.
On the facts of the entire record of negotiations between the parties, with its numerous allusions to territorial arrangements inconsistent with the legitimate requirements of a patents and processes agreement, we are convinced that subsection (3) of the London Draft in fact disclosed the essence of the arrangements between the parties, and that these arrangements were and are illegal.
That the London Draft was in terms illegal and that it was necessary to reword the language carefully was appreciated by the duPont officials. The whole tenor of comment by these officials reveals that the revised phraseology of the final agreement worked no substantial change in the business arrangement embodied in the London Draft (Exs. 222, p. 1093; 223, p. 1095; 224, p. 1101; 225, p. 1102; 231, pp. 1127-8).
There appears only one intimation that the final agreement was to differ substantially from the London Draft (Ex. 228, p. 1120), and that is contradicted by the bulk of comments (Ex. 231, pp. 1127-8; Ex. 232, p. 1149) and was palpably designed for record purposes only. Indeed, duPont regarded itself as "morally bound by the London Draft" (Ex. 232, p. 1149).
The basic theory of the understanding was clearly intimated in a letter from J. K. Jenney, of duPont. Discussing the withdrawal sections of the London Draft, and stating that they would not be embodied in the final agreement, he went on to point out: "It is obvious that when one company has given the other licenses in that company's exclusive territory that it becomes more and more difficult for the granting company to carry on business in the territory of the grantee, as the granting company gradually loses its rights to use the various improvements which keep its product abreast of the times. It also follows that it would not be good business practice to maintain agents in these territories who would only be free to sell products not covered by patents or processes. There is no obligation to get out of any territory, although it is obviously necessary from a common sense view point to gradually withdraw from the exclusive territories of the other party" (Ex. 227, p. 1107).
The object of this statement was to make it plain that the final agreement, which would condition withdrawal upon licensing, was in effect the same as the London Draft, which imposed no such limitation. Thus, it was anticipated that the patents and processes agreement would eliminate competition between the parties, not only as to products concerning which licenses had been granted but as to other products as well; in short, that the patents and processes agreement would result in a general withdrawal by the parties from each other's exclusive territory.
2. The Provisions of the 1929 Agreement
Working with the London Draft as a basis, the new patents and processes agreement *539 was drawn. It was prepared by the duPont legal department and had its "fullest endorsement" (Ex. 232, p. 1148). When forwarding a copy to the duPont London office on August 7, 1929, Dr. Sparre pointed out that "we have had a great deal of difficulty in preparing this paper in such a form that it would be legally correct" and that "some of the paragraphs have been prepared with the utmost care." He wrote of one comparatively brief paragraph (Art. 3A of the London Draft), "namely II (e) required several days' discussion and study before it was prepared in its present form." He urged that "no changes should be proposed even if it is only a word or two unless there is a strong reason for such proposal" for "every sentence and practically every word have been carefully selected in order to produce a legally acceptable document" (Ex. 232, pp. 1150-1151).
Dupont and ICI signed the 1929 agreement, effective July 1, 1929 (Ex. 1 of Complaint). By its terms it was to last for 10 years (Art. XIII). With a few specified exceptions, principally rayon, cellophane and products of the general alkali industry, the agreement covered substantially all of the chemical products made by the two companies. Prior contractual arrangements by either of the two companies were responsible for the exceptions (duPont & ICI Ans. par. 83). Military explosives were also excepted because duPont and ICI had made separate arrangements with respect to such explosives (duPont & ICI Ans. par. 95).
The following products were included in the 1929 Agreement (Art. III):
a. Explosives other than military powders.
b. Compounds of cellulose and its derivatives, including nitrocellulose compounds such as plastics and films, but excluding rayon, cellophane, nitrocellulose explosives, and coated textiles made from cellulose compounds.
c. Coated textile products, including components of those covered under (b).
d. Paints, varnishes, and lacquers, including the cellulose finishes known as "Duco" and "Delco" and similar chemical finishes, and exclusive of synthetic resins and colloiding agents, for use in paints, varnishes and lacquers, and plastics derived from cellulose.
e. Pigments, lakes and colors.
f. Acids, both organic and inorganic, for both the heavy chemical industry and special industries.
g. Chemicals of the general heavy chemical industry, excluding products of the general alkali industry.
h. Dyestuffs, their intermediates, and other organic chemicals, including rubber chemicals.
i. Synthetic ammonia, synthetic alcohol and other products and by-products of the fixed nitrogen industry.
j. Fertilizers.
k. Synthetic products from the hydrogenation of coal and oil.
1. Insecticides, fungicides and disinfectants.
m. Alcohols manufactured by either synthetic or fermentation processes other than synthetic alcohol as covered in subparagraph "1" above.
The 1929 Agreement assigned to duPont for its exclusive license territory North America and Central America, exclusive of Canada, Newfoundland, and British possessions. It assigned to ICI for its exclusive trading territory the British Empire, exclusive of Canada and Newfoundland (Art. II). The agreement provided that each party would, upon request, grant to the other an exclusive license to make use and employ within their respective exclusive territories all patented and secret inventions relating to agreement products, "now or hereinafter during the life of the agreement, owned or controlled by the parties," and to sell within the respective territories all products containing such invention (Art. II).
The agreement provided that the remainder of the world outside of the exclusively licensed territories would be considered non-exclusive territory, as to which ICI and duPont would exchange non-exclusive licenses.
*540 DuPont and ICI were not free to grant licenses or any other interest in or under patents or secret inventions relating to agreement products to persons in the nonexclusive territories without first advising the other party of its intention to make such a grant (Art. V).
Although sub-licenses might be granted to subsidiary corporations by either party subject to the terms of the grant of the license so sub-licensed, no other sub-licenses could be granted without consent in writing first obtained from the original licensor (Art. IX). As Dr. Sparre later, on March 13, 1931, pointed out this clause was intended "to make sure that patents and secret processes of either company are not made available to parties beyond control of duPont or ICI and who may use the information for purposes outside of the duPont-ICI agreement, or to the detriment of duPont or ICI" (Ex. 313, p. 1369).
As was indicated previously, in connection with the London Draft, the agreement also provided that where either of the parties "may have established," with respect to certain products, internal trade in or export trade to a country within the exclusive territory of the other party, and the other party was not in a position to utilize the licenses granted to it in any such country for the time being, the licensor might continue its operation therein until given reasonable notice to withdraw from such territory (Art. II(e)).
To assist duPont in its negotiations with I. G. Farben, the agreement provided that although India came within ICI's exclusive territory, duPont could continue to export dyestuffs to India as a temporary measure (Art. 3(h) I).
It was recognized in the 1929 agreement that each party had existing relationships with third parties which might be in conflict with the agreement. Each party agreed that in negotiating for the renewal of any existing relationships it would endeavor to harmonize as fully as possible these relationships with the provisions of the 1929 agreement (Art. X, Exs. 357-362).
It should be noted that the 1929 agreement did not in itself license patents; it defined the territorial limits within which each party might acquire from the other licenses to patents and secret inventions for the designated products and industries (Art. II).
3. The 1934 Amendment to the 1929 Agreement
In 1934 duPont and ICI adopted an amendment to the 1929 Agreement (Ex. 609). Among other things it provided for the cancellation of the 1926 Agreement concerning industrial explosives and the integration of the subject matter of that agreement into the 1929 Agreement. The amendment also modified the 1929 Agreement by providing that licenses under the patents and processes agreement were not to prohibit the licensor from exploiting its own inventions in the exclusive territory of the other.
Unquestionably, this feature of the 1934 Amendment was motivated by legal considerations. In a letter written subsequent to the adoption of the Amendment, L. J. Greenwood of ICI, on June 18, 1938, quoted from a duPont memorandum on this change to the following effect: "The courts of this country have expressed the view that cross license agreements between two or more of the dominating members of an industry violate the anti-trust laws where any licensor accepts restrictions upon the sale of products embodying or produced by means of his own inventions" (Ex. 613, p. 2284).
That the amendment was not intended to work any material change in the relationship of duPont and ICI is apparent from the way in which it was broached to Sir Harry McGowan in a letter dated November 9, 1934 from Lammot duPont. The latter described the change as being rather difficult to explain. He stated that
"* * * we have given very careful consideration to this matter and feel that it is very important from our point of view that these modifications should be put into effect promptly; but we, of course, have no intention of urging the modifications on you if, for any reason, you feel that the modifications would be detrimental to our heretofore very satisfactory relations.
*541 "Please do not trouble to give the matter any thought or study until Mr. Pickard arrives, as I feel quite sure his explanation will make the matter entirely clear" (Ex. 607, p. 2269).
Writing several years later, L. J. Greenwood described the change effected by this amendment as "more of a theoretical than a practical one" (Ex. 613, p. 2285). There is not a scintilla of evidence in the record which discloses the slightest practical change in the affairs of ICI and duPont.
4. The 1939 Agreement
DuPont and ICI executed a new agreement effective June 30, 1939 (Ex. 2, attached to complaint), the date of termination of the 1929 Agreement. The 1939 Agreement substantially incorporated the provisions of the 1929 Agreement, with a few alterations introduced principally for anti-trust reasons (Ex. 628, p. 2329; Ex. 629, p. 2339; Ex. 633; Ex. 1371, p. 10984). In addition, it omitted the provisions of Article II (e) of the 1929 Agreement, which were no longer deemed necessary, since by that time each party had transferred to the other substantially all the business it previously had in the other's territory.
Another change introduced in the 1939 Agreement merits more detailed consideration. Under the 1926 Agreement relating to commercial explosives, which had been incorporated by the 1934 Amendment into the 1929 Agreement, ICI was allotted considerably more extensive exclusive territory than was allotted it for other products under the 1929 Agreement. DuPont proposed that this territorial arrangement should be conformed to that prescribed for the other products.
To secure ICI's acquiescence in the change, "Dr. Sparre assured Lord Melchett that the deletions in question would not in any way affect the commercial arrangements in regard to Explosives which have governed the relations of the two Companies on these matters over the past 35 years. He confirmed that the deletion in question merely referred to the exchange of patents and processes" (Ex. 632, p. 2348).
In a subsequent ICI memorandum Dr. Sparre is recorded as having emphasized that "* * * with or without the Patents and Processes Agreement it was open to duPonts as and when they cared to depart from the territorial marketing understandings. He most categorically, however, stated that there was no intention to-day on the part of Mr. Yancey and his sales section to depart from existing practice" (Ex. 634, p. 2351).
A minute of a joint duPont-ICI meeting of June 6, 1939 sets forth the understanding of the parties on this score with admirable clarity: "Lord Melchett informed Dr. Finn Sparre that this matter had been discussed very fully with the Group and Committees concerned, and that we had reached the conclusion that, on the clear understanding that the alteration of territory would not affect the commercial policy of the duPont Explosives Division, we agreed that we had no justifiable reason for resisting this amendment, and that we accepted it. Dr. Finn Sparre assured Lord Melchett that there was at present no intention on the part of duPonts of changing their commercial policy in regard to explosives, and if any such question ever arose it would be considered as a matter of high policy by Mr. Lammot duPont and the higher Executive officials" (Ex. 637, p. 2368).
It would be difficult to conceive a more explicit acknowledgment of the existence of a commercial understanding between duPont and ICI than that embodied in these declarations by Dr. Sparre, who was duPont's chief negotiator of the 1929 Patents and Processes Agreements. His statements expose as a complete travesty duPont's reiterated denials of the existence of any commercial understanding, as well as their assurances of the bona fide purposes of the patents and processes agreements. They explain the understanding of ICI officials, persisting through the years, that the patents and processes arrangements masked a territorial understanding an interpretation which resisted numerous formal duPont disavowals.
It is significant that these damaging utterances explicit and unqualified reports *542 of statements by a responsible duPont official are to be found only in the files of ICI. We now appreciate why duPont should have so impressed upon ICI officials the high importance of avoiding in writing anything damaging from an anti-trust point of view that Mr. Mitchell of ICI felt compelled to write: "Subject to human frailty, everything that can be done to guard the position is being done" (Ex. 428, p. 1790).
Perhaps ICI had thought that "concealment" had been the watchword as a result of the instructions sent on October 20, 1937 to its Central Administration Committee which called attention to "* * * the importance of taking care that all correspondence and cables despatched to the United States and Canada are so phrased that they do not imply a restrictive agreement or understanding with a North American Company such as contravenes the American or Canadian Anti-Trust Laws" (Ex. 429, p. 1792).
Perhaps, too, ICI felt that members of the Committee had, as requested, not only taken "an early opportunity of reminding their staffs of the necessity of careful phraseology in this connection when cabling to or corresponding with any company in North America" (Ex. 429, pp. 1792-1793); but that this had been extended to include internal reports, writings and memoranda. In this, however, they were mistaken.
That duPont files should contain no explicit references to an understanding which Dr. Sparre describes as having lasted for 35 years is testimony to the vigor of duPont's efforts at concealment.
5. Operations under the 1929 and 1939 Agreements
a. Elimination of Competition
After the 1929 Agreement was executed, and in accordance with its provisions, both duPont and ICI commenced to make available to each other their individual technologies. Exclusive licenses for inventions relating to the whole area of embraced products were exchanged.
As the terms of the agreement implied, and as both duPont and ICI plainly contemplated, the effect of these licenses was to eliminate competition between the parties in their respective exclusive areas with respect to the included products.
DuPont and ICI have, except for limited exceptions, adhered to the allocation of exclusive markets for the manufacture and sale of chemical products as provided for in their understanding and the agreement of 1929. DuPont turned over to ICI its existing export trade of chemical products to ICI's exclusive territory when requested to do so by ICI, and thereafter refrained from exporting such chemical products to ICI's exclusive territory without ICI's consent (Exs. 292-296, 303-306; Ex. 537, pp. 2014-2015; Exs. 308-311, 314-316, 322-324, 368-370, 441-445, 456-466, 467-514, 1352-1354, 1356). ICI did likewise for duPont's exclusive territory (Ex. 317; Exs. 515-523; Ex. 524; Ex. 525, p. 1983; Exs. 526-534; Exs. 1341, 1355). ICI recognized that it was under an obligation not to expand in duPont's territory (Ex. 594, pp. 2217-2218).
Where one party had an established business in the territory of the other, in accordance with Article II(e), that business was permitted to continue until such time as the party whose exclusive territory it was, could take over the business. But the effect everywhere was the same, elimination of competition between the parties through the exchange of exclusive licenses.
It is unnecessary to set forth those transactions in full. Characteristic is the following in a report by a duPont official.
"At the same time, our formerly important business in Great Britain is diminishing; and this we believe is at least partly in consequence of the perfectly natural positive policy on the part of I. C. I. to crowd us out of that market as promptly as they may be able to replace our products with their own" (Ex. 310, pp. 1360, 1361).
As the patents and processes agreement resulted in diminishing existing competition, a fortiori, it put an end to possibilities of future competition.
That there did exist genuine potentialities for business expansion in the exclusive territory of the opposite party cannot be successfully disputed. On at least two occasions ICI was desirous of entering into collaboration *543 with companies intent on serving the American market but because of complications arising out of obligations to license duPont exclusively, the projects were eventually dropped (Exs. 331-339; Exs. 348-356).
In a document substantially devoted to a candid examination of the restrictions imposed by the patents and processes agreement on third party dealing, the duPont Foreign Relations Department reached the following conclusion: "The DuPont-I.C.I. Agreement imposes obligations on DuPont which unquestionably restrict its present and future activities in the British Empire. If these restrictions are considered to be an impediment to DuPont's progress and not to be counterbalanced by similar restrictions which the Agreement imposes on I.C.I.'s activities in North America (exclusive of Canada and Newfoundland), then it is recommended that the matter be taken up with I.C.I. with a view to changing the Agreement to coincide with our wishes" (Ex. 363, p. 1558).
During the 1929 negotiations, duPont demanded and ICI acceded to a special provision permitting duPont to continue their activities in India "until such time as may be mutually agreed upon by the Chairman of the Boards of Directors of the two companies, from which time duPont's rights in India will be terminated, compensation to be paid to duPont acceptable to both parties" (Ex. 221, p. 1085). The original motivation for this insistence was duPont's desire to use this Indian trade as a weapon to force I. G. Farben to a commercial understanding.
By May 18, 1931, Dr. Sparre of duPont concluded that "the reason for making duPont's dyestuffs business in India an exception to the general terms of the ICI-duPont agreement no longer" existed and that duPont was "obligated to turn this business over to ICI" (Ex. 596, p. 2228). At the same time it was arranged that ICI would withdraw from the selling of dyestuffs in the United States and that ICI would transfer to duPont ownership of Dyestuffs Corporation of America which had been operated as ICI's selling company for dyestuffs in the United States. This was done by agreement between ICI and duPont dated September 15, 1931 (Ex. 598). Payment of compensation was provided in the agreement for both these transfers.
It should be noted in connection with this agreement that duPont promised to continue to supply to ICI, at prices to be mutually agreed upon, "such of duPont's special types of dyestuffs and related products as have been heretofore sold by duPont in the Empire of India," and ICI made a similar pledge with respect to its sales to the Dyestuffs Corporation (Ex. 598, p. 2235). Thus, ICI and duPont were surrendering business in each other's exclusive license territory which the other party was in no position to take over. It should be noted also that this transaction was in no way dependent upon the existence of exclusive licenses.
In the Patents and Processes Agreement of 1929, duPont's projected withdrawal from India was, in part, made contingent upon the assignment to ICI of exclusive licenses (Art. III(h) (1)). DuPont's actual withdrawal, obviously regarded as pursuant to the 1929 Agreement (Ex. 596, p. 2228; Ex. 599, p. 2244), had nothing whatever to do with exclusive licenses. It follows, therefore, that the surrender by duPont of its Indian dyestuffs export business to ICI and duPont's acquisition of the Dyestuff's Corporation of America, can be explained only as part of an overall plan to divide world markets. These surrenders occurred solely because there existed a basic arrangement under which the British Empire was ICI's exclusive trading territory, and the United States was part of duPont's exclusive territory.
We later will consider the effect of the 1929 Agreement on the duPont investments in NCF and LPL.
b. The Evaluations.
During the negotiations for the 1929 Agreement, ICI had objected to, and duPont had insisted upon, the inclusion of a provision for compensation for the licenses exchanged (Art. II(g)). The respective positions of the two parties were aptly pointed out in a letter to Lammot *544 duPont from J. K. Jenney, Secretary of the duPont Foreign Relations Committee, as follows:
"You reported that Sir Harry McGowan had stated that ICI objected to the clauses of the proposed Patents & Processes Agreement which provide that patents and secret processes should be sold by one party to the other for compensation because it had been agreed that the contributions of the two parties should be roughly equal over a period of years, and that the idea of compensation would prevent Department Heads from full cooperation, particularly in the early stages of the development of an invention because they would desire to hold back until the development had taken such shape that it could be offered for sale.
"Mr. Mudge stated that while an agreement involving a full and free interchange of all secret processes and patents and also providing for exclusive territories might not be illegal, if the agreement should ever be scrutinized by the Courts the presumption would be that the agreement was for a division of markets leaving the burden of proving the contrary on our side. In its present form the agreement, in Mr. Mudge's opinion, is legal and leaves the burden of proof on the Government" (Ex. 565, pp. 2130, 2131).
The opinion of Sir Harry McGowan, quoted above, conforms, of course, to the persistently held ICI view that the patents and processes agreement was a camouflage for a territorial understanding. Regarding the projected exchange of licenses simply as an instrument to mask a territorial division, ICI could see little justification for payment of compensation based on the value of licenses exchanged.
DuPont, it will be noted, defended the provision for compensation solely on the ground of legal necessity. Whole technologies were to be made available to one another by two great chemical combines, with an almost mathematical certainty that there must be some disparity in value; yet, duPont insisted upon a compensation provision solely to safeguard its legal position.
Certain it is that ICI received the distinct impression that, with the exception of patents and processes "of outstanding merit," the provision for compensation was largely a legal formality (Ex. 568, p. 2136).
It was recorded by ICI in an internal communication marked "Private and Confidential" on November 5, 1929 that "At a meeting held at Wilmington on 27th September, at which the President and Colonel Pollitt were present, it was agreed that both Companies would table all patents and secret processes as were considered to be of outstanding merit. An effort would then be made to evaluate the processes and settle compensation with a view to clearing the way for fullest possible technical cooperation thereafter without payment" (Ex. 568, p. 2136).
DuPont, it is true, did prepare for a more inclusive evaluation (Ex. 570, p. 2141); but that this preparation represented anything more than an elaborate pretense is rendered highly doubtful by the actual evaluation negotiations.
Both duPont and ICI had formally determined that the "contemplated evaluation" discussed in the Fall of 1929 involved "processes of outstanding merit only." Within the dyestuffs department, the duPont men felt "they were not able to take any official attitude on the suggested method for a general evaluation of dyestuffs processes." On this a duPont technician "gave voice to his personal feeling that there were no processes that could be described as coming under the definition `of outstanding merit' * * *." But the decision as to this division was left to be dealt with by the astute duPont negotiator, Dr. Sparre, who already expressed the thought to ICI that a settlement could be rapidly reached (Ex. 570, pp. 2140, 2141).
A tabulation of patents and processes exchanged by duPont was prepared; when it reached ICI on June 19, 1930, ICI note was made that "Bearing in mind that this is a Patents and Processes Agreement, and also taking into account the anti-trust laws of the States, it will no doubt be deemed desirable by our American friends to formally effect some interchange of patents and *545 processes, and I should imagine it is not their intention to push for payment against all the items mentioned on the attached list" (Ex. 575, p. 2152).
The first evaluation conference was held during 1930. The documents make it clear that ICI entered the conference with the view that a 50/50 settlement was desirable. Thus Walker, ICI's chief negotiator for the 1929 Agreement, writes: "Mr. Akers and myself have got rather accustomed to the frame of mind that this whole question of evaluation presents so many difficulties that it will probably have to be settled on a 50/50 basis" (Ex. 576, p. 2154).
Moreover, and again even before the conference began, ICI anticipated the legal necessity for a token payment. Thus A. G. Major of the ICI Foreign Department in a note wrote: "In the evaluation of the pre-Agreement Patents and Processes with duPonts, it has been our understanding that we should endeavor to arrive at a solution which would involve acceptance of the principle of approximate parity of value of processes offered by both sides, the actual document embodying this to be adjusted to the legal requirements of American law. This would involve payment by one side to the other of a sum of money, probably 6000 pounds or 7000 pounds" (Ex. 577, p. 2156; see also Ex. 578, p. 2157).
Minutes of the meetings do disclose that a number of patents and processes were canvassed, and views as to their usefulness were exchanged (Ex. 579, 580, 581; pp. 2158-2177). The day following the last recorded meeting F. Walker of ICI reported by letter, also marked "Private and Confidential," as follows:
"In effect, the stage we have now reached is that 50/50 for patent and process evaluation has been agreed. However, owing to American legal conditions, it is desirable that a considerable differential should be created and be paid for by one side or the other. I have taken the line that I do not care what we hang this differential on to, but if it happens that payment is to be made by ICI to duPont, I must naturally be clearly satisfied that we are getting something for the money.
"Briefly, the line taken by Finn Sparre regarding the Neozones was that duPonts have a considerable trade in our territory and under the terms of the Agreement are entitled to compensation as and when they give up this trade.
* * * * * *
"We are now trying to find a thoroughly equitable reason for passing money from one side to the other. The Neozones are only one of several means suggested" (Ex. 582, pp. 2178-2179).
A memorandum from Dr. Sparre to Walker makes it crystal clear that duPont was insisting upon a differential in its favor, not on the basis of any comparative appraisal of the value of the two technologies, but solely to compensate duPont for its loss of business in the British Empire. In that memorandum Dr. Sparre alludes to Neozones and several other products wherein the patents and processes agreement cause duPont commercial loss, and goes on to point out:
"I have mentioned a figure of $125,000. I do not think it will require more than a profit of $25,000 per annum to justify a settlement on the basis of $125,000 once and for all.
"I believe you will agree that under the duPont-ICI Agreement the duPont Company has taken an annual reduction in profits from export business which exceeds by much more than $25,000 per annum any possible loss which your company can be shown to have suffered under the agreement.
"Please also keep in mind that under the duPont-ICI agreement we are selling you trademarks, patents and processes which have resulted in par already, and which will further result, in the discontinuance of a comparatively large export business to the British Empire, the method of handling which is shown in the duPont-ICI Agreement, and for which we must have a reason which is sound and proper from a business and legal standpoint" (Ex. 583, p. 2182).
The situation is aptly summarized in an ICI document as follows: "It was realized that the meetings with Dr. Finn Sparre *546 were arranged with the definite object of arriving at the differential, if any, due by one company to the other on the value of patents and processes at the time of the signing of that agreement (1st July, 1929). However, it had been agreed that for various reasons the exchange of information had balanced out, consequently no payment was due either way. This decision, although satisfactory to both companies, was not in Dr. Finn Sparre's opinion a satisfactory settlement from the point of view of the U. S. Anti-Trust Law, and he wished a difference, one way or the other, to be arrived at. To do this he suggested taking clauses of the Agreement and deciding a balance of existing trade of the companies in the other's territory which would have to be given up at the request of the other Company and for which the Agreement provided that compensation was due" (Ex. 584, p. 2184).
This same ICI memorandum finally concluded with the statement that "It was agreed that Mr. Walker would see Dr. Finn Sparre and endeavor to reach a final decision. It was also agreed that Mr. Walker should endeavor to establish a 50/50 basis, but if Dr. Sparre insisted on a differential, then D.C.A. would be suggested as that differential" (Ex. 584, p. 2186).
This was followed by a further ICI memorandum, dated November 20, 1930, ten days later, in which it was recorded that
"It was agreed with Dr. Finn Sparre to settle the matter of exchange of patents and processes on the basis of parity of values.
"It was not, however, quite so easy to deal with the trade still being done by each party in the other's territory. Finally the President agreed in conversation with Dr. Sparre to wrap up the settlement of this phase of the matter round the purchase by ICI of duPont's business in Neozones and other rubber agers in this country for the sum of $125,000, provided duPont's take from us, at a figure to be agreed, the Dyestuffs Corporation of America" (Ex. 585, p. 2187).
Ultimately, the figure of $125,000.00 was agreed upon. In a report to the Presidents of the two companies signed by the negotiators the following significant comment is made:
"It finally being evident that no agreement could be arrived at as to certain patents and processes, the Committee determined to report the result of its conference as follows:
* * * * * *
"2. That the total value of the patents and secret processes under which ICI desires to acquire licenses from duPont exceeds the value of the patents and processes under which duPont desires to acquire licenses from ICI and in consequence ICI should pay to duPont such sum of money for the licenses it desires to secure as will compensate duPont for such difference.
"3. That the undersigned representative of duPont on said Committee suggests that the sum of $125,000 fairly represents such difference in value, and is prepared to recommend the acceptance by duPont of such sum as a compromise, and the undersigned representative of ICI on said Committee, believing it to be for the best interests of the parties that the differences be so compromised, will recommend the payment of said sum by ICI to duPont" (Ex. 590, p. 2203).
Of this report, F. Walker, the ICI negotiator, wrote:
"I have signed the report in question, as I appreciate it is worded in relation to the American Anti-Trust Laws.
"Paragraph `2,' page 4, is not admitted by us, but for the purpose of this particular report we cannot take exception to the paragraph, as we have actually agreed to pay them the sum of $125,000 provided they buy from us the Dyestuffs Corporation of America. Of necessity, however, the second transaction must not be involved with the settlement of the evaluation of the patents and processes, and must not be referred to in that connection" (Ex. 589, p. 2197).
It was arbitrarily decided to attribute the differential to duPont's loss of export business on Neozones. The settlement of the evaluation on this basis was reached in 1930, even though duPont at that time had not yet obtained the right from Goodyear Tire and Rubber Company to sub-license *547 ICI under the principal Neozone patents which duPont had obtained from Goodyear (Ex. D-1788; Ex. D-1791).
The statement in the report that the sum of $125,000.00 was believed to represent a fair appraisal of the excess of value of duPont's inventions over those of ICI was, of course, untrue, and was known by the authors to be untrue when made. No such agreement had in fact been reached. The differential arrived at had nothing whatsoever to do with the value of inventions; it was based solely on trading conditions; it was designed to establish the existence of a good faith evaluation which had not in fact transpired. The entire record of negotiations between the parties bears all the indicia of an elaborate pretense designed to cover their operations with an aura of legality. That duPont and ICI would go so far as to have high executives and trusted negotiators like Mr. Walker and Dr. Sparre flatly misstate the results of their prolonged negotiations provides a significant insight into their keen awareness of the legal dangers implicit in their operations and into the sincerity of their protestations of innocence.
The defendants have insisted on this trial that whatever conclusions may be drawn as to the first evaluation, the subsequent evaluations were genuine, bona fide affairs, and they have submitted numerous documents in support of this contention (Ex. D-1454; Ex. 1554).
These documents do disclose that in the subsequent evaluations the negotiators exhaustively tabulated their respective inventions, evolved a formula to ascertain value, and made some outward effort to appraise the inventions. Nevertheless, we are persuaded that the pattern of the first evaluation was not altered in substance and that the primary intention of the parties remained the same: to create an artificial and insubstantial differential while going through the motions of an evaluation.
The second evaluation took place during March and April of 1936 and purported to cover the licenses granted from July 1st, 1929 to June 30, 1934 (Ex. 1493). In a report to Lammot duPont by the chief negotiators, the guiding principle of the evaluation was stated to be as follows: "* * * one years earnings or savings equivalent to a 20% royalty over a 5 year period of an established business should be taken as a fair consideration" (Ex. D-1493, p. 8956). It is noted in the report that 720 subjects were received for consideration, some of the subjects including "several inventions or even whole fields of development." Many of these subjects, however, were carried over to the next review and only 420 subjects were covered in the second evaluation. The report notes that "It was found possible to agree on only a general consideration of numerous comparatively minor or indefinite patents and processes but a detailed examination was made of a very considerable number of valuable and novel patents and processes" (Ex. D-1493, p. 8956). How many inventions were in fact specifically evaluated is not set forth in the report.
The balance arrived at in the second evaluation was $111,925.00 to be paid duPont by ICI. The total differential at this point in the relationships of the parties was $209,656.00 (monetary devaluation having reduced the first payment to $97,731.00).
The licenses exchanged from 1934 to 1939 were made the subject of evaluation during October, 1945 (Ex. D-1513, p. 9052). The delay was attributed to the outbreak of the war, which was also responsible for delay in compiling information for the subsequent period to 1944, with exceptions which will be noted. 868 subjects were covered in this report of the third evaluation. Of this number, however, only 23 subjects were specifically evaluated (14 to ICI and 9 to duPont) resulting in a balance to duPont of $32,235.00 (Ex. D-1532, p. 9160).
Simultaneously, 28 subjects from the 1939-1944 period were evaluated as 3 groups, resulting in a balance to ICI of $223,040.00. The net sum paid ICI as a result of the third evaluation was then $190,805.00. At the end of the third evaluation, all inventions exchanged between the parties for a period of 10 years having been covered, the total overall balance was $18,851.00 in favor of duPont.
*548 The fourth evaluation, covering the period from June 30, 1939 to July 1st, 1944, took place during May, 1946 (Ex. D-1533, p. 9162). 590 subjects were embraced, but of these only 50 (29 to ICI; 21 to duPont) were specifically evaluated. For this entire period from 1939-1944 a balance was found due to duPont of $6,182.00 (Ex. D-1532, p. 9160). Added to the previous differential established after the first three evaluations, we find the total balance in favor of duPont at the end of the fourth evaluation to be $25,033.00.
It is unnecessary to consider the evaluation accompanying the cancellation of the patents and processes arrangements. This occurred subsequent to the filing of this suit wherein the complaint specifically attacked the genuineness of the evaluations; even so it does not alter the pattern.
The situation presented is an extraordinary one. For 15 years, two great chemical and industrial organizations exclusively licensed to one another hundreds upon hundreds of inventions for exploitation in vast commercial territories. We are asked to believe that as a result of a bona fide effort to ascertain the differential in value between these two vast bodies of inventions, that differential was found to be $25,033.00. We do not accept this extravagant proposition.
The truth concerning the evaluations is not difficult to perceive. The provision for compensation was inserted only to preserve the appearance of a bona fide patent licensing scheme (Ex. 565, p. 2130). The very language of the compensation provision made it plain that payments were to be governed by broad policy considerations rather than by individual license values (Art. II(g)). Both parties understood that the principle of approximate parity of values was to govern (Ex. 384, pp. 1647, 1648; Ex. 389, p. 1668; Ex. 565, p. 2130; Ex. 577; Ex. 578; Ex. 634, p. 2354). In the small percentage of inventions which were specifically assessed the technique for achieving their goal was readily available (Ex. 1532, p. 9160; Ex. D-1551, p. 9305). The overall result of the evaluations can be understood reasonably only as the execution of that understanding. Any lingering doubts are dispelled by the demonstration in the first evaluation of the readiness of both duPont and ICI to misstate the facts of their dealings in an effort to buttress their legal position. This history of the evaluations presents still additional evidence that the patents and processes structure was merely a camouflage for an underlying agreement to divide territories and markets.
One other aspect of these evaluations merits our attention. It was noted above that out of 868 subjects considered in the 1934-1939 evaluation, only 23 were specifically evaluated; and out of 590 subjects embraced in the 1939-1944 evaluation only 50 were specifically evaluated. In the evaluation for 1944-1948, accompanying the cancellation of the patents and processes arrangements, a total of 1067 subjects were considered. Of these, only 94 contributions (43 by duPont and 51 by ICI) were deemed "capable of financial assessment" (Ex. D-1551, p. 9305).
The pattern presented by these figures is striking. We discussed earlier how the granting of exclusive licenses under the patents and processes agreements could work, by the very nature of the exclusive grant, an elimination of competition between the parties, and that such an effect could be achieved by an exchange of inventions of utterly minor value. The figures presented here show that of the great mass of inventions exchanged, each one of which could contribute to a territorial withdrawal, only a small proportion were considered by the parties to have sufficient economic value to be the subject of specific monetary assessment.
In connection with this, it seems important to note how small a proportion of patents were actually used by the recipients. Of all the patents duPont obtained from ICI it made use of only about 7.7 per cent (Ex. 1406-A). ICI utilized only about 15% of the patents it obtained from duPont (Ex. 1409).
These two sets of figures the small percentage of licenses which were deemed to have commercial value, and the small percentage which were actually utilized by the parties provides still additional confirmation *549 that the patents and processes structure masked an illegal trading agreement.
c. The Addition of Products
The evidence is decisive that duPont and ICI arranged to extend their cooperation to products outside the scope of the written agreement. Thus, as early as 1930, Mr. Mitchell of ICI had instructed the ICI organization to offer everything to duPont "before approaching others" (Ex. 325, p. 1400).
In 1937, Sir William Coates visited Wilmington to discuss with duPont "the spirit of the arrangement." It was recorded by ICI that "It appeared desirable to try and focus in more precise words the meaning to be attached to the phrase `the spirit of the Agreement' and an attempt was therefore made to put down on paper the joint views of the two companies on those points which had recently come prominently to notice" (Ex 431, p. 1798).
After discussions with duPont officials, Sir William Coates prepared a memorandum which he designated, "as a note of my personal impressions of duPont's views" (Ex. 431, p. 1799), which was read to a joint conference of duPont and ICI officials (Ex. 431, p. 1798). (We consider this memorandum later when discussing neoprene, polythene and nylon.) After discussion, the Coates memorandum was amended, and, as amended, it contained the following section: "5. Where a non-resident party has originated any process, use or product lying outside of the scope of the agreement and is free in regard to its exploitation or use in the territory of the resident party, that exploitation shall be carried on in consultation with the resident party as to the means, manner and time of exploitation, which will be conducted in the best interests of the originating party, subject always to the prior interest of the resident party, in his exclusive territory. For this purpose the resident party will provide any necessary assistance in personnel or otherwise" (Ex. 431, p. 1801).
Even before this memorandum was prepared, there is evidence that the parties were offering to each other inventions not within the strict wording of the agreement. Thus, it is reported that although methacrylic acid esters do not fall within the wording of the agreement, "both duPont and ICI have, for a considerable period, assumed that their agreement included methacrylic acid esters and have acted accordingly" (Ex. 423, p. 1765).
Considerable evidence bearing on this question appears in the negotiations surrounding the 1939 Agreement. In that year, but prior to the execution of the agreement, ICI's "duPont Committee" resolved that "it be put to duPont that ICI/duPont agree in general that offer should be made of all inventions irrespective of whether they are agreement products or not subject to prior commitments and that if agreed this be embodied by a clause in the agreement or, in preference, a letter signed by both parties covering such understanding" (Ex. 631, p. 2345). After discussion had been held and accord reached on the principal terms of the new agreement, Lord Melchett reported: "With a view to widening the scope of the agreement, it was agreed that it would be a good thing if there was to be an exchange of letters between the two parties stating that outside the products covered by the agreement they would each offer to the other first refusal for their exclusive territory, rights in any inventions whatsoever, subject, of course, to prior commitments. It was to be made clear, however, that such a letter would not deprive the inventor of disposing of his invention at his sole discretion, but is to be purely an expression of general policy" (Ex. 641, p. 2386).
A letter pursuant to this arrangement was addressed to Lammot duPont by Lord McGowan on July 4, 1939, and embodied the further declaration that the indicated policy was a "reiteration of policy which I think each of our companies follow already" (Ex. 643, p. 2392). The letter was returned to ICI by Dr. Sparre, who instructed duPont London representative, Caesar Graselli, to hand it to Lord Melchett personally and state to Lord Melchett that he (Sparre) would explain orally why it was returned to him (Ex. 643, p. 2393). This mode of furtively handling a letter from the directing head of ICI to Lammot *550 duPont a letter merely carrying out a decision which, an ICI document makes clear, had already been arrived at is an extraordinary example of duPont's efforts at concealment. It is significant that a subsequent memorandum by L. J. Greenwood of ICI states unequivocally that the parties did in fact carry out their understanding (Ex. 740, p. 2799).
d. Neoprene, Polythene and Nylon
When the 1929 Patents and Processes Agreement was drawn, a differentiation between products manufactured on July 1, 1929 and those subsequently developed was made in Article II of the agreement (Ex. 1 of complaint, Art. II-(c), p. 98). It was later pointed out by the Foreign Relations Department of duPont that "In sub-paragraphs (a) and (b) it is specified that one party shall grant to the other within its exclusive license territory exclusive licenses on inventions `relating to the products specified.' The obligation to grant licenses in non-exclusive territory is confined to inventions `relating to such of the products hereinafter specified as are now manufactured by both parties.' There is no definition or interpretation as to just what is meant by a new product" (Ex. 647, p. 2403).
But all licenses were subject to the provision in the 1929 Agreement that "adequate and justifiable compensation to be agreed upon by separate negotiations" would be paid (Ex. 1 of complaint; Art. II (g) p. 99). There developed a practice between duPont and ICI of earmarking for special attention inventions which were considered to be of outstanding importance. "The term `major invention' was coined to apply to developments of outstanding importance which either company wished to exclude from the general terms of the agreement as applying to compensation and to earmark as having special value" (Ex. 652, p. 2418).
By agreement of the parties, three such "major inventions" were made the subject of separate evaluations, designed to fix their "special value." These covered neoprene, a new duPont synthetic rubber (Ex. 664); polythene, a new ICI plastic substance (Ex. 679; Ex. D-1195); and nylon, a new duPont synthetic fiber (Ex. D-1153; Ex. D-1163). It is these three "major inventions" and the negotiations and agreements concerning them we now consider.
Neoprene is covered by broad process and products patents; duPont acquired rights to these patents in 1928 and 1932 under a royalty licensing agreement. Thereafter duPont developed and improved the product through its own research. In 1931 duPont advised ICI of the work duPont had been doing on the development of a new synthetic "rubber"; Lammot duPont then wrote that "we consider this work as the most outstanding scientific achievement which we have made in the past decade" (Ex. 654, p. 2427).
ICI did not immediately request a license under duPont's British neoprene patents. ICI informed duPont that it had difficulty "in gauging the ultimate potentialities of neoprene" in the British markets (Ex. 655, p. 2429). From 1935 to January, 1941, when a formal licensing agreement (Ex. 664) was signed by duPont and ICI, neoprene was sold in the British Empire by ICI as duPont's agent; but during this period duPont fully realized its obligation to ICI to license it on this process (Ex. 656, p. 2431; Ex. 655, p. 2429). DuPont, too, during this same time, recognized "the very earnest effort of ICI" made to introduce neoprene on the British market, and to find practical applications for its use. Increasing quantities of neoprene were being imported to Great Britain; this, duPont felt, indicated "that the product might have more and more interest in the British market" (Ex. 656, p. 2431). ICI delayed its decision to take the license and to commence manufacture in a British plant of its own. DuPont awaited ICI's decision and delayed the full development in the British Empire of this "most outstanding scientific achievement" for six years. It was noted by the General Manager of the duPont Organic Chemicals Department, in September, 1938, that "the duPont company of course is quite willing to keep this contract at the disposal of ICI for a reasonable length of time" (Ex. 656, p. 2432).
*551 DuPont did so for far more than "a reasonable length of time," and this, although not bound to such action by any contractual obligation. The entire neoprene negotiations, once again, give mute evidence of the broad understanding between duPont and ICI.
The neoprene licensing agreement (Ex. 664), although dated "1941," apparently was drawn but not signed in 1939; by its wording it was obviously intended as an appendage to the 1939 Patents and Processes agreement. It is not disputed that neoprene was one of the products within the Patents and Processes Agreement of 1939.
The vital importance of neoprene is a matter of common knowledge. During World War II, the United States Government build a neoprene plant in Louisville, Kentucky. It had been designed and was later operated by duPont. After the war, duPont purchased the plant but not until the objections of the Government had been met by the cancellation of the 1941 duPont-ICI Neoprene Agreement. ICI acquiesced in this cancellation which was accomplished in 1946 (Exs. D-1696-1699). But we may not ascribe to this joint action by duPont and ICI a purpose to abandon their understanding in which the neoprene negotiations were but a small part, for ICI had never manufactured neoprene, and had abandoned any intention it might ever have had of doing so.
Imagination does not have to wander unrestrained to see the purpose either of duPont in constantly urging upon the reluctant ICI the licensing agreement, and patiently awaiting ICI's decision to accept it, or of ICI in delaying the negotiations and finally accepting the license in 1941, only to surrender it in 1946, never having exercised the right to manufacture under it. These neoprene dealings put the spirit of cooperation to a severe test, but it survived.
Polythene is the subject of basic process and product patents. The first United States patent on polythene was issued to ICI in April, 1939. Lord Melchett of ICI wrote to Jasper E. Crane of duPont concerning polythene on March 16th, 1939, that research was "being continued on the preparation and properties of polythene, its possible applications and into its chemical modification." He then added. "* * * the work as you know is original, an extremely strong series of patents has been taken out and we are of the opinion that our work will have important exploitable value in the commercial markets of the world.
"We have not yet defined satisfactorily `a major invention' but I think that a novel chemical process which produces a product with unique properties and potential commercial worth, together with a very strong patent position justifies the claim for polythene as a major invention. In effect this means that we retain the right to the final decision on the granting of licenses and the selection of licensees" (Ex. 668, p. 2495).
The qualification, which Lord Melchett then added, reads "You will appreciate that the foregoing is a formal statement and does not in any way indicate a change in the course of action which duPonts and ourselves have followed to date" (Ex. 668, pp. 2494, 2495).
When it is noted that at the date of this letter (March 16, 1939) the two other "major inventions" nylon and neoprene, for which separate evaluations agreements were made, had already been the subject of special negotiations, it appears that duPont and ICI had each felt obligated to offer to the other licenses in the exclusive license territory which had been assigned to it (Ex. 668, pp. 2496-2499), on all new products of major importance. The purpose in giving notice of the special significance of these new products was not to take them out of the scope of the Patents and Processes Agreement of 1929, for they were specifically provided for in Article III(a) (b) and (c) (as they were later in the 1939 agreement by Article III(T)). The reason which prompted this notice was that basis might be laid for the claim for "special case" treatment by separate agreement providing for arrangements as to compensation.
Polythene was found to have special dielectric characteristics which were urgently required in connection with the production of radar equipment for wartime aircraft detection work (Ex. D-1193). DuPont *552 in September 1942 undertook the manufacture of polythene "entirely at the request of the United States Government and solely for war purposes," but it recognized at the time that "polythene, if cheaply produced, has a promising future but commercial exploitation must be deferred until a later time" because of wartime restrictions on the use of materials and on plant construction for commercial manufacture (Ex. 673, p. 2545). DuPont agreed that polythene was to be "treated as an exceptional case" under the patents and processes agreements and accepted ICI royalty proposals. It has not been disputed by duPont or ICI that polythene like neoprene is within the patents and processes agreements (R-1003-1006; 1033; Ex. 1408). ICI waived royalties for any production or use of polythene for war purposes (Ex. 675; Ex. D-1197) but later in January, 1946, duPont obligated itself by separate agreement to pay royalties to ICI on all polythene manufactured and sold by duPont for commercial purposes (Ex. D-2157; Ex. D-1195). This agreement was made two years after the filing of the instant suit; it was filed by duPont with both the Department of Justice and the Department of State before execution but it was acted upon by neither of these departments. The agreement is still operative (Ex. D-2219).
We find that the polythene negotiations were conducted under the patents and processes agreements with the purpose of carrying out the licensing plant which duPont and ICI had to allocate territories and to restrain and limit competition between themselves and others. The intent and purpose of these polythene arrangements from their inception was to carry out this general understanding between duPont and ICI.
Nylon is a new product, discovered and developed by duPont. Its development required more than ten years; at its peak the research employed the services of some 250 expert and trained chemists. The result was a scientific achievement of the first magnitude. DuPont invested many millions of its capital; it required great courage and vision to undertake and persevere in this work. The risk was enormous; the prospect of profit and gain was uncertain. That the resulting product, if any developed, would be commercially useful or marketable could not be foretold. Nylon development has brought large but well-earned rewards to duPont.
Nylon was wholly a duPont development from beginning to end. ICI made no contribution, directly or indirectly, to the discovery of nylon or to any phase of its development. Nylon is protected by product and process patents in the United States and throughout the world.
It was by letter of January 14, 1937 that Lammot duPont, then President of the duPont Company, first wrote of nylon to H. J. Mitchell, then President of ICI (Ex. 683), as follows:
"During the last several years we have been doing a very considerable amount of experimental work on a most promising development of new chemical compounds from which can be made, among other things, a new type of synthetic fiber useful for textile purposes and possibly other purposes. This work has been conducted as a particularly confidential subject because, knowing the considerable amount of work here and in other countries on the same general subject, we wanted to carry on our work with as little information as possible leaking out until we felt that we had a satisfactory patent position with the minimum of possible interferences.
"This will explain to you why your company has not been furnished with information in regard to this particular experimental work and it is also the reason why I am writing to you about this matter instead of having information passed along to your departments in the usual manner. However, not only has our experimental work progressed until we now see the possibility of commercial value but the patent situation seems also to be satisfactory, and in fact some patents have already been published in different countries. I therefore feel that the proper time has come to apprise you of this development, although I would ask that the subject should still be considered not only confidential in the usual manner, but also a subject that, for the time being, should be handled between you and myself *553 until other arrangement is made" (Ex. 683, pp. 2601-2602).
In this same letter, he also wrote that
"We have given some thought to the question whether this development should be considered as coming under the duPont-ICI Agreement or whether it should be submitted to you for your consideration as a subject coming outside of the Agreement. It is quite possible that the material or some of the operations might be useful in the chemical industry outside of the new fiber development and unquestionably to such extent the patents and processes will be offered to your company for such purposes as coming under the Agreement. However, to the extent that the various patents and processes are required in the manufacture of the new type of fibers, such rights must be considered together as parts of a new industry.
"As I see this situation at this time, we have here a development of possibly outstanding future importance and which we are glad to call to your attention for your consideration as to whether, in your opinion, your company could successfully undertake the commercial exploitation in your territory. In this connection, I do not think it is of any importance to discuss whether we should consider this subject as coming under the Patents and Processes Agreement inasmuch as we will be glad to submit it to you as a subject outside of the Agreement if that is the proper interpretation but, in any event, it is a subject of such importance that it should be subject to separate negotiations" (Ex. 683, pp. 2602, 2603).
Here, then, we have a recognition by duPont of its obligation to disclose to ICI the nylon development and to offer to ICI a license for nylon manufacture. The letter, too, is an acknowledgment by duPont that at least "the material or some of the operations" came within the patents and processes agreement. And the letter was a reaffirmation of the old "spirit of cooperation" and of a purpose to adhere to and carry out the general understanding between duPont and ICI by declaring that whether nylon might or might not be within the patents and processes agreement was not of any importance, as it was duPont's intention to submit nylon to ICI in any event for "commercial exploitation" in ICI assigned territory.
Mr. Mitchell replied by letter of February 5, 1937: "I quite understand your reasons for not passing on information on this subject at once, and appreciate your offer to discuss the development of textile fibres from proteins with us before you approach anyone else" (Ex. D-1134, p. 7746).
And concerning Lammot duPont's observation that, with respect to nylon, "Furthermore, we have to consider the application for patents in the British Empire which, in our opinion, should be prosecuted by ourselves and not by your legal Department until we arrive at any understanding of your possible interest in the subject" (Ex. 683, p. 2603).
Mr. Mitchell noted the same views on the part of ICI with regard to "Ardil," a fibre with which ICI was then experimenting (Ex. D-1134, p. 7747).
DuPont has urged on trial that although neoprene and polythene were within the scope of the patents and processes agreements, nylon was not. DuPont's position is that the nylon negotiations and agreements were separate and apart from all other undertakings.
The Government has contended that the nylon agreement was offered to ICI pursuant to the terms of the Patents and Processes Agreements of 1929 and 1939 and that nylon was an invention and product within the scope of those agreements. In this respect, it is urged that nylon was treated as a "major invention" and dealt with in the same manner as were neoprene and polythene. Apart from this contractual obligation created by the patents and processes agreements, the Government has claimed that the nylon negotiations and agreements were had in further accomplishment of the continued purpose of duPont and ICI to restrain competition between themselves and others.
We have already determined the unlawful purpose of the patents and processes agreements, and we have found the unlawful understanding between duPont and ICI. The nylon agreements were had in the *554 achievement of that understanding and this independently of any construction which might have been given to the patents and processes agreements.
The 1929 Patents and Processes Agreement was by its terms to continue in effect for a period of ten years from its date, July 1, 1929 (Ex. 1 of complaint, Article XIII). DuPont licensed ICI under its nylon patents by agreement dated March 30, 1939. The 1939 Patents and Processes Agreement was dated June 30, 1939 (Ex. 2 of complaint). Both the nylon licensing agreement and the renewal 1939 Patents and Processes Agreement were negotiated and discussed during the same period. And at or about the same time duPont also licensed I. G. Farben (Ex. 1414), French Rhodiaceta (Ex. 1412) and Italian Rhodiaceta (Ex. 1413) under its nylon patents. These agreements were all similar in character. Each allocated exclusive manufacturing and trading territories to the licensees and reserved exclusive territory for duPont. The territorial allocation was agreed upon after discussions with all the parties (R. 2805-2807).
It is important to note that nylon, like neoprene and polythene, was handled as a "special case" or "major invention" under the 1929 Agreement. The exclusive territory granted to ICI in the nylon agreement (Ex. D-1153, pp. 7801-7802) included the exclusive territory granted to ICI under the 1929 Patents and Processes Agreement (Ex. 1 of complaint, Art. II(b)). DuPont, too, as it was permitted to do under the 1929 Agreement, granted exclusive licenses to third parties in ICI's normally non-exclusive territories; provision was also made for special compensation.
When the 1939 patents and processes agreement was signed three months later in June, 1939, nylon, neoprene and polythene were designated in Article III(T) as products within the agreement. Article III (T) conforms in purpose to Article III(A) (B) and (C) of the 1929 Agreement. Neoprene was not made the subject of a separate written agreement until January 22, 1941 (Ex. 664, p. 2451); polythene not until January 17, 1946 (Ex. D-1195, p. 7933); therefore the nylon agreements could alone be listed under Schedule "A" of the 1939 Agreement as a prior commitment under Article III of the agreement. This listing of the four nylon licenses which had only recently been granted by duPont to ICI, French Rhodiaceta, Italian Rhodiaceta and I. G. Farben was to preserve the right of duPont to claim special compensation from ICI and to serve as an acknowledgment by ICI of the existence of the nylon agreements duPont had entered into with other parties. This was in accord with Article XI of the 1939 Agreement which provided for subordination of the provisions of the 1939 Agreement to prior commitments so scheduled; under Article XI both ICI and duPont upon renewal of these prior commitments were obligated to attempt to harmonize them with the terms of the 1939 Agreement.
It is interesting to note in connection with consideration of the question whether nylon was or was not within the patents and processes agreements the discussions which were had in November, 1937 between duPont and ICI officials. At that time it was recorded that "It appeared desirable to try and focus in more precise words the meaning to be attached to the phrase `the spirit of the Agreement' and an attempt was therefore made to put down on paper the joint views of the two companies on those points which had recently come prominently to notice" (Ex. 431, p. 1798).
It was then formally stated that "3. It is the spirit of the agreement that where there is any doubt as to whether a process or product is within or without the agreement, the inclination should be to treat it as if it were in the agreement. Each party will accordingly not look on the agreement in any restrictive manner but as one directed to promoting the best interests of both" (Ex. 431, p. 1800).
And concerning this formal statement of policy, the following duPont comment was noted "Paragraph (3): duPont were strongly against any chiselling from the present Agreement; they desired that it should be widened rather than narrowed. In this connection I might add that at a later interview with Dr. Fin Sparre he informed me that on occasions duPont would find it *555 necessary, by reason of the legal position in the United States, to say that such-and-such a product or process must be regarded as outside the Agreement but that such a statement must not be understood to mean that I. C. I. would be treated in any other manner than if a product or process had been regarded as falling within the Agreement" (Ex. 431, p. 1803).
Of all of these statements which were set forth in the memorandum, it was noted that it was not "a formal document," and that "Mr. Lammot duPont emphasized this aspect of the matter stating clearly that it must not be understood to be in any sense an agreement; that it had no force in itself; and that while it might represent duPont's views at that moment, it would not necessarily represent them at any later date" (Ex. 431, p. 1799).
But the memorandum was far more than "a formal document," it was later referred to as "an historical record of the conversations which took place that day" (Ex. D-1267, p. 8191). A week later on December 1, 1937, when internal inquiry was made among ICI officials as to "what, if any, inference there might be in Mr. L. duPont's remarks`* * * While it might represent duPont's views at that moment, it would not necessarily represent them at any later date,'" the very brief and cryptic notation was made "answer-Sherman Act" (Ex. 433, pp. 1820, 1821).
It was an old custom of duPont to refrain from expressing understandings had with ICI in formal documents (see Ex. 19, p. 123; Ex. 778, pp. 2899, 2900).
We are left with no doubt that duPont within their own organization always considered the nylon licensing agreement with ICI as within the patents and processes agreements. On July 21, 1944, Walter S. Carpenter, at the time duPont president, recorded some of his "Observations regarding sublicensing under ICI-duPont agreement" (Ex. 752). He was considering the disposition of royalties from sublicensing nylon patents under the ICI-duPont agreement "in a way which harmonized with the fundamental philosophy embodied in the broad agreement" (Ex. 752, p. 2824). He then observed that "Recently this question has appeared, in at least two cases of considerable importance, which now warrant a careful examination of principles. The first case was that of the licensing of the nylon patents" (Ex. 752, p. 2824).
Mr. Carpenter, following these observations, wrote Lord McGowan on September 24, 1942 that "ICI and duPont believe in `the liberal exchange of information between the personnel of the respective research establishments,' as it is expressed in the Patents and Processes Agreement," and further that "It was agreed between us that outstanding developments might be considered `exceptional cases,' and reference to such cases was made in the latest agreement which was executed in 1939. Such a case is made the subject of a special licensing contract with detailed provisions dealing with royalties, patents rights, definition of field, and other appropriate matters" (Ex. 672, pp. 2535, 2536).
The full effect of these records appears when we recall that the nylon agreement and the 1939 Patents and Processes Agreement were simultaneously discussed and negotiated.
In connection with a duPont "study" of the disposition of royalties from sublicenses, a duPont memorandum, dated August 3, 1944, notes that "In the case of neoprene, Notre Dame University had an interest, so that a formal agreement appeared desirable. Nylon was offered to ICI `whether or not it was in the field of the ICI-duPont agreement'" (Ex. 1426, p. 11287).
The memorandum makes it clear that duPont regarded the nylon agreement as a special case within the patents and processes agreements.
When weighed against the very wording of the patents and processes agreements, and these records, the contention of duPont that the nylon agreements were separate and apart from all other duPont-ICI undertakings is found wanting.
During World War II the duPont-ICI nylon agreement was operative. Technical information and patent rights were furnished by duPont to ICI. ICI produced substantial quantities of nylon for military purposes; duPont, at the request of the United States Government, sold nylon polymer *556 to ICI for the production by ICI of nylon yarn pending the completion of the ICI raw materials plant. But in January, 1946, the duPont-ICI nylon licensing agreement (Ex. D-1153) was cancelled and duPont's British Empire nylon patents were assigned to ICI (Ex. D-1163). By the terms of this cancellation agreement, all obligations of duPont and ICI to grant licenses to each other under future nylon patents were terminated (Ex. D-1163, Art. I). ICI was granted the unrestricted and territorially unlimited right to use technical information relating to nylon which had been licensed to ICI under the 1939 nylon agreement. The circumstances surrounding this transaction are interesting.
We find in ICI records, under date of August 22, 1946, a memorandum concerning the "nylon agreement" that
"Mr. Wardenburg of the duPont London Office informs me he has heard from Mr. Swint that during the forthcoming visit to London of the duPont delegation they will wish to discuss with I.C.I. the possible revision of the I.C.I./duPont Nylon Agreement in the light of the pending Anti-Trust Suit.
"I believe that Dr. Cronshaw brought back a message to this effect on his return from his recent visit to the United States, but thought that you would appreciate receiving this additional advice" (Ex. 705, p. 2674).
Dr. Cronshaw was called as witness on the trial by ICI but neither explained or testified concerning this.
This was followed by a further memorandum from the ICI Legal Department dated October 3, 1946. This reads that
"On Monday, the 30th September, 1946, Mr. Swint outlined his proposals for a modification of the duPont/I.C.I. Nylon License Agreement.
He stated that certain of the features of the existing Nylon Agreement were probably vulnerable in view of the recent Sherman Act cases, and that if duPont were to continue the flow of technical information and patent licenses to I C I under the Agreement, it might involve duPont selling Nylon into I. C. I.'s license territory.
"DuPont did not want to be put into such a position which we might well regard as a breach of faith and they had therefore come to the conclusion that there must be a modification of the existing Nylon License.
"They proposed that there should be a `cut-off' date for the existing Nylon Agreement for which they tentatively suggested January 1, 1947. Subsequent to that date, there would be no continuing exchange of technical information on Nylon developments, and licenses under patents taken out subsequent to that date would not continue to flow to I.C.I. automatically under the Agreement" (Ex. 706, pp. 2675-2676).
We find that duPont, desiring to minimize the possibility of nylon being included in any decree that might be entered in this suit because of the questionable legality of some provisions of the earlier nylon agreement under the anti-trust laws of the United States, sought and secured from ICI a new nylon agreement.
That ICI was fully informed of duPont's motives is plain from a reading of a report by E. A. Bingen, ICI's solicitor, to his Board under date of November 4, 1946, reading in part "* * * The new duPont-ICI Nylon License Agreement has been completed, sealed and sent to duPont, inasmuch as duPont were anxious that their house should be put in order before any discussions started with the Department of Justice, * * *" (Ex. 1427, p. 11295).
And at the same time duPont executed new nylon agreements with French Rhodiaceta (Ex. D-2189) and Italian Rhodiaceta (Ex. D-2192).
We find that the Nylon Agreement of 1939 stands condemned as within the patents and processes agreements. We find that the Nylon Agreement of 1939 was illegal because it was part of a licensing scheme, accomplished by concerted action of duPont and ICI for allocation of territories and pooling of patents embracing the whole of the nylon manufacturing industry and the whole of the nylon technology.
VI. The Jointly-owned Companies
The agreement of 1897 provided for a division of world territory for the manufacture *557 or sale of commercial or military explosives. DuPont undertook not to engage in the manufacture or sale of commercial or military explosives in Europe, Asia, Africa and Australia; and Nobel agreed to abstain with respect to the United States, Mexico, Central America, Colombia and Venezuela. Designed and intended to eliminate competition on a world-wide basis, the 1897 Agreement did not accomplish its full purpose. The agreement did allocate and assign to each, named continents and countries, as exclusive territories, but it left unassigned other territories and countries, the commercial stature of which was not then developed to the point where it was deemed necessary to provide for them.
This division of territories was implemented by a further undertaking with respect to patents. Both agreed not to assert against the other existing patents which they might hold for the other parties' territory, unless compelled to do so by an agreement with the inventor; in such event every effort would be made to settle the matter amicably. They further undertook that they would not purchase patents for each other's territory except after having given the other the privilege of preemption on the same terms as those under which the patent was offered to them. These patent provisions also left uncovered the unassigned territories.
The operations even under this earliest agreement soon made manifest at least two major problems. The first arose not only from a recognition of the illegality of the 1897 Agreement, which was aided by the suit filed by the Government against duPont in 1907, but also from a desire to provide for a further pooling of patents and processes. The solution to this, it was thought, lay in masking the territorial division in further agreements and cloaking the illegality of the understandings with such sanctity as might flow from patents and processes agreements. The second problem concerned the conflicts between duPont and Nobel in the unassigned or non-exclusive territories. It was found that something more than a "spirit of cooperation" was desirable to regulate competition in these non-exclusive areas. The answer, it was believed, was to be found in action in two expedients: (1) to reduce the non-exclusive territories by increasing the exclusive territories and (2) to set up jointly owned companies in the remaining non-exclusive territories. It is this latter phase we now consider; the reduction of non-exclusive territories was provided for in the agreements we have discussed.
It is settled that joint manufacturing ventures, even in domestic markets, are not made unlawful per se by the Sherman Act, but become unlawful only if their purpose or their effect is to restrain trade or to monopolize. United States v. Columbia Steel Co., 1948, 334 U.S. 495, 68 S. Ct. 1107, 92 L. Ed. 1533. It is also clear that absent this wrongful purpose or harmful effect there is nothing per se unlawful in the association or combination of a single American enterprise with a single local concern of a foreign country in a jointly owned manufacturing or commercial company to develop a foreign local market. But the proof here shows an American concern, already established in a foreign local market, and a British concern, which has a foothold in the same foreign local market, combining to form a jointly owned company to the end that the same foreign market may be developed for their mutual benefit and profits divided on an agreed basis. To this, and as an incident to the formation of the foreign company, we find added by agreement not only joint contribution of capital investment but a pooling of patents and processes owned by the parent companies. That a foreign company created under such conditions by concerted action of actual or potential competitors meets the tests of per se legality is open to serious question. But, with a dubious nod, we assume that it does; we find, however, that the very purpose with which the foreign companies here involved were conceived and the circumstances under which they were born place them under the bar.
It was in 1911 that the first joint company, Canadian Explosives Ltd. (CXL) was organized (Ex. 28). Thereafter, an agreement was made, "between CXL and duPont, and another between CXL and Nobel, whereby patent rights were exchanged with *558 regard to certain territories," and it referred "particularly to explosives, ingredients and by-products thereof" (Ex. 15). Nobel did not limit the agreement with CXL to the field of the products named. When CXL "requested information in regard to products other than those covered," CXL "always received such information from Nobel" (Ex. 15, p. 117). CXL, however, met with refusal from duPont, and "in one particular case duPont Company refused to give CXL information in regard to pyroxylin solutions, on the ground that such information had no bearing on the explosives industry, and was therefore not within the duPont-CXL agreement" (Ex. 15, p. 117). But following this and on June 30, 1919, Lammot duPont recorded: "It is the feeling of a number of the Directors of the duPont Company that activities in Canada of interest to the duPont Company should be conducted through, and by, Canadian Explosives, Ltd." (Ex. 15, p. 117).
He then recommended that, "* * * the duPont Company should undertake to give CXL the rights to all patents and secret processes and all technical and other information at hand in regard to the manufacturing processes for their use in Canada only, not making this right exclusive, however" (Ex. 15, p. 117).
This he did, however, "with the understanding that the Nobel Company take similar action" (Ex. 15). And, within a few weeks, on July 23, 1919, the officers of duPont were authorized "to effect an arrangement under which the Explosives Trade Limited and the duPont Company will be equal partners in the common stock of Canadian Explosives, Ltd. provided the duPont Company is willing to transfer to Canadian Explosives, Ltd. at a price to be agreed upon, our pyralin, fabrikoid and paint and varnish business in Canada, including Canadian plants for the manufacture thereof" (Ex. 16, p. 119).
Following this on July 31, 1919, CXL wrote Irenée duPont, then President of duPont:
"We have in our possession a letter from Explosives Trade Limited on this subject, which we quote as follows:
"`In future, in the case of our entering into businesses in Canada, this letter serves to record that we shall offer them to Canadian Explosives, Limited.'
"We shall be obliged if you will write us a similar letter" (Ex. 17, p. 120).
With caution, born of the antitrust suit of 1907-11, duPont's president caused reply to CXL to be made by a vice-president under date of August 25, 1919. It reads in part: "However, we do not feel that we should address to CXL a formal letter stating that `before we enter into any new lines of business in Canada, opportunity would be offered to the CXL to take up this business.'" and further "Our intentions are certainly the same as those expressed in the letter from the Explosives Trades, Ltd. but, as stated above, we do not feel that we should formally state that this would hold good in everything" (Ex. 19, p. 123).
It was thus by the concerted action of duPont and Nobel that CXL became "the vehicle of industrial effort of ICI and duPont in Canada" (Ex. 836, 20, 174, 868, 870). The role played by CXL was continued by the successor company CIL.
A pattern of co-operation designed to eliminate competition and to effect a division of trade covering non-exclusive territories was found in the establishment of CXL. It proved practical and was followed by other jointly owned companies.
Compania Sud-Americana de Explosivos (CSAE) was organized by duPont and ICI in 1921 for the joint manufacture and sale of explosives in Chile.
Explosives Industries, Ltd. (EIL) was formed in 1925 by duPont, ICI and DAG as the vehicle through which they agreed to conduct their exports in explosives to South America, outside of Chile and Bolivia, except for direct sales made in their home territory for export to the territory assigned to EIL.
Nobel Chemical Finishes, Ltd. (NCF), was created in 1926 by duPont and ICI for the manufacture and marketing of the duPont cellulose type of finish, trademarked "Duco," in the British Empire excluding Canada and Newfoundland.
*559 Nobel Chemical Finishes, Ltd. (Australasia) the company name was later changed to Leathercloth Proprietary, Ltd. (LPL)was formed in 1927 by duPont and ICI to engage in the manufacture and sale of fabrikoid rubber cloth and related products in Australia.
Industrias Quimicas Argentinas "Duperial," S.A. Industrial y Commercial (Duperial-Argentina) was established in 1934 by duPont and ICI for trade in Argentina, Paraguay and Uruguay.
Industrias Chimicas Brasileiras "Duperial" S.A. (Duperial-Brazil) was organized in 1938 for trade in Brazil.
The history of each of these companies demonstrates the unlawful purpose with which they were organized, and demonstrates that they were used as instruments by which territories and countries were divided and assigned for trade and commerce. It also reveals that these companies were intended to and did effect a restraint of American foreign trade and regulation and suppression of competition between ICI, duPont and other American concerns in the non-exclusive territories.
A. Canadian Explosives, Ltd. (CXL), later called Canadian Industries, Ltd. (CIL)
We turn first to an examination of the joint operation of CXL and consider the extent to which CXL was utilized to accomplish this purpose and effect these results.
On January 1, 1920, the same day on which duPont and EXL executed the General Explosives Agreement, a separate contract was made by them with CXL (Ex. 21, p. 126). The purpose of this tripartite agreement is recorded in a memorandum of a meeting of the directing heads of duPont and ICI, whereat it was agreed that, "It is understood that the ownership of CXL Company, shall be practically fifty-fifty; that the policy of the two companies controlling the CXL is to utilize the CXL Company as a medium through which to enter any businesses in Canada; that it is not the intention for CXL to do an export business, but to devote their energies to developing Canada; that the Tri-Party agreement, which is being drawn between the duPont, CXL and Explosives Trades Limited is intended to furnish information to the CXL on all items of manufacture in which the CXL have already entered" (Ex. 20, p. 124).
It was the purpose of duPont, by this bilateral undertaking with ICI, to foreclose itself from the full development of its trade in Canada. It was sought to conceal this purpose by verbiage which purported to provide only for the exchange of manufacturing information and the granting to CXL of a non-exclusive license. It granted to CXL a non-exclusive license to use "any and all patented and secret inventions and processes now or hereafter, during the life of this agreement, owned or controlled by them, in and in connection with the manufacture, sale and use in Canada, N.A., and Newfoundland, N.A. of products now manufactured" by either duPont or ICI. It is to be noted that although the grant is "during the life of this agreement" no termination date is specified. Apparently, ICI and duPont desired the arrangement to continue only as long as it served their purpose. A reading of the agreement discloses no reference to any particular patent or field of patents but relates to a whole body of technology covering a vast number of products. There was embodied a grant of future, as well as existing patents; it provided also for a cross-licensing by CXL to duPont and ICI. The grant from duPont to CXL related to explosives and certain specified classes of chemicals; the ICI grant covered explosives and a more limited class of chemicals. Listed among the products covered, it is important to note "black sporting powder," a product used by Remington Arms Company (Ex. 21, p. 127).
On January 1, 1925, the tripartite agreement of 1920 with CXL was modified so as to make the licensing grants of both duPont and ICI "exclusive." The agreement ran for 15 years with the proviso that upon termination these licensed rights were to continue "in the case of patented inventions, for the remaining life of the *560 patent; and in case of secret inventions, perpetually" (Ex. 24, p. 159).
Both ICI and duPont were well satisfied with the operations of CXL; it "had made them fast friends"; "the quotas fixed through stock ownership" were offering promise of good returns (Ex. 80, p. 403). ICI and duPont by 1926 had greatly extended the scope of their cooperation through the use of CXL.
On January 1, 1926, still another tripartite agreement was made by ICI, duPont and CXL. The grant of exclusive licenses to CXL was extended and provision was made for the bringing of other products under the terms of the agreement by mutual consent. All agreed that "* * * it will be the policy of the parties hereto that in exploiting any new products not covered by this agreement which" ICI or duPont "may hereafter develop, they will, so far as they can, consistent with their own interests, prefer" CXL "as the means of exploiting such new inventions or products in the Dominion of Canada, N. A. and Newfoundland, N. A." (Ex. 170, p. 774).
CXL met with competition in explosives from companies owned or controlled by Atlas Powder Company, an American concern. Atlas owned all the stock of the Giant Powder Company of Canada and certain of the stock of the Northern Explosives Limited, of Canada. "It was proposed in 1922 that CXL and Atlas Powder Company will consolidate their explosive interests in Canada"; "that CXL will buy, and Atlas Powder Company will sell, their interests in the Giant Company of Canada and in Northern Explosives, Limited"; "the Atlas Powder Company will then receive * * * CXL preferred and common stock," and "arrangements will be made to give Atlas Powder Company representation on the Board of CXL" (Ex. 22, p. 132). This proposed arrangement involved more than a deal affecting only Canadian trade and commerce; there was coupled with it a direct restraint upon American trade. As part and parcel of the transaction it was understood that at the time of consummation "the Atlas Powder Company and Canadian Explosives Limited will enter into an agreement by which the Atlas Powder Company will not do business in Canada in lines in which Canadian Explosives Limited is now engaged" (Ex. 22, p. 138). To remove any possible doubt as to the extent and scope of this understanding, there is appended a list of explosive and chemical products.
Atlas had an investment in excess of $1,500,000.00 in Giant Powder and Northern Explosives. The transaction was finally closed in 1926; Giant and Northern had by then been merged into one company Northern-Giant Explosives, Ltd.; ICI and duPont received about 91% of the stock of the new company, and Atlas Powder the balance. Atlas received in addition from ICI and duPont 3983 preferred and 8749 common shares of CXL (Ex. 23; Ex. 25; Ex. 26). Thus, Atlas became a partner of duPont and ICI in Canada and joint owner with them in both CXL and Northern-Giant Explosives, Ltd.
With the entry of CXL into the field of new products, the company name was changed in 1927 to Canadian Industries, Ltd. (CIL).
In late 1928, ICI and duPont again extended their policy with regard to CIL relative to new products. A meeting was held in Wilmington on October 12, 1928; ICI, duPont and CIL participated. Matters not only affecting Canadian trade but the worldwide operation of ICI and duPont were discussed. Their policy with regard to CIL was formally restated as follows:
"It was agreed in principle that ICI and duPont desire to cooperate to the maximum degree in so far as practicable in any venture involving the manufacture and or sale of a product in which either or both principals are interested in so far as such venture wholly involves Canada and in so far as the products manufactured and or sold are destined for Canadian consumption, and recognize Canadian Industries, Ltd. as the proper vehicle for such cooperation" (Ex. 174, p. 791).
"Sir Harry McGowan stated that ICI had decided to allow CIL to take over the Canadian business of ICI in heavy chemicals and fertilizers. Mr. Lammot duPont agreed that the duPont Company would *561 turn over its Canadian heavy chemical business" (Ex. 174, p. 792).
This was accomplished; duPont in 1928 sold two of its Canadian subsidiaries Canadian Ammonia Co., Ltd. and the Grasselli Chemical Co., Ltd. to CIL; ICI in 1929 transferred its Canadian subsidiary, Cassel Cyanide Company of Canada, Ltd. to CIL.
At this same meeting the Canadian dyestuffs business was on the agenda. "It was decided in principle that it would be desirable for both companies to handle their Canadian dyestuffs business through Canadian Industries, Ltd. if a practical means can be found" (Ex. 174, p. 793). The subject was left for further exploration, but not before it was agreed, that, in the event a satisfactory plan could not be worked out, "it would not be desirable for Canadian Industries, Ltd. to handle the British Dyestuffs Corporation business, as it is now contemplated, as such a step would put Canadian Industries, Ltd. in competition with duPont" (Ex. 174, p. 793).
Having agreed in principle, once again the "spirit of cooperation" and "of mutual cooperation" soon prevailed. DuPont enjoyed a much greater share of the Canadian dyestuffs business than ICI; nevertheless, they both agreed in 1929 to transfer to CIL all of their dyestuffs business in the Canadian and Newfoundland market. All undertook, too, to work towards a "50/50" division of CIL dyestuffs purchases between duPont and ICI (Ex. 790; Exs. 794-797 and Ex. 800). Efforts to accomplish this division were continued until as late as 1942 (Ex. 905); in practice, it was found difficult to carry this division out (Ex. D-793); in operation, the use of CIL to sell the dyestuffs of duPont and ICI actually resulted in ICI obtaining a larger share of the market than duPont Ex. 885).
On December 1, 1936, another tripartite agreement was made by duPont, ICI and CIL (Ex. 868). It superseded the contracts of 1925 and 1926; it expressly included explosives among the products covered; it provided for the grant by duPont and ICI to CIL of patents, inventions and processes (for Canada and Newfoundland) which they owned or which they might thereafter acquire during the term of the agreement and a grant back from CIL to duPont and ICI of similar licenses for use in the rest of the world, excluding Canada and Newfoundland, such grants to conform to the territorial divisions set up in the Patents and Processes Agreement of 1929 and all amendments to it. The "spirit of the agreement" was stated to be that "the exploitation" in Canada and Newfoundland of the products of ICI and duPont should be conducted through CIL (Ex. 868, p. 3299).
It was provided that nothing in the agreement should deprive any grantor of the right to sell within the grantees' territory products not embodying inventions obtained by such grantor from the other parties (Ex. 868, p. 3301). But this 1936 contract was regarded by ICI as "more of a working memorandum than a cast-iron legal agreement" (Ex. 906, p. 3489) and that "the exigencies of the Sherman Anti-trust laws necessitate for duPont a legally drawn document as distinct from a codified memorandum or minute" (Ex. 850, p. 3192). "Interpretation" and "elucidation" were employed with reference to this clause of the 1936 agreement, to insure that this clause "which apparently stultifies the whole document * * * insofar as it permits all parties to export to each other's territories and therefore contradicts the rest of the provisions" was disregarded and rendered innocuous (Ex. 850, p. 3194).
The 1936 contract by its terms was to end on December 31, 1940, but by a letter agreement, dated December 16, 1940, it was extended indefinitely on a year to year basis, with provision for termination by any party on 90 day notice.
That the arrangement for CIL to purchase dyestuffs on a fifty-fifty ratio from duPont and ICI worked to effect a restraint of American trade appears clear. In 1929, an ICI official observed that at that time "DuPont's share is about three times that of ICI's share" (Ex. 795, p. 2957). Ten years later, in 1939, a duPont official recorded that "The Organic Chemicals Department feel that the arrangement has worked to the disadvantage of their department in that they could have sold a larger volume of duPont's dyestuffs at a *562 greater profit if they had continued to operate independently * * *" (Ex. 885, p. 3409).
Nevertheless, in 1942 CIL reported that "The fundamental of dyestuffs purchases between ICI and duPont is still based on a fifty-fifty ratio" (Ex. 905, p. 3486).
This equal division of purchases by CIL from duPont and ICI was not confined to dyestuffs; from 1929, CIL endeavored to purchase all products exported by duPont and ICI to Canada in equal proportions. The records show that from 1932 to the outbreak of World War II in 1939, the total annual purchases by CIL from duPont and ICI were substantially equal in amount (Ex. D-793, p. 6782).
A pricing formula was adopted by duPont and ICI in their sales to CIL (Ex. 824); it was intended to and did avoid price competition between duPont and ICI, and eliminated competition in Canada from others, including American manufacturers who exported to Canada, by placing CIL in a position to sell at low prices if necessary. Dyestuffs were sold to CIL on a commission basis. Other products, it was agreed, CIL would buy from duPont and ICI at the producer's mill cost plus 10 percent, or the best price allowed by either manufacturer to any domestic customer, whichever was lower (Ex. D-774; Ex. 832). This pricing formula was first adopted unilaterally by duPont; ICI followed in 1930 (Ex. 1382, p. 11038).
In some instances, duPont and ICI permitted CIL to purchase from other companies products also manufactured by duPont or ICI. This was permitted only where duPont or ICI were unable to supply, or where it was sought to prevent a third party from selling in Canada in competition with CIL (Ex. 801; Ex. 830; Ex. 832; Ex. 816; Ex. 1418).
The United States afforded a substantial market for the sale of products of the Canadian chemical industry (Ex. 1420), but up to 1946 CIL did not export chemical products to the United States because of exporting restraints placed upon it by duPont and ICI (Ex. 818; Ex. 819; Ex. 1380). A typical example of this restraint concerned a process which the Dominion Cartridge Company, a CIL subsidiary, had developed for waterproofing sporting ammunition. In 1928 CIL desired to exploit this process in the United States. When American manufacturers declined to take licenses on CIL's terms, CIL threatened to manufacture cartridges in the United States using its process. DuPont objected; CIL abandoned its plans; within a year, duPont acquired the license and itself licensed the process to all American cartridge manufacturers.
For many years CIL was prevented from exporting its manufactured products, particularly to the West Indies (Ex. 801; Ex. 816). The outbreak of hostilities in Europe in 1939 saw increased demand for CIL products. The matter was discussed by the duPont Executive Committee and a resolution adopted declaring: "that CIL has no right to export any products embodying shareholders inventions except that during the present emergency CIL may be permitted to supply ICI such goods for sale in the British Empire at prices returning a satisfactory profit to CIL" (Ex. 891, p. 3433).
CIL did expand its business during the war. These sales were, however, only in the British Empire. The sales were required to be made for ICI's account, since the products were shipped to the territory allocated to ICI under the arrangements then existing between duPont and ICI (Ex. 888; Ex. 892). The postwar period brought a prompt return to the established policy of restricting CIL's foreign activities. A letter from W. F. Lutyens, a director of ICI, dated April 11, 1944, is not only informative on this subject but reflects some light on the world-wide commercial relationship of duPont and ICI. It reads in part "* * * Secondly, you suggest that CIL should take a share in future developments and manufacture in countries where `it can be done in such a way as not to conflict with ICI and duPont overseas trade.' I find it difficult to think of any country where these conditions can exist, as it seems to me that at present ICI and duPont between them have business in *563 every country in the world" (Ex. 908, p. 3492).
And, indeed, the evidence shows that between them they did.
DuPont in 1930 directed CIL not to sell Duco type finishes to a Toronto concern when it was learned that the purchase was destined for shipment to Peru (Ex. 791; Ex. 792). In 1932 and again in 1934 duPont refused to permit CIL shipments of "pontan", a coated textile, save for account of duPont and under an arrangement whereby CIL paid to duPont the profit in excess of cost plus ten percent. Likewise, in 1933, duPont prohibited the export to Australia of pyralin toilet articles, which CIL manufactured in Canada (Ex. 825; Ex. 836).
We have seen that the elimination of competition in Canada from the Atlas Powder Company with respect to products which CIL was producing was accomplished in 1922 by the purchase of the Atlas controlling interest in its two Canadian subsidiaries; for this Atlas received in part a stock interest in CIL. These Atlas holdings were a topic for discussion between duPont, ICI and CIL executives at the meeting of October 12, 1928. It was then agreed "not to purchase this stock due to the high price asked", and further "that it is desirable from the broad policy standpoint to have Atlas continue as a shareholder in CIL." Exactly, what "the broad policy standpoint" was is not recorded in these minutes, but we find suggestive the minutes of a duPont meeting held in Lammot duPont's office on October 6, 1928. It was apparently then determined, at least insofar as duPont was concerned, that "It is of advantage to both ICI and duPont to have Atlas continue as a shareholder in CIL as tending to further Atlas cooperation with the broad ICI-duPont foreign policy" (Ex. 190, p. 885) and that "If the ICI desire the Atlas holding acquired in order to take control out of American hands, we should meet their position and take steps to adjust American v. British Empire holdings on a 50-50 basis" (Ex. 190, p. 885).
That ICI wanted this accomplished is quite evident from the minutes of a London meeting of March 15, 1928 between Lammot duPont, Irenée duPont, Sir Harry McGowan and others (Ex. 187).
But Atlas "was not at all anxious to sell" at the time (Ex. 189). A few months brought a change of mind; what induced it does not appear and we may not speculate. It was arranged that Christiana-Securities Company, a closely held duPont corporation, should buy the Atlas holdings of CIL stock and record was made "of the fact that they were purchasing for duPont and ICI joint-account" (Ex. 775). As part of the purchase Atlas offered "to keep out of Canada on those products in the Canadian development of which" CIL was then engaged (Ex. 776); the transaction was negotiated by Lammot duPont and Sir Harry McCowan (Ex. 777; Ex. 778). CIL urged that this offer of Atlas, which was accepted, be set forth in a long term agreement. Atlas had asked and received a high price for its stock; this was justified by Atlas on the ground "that Atlas would be out of Canada permanently" (Ex. 778). That the Atlas offer to abstain from Canadian trade was a weighty factor in the closing is the only rational conclusion one can reach, but the offer and acceptance "was not included in the minutes because it was not considered pertinent" (Ex. 778, p. 2899). Of this, the secretary of the duPont Foreign Relations Committee wrote to the president of CIL: "Even if Atlas had actually entered into a formal agreement to keep out of Canada it hardly seems as though any useful purpose would be served by recording the fact in the ICI-duPont minutes. Moreover, while I doubt whether such an arrangement would come under the Sherman and Clayton Anti-Trust acts, it is nevertheless highly undesirable for an American corporation to enter into any agreement which has even the faintest odor of restraint of trade about it" (Ex. 778, p. 2899).
Empty words, which were immediately followed by "For this reason, our people did not consider it desirable to ask Atlas to make any formal promises of this nature" (Ex. 778, p. 2900).
Informal promises were deemed sufficient; the confidence and trust duPont and *564 ICI had in each other was extended to include Atlas.
That CIL was entirely and completely dominated and controlled by duPont and ICI has been abundantly established. It was their purpose to prevent other manufacturers, including American companies, from exporting chemical products to, and from manufacturing such products in Canada. DuPont and ICI felt that such competition would impair the territorial allocation they had made. They caused CIL to enter into numerous agreements and understandings with other chemical manufacturers to restrict the activities of these latter companies in Canada (Ex. 804; Exs. 820-823; Ex. 853; Ex. 857; Exs. 872-881; Exs. 886-887; Ex. 901). The operation of CIL effected its purpose; it was a division of foreign trade participated in by duPont; it was a restraint of American trade and commerce accomplished by the concerted action of duPont and ICI.
While Canada was thus being jointly "developed," South America was not neglected.
B. Compania Sud-Americana de Explosivos (CSAE)
The "Understanding of 1920," which effected a division of the sale of explosives in all the markets of the world, left South America, Canada and Newfoundland as unassigned and non-exclusive territories. But before this and in 1918, (Nobel) ICI had proposed jointly owned and jointly operated factories for the manufacture of commercial explosives in Chile and Bolivia. DuPont was not too enthusiastic about the idea and Lammot duPont expressed his views in a letter of August 12, 1918 to Sir Harry McGowan as follows: "Personally, I believe that investments of expediency such as this promises to be are unworthy of attention, and if made, generally defeat their own purposes. On the other hand we, as you know, are earnest promoters of the cooperative idea and we believe it better to assist with this investment un-economical as it is, rather than to add to an unsound situation the future disadvantage of lack of cooperation between our interests. No doubt the solution of the difficulties in Chile and Brazil will be determined eventually and the solution of this difficulty will be to the credit of the American interests as well as of the British; it therefore seems proper that the burden should be assumed jointly" (Ex. 4, p. 57).
That the proposed venture appeared to duPont economically unsound offered no barrier to duPont's consent. The spirit of cooperation and of partnership prevailed and Mr. duPont closed his letter to Sir Harry McGowan voicing the hope that ICI would consider duPont "as being in the position of helpful partners."
Thereafter, in July, 1919, the duPont Executive Committee resolved that it "should cooperate with Explosive Trade Limited in the construction and operation of a dynamite plant in Chile" and "bring about the organization of a joint company" "with the installation and operation of a dynamite plant in the northern part of Chile of a capacity of approximately 5,000,000 pounds of dynamite per annum" (Ex. 5, pp. 59, 60). The Committee further resolved "that no other individuals or corporations be allowed to acquire an interest in said operating company in the beginning unless the same should appear highly expedient in which case the Executive Committee would reconsider this phase" (Ex. 5, p. 60).
The object of Nobel and duPont in forming this Chilean Company was recorded as being "to preserve their combined share in the South American market from further inroads due either to friendly or unfriendly competition as far as is consistent with avoiding a dangerously selfish outlook vis-a-vis outside competitors" (Ex. 9, p. 78). It was also noted that "in recent years there has been a distinct tendency for new competitors to enter the South American markets" (Ex. 9, p. 81), and that "as regards Atlas and Hercules competition, it should be noted that this was very serious in 1919, and conceivably may become so again" (Ex. 9, p. 82). It was this that persuaded the duPont company by November, 1921, to reexamine their former position and to decide "that it is good policy to recognize the Atlas Company's inroads by allowing them to share as stockholders in the local plant" (Ex. 9, p. 82).
*565 Compania de Explosivos de Chile, the company name was changed to Compania Sud-Americana de Explosivos (CSAE) in 1923, was organized by duPont and ICI in 1921. Atlas Powder Company was allotted 15% of the capital stock and the balance was divided equally between duPont and ICI.
Atlas urged that "all the Chile and Bolivia import business of the stockholders be handed over to the new company in addition to the trade that company can reach from its factory" (Ex. 11, p. 103); in this ICI finally joined with Atlas in exerting "pressure" on duPont to accept this view; duPont did. The Chilean and also the Bolivian import business in commercial explosives of the two American concerns Atlas and duPont and of ICI were turned over to CSAE in 1923 (Ex. 12, p. 111).
It was first agreed that the purchases of raw materials by CSAE were to be handled by duPont (Ex. 12, p. 111). This led to some conflict in the purchase of goods common to each shareholder but in 1930 this was all adjusted. It was then agreed that with reference to goods not common to each shareholder "DuPont Company shall act as agents for goods originating in North America; and ICI for materials originating in Great Britain and Europe" (Ex. 13, p. 115). and with reference to goods common to each shareholder that "The shareholding companies shall quote either competitively or an agreed upon figure according to what in their judgment is in the best interests of all concerned, but in no case shall the price be higher than that to the most favored customer" (Ex. 13, p. 115).
Again, by concerted action and by concerted abstention, restraint was placed upon American foreign trade.
Atlas continued as a shareholder of CSAE until 1942, when duPont purchased its interest (Ex. D-1314). Atlas had retained its interest in CSAE since the organization of the company in 1921. It is, indeed, strange that duPont after the lapse of 20 years gave to ICI as its reason for this purchase "that the joint ownership by two U. S. concerns in a company producing one of their major products was contrary to the Sherman Anti-Trust Law" (Ex. 1221, p. 4466). When duPont arrived at this conclusion of illegality is not clear, although it does appear that markedly similar motives were ascribed by duPont to themselves at the time of the purchase of Atlas' holdings in CIL and this occurred in November, 1928 (Ex. 778). Whether this purchase entailed, too, on Atlas' part an obligation to abstain from trade in Chile and Bolivia, as it did in Canada, is not revealed; perhaps, this was because the report on negotiations with Atlas Powder Company was made to the duPont Executive Committee orally (Ex. D-1314). The competition of Atlas and Hercules was restricted and eliminated in other South American territories by agreement which we shall consider later.
C. Explosives Industries Limited (EIL)
In 1920, while negotiations were pending which resulted in the formation of CSAE, duPont and ICI agreed to share equally the net profits from their separate sales of explosives and blasting supplies for shipment to the countries of South America, other than Chile. They also agreed to acquaint each other with all inquiries for military explosives received from South American governments (Ex. 7; Ex. 8). This arrangement was known as the "South American Pooling Arrangement." It provided that "beginning on the 1st day of January, 1920 and continuing for the duration of the agreement, the contracting parties will share equally the net profits from their separate sales of explosives and blasting supplies sold for shipment to the countries of South America, excluding profits from the sale of military smokeless powder and explosives used for military propellants and bursting charges" (Ex. 7). That duPont executives had doubt as to the legality of the arrangement is manifest from the fact that it was submitted to counsel, who rendered the reassuring opinion "that any agreement entered into between this Company (duPont) and Explosives Trades to divide equally (or otherwise) the profits on the sale of explosives by both Companies in South America would not be within the purview of the Anti-Trust Laws of the U. S. A." (Ex. 7; Ex. D-1282).
*566 The markets of Chile and Bolivia were specially provided for by the formation of CSAE in 1921. Trade in the remaining South American territories remained subject to the pooling arrangement. Then, by 1924, new competitors were entering the field.
The Germans (DAG), while forbidden by the Versailles Treaty from exporting military explosives, were exporting commercial explosives. By 1925, the Norwegian Company (Norsk-Spraengstofindustri A/S) had also entered the trade.
DuPont in January, 1925, noted that, "As a result of the activities of the German and Norwegian companies in invading South America and Mexico through quite a vigorous sales and price-cutting policy, these companies have taken quite a good deal of trade away from the older established sellers, principally Nobels, duPont, Atlas and Hercules. * * *" (Ex. 77, p. 382).
The "established sellers" did not meet the German and Norwegian competition by "inaugurating a first-class price war," and the latter were able to build up a substantial trade which they were anxious to consolidate before they met with "more aggressive competitive conditions" (Ex. 77, p. 382).
Sir Harry McGowan in October 1925, met at the Hague with representatives of DAG and the Norwegians. From the ICI notes of the conversations had at this meeting, it appears that, "At a very early stage in the proceedings it was evident that the chief concern of the Germans was as to the extent to which any arrangements which might be come to could be made to embrace the American companies * * *" (Ex. 71, p. 349); and Sir Harry McGowan stated that, "Although active competition existed, there was a friendly intercourse which in his judgment would enable the United States manufacturers to come to an understanding in regard to extra-United States questions, and further that the existing laws in the States did not in themselves preclude the possibility of such an understanding. He further intimated that from his conversations with the duPont Company he had ascertained that they were not adverse to associating in an agreement governing the South American continent, but that at this stage he was not able to speak with any authority on behalf of duPonts, and still less could he say how the matter would be approached by the other American manufacturers mentioned" (Ex. 71, p. 349).
At this same meeting, "* * * the Nobel representatives advised the Germans of the existence, in conjunction with the duPont Company, of the South American Pool, and suggested that they give consideration to the extension of that pool to cover all interested in the South American trade with the necessary variation of percentage interests * * *" (Ex. 71, p. 353).
The meeting "concluded with a suggestion that Sir Harry should invite the American representatives to a meeting" (Ex. 71, p. 357). This was done in a letter to Irenee duPont (Ex. 72) advising that the Germans "were anxious to arrive at some arrangement whereby the present insensate competition particularly in South America might be stopped and selling prices put on a more remunerative level."
At the next meeting held in London in November, 1924, duPont was represented. The business of the Westfaelische Anhaltische Sprengstoff, A. G. (Coswig), a German concern, was discussed. The minutes record that, "The question of duPont purchasing an interest in or control of the Coswig and/or the D.A.G. group was discussed it being pointed out previously that Nobel was not willing to consider at this time any investments in Germany: furthermore, that the German government would probably look with disfavor or prohibit any arrangements which would tend to curtail exports, and Sir Harry McGowan took the very definite position that any purchase of an European explosives company by duPont would seriously cut into the atmosphere between duPont and Nobel, being looked upon by Nobel as an unfriendly act. It was his opinion that such a step would be similar to the purchase by Nobel of one of the American companies, and that no such step should be taken by either duPont or Nobel except at the invitation of the other party" (Ex. 76, p. 370).
*567 "Concern was also expressed by the Germans as to the activities of the Trojan company," an American concern (Ex. 75, p. 367). The Germans "insisted upon a quota in Mexico based on their 1924 sales" (Ex. 75, p. 368). "DuPont representatives stated that they could not agree to any quota arrangement in Mexico; and that so far as they were concerned the Mexican situation would have to remain open until the meeting in the spring of 1925" (Ex. 75, p. 373). DuPont felt that DAG "had gone into Mexico because the Australian trade, which before the war gave them close to 1000 tons, has been completely closed to them." This, duPont felt, meant that ICI had gained at duPont expense, "the German loss to Nobel in Australia being taken from the American companies in Mexico" (Ex. 75, p. 374).
Later, on November 24, 1924, when informed of these discussions, the duPont Executive Committee authorized the sending of the following cablegram to the duPont representatives then abroad negotiating with ICI and DAG:
"Our Idea Of Buying Coswig Not To Increase DuPont Sphere But For Joint Benefit Of Getting Better Deal With German Nobels And Later Consolidation With Them (Stop) In View Of Nobels Attitude We Withdraw Suggestion (Stop) On The Other Hand We View Trojan Competition In South America As A Temporary And Minor Factor To Be Eliminated By Sae Company Through Suitable Competing Explosives (Stop) Our Ideas Regarding Mexico Have Not Changed" (Ex. 76, p. 377).
When the duPont representatives returned to the United States they made a lengthy report (Ex. 77) in which they noted that the German interests wanted only a straight commercial trade arrangement and that they "had no wish at this time to renew anything like former relationships such as the interchange of technical information, patents, etc." (Ex. 77, p. 381). They further reported that the German interests "had already declined to acquire some of the Chile Company's stock which the Nobels offered them, preferring to have their share of the business directly instead of through ownership in the local enterprise. One reason for this is that the German factories need production badly" (Ex. 77, p. 385). It was further noted that some trade in the Chilean territory was "remote and expensive to reach from the local factory and can almost as well be served from abroad" (Ex. 77, p. 385). Concerning the Mexican trade, the duPont representatives rejected the German suggestion made "rather earnestly that in the meantime some price convention should be maintained, particularly in Mexico, * * * as this would be tantamount to recognizing their right to a quota in that country * * *." (Ex. 77, pp. 388-9). The foreign trade policy of duPont was clearly set forth in this report as follows: "It was pointed out by us that whatever the reasons might be for changed conditions elsewhere, the policy so far as Americans are concerned remains the same, to wit that it is sound business procedure to restrict ourselves to a certain degree to those markets in which we have advantage over foreign competitors so long as those competitors restrict themselves to other markets in which they have economic advantages, and that we considered Mexico one of our natural markets for the reason that many of the users of explosives there are Americans, and also that we can reach the consumer economically" (Ex. 77, pp. 386-7).
Subsequent meetings were held in New York and in Wilmington in April, 1925, between ICI, duPont and DAG; a decision for "cooperation instead of antagonism" was reached (Ex. 78, p. 397). Mr. Haskell of duPont "outlined the experience with CXL and told how the forming of a Canadian corporation had ironed out all difficulties between Nobel and duPont and had made them fast friends and how such an association with quotas fixed through stock ownership could not help but make money for all concerned in the long run." * * * (Ex. 80, p. 403).
At these meetings it was agreed "to grant to DAG a 25% quota of the high explosives business done in Chile and Bolivia by the two interests, viz: CSAE and DAG" (Ex. 89, p. 440; Ex. 81, p. 406), and that ICI, duPont and DAG would organize a "selling company" to operate in *568 South American continental markets other than Chile and Bolivia, and to handle in those markets the sales of commercial explosives of the parties on a quota basis, the quotas to be fixed by stock ownership" (Ex. 82). The respective shareholdings in the company were fixed at: duPont 37.5%; ICI (Nobel-London) 37.5%; DAG (Nobel-Hamburg) 25%.
Thus, Explosives Industries, Ltd. (EIL) was organized in 1925, under the laws of the United Kingdom (Ex. 82; Ex. 101).
It was agreed that EIL would purchase commercial explosives and detonators from the shareholders in proportion to their respective stockholdings and that "safety fuse" was also to be purchased on a quota basis (Ex. 101). While it was provided that shareholders might make certain direct sales, at prices approved by EIL, such sales were to be charged against the quota of the party making the sale (Ex. 101, pp. 527-8). With the organization of EIL the South American Pooling Agreement was cancelled as of June 30, 1925 (Ex. 102). These arrangements with reference to South America were but part of a general understanding with DAG providing for abstention, adherence to quotas and collaboration in other markets (Ex. 78; Ex. 80; Ex. 85; Ex. 90).
It was at these meetings (April 22, 1925) that Irenée duPont stated that "it was essential that if we were coming together in South America, we should get together in Mexico also" (Ex. 93, p. 469). Time had brought about a change in duPont's views on Mexico from those of November 1924 (see, Ex. 75, p. 374). Hercules Powder Company and duPont were competitors of DAG in Mexico. A jointly-owned company was proposed to handle explosives in Mexico. DAG (Nobel-Hamburg) undertook to gradually diminish its exports and thereafter "to retire from the Mexican Market May 1, 1930, for a period of not less than 10 years" (Ex. 94, p. 374). Hercules was a party to the agreement as well as duPont.
It is to be noted that duPont advanced the claim that Costa Rica "as also the other Central American markets had always been and still were looked upon as districts which it would be in the best interests of the parties should be served by the American companies. The German representatives agreed that in dealing with enquiries for Costa Rica, Honduras, Guatemala, Panama and San Salvador, they would quote such prices as the duPont Company might dictate" (Ex. 85, p. 423).
At the close of the negotiations between ICI, duPont and DAG, ICI was able to note accurately: "We now have arrangements for practically all the remainder of the World America and Mexico have been fixed up, South America is common territory, and mutually satisfactory arrangements have been made for China and Japan" (Ex. 95, p. 478).
After these long extended meetings and discussions for division of territories, one reads with wonder the record of a meeting held in Hamburg on September 6, 7, 8, 1925, that "Meantime it is understood that, while American law precludes the DuPont from coming to any abstention understanding, the agreement between the German Companies and Nobel should not only cover the exchange of patents and processes, but should also take the form of a trade abstention contract, in which would be plainly set out the markets in which the German Companies were entitled to trade" (Ex. 85, p. 424).
Three formal and separate agreements between ICI and DAG; duPont and DAG; and duPont and ICI were prepared; the agreements were not signed but were carried into effect (Ex. 92; Ex. 96). The agreement between ICI and DAG was outspokenly one of trade abstention, joined incidentally by patents and processes provisions. The agreement between duPont and DAG gave the outward appearance of legality to the arrangement for territorial division, but was part of the one pattern and plan for world division. DuPont had observed the form of the law in the writing, but had flouted it by collateral and oral understandings.
The duPont reluctance to enter into a formal trade abstention agreement was explained to DAG by ICI, as follows: "The existence of the Sherman Anti-Trust Laws makes it illegal and hence impossible for *569 the duPont Company to enter into a clear reservation agreement such as is possible to your group and mine, and for this reason it has been considered necessary to have three agreements. * * *" (Ex. 99, p. 517).
It mattered not that the formal documents were unsigned, for as the duPont London representative wrote on February 9, 1926 "So far as the spirit of the agreement goes, it is already in operation, and we should have no hesitation in going right ahead with the exchange of technical information or any offer of patents or processes which may arise" (Ex. 98, p. 515).
This understanding with ICI and DAG was continued by duPont until 1938. And, the understanding between ICI and DAG was respected and carried out by ICI as late as February, 1938 (Ex. 96, p. 498).
The competition from Coswig in Chile and Bolivia, as well as in other territories throughout the world, was eliminated by an agreement between Coswig and DAG made in 1927. Coswig agreed to limit its exports of explosives and detonators to Chile and Bolivia and to observe fixed prices. For this, as well as for a like undertaking with respect to the Dutch East Indies, and for complete withdrawal from the balance of South America and other territories, DAG undertook to pay Coswig annually £5000; one-half of this amount, ICI and duPont agreed was chargeable to Coswig's agreement to withdraw from EIL territory. ICI and duPont each undertook to annually reimburse DAG for their share of the Coswig payments.
EIL soon undertook to regulate competition from Atlas Powder Company in South America, excluding Chile and Bolivia. The last two countries had been provided for by arrangements entered into by CSAE. The South American trade of Hercules Powder Company was also given attention. Efforts had been made in 1926 to regulate competition between EIL and Atlas and Hercules (Ex. 1238, p. 4540). Some difficulty was met in arriving at an agreement with Atlas as they attempted to force from duPont "an agreement in Mexico as a part of their entering into a South American agreement" (Ex. 1239, p. 4541). Under the terms of the understanding finally reached it was agreed that "the Atlas Powder Company will have the right to sell in the territory" (Ex. 1240, p. 4543) on the following quota basis:
High Explosives
Explosives Industries Limited.. 76.72%
Hercules Powder Company........ 4.73%
Atlas Powder Company........... 18.55%
_______
100.00%
(Ex. 1240, p. 4544; Ex. 1241, p. 4549)
Blasting Powder
Explosives Industries Limited.. 79.3%
Hercules Powder Company........ 8.3%
Atlas Powder Company........... 12.4%
_______
100.00%
(Ex. 1240, p. 4544; Ex. 1241, p. 4549)
This allocation, as to the sale of high explosives, was to be applied after the German and Norwegian quota of 478 tons had been made (Ex. 1242, p. 4551). It was contemplated then (February 11, 1930) that "this distribution should remain about the same during the next five years" (Ex. 1242, p. 4552), but these and like arrangements were renewed from time to time and continued until World War II (Ex. 1243; Ex. 1249).
Agreements were also made by EIL and CSAE in 1937 with two Belgian companies, Poudreries Reunies de Belgique and Poudreries Royales de Wetteren-Coopal et Cie. granting them definite restricted quotas for the sale of commercial explosives in South American markets (Exs. 1250-60).
Through the operations of EIL, duPont and ICI functioned and operated with the purpose and effect of eliminating competition between themselves and others in South American markets, thus carrying out in part the territorial allocations between duPont and ICI with respect to explosives in the understanding of 1929. The agreements made by and through the use of EIL were direct restraints upon the export trade of the United States.
DuPont sold its interest in EIL in June, 1938, to ICI (Ex. 715), but the Belgian and Scandinavian manufacturers and EIL *570 together with duPont continued to "work under a quota arrangement for South America as a whole" (Ex. 1184, p. 4337).
Concerning the withdrawal of duPont from EIL an ICI memorandum of May 29, 1939, reads: "In 1938, duPont, on the advice of their Legal Department, retired from their participation in Explosives Industries, Ltd., the joint Company formed by duPont, DAG, and ourselves, to sell explosives in South America excluding Chile and Bolivia. Both the DAG and we facilitated duPont's retrial as much as possible, dispensing with six months' notice, and duPont assured us that although they were not actively participating in EIL they had no wish to depart from the then existing allocation of trade. Their co-operation in this respect leaves something to be desired and we would, therefore, strongly urge the necessity for clear-cut arrangements on the commercial side if duPont should maintain that the alteration of the Patents and Processes agreement does not involve any change in their attitude to the `unwritten' commercial agreement" (Ex. 634, p. 2356-7).
And, on October 13, 1939, ICI(NY) was reporting to the home office in London that Mr. Crane of duPont, "* * * claimed that since duPonts had withdrawn from EIL they had had to exercise considerable restraint in order to keep about the same proportion of the business in EIL territories which they had had when they were partners in EIL. He further claimed that, even so, their original percentage of 37½% had increased during the year to 45%" (Ex. 715, p. 2731).
The same report noted that the ICI (NY) representative had "already agreed with duPonts that ICI will not obtain quotations for explosives, which duPonts and/or CIL can supply, from Atlas or Hercules * * *" (Ex. 715, p. 2735).
It was also recorded that "DuPonts state quite plainly, that although they recognize in the explosives world that they will probably have to negotiate a split of markets with the DAG after the war, in the dye business they intend to capture and stick to all the trade they can possibly get, particularly in South America" (Ex. 715, p. 2736). DuPont was still prepared to split markets with DAG, after the war.
Mr. Crane of duPont had the same views with respect to ICI, and on October 25, 1939, he wrote a letter to Lord Melchett of ICI. The circumstances surrounding the writing and sending of this letter (Ex. 720) are most interesting. The letter was handed by Mr. Crane personally to Mr. Barnsley of ICI(NY) in New York and sent by him on to London, apparently by courier, with an accompanying letter (Ex. 721) in which Mr. Barnsley wrote that Mr. Crane wished him to explain "that this was the only letter which his Legal Dept. would allow him to write * * *" (Ex. 721, p. 2756). Mr. Crane agreed on behalf of duPont, in guarded language that:
"So far as our producing facilities permit and without sacrifice of our regular business, it is our desire to supply goods to your company in different lines of products which you may be in need of. No general formula of price for such supplies has yet been suggested, nor is it likely that there will be found one formula to apply to the various kinds of products. As these questions arise, our Foreign Relations Department will take them up with our different Industrial Departments and endeavor to effect equitable terms and adequate cooperation.
"We will naturally preserve a free hand and consult the best interests of the DuPont Company. We will undoubtedly take on for our own account much foreign business, some of which was hardly obtainable by us previously. That is inevitable, but our solicitation of such trade is not to be interpreted by you as an effort to take undue advantage of our temporary position as a supplier of some of your requirements. There are areas in which our activities are logical, there are goods which it is logical for us to supply. On the other hand, there are areas and products which could be effectively served by us only for temporary shortages of goods in this great emergency. In all of these matters we want to be guided by sound business considerations as well as by a fair and sympathetic attitude toward yourselves" (Ex. 720, pp. 2754-5).
*571 Thus was stated in such terms and with as much candor as permitted by the duPont Legal Department, the duPont foreign policy during World War II with relation to the markets assigned ICI which ICI was unable to supply.
D. Duperial Argentina
That the South American market presented great potentialities for further sales expansion and the introduction of new products became apparent. The sale, in 1932, of Chilean sulphur in Argentina by ICI at prices lower than those at which duPont's "new-acquired associates" Bartlett & Cia. and Borzone & Morengo, were selling Texas sulphur, led to a number of conferences between duPont and ICI on the subject. DuPont had acquired the Bartlett interests without knowing that ICI was engaged in selling Chilean sulphur in Argentina; duPont's "examination of the subject indicated that the activities of Bartlett plus Borzone & Morengo" could not "bring" them "into competition with ICI," therefore they did not discuss the matter with ICI beforehand (Ex. 935, p. 3545). ICI took an interest in a manufacturing company (Rivadavia) and informed duPont of it after it had done so.
"The desirability of close cooperation in all respects" (Ex. 935, p. 3545) was not long forgotten; the sales of Chilean sulphur were causing duPont's Argentine associates considerable difficulty. DuPont and ICI discussed the matter and "it was mutually agreed that it was desirable to reach some agreement to avoid unfriendly and ruinous competition" (Ex. 938). At first, it was left to the local Argentine representatives to negotiate; they talked of limitations on imports of sulphur to Argentina from the United States as well as from Chile and Italy, but without result. The suggestion was made "of the possibility of duPont and ICI joining forces in Argentina in much the same way as we have done in Canada" (Ex. 938, p. 3555).
At this time, 1932, duPont was extremely active in the Argentine. It owned E. I. duPont de Nemours y Cia. Argentina, S. A., which was a combination of the former C. G. Bartlett & Company and the carbon bisulphide business of Borzone & Morengo, both of Argentina; this company was the exclusive agent for the United States Sulphur Export Association and acted as agent for the various duPont departments and subsidiary companies. DuPont maintained an office in Buenos Aires for development of trade opportunities and owned the International Freighting Corporation, an American company with branches in Buenos Aires, which did a general shipping business. In addition, duPont had agents in the Argentine for Krebs Pigment & Color Corporation (owned 70% by duPont), for the duPont Rayon Company and for the duPont Fabrics and Finishes Department. All of this, as well as the promise of future development and expansion, duPont was willing to and did abandon by joining with ICI in the formation of a jointly-owned Argentine company.
That ICI was competing with duPont in Argentina is shown by ICI holdings in Argentina at the time. ICI owned about 90% of the stock of Cartucheria Orbea Argentina, S. A., manufacturers of sporting and metallic ammunition; 40% of S. A. Industrial y Commercial "Rivadavia," manufacturers of sulphate of copper and other acid products; 100% of Imperial Chemical Industries, S. A., Commercial e Industrial, Buenos Aires, a selling company for ICI products; and 100% of Barraca Amberense, S. A., a warehouse. This represented the contribution of ICI to maintain the "spirit of cooperation" in the Argentine (Ex. 943, p. 3579).
A clash of interests was avoided. In 1934, duPont and ICI established a jointly-owned company in Argentina known as Industrias Quimicas Argentinas "Duperial," S. A. Industrial y Commercial (Duperial-Argentina). DuPont and ICI have since owned the stock of this company in equal shares. It was made "the recognized vehicle for the expansion of duPont and ICI activities in Argentina" and "all of the services, technical, commercial, etc." of the two companies were placed at the disposal of the newly-created venture (Ex. 940, p. 3561).
Up to 1948, duPont and ICI controlled the policies and management of Duperial-Argentina through a Joint-Shareholders *572 Committee, composed of the manager of ICI(NY) and the director of the duPont Foreign Relations Committee (Ex. 940, p. 3560). The territory assigned to "Duperial-Argentina" embraced Argentina. Paraguay and Uruguay (Ex. 944, p. 3587). "Duperial-Uruguay" which was 100% owned by "Duperial-Argentina" was later formed.
"Duperial-Argentina" received from duPont and ICI "The right for its own territory to all patents, processes and information" within the chemical fields merged. So as to insure no interference with other divisions of territory which had been effected between duPont and ICI, it was agreed that "As a natural corollary to the grant of these exclusive rights it follows directly and as a matter of course that the Argentine Company must stay within its own territory and not spread out into other countries, either by laying down plants, exporting products or licensing under their processes" (Ex. 944, p. 3588).
But, ICI felt, and in this duPont acquiesced, that the new company with the combined technical research and business resources or duPont and ICI "could not fail to take a very prominent part in the industrial development of the Argentine and the unified effort would be so effective as to make its competitive power almost invulnerable" (Ex. 943, p. 3580).
The ban on Duperial-Argentina export was enforced, save in a limited number of cases where prior consent was obtained from duPont and ICI.
The purchase of all chemical products by Duperial-Argentina was confined to duPont and ICI. It was directed in December, 1935, that supplies should be drawn on a basis which would assure the continuance of the existing volume of trade of duPont and ICI at the time Duperial-Argentina was organized, with new business to be shared equally between them. The responsibility of dividing the business was placed with the Duperial Management, but it was agreed that, "However, in the event that the share of one principal is greater than that to which he is entitled, he will turn over 7½% of gross sales realizations on the excess to the other shareholder as representing manufacturing profit on this business" (Ex. 960, p. 3633).
DuPont and ICI fixed not only the prices at which they sold to Duperial-Argentina (Ex. 965) but also controlled the price at which Duperial-Argentina sold (Ex. 963).
DuPont and ICI undertook to endeavor to prevent other companies from exporting to Argentina in order to pre-empt that market for themselves through Duperial-Argentina. An Argentine competitor, it was learned, was endeavoring to make arrangements to represent the West India Oil Co., the Standard Oil Company of New Jersey marketing subsidiary, in the sale of solvents used for thinner and lacquer manufacture. DuPont and ICI took up the matter; the director of duPont Foreign Relations Department "put forward the suggestion that an approach be made to the Standard Oil Company to endeavor to secure for Duperial distribution of their products or some control of distribution or an agreed upon division of trade" (Ex. 1002, p. 3725). This was accomplished in 1935 and Standard Oil agreed to make Duperial-Argentina its exclusive agent for its solvents on a commission basis or to sell outright to it and to no one else in Argentina (Ex. 1003). This agreement of Standard Oil had not only the purpose, but the effect of eliminating competition between duPont, ICI and Standard Oil in the export of solvents from the United States to Argentina.
In 1934, Duperial-Argentina was acting as the sales agent for a European cartel exporting ammonia to Argentina. DuPont and ICI were exporting ammonia through Duperial-Argentina. Cia. Primitiva de Gas (Primitiva) an Argentine company, was also engaged in the local production of ammonia. DuPont and ICI were of the opinion that the strength of Primitiva's position indicated that company would be "eventual suppliers of the bulk of Anhydrous Ammonia consumed in the Argentine" (Ex. 1011, p. 3755). Competition from Primitiva had to be eliminated. An agreement was negotiated with Primitiva through Duperial-Argentina whereby the latter undertook to purchase the entire output of Primitiva for 10 years. As part *573 of the transaction the consent of the European cartel was obtained and duPont and ICI agreed to refrain from exporting ammonia to the Argentine. Even while the negotiations were being carried on, it was determined that it would be inadvisable for Duperial-Argentina "to push the product of the National Ammonia Company" (an American duPont concern) (Ex. 1012, p. 3758). The transaction resulted in a complete restraint on duPont's exports of ammonia to the Argentine.
At the time Duperial-Argentina was formed "Bunge & Born" was the largest commercial concern in Argentina. This firm was then investigating the advisability of entering the chemical industry, as a possible field for the employment of its ample capital resources. It was suggested that Bunge & Born be permitted to participate in the stock ownership of Duperial-Argentina; duPont successfully opposed this. The principal directing head of Bunge & Born was one Alfredo Hirsch, who was "recognized as being the richest man in the Argentine and broadly speaking the most influential individual" (Ex. 1015, p. 3769). Hirsch developed the company into a powerful competitor; Sir Harry McGowan in a memorandum to Lammot duPont of July 22, 1937, observed that Bunge & Born had built up a world-wide business that "they are good and useful friends, but extremely dangerous enemies" (Ex. 1015, p. 3770), and that they were "clearly in a position to make things very uncomfortable" for ICI and duPont in Argentina (Ex. 1015, p. 3771). With this background, when in 1935 duPont and ICI organized a subsidiary, Ducilo S.A. Productora de Rayon (Ducilo) to operate a rayon factory in Argentina, Bunge & Born began planning to erect a similar plant. Bunge & Born were offered and accepted a 15% stock participation in Ducilo. Certain Swiss interests and a French corporation were also given a stock interest in Ducilo; a formal agreement was signed by all parties in August, 1936 (Ex. 1039), and all agreed to refrain from the manufacture of rayon in Argentina until 1955. It was agreed by duPont and ICI that they were both obligated to vote the stock interest in Ducilo to carry out the provisions of the Duperial contract they had made, and the restraints applied to duPont's exports of chemicals were applied with equal force to rayon (Ex. 1383, p. 11043). As a result, duPont refrained, except on rare occasions from exporting rayon from the United States to Argentina and Ducilo refrained from exporting rayon outside of Argentina, Paraguay and Uruguay. Thus, again, the imports and exports of the United States were directly restrained.
At a meeting of the executives of ICI and duPont held on October 20, 1937, at Wilmington, with both Sir Harry (then Lord) McGowan and Lammot duPont taking part,
"It was agreed that the official policy of Duperial shall by no means exclude the policy of forming a partnership with Bunge & Born in our manufacturing enterprises in the Argentine.
"Meanwhile the policy of friendly cooperation and quota agreements is to be pursued. The policy of exchanging information wtih Bunge & Born as to future manufacturing programs is to be strictly adhered to" (Ex. 432, pp. 1815, 1816).
Bunge & Born at this time had in operation a plant for the manufacture of tartaric acid. Quotas were fixed by Duperial-Argentina with Bunge & Born, and the respective sales organizations collaborated "along sound lines" (Ex. 1046).
La Celulosa Argentina S.A. (La Celulosa) was competing in 1938 with Duperial-Argentina. Dupont and ICI began negotiations with La Celulosa to restrict the latter's activities. I. G. Farben was also then dealing with La Celulosa for a partnership arrangement. La Celulosa offered to sell Duperial-Argentina one-half of its chemical business. I. G. Farben and La Celulosa had also made counter-offers to each other. A meeting was held in London between representatives of ICI (acting for duPont as well as for itself) and representatives of I. G. Farben in April, 1938; the "friendly relations" between these negotiators and their purpose to avoid "needless competition" led to mutual acceptance of the "principle of trying to obtain a joint investment *574 in Celulosa's chemical business * * * as the soundest policy; and the division of this investment was considered" (Ex. 1055, p. 3946). Agreement was finally reached by La Celulosa, Duperial-Argentina, I. G. Farben and Solvay et Cie., a Belgian concern, to eliminate competition in Argentina between duPont and ICI on one hand, and I. G. Farben on the other. A new corporation, Electroclor S.A. Argentina (Electroclor) was organized on December 3, 1938 to manufacture caustic soda and chlorine products in Argentina. It was agreed that the stock in Electroclor was to be issued 50% of La Celulosa, 33.4% to Duperial-Argentina, 11% to I. G. Farben, 5.5% to Solvay et Cie. (Ex. 1055, p. 3947). The stock was never issued to I. G. Farben and Solvay because of the outbreak of World War II in 1939. ICI refused to permit Duperial-Argentina to consummate the deal with I. G. Farben and Solvay. DuPont intervened as "neutral" and suggested that I. G. Farben renounce participation and receive back the funds it had subscribed with the assurance that Electroclor, as the Argentine company, would endeavor to furnish the local I. G. Farben Argentine office with a satisfactory proportion of chemicals for sale and with the further understanding that "when normalcy returns we will endeavor (to) secure restoration (of) their participation" (Ex. 1063, p. 3982). DuPont's position was later restated in a report of February 9, 1940 that, "the duPont Company informed I. G. that they intended to use their good offices after the war to have the I. G. participation restored" (Ex. 1391 p. 11100).
Before this, and in January, 1940, Electroclor agreed to give "Anilinas," an Argen tine I. G. Farben subsidiary, one-third of the products of Electroclor for resale. This agreement was cancelled upon the insistence of the United States Government (Ex. 1078).
In the course of these dealings with I. G. Farben, duPont wrote on October 27, 1939, a letter which in part sets forth duPont's position in the Argentine, and which reads, "Your final suggestion of having duPont represent you on the Board and in the voting trust was not feasible, as ICI could not agree to have done indirectly what they could not do directly. Moreover, duPont's only interest in Argentina is through Duperial in which we are equal partners with I.C.I. We have no men of our own in that country to represent us nor could Duperial nor ICI agree to our attempting this role" (Ex. 1069, p. 3991).
Perhaps, this best sums up duPont's position in the Argentine; duPont's only interest there was through Duperial-Argentina; the territory had been divided with ICI as equal partners; duPont had no men in Argentina to represent it and to further its own separate interests in the development of trade and commerce.
E. Duperial Brazil
Sir Harry McGowan and Lammot duPont, during a conference in London, in June, 1935, agreed "that steps should be initiated looking to the amalgamation of the interests of ICI and duPont in Brazil. Subsequently, each company (has) presented to the other considerable information with respect to its Brazilian business including recent balance sheet and income statements preparatory to inauguration of formal negotiations. * * *" (Ex. D-990, p. 7320).
The reasons which prompted the proposed merger in Brazil were stated to be "largely those which prompted the Argentine merger." Notice was taken of the fact that,
1. "Brazil is a large and relatively prosperous country, with great natural resources, and seemingly definitely committed to a program of industrial development."
2. "Both ICI and duPont were interested in sharing the development and growth of the Brazilian chemical industry through sales of goods manufactured both at home and locally in Brazil" (Ex. D-990, p. 7321).
DuPont and ICI each had commercial footholds in Brazil and each had prospects for substantial further development. The possibility of future competition between them and the desire to eliminate and avoid it, as in the Argentine, brought about the merger in Brazil.
It was agreed in May, 1936, that the merger be made effective financially as from October 1, 1936, that it be accomplished *575 through the medium of ICI-Brazil, Limited, by increasing its capital to acquire the net assets of duPont-do-Brazil and that this company be dissolved. This was carried out, and ICI-Brazil then changed its name to Industrias Chimicas Brasileiras "Duperial" S.A. (Duperial-Brazil) in 1937, and the stock was issued in equal shares to duPont and ICI.
Just as with Duperial-Argentina so it was with Duperial-Brazil; the "whole theory" of duPont and ICI was "that the Brazilian company shall be regarded as the vehicle of industrial effort for ICI and duPont in Brazil on certain definite lines of industry at present being merged, in respect of which the Brazilian company will receive the right for its own territory (namely, Brazil) to all patents, processes and information within that field which may be disposable by the partners" (Ex. 1079, p. 4041).
And, it was agreed that "as a natural corollary to the grant of these exclusive rights it follows directly and as a matter of course that the Brazilian company must stay within its own territory and not spread out into other countries, either by laying down plants, exporting products or licensing under their process" (Ex. 1079, p. 4042).
The operations of Duperial-Brazil were controlled by duPont and ICI, guided almost entirely by the pattern set for Duperial-Argentina.
Purchases by Duperial-Brazil were confined to duPont and ICI, and apportioned among the two by agreed formula (Ex. 1112). The shareholders' minutes of May, 1947 record that on dyestuffs "It has been arranged that when duPont and ICI are unable to supply Duperial's requirements, inquiries should be sent to ICI(NY) and only should they be unable to procure the necessary materials will Duperial be free to endeavor to purchase from outside sources" (Ex. 1151, p. 4215).
The prices at which products were sold by duPont and ICI to Duperial-Brazil were fixed by the Shareholders' Committee (Ex. 1132). They also fixed the minimum prices at which Duperial-Brazil sold its products (Ex. 1132; Ex. 1118; Ex. 1139).
Since the establishment of Duperial-Brazil, duPont and ICI have conducted all their exports to Brazil through Duperial-Brazil. The duPont policy with respect to this was stated in April, 1938, by the duPont Foreign Relations Department, as follows: "* * *, we have an obligation to ICI to consider Duperial-Brazil our exclusive agents in Brazil on products of our manufacture sold there" (Ex. 1091, p. 4061).
This policy was consistently followed by duPont's refusal to sell in Brazil in competition to Duperial-Brazil (Ex. 1094; Ex. 1109; Ex. 1096; Ex. 1102; Ex. 1105; Ex. 1107; Ex. 1109).
Duperial-Brazil, in 1938, entered into an agreement negotiated by duPont and ICI, with I. G. Farben and its Brazilian subsidiary, Allianza Commercial de Anilinas, to fix the price of dyestuffs exported by duPont, ICI and I. G. Farben to Brazil (Ex. 1116).
A local Brazilian dyestuff manufacturer, Zambotto, was in competition with Duperial-Brazil. In 1937, an agreement was entered into with Zambotto to eliminate this competition; Duperial-Brazil on its part undertook to furnish Zambotto intermediates and not to undersell him. DuPont and ICI separately agreed to support this arrangement "by refraining from quoting prices on the six Zambotto colors which would be lower than the prices at which Zambotto could make and sell the same colors" (Ex. 1128, p. 4149).
As between Duperial-Brazil, duPont and ICI it was agreed that
"The Zambotto business shall be dealt with by:
"1. The partners (that is, duPont and ICI) shall supply intermediates to the extent of half each in money value at factory cost plus freight, insurance, plus 10%, and, the purchase of intermediates from outsiders shall be discontinued unless expressly sanctioned. * * *
"2. * * * profit or loss on the Zambotto section * * * shall be divided 50/50 between the shareholders" (Ex. 1120, pp. 4124, 4125).
*576 This Zambotto arrangement had the direct effect of limiting and restricting exports from the United States, not only by duPont, but by other American companies.
F. Nobel Chemical Finishes, Ltd.
DuPont, following World War I and during its energetic and efficient development of new chemical fields and products, became interested in paints, varnishes and finishes. Its research brought forth a new product found to be particularly adaptable for the spraying and painting of automobiles; it introduced this new product to the market under the trade-name "Duco." It has since become a product of almost universal use through the entire world. By June, 1925, H. G. Haskell, duPont vice-president, was able to report to his Finance and Executive Committee that "owing to the rapidly increasing sales of Duco exported to Great Britain and the good-will value of the name `Duco', British manufacturers have been considering ways and means of acquiring a share of this trade either by manufacturing a substitute or by making arrangements to become the agents for the distribution of `Duco', or by acquiring the rights to manufacture and sell this product in Great Britain" (Ex. 131, p. 634).
But, before this, Sir Harry McGowan sensed the possibilities of Duco varnish and on October 1, 1924 cabled Irenée duPont: "If your company have made no arrangements for selling Duco varnish in this country would like you to consider this being done through one of Nobel affiliated companies" (Ex. D-1747, p. 9804).
To this, duPont was agreeable, for it was within the spirit of their agreement that this new product be embraced within the understanding between the two companies.
A year later, October, 1925, Sir Harry McGowan met at Wilmington with Irenée and Lammot duPont, and others from various companies, and it was then decided to form Nobel Chemical Finishes, Ltd. (NCF) for the exploitation of Duco in the British Empire, excepting Canada (Ex. 131). Later, Egypt was deemed by duPont to be included in the agreement and the duPont agency there was transferred to the new company (Ex. 134). Because of the proprietorship of the mark "Duco" for varnishes in another company, "Belco" was agreed upon as the mark for this new venture (Ex. 132, p. 636). This was done with some reluctance as, "Sir Harry expressed the opinion that another effort should be made to secure the word `Duco' from Brown Bros. owing to the amount of goodwill attached to it as compared with the adopting of an entirely new name" (Ex. 132, p. 641).
This effort was made and proved unsuccessful, for "Belco" was the mark finally used.
Haskell, of duPont, felt that because of "the established and growing business in Great Britain" then enjoyed by duPont and because of other factors "a very substantial share of the profits would be due the duPont Company for relinquishing this export business" (Ex. 131, p. 634). That these claims were justified is shown by the fact that in crediting capital contributions, duPont was allowed in payment for this good will 150,000 shares in the proportion of 33 shares for every 16 subscribed and paid for by duPont in cash; the cash subscribed was therefore in the proportion of 51 by Nobel to 16 by duPont. Nobel received 51% of the voting stock and duPont, 49%; control of Nobel Chemical Finishes, Ltd. rested with Nobel. This conformed to the general scheme and plan of the understanding that Nobel should be the dominant factor in British territories, and to accomplish this duPont surrendered substantial rights in the export field.
DuPont undertook to send "such of their technical and expert advisers and their engineering staff to any of the company's works in the British Empire," as might be necessary, and to instruct employees of the new company "in the proper manner of manufacturing and applying Cellulose finish in accordance with the inventions" (Ex. D-1759, p. 9829). DuPont granted to NCF the sole and exclusive right to manufacture and sell "Duco" finishes in the British Empire excluding Canada and Newfoundland. NCF was restricted from exporting outside of these territories and duPont agreed to refrain from exporting to *577 the same territories, except as was necessary to supply NCF with material until the NCF plant was in full operation (Ex. D-1759, p. 9830; Ex. 132, p. 638).
It was agreed during the discussions leading up to the formation of NCF that "NCF should receive 5% on selling price of all materials shipped to our (NCF) markets by duPont from January 1, 1926 until such time as we (NCF) should take over the business from them with our (NCF) own manufacture" (Ex. 136). This 5% commission arrangement was changed after one year, and then, NCF still found itself unable to supply its assigned markets, and a new arrangement was made under which "all profit in excess of cost plus 25%" was paid by duPont to NCF. This applied to duPont's General Motor Export Business and to "all cases where it was found impossible for NCF to supply Duco to anyone in the Colonies, and shipment had to be made from Parlin" (duPont's plant); it also embraced sales made to certain New York merchants, who would not buy from NCF (Ex. 136, p. 651). DuPont, too, in 1927, surrendered and agreed that NCF should "take over the territories of Liberia, Angola and Siam" by paying duPont an amount computed on profits according to the same formula (Ex. 135, p. 648). Similar arrangements were applied to certain small markets of the British Empire which it was more economical for duPont to supply, and they were applied to paints and varnishes as well as to "Duco."
This was significantly called the "leased-territory" arrangement, a most appropriate designation. In 1946, two years after the complaint herein was filed, it was acknowledged by "the duPont legal people" that "the leased territory arrangement was one of the worst features of the case" (Ex. 564, p. 2126). That it was in violation of American law is beyond dispute; whether it merited this unique description in comparison with other aspects of duPont-ICI dealings is debatable. The clear purpose and effect of these arrangements was to eliminate competition between NCF and duPont and with other manufacturers of paints and varnishes.
DuPont, by 1926, had in Australia, a "large" and "attractive" business in "Fabrikoid," and artificial leather, and in "Pontop," a rubber cloth. A large impost was being considered by the Australian government; duPont felt its adoption quite probable and believed that they would likely lose the entire market within 3 years unless plans were immediately made to manufacture locally (Ex. D-1764, p. 9845). DuPont felt it advisable to associate itself with a local or British concern in the new plant.
The general manager of the duPont "Paint, Lacquer & Chemical Dept." cabled the duPont London representative on October 29, 1926, suggesting that the latter "advise McGowan we are considering possibility of Australian plant and ask him if Nobels desires minority participation" (Ex. D-1764, p. 9846).
Sir Harry McGowan, at that time, "was extremely busy with the formation of the new chemical trust" in England (which resulted in the organization of ICI) and furthermore, he had "been away from the office ill" (Ex. D-1764, p. 9846). But he was neither too busy nor too ill to give the matter his personal attention; he must have regarded the proposal as important, for he wrote Lammot duPont a personal letter on November 8, 1926, suggesting that Nobel "should control any jointly-owned Australian company in artificial leather." Lammot duPont replied and agreed to a 51-49% stock division with Nobel holding the majority. He noted in his letter that Nobel "do no rubber-cloth business in Australia at all, whereas, roughly, half of our coated fabric sales in Australia are rubber and we feel that this proportion is not likely to decrease. In artificial leather, as you state in your letter, our sales predominate over those of your allied companies: in fact we think it is clear that we considerably predominate in the Australian market. This dominating position is apparently not due to any low price activities on our part, nor is it due to any patent situation or any outside connections. It seems that it must be due to the quality and reputation of our goods" (Ex. 153, p. 716).
Mr. duPont added, "* * * there is nothing more natural for us to do in the *578 present situation than to make a deal with the waterproofing company of the Granville Woolen Mills, whereby we furnish the know-how and technical ability in return for an interest in their proposed venture. These people seem to have the money and we know have not the experience. We have not made any such proposition to these people and do not intend to, preferring to deal with Nobels, with whom we have had such varied and pleasant relations over a long period of years" (p. 717).
Nevertheless, duPont was agreeable to surrendering its "dominating position" for a minority interest in the new company, and to bring new products within the scope of the territorial understandings with Nobel, even though the priority sales position of those duPont products was not "due to any patent situation." More than suspicion exists that, perhaps, Mr. duPont was motivated by the desire to see the "varied and pleasant relations" continue with the "new chemical trust," Sir Harry McGowan was then forming in England.
A jointly-owned company known as Nobel Chemical Finishes, Ltd. (Australasia) was formed in 1927 (the name was later changed to Leathercloth Proprietary, Ltd. (LPL)), to manufacture and sell fabrikoid, rubber cloth and related articles in Australia. ICI and duPont shareholdings in this company were in the proportion of 51-49% respectively (Ex. 157; Ex. D-1769).
Later, in 1929, ICI changed LPL from a "public" company to a "private" company. It seems that in Australia a "private" company "enjoys certain advantages in the way of avoiding necessity for public reports" (Ex. 164, p. 750); but it appears that it was not this factor which prompted the change. The change to a proprietary company brought with it a possible restrictive provision regarding transfer of shares. The matter was discussed by duPont executives (Ex. 164; Ex. 165) in memoranda containing these observations: "In other words, we are, by joining with ICI in this enterprise, foregoing the Australian market forever. Assuming that the general principle of British Empire for ICI, North America for duPont and the rest of the world open is believed to be a good thing for the company as a whole, then I feel that this is all right as Australia is of course one of the most important parts of the British Empire for the future and presumably the English should be in the best position to develop it for the long pull" (Ex. 164, p. 752).
It was also noted that duPont was "ICI's partner not only in this venture but in a general way" (Ex. 165, p. 753), and that "it might be well to point out to our ICI friends that as long as the present general Agreement is in effect Australia is ICI's territory so that even if we found it necessary to sell our shares for financial reasons, we would not be at liberty to have a free hand in the Australian market" (Ex. 165, pp. 755, 756).
DuPont and ICI agreed not to engage directly or indirectly in the manufacture or sale of coated fabrics in Australia except through LPL until 10 years after either disposed of its shares in LPL (Ex. 166; Ex. D-1775). In addition, duPont agreed to withdraw from the sale of rubber cloth in England, as it seemed "to be the only way out of a very awkward situation." To duPont, it was "unlikely that we (duPont) could work satisfactorily with Nobels as partners in Fabrikoid in Australia and perhaps in a prospective combination in France if we (duPont) were competing with them (ICI) in their own market" (Ex. 154, p. 720). In December, 1929, it was recognized by duPont that "the duPont-ICI agreement precludes our expansion in other fields" (Ex. 167, p. 764).
The general policy of duPont with regard to Australia was established beyond doubt in March, 1927, when Lammot duPont overruled the decision of a subordinate and directed that duPont sell to ICI duPont's Australian Ammonia Company. Mr. duPont then recorded in a cable to Sir Harry McGowan that the "sale of our Australian interests seem consistent with our long-established policy" (Ex. 168, p. 765). It was but another indication of the general policy of ICI and duPont not a compete with the other.
Even after the 1929 Patents and Processes Agreement, duPont continued in stock *579 ownership in NCF as well as in LPL; as a stockholder, duPont received profits from the sale of paints, varnishes and finishes within the British Empire. It was recognized that duPont's continued part ownership did not conform to the territorial allocation agreed upon in the Understanding of 1929 (Ex. 543, pp. 2036-2037; Ex. 546, pp. 2046-2047; Ex. 548, p. 2055; Ex. 1415). It took several years to remedy this, but it was accomplished and in December, 1935, ICI paid duPont $5,750,000.00 for the duPont holdings in both NCF and LPL. At the time of the purchase, it was understood that "The acquisition of duPont's interests not to affect existing rights and obligations of the several companies, so that duPonts will continue to pay Nobel Chemical Finishes, Ltd. In respect of sales in Empire markets of paints and lacquers made by duPont, and Nobel Chemical Finishes will pay DuPonts in respect of sales which they make in DuPont's markets; also all companies, including Leathercloth Proprietary, Ltd. will continue to have full exchange of technical information free of charge as hitherto, and DuPonts will be excluded from manufacture in or export to all Empire markets except by consent" (Ex. 555, p. 2092). and so the sale was consummated and the territorial allocations preserved intact.
VII. Remington Arms Company, Inc.
It is alleged in the complaint that Remington joined in the understanding between duPont and ICI to restrain trade in chemical products, sporting arms and ammunition in 1933 upon the acquisition of control of Remington by duPont. It is further contended by the Government that thereafter Remington cooperated with duPont and ICI to eliminate competition between Remington and ICI, and acted jointly with duPont and ICI in furtherance of the agreement which had long existed between them.
The complaint charges that by this action Remington's exports of sporting arms and ammunition were curtailed. It does not allege that these acts were done with either the purpose or the effect of restraining exports of other United States manufacturers or imports of foreign manufacturers into the United States. But the complaint does charge that competition between ICI and Remington, and between various foreign companies and ICI and Remington was eliminated in certain markets of the world (Paragraph 194, complaint).
During the trial, the Government stated its position to be that the acquisition by duPont of its interest in Remington was "innocent," in that "it was not part of the preconceived conspiracy" between duPont and ICI (R. 1257). The theory of the Government's case with respect to Remington is that "it was after a majority interest in Remington was acquired by duPont that the agreement was made between ICI and duPont to extend the existing conspiracy and bring in Remington within its scope" (R. 1258-59).
"The duPont Company acquired control of Remington on June 2, 1933. The interest purchased consisted of 867,000 shares of Remington common stock (51.13% of the common shares then outstanding). * * Control empowered the duPont company `to effect internal reorganization' and duPont management was forthwith installed." At the same time, "duPont acquired a majority (89.4%) of the Remington 7% preferred shares" (Ex. D-1810, p. 9964). By March, 1937, duPont holdings had increased to 60.17% of the common stock and to 98.6% of the preferred stock. It was then yielding duPont about 10% on the capital invested, and held promise of a larger return. It was a profitable investment (Ex. D-1810, p. 9965).
Remington had long been engaged in the manufacture of sporting arms and ammunition. It had by 1933 established an international good-will and reputation. DuPont had not manufactured either sporting arms or ammunition, but it was a major producer of "sporting powders" used in the making of sporting ammunition. ICI had been manufacturing sporting ammunition and had been exporting this product to world markets.
Prior to 1933, duPont and ICI had brought "sporting powders" within their understanding of cooperation. They had exchanged patent rights and licenses relating *580 to sporting powders and ammunition outside existing patents and processes agreements (Ex. 290, p. 1313; Ex. 394, p. 1687; Ex. 579, p. 2160; Ex. 842, pp. 3134, 3142). DuPont had protected ICI from the competition of American cartridge companies by withdrawing discounts and rebates on powder sold to them for export sale (Ex. 60, pp. 304-5). In February, 1928, duPont recorded that, "The American loading companies, fighting among themselves, export below the world price, disturbing Nobels' market. We have done all in our power to prevent this by cutting our rebates on powder used for export" (Ex. 184, p. 844).
Remington was a loading company and was using duPont's powders in its loading process. There was, too, the tacit understanding between duPont and ICI that the United States market was to be under the jurisdiction of duPont and not ICI, even though duPont was not then engaged in the manufacture of sporting ammunition (Exs. 780-787, 851). In 1928, at a meeting held by duPont executives, it was determined that duPont would oppose any proposal from ICI that it be permitted to buy one of the American loading companies. It was then noted that, "* * * it would be highly undesirable for Nobels to take this step unless they would continue to use duPont powder. Also, the other loading companies might look on Nobels as partners of duPont which would be detrimental to our interests as suppliers of powder. Summing up, it is against our interests for Nobels to enter the ammunition industry in this country" (Ex. 185, p. 854).
It was against this background that in May, 1931, Remington approached duPont "seeking the support of duPont in a plan to acquire" the assets of Winchester Repeating Arms Company (Ex. D-1809, p. 9958). This deal was not carried out and Winchester was later acquired by Western Cartridge Company "one of the five producers of ammunition in this country, and perhaps the most aggressive" (Ex. D-1809, pp. 9959, 9968). It was the Western Cartridge Company which duPont felt ICI might purchase "in clearing up the existing cut-throat situation" which confronted ICI in the export markets (Ex. 185, p. 854).
"Under duPont management Remington broadened the scope of its activities"; it acquired in 1933 the entire business of Chamberlin Cartridge and Target Company, manufacturers of targets and traps; and in 1934, the assets and business of Peters Cartridge Company, as well as those of Charles Parker Company, relating to the manufacture and sale of Parker shotguns (Ex. D-1810, p. 9965).
Western, when it purchased Winchester, took over the latter's operating contract with the U. S. Cartridge Company, and subsequently acquired this company. This left, as important sporting ammunition manufacturers, besides Western and Remington, only the Federal Cartridge Corporation, a manufacturer of private brand ammunition, for American mail-order houses (Ex. D-1810, p. 9968).
Western "could, and did, sell ammunition at prices which embarrassed their competitors"; they "were constantly manufacturing and utilizing larger quantities of their own shotgun powder, resulting in a proportionate reduction in their purchases of powder from the duPont company." "For some years, Western had been the first to declare new prices; the other ammunition firms were apparently content to follow their leadership" (Ex. D-1810, p. 9968). Western was offering duPont keen competition in the American home market. But, by September 3, 1937, four years after duPont purchased into Remington, the duPont Development Department was able to report to its Executive Committee that, "Up until the last year or two, prices in the ammunition industry were in a chaotic condition; cut-throat competition, concealed rebates and adjustments and other undesirable conditions were the order of the day. The present Remington management has abolished many of these practices, thereby promoting better accord within the industry" (Ex. D-1810, p. 9979).
How this "better accord" was brought about, the report does not narrate, but it does note that it was done and that "this accomplishment has had an outstanding influence on ammunition profits" (Ex. D-1810, p. 9979).
*581 From the time, in 1933, that duPont secured its majority interest in Remington, duPont consistently nominated a majority of the Remington Board of Directors. This resulted in continuous joint management and interlocking directorates between duPont and Remington (Ex. D-2181, p. 11320). The negotiator for duPont in the patents & processes agreements, Dr. Fin Sparre, was a Remington director from June 2, 1933 to October 7, 1944, and there were other duPont representatives on the Remington Board of Directors. The record is clear that duPont and Remington were managed as one and the same enterprise; Remington was used to serve and accomplish duPont's objectives.
DuPont consistently represented Remington in its negotiations with third parties; thus, in 1933, Dr. Sparre and his fellow duPont employees represented Remington in negotiations with ICI; some of these same duPont negotiators represented Remington in 1934, in its dealings with Orbea, which were incidental to the formation of Duperial-Argentina; duPont agents represented Remington in its discussions with ICI and CBC in Brazil; and duPont officials appeared for Remington in the so-called "evaluation" discussions of 1946 had with ICI.
August 15, 1933, less than three months after duPont acquired control of Remington, found Dr. Sparre at work beginning discussions to negotiate "a patents and processes agreement" with ICI on Remington's behalf. Remington's president, C. K. Davis, had on August 4, 1933 been authorized to negotiate with ICI and CIL for the exchange of patents and processes information (Ex. D-2166). Mr. Davis in turn, delegated this authority to Dr. Sparre (Ex. 1267). Why this was done was not explained by Mr. Davis; Remington did not call its own president as a witness.
Dr. Sparre felt "that the situation was somewhat complicated by Remington's existing business in the British Empire," but he was assured that, "the relations between ICI and Remington had been very pleasant and that the only change which ICI would have to make in coming to a formal agreement would be to cut off relations with Winchester" and, that it was not felt that "ICI could profitably take over Remington's business in the British Empire and that it would be better for Remington (to) continue its activities" (Ex. 1267, p. 4664).
"The hope was expressed that ICI-Remington agreement might be extended to include DAG along the lines of the duPont-ICI Explosives Patents and Processes Agreement." Canadian territory was also discussed and Dr. Sparre suggested, for Remington, that the contemplated agreement with CIL "should make Canada exclusive territory for CIL but that all CIL information outside of Canada should go to ICI and Remington exclusively along the line of the ICI-Remington agreement." South American business was also discussed. The duPont legal department was set to draft the necessary papers (Ex. 1267). Dr. Sparre knew that to have "a proper basis for a suitable patents and processes agreement," the export position of Remington and ICI in various overseas markets would have to be considered and he directed the duPont men at Remington's plant to bring records of Remington's export sales to the next meeting (Ex. 1268, p. 4668).
At the meeting which followed on September 27, 1933, between Dr. Sparre and other duPont officials representing Remington, and ICI, little time was devoted to the proposed license agreement as such. The principal discussions centered around "the position of Remington vis-a-vis CIL" in the export of ammunition, the "exporting rights" of CIL to Central and South America, "several markets in which ICI prices were lower than Remington," and the Remington English factory (Ex. 1269).
In the month of April, 1934, F. W. Pickard, a duPont vice-president, and also a director of Remington, wrote: "We are mutually agreeable to the idea of broad cooperation between ICI and Remington, and it is understood that we will arrange to have the world situation carefully examined when mutually convenient, perhaps sometime in the latter part of this year, with the idea of reaching conclusions as to the best method of cooperation in other countries where both ICI and Remington *582 are interested, military business excepted" (Ex. 1271, p. 4676).
This letter, when shown to Sir Harry McGowan, brought forth from him agreement in principle that, "now that the Remington Company has become a duPont controlled concern, it is eminently desirable that there should be broad-scale understanding with that Company" (Ex. 1272, p. 4678).
It also produced from the ICI correspondent the expression of his judgment that, "* * * the conclusion of the Patents and Processes Agreement with Remington now before our respective executives makes it very desirable that the Companies should get together and review the whole world situation with the object of broader cooperation" (Ex. 1272, pp. 4679, 4680).
The cooperation between Remington and ICI on a world-wide basis brought forth some objection from the Remington minority stockholders. The objection was not, however, to the cooperation but that Remington was getting the "short end" of the dealings with ICI.
Mr. M. Hartley Dodge and members of his family were the principal minority stockholders of Remington, owning approximately 20% of its outstanding capital stock after the duPont purchase. When duPont acquired its interest, Remington's certificate of incorporation was amended to provide for cumulative voting for directors (Ex. D-2262), which enabled the Dodge interests to elect minority directors (Ex. D-2181). These minority stockholders continued to be active in the affairs of the corporation. No protest is recorded from them, however, as to the division of world markets with ICI, only that, "they felt that in equity ICI ought to accept as a general proposition for discussion, that the Remington Company were entitled to expect a continuance of the status quo ante in foreign markets" (Ex. 1278, pp. 4718-19).
During the Remington-ICI talks in April, 1934 concerning South America, ICI advanced the suggestion for the sale of Remington's "brand and business in the Argentine, Uruguay, and Paraguay to Orbea or to the new corporation to be formed under ICI-DuPont ownership." Remington did not accept the proposal but did indicate their "desire to cooperate with ICI not only (with) respect to the Argentine territory, but on a broad scale" (Ex. 1271, p. 4675). It was reported to ICI that the opposition to this proposal sprang from the minority Remington interests and Mr. Dodge (Ex. 1273, p. 4682). A reading of the record leaves the impression that this was not entirely so, that duPont interests covertly supported the objection even though paternity was disavowed, and this, with the purpose of achieving a better bargain with ICI as well as to preserve in some measure the Remington trademark in the Argentine. The objective of both duPont and ICI was to eliminate competition between Orbea and Remington, and to this Remington had no objection, provided only that any arrangements made would "definitely preserve the Remington brand in those countries and yield a proper return to the Remington Arms Company" (Ex. 1271, p. 4676).
Finally, in June, 1935, J. K. Jenney, the Assistant Director of duPont Foreign Relations Department, was able to report favorably to Monaghan of Remington that although the local manager of Orbea, Salmon, had "stated unequivocally that he considered the deal a bad one for Orbea," White of ICI(NY) representing ICI, had stated, however, "that it was the considered opinion of the Shareholders Committee that the deal should be made for family reasons and also that ICI, while considering the deal in many ways unfair to Orbea, had instructed its representative on the Shareholders Committee, namely, Mr. White, to reach an agreement on broad lines irrespective of the fairness of some of the provisions" (Ex. 1303, p. 4841.)
With discussions still pending and the Remington-ICI "Patents and Processes Agreement" still unsigned, ICI, on its part, was not unwilling to give a little more with respect to Argentina than it felt it should. ICI treated this negotiation simply as a part of the overall, worldwide division of territory then in progress between it and Remington. And so the pact was made; only on better terms for Remington than were first proposed by ICI. Monaghan was then able, in June, 1935, to write Mr. Dodge that, "through pressure *583 from duPont and ICI, the Orbea Company has been forced to accept the contract substantially as originally written * * *," that "throughout, the splendid attitude exhibited by the ICI people has been very gratifying," and that "the agreement now presented should be accepted particularly because of the good faith that has so far been demonstrated by the ICI people" (Ex. D-1970, pp. XXXXX-XX-XX). DuPont no longer found it "difficult to persuade the minority interest in Remington, that they should relinquish the Argentine market" (Ex. D-1974, p. 10444).
The agreement between Remington and Orbea was signed in December, 1935 (Ex. 1304). It provided that Orbea should have the exclusive right to manufacture and sell Remington center fire ammunition in Argentina; that Remington would not sell such ammunition in Argentina except through Orbea, and that Orbea was to be Remington's sole agent for the sale of rim fire ammunition and firearms in Argentina. It was also agreed that Orbea would not export center fire ammunition of the Remington type from Argentina and Remington was granted exclusive rights to patents, processes and improvements developed by Orbea. Orbea also undertook to maintain in the Remington trademark and goodwill and agreed that at least 25% of its annual sale of center fire ammunition should consist of the Remington type. That Orbea was not then qualified to manufacture products up to the Remington standard was recognized by Remington's undertaking to furnish Orbea all necessary technical information as to the manufacture of Remington center fire ammunition. Orbea further agreed to pay Remington 10,000 pesos annually in addition to one-third of the net profits earned by it on the sale of Remington center fire ammunition, with a guaranteed minimum of 10,000 pesos. Finally, Orbea agreed to purchase from Remington at least 50% of its total requirements of rim fire ammunition and firearms for sale in the Argentine (Ex. 1304).
In application, this last provision was interpreted as requiring Orbea to purchase 50% of its rim fire ammunition requirements from Remington and 50% from ICI. Thus, it was reported on February 9, 1938 concerning Orbea sales of calibre .22 for 1937 that:
"with regard to sales of .22's, in accordance with the agreement with Remington Arms Company, at least 50% of all the sales made by Duperial in this calibre must be Remington brand.
"From the figures given below, you will see that the distribution has turned out quite equitably:
ICI ................. 2,775,900 cartridges
Remington ........... 2,887,500 "
"The figure shown under ICI for sales of .22's represents sales made by us, since we are the only importers and distributors of this brand.
"Sales of Remington brand represent quantities invoiced by Remington Arms Co. to their importing clients down here, from January to December, 1937" (Ex. D-1986, p. 10465).
The agreement by Remington to abstain from selling in Argentina except through Orbea and the arrangement to divide rim fire sales between Remington and ICI was designed to and its purpose was to effect directly a restraint upon Remington's export trade to Argentina. Competition between Remington, ICI and Orbea in the Argentine market was eliminated.
It was while ICI was exhibiting the "very gratifying * * * splendid attitude" in June, 1935, in connection with the Orbea discussions, that the so-called "Patents and Processes Agreement" negotiations between Remington and ICI were approaching culmination. The agreement between them was signed on August 20, 1935 (Ex. 1276); by its terms it was to continue in effect until July 1, 1939 (Ex. 1276, p. 4696). A further agreement was signed on June 30, 1939, which provided it was to continue indefinitely with the right of cancellation granted to either party upon six-months' notice any time after December 30, 1948, or in the event of war being proclaimed by the government of either party, at any time, by either, on written notice (Ex. 1277, p. 4711).
Nothing is more illustrative of the manner in which the affairs of Remington were *584 completely dominated and directed by duPont with Remington consent than the proceedings had in conjunction with the Remington-ICI Patents & Processes Agreement, dated August 20, 1935 (Ex. 1276). This was negotiated by Dr. Sparre of duPont on behalf of Remington; it was "approved by the Legal, Development and Foreign Relations departments" of duPont, and was then acted upon by the Remington Board "at a meeting held on June 7th subject to approval of the Executive and Finance Committees of the duPont Company"; the duPont Executive Committee noted its approval on June 12, 1935 "subject to final approval of the Finance Committee" of duPont, and from the duPont Finance Committee it received its final imprimatur (Ex. 1275, p. 4686).
A fairly complete picture of the Remington-ICI situation as of the fall of 1935 is revealed by Exhibit 1278 (pp. 4716-21), which is a letter of report sent from ICI (NY) to the London ICI office on October 11, 1935. It followed a meeting of Remington, ICI and duPont representatives at which the "Remington-ICI controversy" was discussed. There were present, C. K. Davis, Remington president; Monaghan, Remington Export Manager; Swint, of duPont; and G. W. White, of ICI(NY). White reported to the ICI London office that, "It has been fairly common knowledge that there was something unsatisfactory to the Remington officials in their relationship with ICI" (Ex. 1278, p. 4716), and that he had "for some long time past tried to put my (his) finger upon the cause." The meeting aired the Remington grievances. He noted that "the Remington people regarded themselves as injured parties," and that, "They felt that their Company's foreign business had suffered as a consequence of the foreign policy imposed upon them by the duPont Company as part of the latter's arrangements with ICI. The evidence they produced in support of this boiled down to the ICI move in Argentina and Brazil, which Remington regarded as an attack upon their business, in both of which cases they were unable to take defensive measures; and to the absence of any effort by ICI to discuss world affairs with Remington in response to the several requests made by the latter and in spite of the recent promise of ICI to send officials over here for that purpose" (Ex. 1278, p. 4717).
Here then was an expression reported as emanating from Remington's own president as to the cause of the unsatisfactory relations with ICI. The knowledge that he possessed as president was knowledge of Remington. Notwithstanding such knowledge, he had not been deterred from executing a so-called Patents and Processes Agreement only a few months before on August 20, 1935 (Ex. 1276). Mr. Davis and the Remington Board of Directors had made Remington not only a willing victim, but a consenting accomplice, to the foreign policy of duPont and ICI. Mr. Davis' discourse about being imposed upon by duPont was not the protest of innocence outraged.
As to the Remington lament over the export situation, ICI tritely noted, "There seems little point in Remington's statement that since the duPont merger their efforts in the export field have been hampered. This read(s) like a criticism of their own organization" (Ex. 1279, pp. 4727-8).
By the agreement of August 20, 1935 (Ex. 1277) ICI agreed to grant to Remington, upon request, "the non-exclusive right and license to practice any and all patented and secret inventions now or during the term of the agreement owned or controlled by ICI relating to ammunition or components thereof (exclusive of military ammunition and non-ferrous metals as aforesaid), and to make, use and sell any and all products embodying such inventions, throughout the world." It was also agreed "that ICI will not grant to others, during the term of this agreement, similar rights within the countries of North America and Central America (exclusive of Canada, Newfoundland and British possessions, but otherwise inclusive of the West Indies) or within present and future colonies and possessions of the United States of America." The agreement contained similar grants back to ICI from Remington "within countries of the British Empire (inclusive of Egypt but exclusive of Canada and Newfoundland) (Ex. 1276, pp. 4689-90). Significant, too, *585 is the provision dealing with "Non-Exclusive licenses to other parties" (Ex. 1276, p. 4692), by which it was agreed that ICI and Remington should notify each other before issuing licenses to third parties for non-assigned territories. The agreement, drawn by duPont's legal department, when read in the light of the contemporaneous writings, appears but a crude device which it was hoped might conceal and cover a division of markets and sales territories.
It was also provided in both the 1935 and the renewal 1939 agreements that the "Licenses granted as aforesaid shall be subject to adequate and justifiable compensation to be agreed upon by separate negotiations, but it is understood that such compensation will be determined under broad principles giving recognition to the mutual benefits secured or to be secured hereunder, without requiring detailed accounting or an involved system of compensation" (Ex. 1276 p. 4691; Ex. 1277, p. 4705).
Indeed, "broad principles" were applied in these evaluations; neither Remington nor ICI made any payment whatsoever to the other, and, on this subject, Remington wrote to ICI on January 21, 1937: "It is our feeling that the practice between Remington and ICI with respect to royalties for the use of each other's inventions should conform as closely as practicable to the practice between duPont and ICI" (Ex. 1282, p. 4749).
To this, ICI replied on March 5, 1937: "* * * we are in full agreement with your suggestions that the basis of payments should be similar to that adopted in the ICI/duPont agreement," and, it was suggested by ICI that quinquennial settlements be had, based on one year's profits arising out of the use of the patent. The letter continued, "as each case has to be examined on its merits, and there is a possibility that inventions exchanged between us will be of substantially equal value, we feel that it will not be necessary to supplement the present ICI/Remington Agreement other than by this exchange of letters confirming the arrangement" (Ex. 1283, p. 4752).
When in April, 1946 ICI and Remington finally did consider "evaluation" of information, patents and processes exchanged from 1935 to 1944, ICI found that "there are (were) no offers to or from Remington of any importance to evaluate" (Ex. 1285, p. 4760). It was agreed that since "both companies have benefited from the agreement, no payment will be made in respect of this evaluation period" (Ex. 1288, p. 4800).
When the Remington-ICI agreement of 1935 was concluded, special provision was made for the territories of Canada and Newfoundland. These markets were made the topic of separate discussions and negotiations between Remington and CIL. In 1933, they "had agreed to a free interchange of information between Remington and CIL pending the conclusion of a formal agreement" (Ex. 1267, p. 4665). Dr. Sparre, at the time (as we have already noted) suggested that the formal agreement "should make Canada exclusive territory for CIL but that all CIL information outside of Canada should go to ICI and Remington exclusively along the line of the ICI-Remington agreement." It was pointed out that CIL had been "allowed" by ICI "to go into South America as compensation for CIL Australian business which they built up during the war," and that "CIL and ICI have an ammunition agreement" (Ex. 1267, p. 4665). CIL's export business came up again for consideration at a meeting held on September 29, 1933, then, "The duPont officials outlined the position of Remington vis-a-vis CIL with a view to determining whether this position could be covered by the present form of Tri-Party agreement, in which case they considered that CIL should cease to export ammunition; or whether a separate agreement between CIL and Remington was necessary, as it would be if CIL continue to export" (Ex. 1269, p. 4669).
These meetings were not the first had between duPont, ICI and CIL at which the sporting ammunition output of American manufacturers was considered. As early as October, 1925, at a meeting held in Wilmington, all three were represented and the minutes show that with respect to sporting ammunition, "The effect on world prices of the price-cutting between the *586 U. S. manufacturers was discussed. Sir Harry asked duPonts their opinion on the wisdom of an informal conversation with the heads of these companies. It was thought that such a plan was sound and Mr. Felix duPont undertook to make the necessary arrangements."
There is appended a note that "subsequently Sir Harry met the American ammunition manufacturers at luncheon on 19th October" (Ex. 90, p. 446). It does not appear who among the American manufacturers gathered to dine with Sir Harry and Felix duPont, but it is reasonable to suppose that Remington was among them, for Remington was at the time a large consumer of duPont powders.
By September, 1937, a draft of the proposed ICI-Remington-CIL agreement satisfactory to both duPont and ICI had been prepared. Mr. Dodge of the minority stockholders interest opposed its execution and stated that he would "like to see this proposed agreement shelved for the time being." This suggestion was conveyed to C. K. Davis, the president of Remington, with instructions from duPont that at the next meeting of Remington directors it be tabled indefinitely (Ex. 1294, p. 4816). This was done. The details of Mr. Dodge's objections to the signing of the formal agreement are not fully revealed; they centered upon matters entirely commercial (Ex. 1280, p. 4732) and not upon the legality of the proposed agreement (Ex. D-1953; Ex. D-1954). The Remington patent attorney did, however, record that the agreement "was not approved, due to objection by the minority Directors, particularly Mr. Dodge, who objected to the broad proposition of free licenses to CIL under any and all future Remington patents" (Ex. D-2173, p. 11309). In fact, the failure to sign the document did not effect a change in the policy of the duPont management of Remington and the views of the duPont majority continued to control the acts of Remington. As Mr. Brown, writing for the controlling duPont interests, noted in his letter to C. K. Davis, on September 23, 1937: "While it would certainly be desirable to have this agreement executed at this time, it is true that during the more than four years of duPont management of Remington, no question has come up between Remington and CIL that would have been solved by the agreement, nor has anything been lost to any of the three parties because there was no such agreement. Of course, this does not mean that we may not run into some embarrassing situation that would be avoided if the agreement were in effect. However, to force through the Board at this time a measure that Dodge quite strongly opposes would certainly not be in the interest of harmony, and for that reason appears to me unwise. We have the embarrassment that the proposed agreement has been approved by the other two parties, but I believe we can explain the situation to them so that Remington's relationships will not be disturbed" (Ex. 1294, pp. 4816-17).
But, before this, by letter from Remington to CIL dated October 7, 1935, it had been agreed that each would advise the other of developments in the sporting ammunition field and exchange patent licenses upon request (Ex. D-1951); this arrangement was confirmed later by another letter on October 3, 1944 (Ex. 1295) and continued until cancelled on June 28, 1948 (Ex. D-1958). ICI was content to continue without a formal agreement; this was satisfactory to it because the "spirit of cooperation" prevailed in those territories in which ICI was concerned.
The Brazilian market also received the attention of the duPont-Remington and ICI negotiators. Brazil had "for a number of years represented Remington's most important foreign market" (Ex. 1309, p. 4860). DuPont undertook "to loan to Remington the amount required for the initial investment in the Matarazzo property (Fabrica Nacional Dos Cartouchos E Municiones) at 1½% interest" (Ex. 1310, p. 4864). The transaction was closed in 1936 and ICI and Remington jointly purchased the business of one of the foremost Brazilian producers of ammunition. A new company was organized Compania Brasileira de Cartuchos (CBC) with the stock equally divided between ICI and Remington. It has so remained. As with the Duperials, so with CBC, control of the policies and management *587 was vested in a joint stockholders committee composed of representatives of ICI and duPont (Exs. 1306-1312).
It had been agreed by ICI at a meeting with Remington and duPont officials held on December 2, 1935, that, "* * * the Remington Company would be compensated by the new company on an equitable basis for trade which Remington might give up in Brazil in faonor of the new joint enterprise which would probably manufacture under Remington processes" (Ex. 1280, p. 4733).
This meeting "was in the nature of a private luncheon to which representatives of the Remington minority interests were invited to meet" with H. J. Mitchell of ICI; Mr. M. Hartley Dodge was numbered among those present (Ex. 1280, p. 4732).
It was agreed that Remington would "conduct its sporting ammunition business in Brazil through CBC, and that pending manufacture of such products on a commercial scale by the latter, Remington will sell the requirements of CBC at such special prices or upon such basis as shall be mutually agreed by the Shareholders Committee of CBC." For this, Remington was paid $125,000 (Ex. 1314, p. 4877).
Remington and ICI further agreed that profit on the sale of Remington ammunition in Brazil should be divided equally between Remington and ICI (Ex. 1323). They also agreed that CBC would manufacture sporting ammunition for the Brazilian market with the profits to be equally divided between them.
Due to faulty manufacture and to the powder used, the CBC ammunition was inferior to the standard United States products. CBC has therefore never manufactured ammunition under the Remington mark, and Remington has continued to export to Brazil (Ex. D-2024, p. 10541). It was sought to remedy this situation, even as late as May 1946 (Ex. D-2100, p. 10768). In the meanwhile, the procedure was for Remington to sell its products to CBC and to divide equally with ICI the difference between the factory cost of such products and the price to CBC. This was accomplished by direct payment by Remington to ICI and not through CBC (Ex. 1323). The agreement by Remington to abstain from exporting to Brazil was a restraint upon American exports and its purpose was to eliminate competition between duPont, Remington and ICI in exports of ammunition to Brazil.
By exchange of letters in the fall of 1937 (Ex. 1317; Ex. 1318), Remington and ICI entered into a patents and processes agreement with CBC by which they each agreed to license CBC under their patents for the sale of sporting ammunition only in Brazil. CBC agreed to license Remington and ICI under its patents throughout the world, excepting Brazil. This had the effect of confining CBC to the Brazilian market, so that it could not enter the United States market. It also prevented Remington and ICI from exporting to Brazil ammunition embodying CBC patents.
It was by design that Remington entered into this joint Brazilian venture with ICI. It was to carry out and continue the division of world markets which had long existed between duPont and ICI. Remington had made itself a part of the conspiracy, and the creation of CBC was but one step in carrying it into effect in Brazil.
VIII. The Individual Defendants
Five individuals were made defendants in the complaint; three have been served with process and have appeared Lammot duPont, Walter S. Carpenter, Jr. and Charles K. Davis. Lammot duPont began his association with duPont in 1902; he was its president from 1926 to 1940; Chairman of the Board of Directors from 1940 to 1948; he is now a director. Walter S. Carpenter, Jr. has been long employed by duPont; as Vice President from 1919 to 1940; as President from 1940 to 1948; as director from 1919 to date and Chairman of the Board from 1948 to date. Charles K. Davis has been President and General Manager of Remington since 1933.
No proof has been presented as to the extent of the stockholdings of any of these individuals in the corporate defendants. No charge is made of monopoly, or of unscrupulous practices in dealings with competitors. These individuals committed *588 no acts of personal wrong calling for censure or condemnation. They were officers, agents and employees of corporate defendants, and acted only for and on behalf of those corporations pursuant to and under the authority of their corporate Board of Directors. Their acts were not calculated to bring them direct personal gain; any profit which they might have received came through stock ownership (and of this we have no proof). There seems at this stage of the proceedings no warrant or basis for a personal injunction against them, cf. Hartford-Empire Co. v. United States, 323 U.S. 386, 428, 65 S. Ct. 373, 89 L. Ed. 322, and for this reason the individual defendants ask for dismissal of the bill as to them.
But we have not by the terms of our pre-trial order yet arrived at the point where we are formulating the terms of a decree; that is the next step to be taken in these proceedings. We are now concerned only with findings of facts established by the trial evidence and with conclusions of law to be drawn from those facts. We find that each of these individual defendants by his acts did assist in the formulation and execution of policies here found to be unlawful. The complaint as against the individuals will not be dismissed and we leave for later decision whether relief against them will be necessary.
IX. Present Status of Relationship between duPont and ICI
Prior to the trial of this suit, conferences were had with the Department of Justice, looking toward a consent decree. Of course, we took no part in these discussions, and, in fact, were entirely ignorant of these dealings, until they were revealed by the defendants by the introduction of documents in evidence. No weight whatsoever has been given to these negotiations; they have been entirely disregarded.
It does appear, however, that when these discussions were terminated a commission was sent by duPont to London, there to confer with ICI. C. H. Greenewalt, duPont's president, headed the duPont legation. Lord McGowan, Chairman of the ICI board, and other directors and officers of ICI represented their company. This London conference which lasted from May 14 to 21, 1948, was made the subject of a report from Mr. Greenewalt to the duPont Executive Committee, dated June 4, 1948 (Ex. D-933). The conference, as reported in the rather brief memorandum which dealt with negotiations lasting a full week, concerned "the cancellation of the Patents and Processes Agreement of 1939 and of the agreements with CIL and the South American companies to which duPont and ICI are signatories" (Ex. D-933, p. 7078). This short report leads one to infer that more was decided than is recorded, and that oral reports were made of matters not contained in the written report.
It was set forth, in writing, however, that arrangements between the duPont agents and the ICI directors were made: (1) "that the 1939 Patents and Processes Agreement be cancelled in its entirety as of June 30, 1948"; that because of the "premature cancellation" of the contract, duPont would pay and "ICI would accept whatever sum duPont should determine to be just and equitable" (Ex. D-933, p. 7079) and (2) "that duPont and ICI would each consent to an immediate cancellation of the tripartite Patents and Processes Agreement of 1936 with CIL"; that "duPont would enter into a bilateral agreement with CIL to replace the cancelled tripartite agreement" (Ex. D-933, p. 7079).
The possibility of the entry of a decree in this suit directing divestiture of the interests of duPont and ICI in the jointly-owned companies was considered. If the occasion should arise, ICI expressed itself as "prepared to work out a plan with duPont looking toward the segregation of assets owned by the Canadian and South American companies. This plan would be simply a statement of the recommendations to be made to the court in case it orders dissolution of the joint companies. * * *" (Ex. D-933, p. 7081). DuPont is recorded in the report, as "willing, while the matter is in litigation, to give to CIL the benefit of its full technical support so as to permit its continued growth and *589 expansion" (Ex. D-933, p. 7080), and the same duPont attitude is reported with respect to the Duperials and CSAE.
The agreement "that duPont and ICI would each consent to an immediate cancellation of the Tripartite Patents and Processes Agreement of 1936 with CIL" (Ex. 868) was carried out by both duPont (Ex. D-730) and ICI (Ex. D-743), and new separate bilateral agreements were made with CIL. By the new agreement duPont granted CIL a license under a long list of duPont-held Canadian patents, subject only to prior commitments to third parties and the rights of duPont itself to operate under these patents; this grant to CIL was exclusive (Ex. D-730). DuPont undertook "upon receipt of request in writing from CIL" to grant to CIL a non-exclusive license under any Canadian or Newfoundland patent owned by duPont relating to the listed products (Ex. D-730, p. 6559). DuPont further granted "to CIL a non-exclusive license to sell under all United States patents now or hereafter owned by duPont claiming the product so sold, that correspond in subject matter to any Canadian patent licensed to CIL" (Ex. D-730, p. 6559). DuPont also agreed, subject to any prior commitment, to make "available to CIL such of duPont's technical information, as CIL may request, concerning the manufacture or use of the products," as scheduled, or as the schedule might be amended by the addition of new products (Ex. 730, p. 6560).
By June 17, 1948, duPont and ICI had arrived at the terms of a proposed letter agreement cancelling the "so-called Duperial Argentina and Brazil `merger agreements' of 1934 and 1936 respectively and the 1920 agreement between duPont and Explosives Trades Limited (ICI) providing for the formation of CSAE" (Ex. D-934). The "principal results" of this letter are purported to be outlined by duPont in Ex. D-934, p. 7083. The "results" support the factual conclusions we have already reached concerning the operations of the "Duperials" and of CSAE. But above these "results", there still survives the fact of joint ownership and joint management of these companies by duPont and ICI. The stockholdings remain undisturbed, and although ostensibly the letter "abolishes the present ICI-duPont Shareholders Committee for management of these companies and revokes all actions of the committees," it simultaneously "reestablishes them as Advisory Committees to which the management will look for advice on specified subjects related to organization, personnel and the financial affairs of the companies" (Ex. D-934, p. 7082). This is a most comprehensive and all-embracing reservation of control, especially when considered in the light of the entire stock ownership by the principals of the "Advisory Committees." The old, established regimen was continued; but, with new titles.
It is amusing to note that on June 24, 1948, Wendell R. Swint, Foreign Relations Department Director for duPont, sent identical letters to the "Duperial" subsidiaries advising that "We expect to negotiate with you on a bilateral basis; i.e., between duPont and Duperial, new agreements relating to patents and technical information and new selling arrangements" (Ex. D-937, p. 7095; D-938, p. 7097).
It was on the same day, June 24, 1948, that Swint had been designated as the duPont member of the new "Advisory Committee" (Ex. D-939). The letters of June 24, 1948, were followed by identical letters from duPont to the Duperials on November 24, 1948 reading in part: "We have now prepared an agreement, copy of which is enclosed, which we suggest, that you study and advise us as soon as feasible whether the Duperial management has any objections to the agreement as submitted" (Ex. D-940, p. 7100; D-941, p. 7102).
Just what happened to the planned negotiations is not revealed; whether any were in fact had, is, in view of the wording of these letters most unlikely; the entire correspondence concerning these new bilateral agreements appears as self-serving writings lacking in sincerity. The bilateral agreements were the result of negotiations between duPont and ICI in which the jointly owned companies did not participate as separate entities. (See Ex. D-933, p. 7080.)
But these talks concerning modification of existing duPont-ICI agreements did not *590 begin with the London conference of May, 1948. In August, 1946, duPont advised ICI that they wished "to discuss with ICI the possible revision of the ICI-duPont nylon agreement in the light of the pending anti-trust suit" (Ex. 705, p. 2674). When Mr. Swint of duPont consulted on this subject with ICI in October, 1946, ICI recorded that he "stressed the urgency of ICI reaching a decision, because * * * it was desired to formalize a new agreement before negotiations were commenced with the Department of Justice" (Ex. 706, pp. 2677, 2678).
It was duPont's purpose that certain patents in the nylon field, but applicable to use in the non-nylon field, be assigned to ICI, which would render small the "risk of the assigned patents being brought within the jurisdiction of the Department of Justice" (Ex. 708, p. 2699). And to this ICI had no objection noting that, "It can be expected, after the anti-trust settlement, any exchange between the parties on nylon matters need be treated no differently or not very differently from whatever form of exchange subsists on other topics" (Ex. 708, p. 2703).
ICI recognized too the possibility that the assignment of patents to ICI by duPont "will materially reduce the risk of any loss of rights under any anti-trust settlement" (Ex. 708, p. 2705). The old spirit of cooperation still continued between duPont and ICI.
It is significant that shortly following the London conference of May, 1948 between the representatives of duPont and ICI (Ex. D-933), Remington and ICI, on June 25, 1948 (Ex. D-2117), each terminated their patents and processes agreement with CBC, which was evidenced by the exchange of letters in October-November, 1937 (Ex. 1317; Ex. 1318). Although the agreements were terminated shortly after the promulgation by the Brazilian government of new regulations covering Brazilian imports and exports, the cancellation was accomplished as the result of concerted Remington-ICI action, both agreeing that, "Such termination shall be without prejudice to the continued use by either party of technical information which may have been exchanged in accordance with the terms of the agreement" (of 1937) (Ex. D-2118, p. 10842; Ex. D-2120, p. 10848).
Evidence has also been presented tending to sustain the contention of ICI that it had entered the United States markets in active competition with duPont. It has been shown that during 1949, negotiations were begun by ICI for the acquisition of a controlling interest in Arnold, Hoffman & Company, Inc. of Providence, Rhode Island, a corporation engaged in the manufacture of dyestuffs and other chemicals. "The negotiations were successfully concluded in the spring of 1950," and it was stated by ICI in its annual report for 1949 that "as a result of this new venture the Company will have an attractive medium both for the manufacture in the United States of products in which the Company has special advantages and also for the sale in that country of products manufactured in Great Britain" (Ex. D-2234, p. 14). This entrance of ICI into United States trade represents a radical departure from the policy, theretofore followed, of reserving the United States' market for duPont.
DuPont had long ago successfully objected to ICI's acquiring an interest in the Western Cartridge Company (Ex. 185, p. 854), and, in 1924, when ICI negotiated through a subsidiary Scottish Dyes, Ltd. an agreement with the American concern, Newport Chemical Company, for exchange of technical information on certain dyestuffs, duPont expressed its objection because of the possibility that if duPont gave information on these dyestuffs to ICI, it might through Scottish Dyes, Ltd. be passed on to Newport. This, duPont, at the time, feared would permit Newport to compete with it on the basis of duPont's own technical information (Ex. 184, p. 845; Ex. 206, p. 937; Ex. 210, p. 963; Ex. 212, p. 986). It was treated by duPont as a serious objection; it was solved by duPont's acquiring Newport (Ex. 184, p. 845; Ex. 206, p. 937).
This duPont purpose of restricting ICI in the United States, it was urged, was to protect itself from the competitive use of its own technical know-how by ICI and *591 others with whom ICI might be affiliated. While this restriction was temporarily lifted as a war measure in 1939 (Ex. 720), it otherwise continued until the making of the duPont-ICI Agreement on June 30, 1948 (Ex. D-624; Ex. D-1271; Exs. 1 and 2 of the complaint). This last agreement provides in Article IV (Ex. D-624, p. 6010) that: "Each party hereby grants to the other the unrestricted, non-exclusive, territorially-unlimited right to use and employ in its own manufacturing and selling operations all technical information heretofore conveyed to it under either of said Patents and Processes Agreements. Furthermore, each party may disclose any technical information so conveyed to it after five (5) years from the receipt thereof or at such earlier time as it becomes published or otherwise available to the public; and at any time in disposing of its own technical information which it is free to disclose, either party may include any technical information received from the other party which is inseparably intermingled therewith" (Ex. D-624, pp. 6010, 6011).
Just what has become of duPont's desire which continued through the years, to protect itself from the use of its own technology by its competitors? The suddenness of the complete abandonment of an aim, which defendants claim was at the basis of their entire patents and processes policy does cause hesitation in accepting it as a matter of faith, and puts in doubt the planned permanence of this new policy. So, also, with reference to ICI's investment in the American company, Arnold Hoffman & Company, Inc. We conclude that these changes had best be ensured by decree.
It appears, too, that since 1948, duPont has established foreign sales agencies and has made attempts to enter foreign markets in territories which long had been regulated by the duPont understandings with ICI. How long sustained these recent endeavours will be, only the future will reveal. They do, however, afford basis for the hope that these steps to increase foreign trade will continue and that the abandonment of these markets to ICI is no longer the policy of duPont. This hope will be strengthened by appropriate provisions in a decree.
These recent agreements and activities tend to indicate a recognition, at least on the part of duPont, that the relationship between duPont and ICI might be held to be in violation of the law: what they also demonstrate, however, is the continuance of the close relationship which has existed between them for more than five decades. They sustain the contention of the Government that the issues are not moot and that there is proof beyond more than reasonable doubt to hold that left unregulated by judicial decree, the old understandings between duPont and ICI survive, only to be put into operation at a more propitious and opportune time. This view is not intended as criticism of counsel who have appeared for the defendants. Certainly, their advice and guidance on these new arrangements betoken nothing but a desire to attempt to guide their clients to a policy which conforms to and is in accord with our national policy, which their clients have long disregarded. While these recent modifications might well serve to "eliminate business uncertainties, which were inevitable" (Tr. 1758), they do not remove the need for judicial regulation of the future acts of the defendants by decree.
The bona fide character of the cancellation of these old agreements has not yet been subjected to the test of passing years. They may be the precursor of new policies and of a new relationship between duPont and ICI. This change may have been wrought by a sincere desire on the part of duPont to now conform its international business and dealings to the declared policy of the United States, which has afforded it protection and whose laws have permitted and encouraged its great growth and prosperity. The condition of international political and economic affairs may have contributed to the adoption of these new policies by duPont and ICI. If this be so, a readjustment of world conditions may induce a revival of old understandings and that without sanction of the laws of the United States. To guard against this, a decree should be entered; we can not say "that there is no reasonable expectation *592 that the wrong will be repeated." United States v. Aluminum Co. of America, 2 Cir., 148 F.2d 416, 448.
The Government has charged in this suit that the defendants entered into a conspiracy to divide among themselves the territories of the world, and that the agreements considered herein principally, the Patents and Processes Agreements and the Joint Company Arrangements were but parts of that conspiracy, devices intended to carry out its purposes.
We have found that the various patents and processes agreements were made in furtherance of the conspiracy alleged. These agreements, irrespective of their per se legality, were instruments designed and intended to accomplish the world-wide allocation of markets; their object was to achieve an unlawful purpose an illegal restraint of trade prohibited by Section 1 of the Sherman Act. The agreements are unlawful because they provided a means for the accomplishment of this purpose and objective. We have also found that these agreements did, in operation, result in restraints of United States trade.
We have found that the jointly-owned companies were means designed and used by duPont and ICI to avoid and prevent competition between themselves and with others in the non-exclusive territories. They were a means used for the accomplishment of the basic understanding for the division of world-wide territories. We have found that not only were they intended to affect the export and import trade of the United States but that the limitations placed on duPont and other American companies on the exports to these jointly-owned companies and the restrictions placed on these companies with respect to sales and exports by them to the United States did achieve the purpose and end for which they were organized. Cf. United States v. Aluminum Co. of America, 2 Cir., 1945, 148 F.2d 416, 443-444. The operations of these jointly-owned companies were in violation of the law. United States v. National Lead Co., D.C.S.D.N.Y. 1945, 63 F. Supp. 513, 524. "Nor do we find any support in reason or authority for the proposition that agreements between legally separate persons and companies to suppress competition among themselves and others can be justified by labeling the project a `joint venture.'" Timken Roller Bearing Co. v. United States, 1950, 341 U.S. 593, 598, 71 S. Ct. 971, 974.
After an exhaustive examination of the voluminous evidence presented in this case, we conclude that the Government has proved its case: the defendants had entered into a conspiracy to divide markets, and the agreements considered in this opinion were instruments of that conspiracy.
In the face of this finding, the law is crystal clear: a conspiracy to divide territories, which affects American commerce, violates the Sherman Act. United States v. Timken Roller Bearing Co., D.C., 83 F. Supp. 284, affirmed 341 U.S. 593, 71 S. Ct. 971; United States v. National Lead Co., D.C., 63 F. Supp. 513, affirmed 332 U.S. 319, 67 S. Ct. 1634, 91 L. Ed. 2077; United States v. General Electric Co., D.C., 80 F. Supp. 989. So settled is the law on this that in the National Lead case, supra, Judge Rifkind wrote: "No citation of authority is any longer necessary to support the proposition that a combination of competitors, which by agreement divides the world into exclusive trade areas, and suppresses all competition among the members of the combination, offends the Sherman Act." 63 F.Supp., at page 523.
Nor are the operations of the defendants in any way immunized under the Sherman Act by the failure of the Government to allege or attempt to prove the domination by the defendants of the industries involved. With respect to price fixing, the Supreme Court has written that such a showing is unnecessary. United States v. Socony-Vacuum Oil Co., 310 U.S. 150, footnote 59, commencing at 224, 60 S. Ct. 811, 845, 84 L. Ed. 1129. Justice Douglas there wrote: "It is the `contract, combination * * * or conspiracy, in restraint of trade or commerce' which § 1 of the Act strikes down, whether the concerted activity be wholly nascent or abortive on the one hand, or successful on the other. * * * In view of these considerations *593 a conspiracy to fix prices violates § 1 of the Act though no overt act is shown, though it is not established that the conspirators had the means available for accomplishment of their objective, and though the conspiracy embraced but a part of the interstate or foreign commerce in the commodity."
Territorial division is "in restraint of trade or commerce," no less than price fixing. It involves "the denial to commerce of the supposed protection of competition." United States v. Aluminum Co. of America, 2 Cir., 148 F.2d 416, 428. There is no intimation in any decision that elimination of competition is to be given a more favorable judicial consideration when achieved by the route of territorial division rather than by way of price fixing, or that proof of industry domination is required in one case though not required in the other.
Similarly do we deem irrelevant any inquiry into whether the arrangements between the parties actually injured the public interest, or whether the public benefited thereby. A like contention was decisively repudiated by the Supreme Court in the Timken decision, supra: "We also reject the suggestion that the Sherman Act should not be enforced in this case because what appellant has done is reasonable in view of current foreign trade conditions. * * * This position ignores the fact that the provisions in the Sherman Act against restraints of foreign trade are based on the assumption, and reflect the policy, that export and import trade in commodities is both possible and desirable. Those provisions of the Act are wholly inconsistent with appellant's argument that American business must be left free to participate in international cartels, that free foreign commerce in goods must be sacrificed in order to foster export of American dollars for investment in foreign factories which sell abroad. Acceptance of appellant's view would make the Sherman Act a dead letter in so far as it prohibits contracts and conspiracies in restraint of foreign trade". 341 U.S. at page 599, 71 S.Ct. at page 975.
In view of our determination that the various agreements considered were part of an over-all conspiracy to divide world territories, it becomes unnecessary to consider the per se validity of the individual agreements. It should be noted, however, that the Government has vigorously argued, primarily by analogy to United States v. Line Materials Co., 1948, 333 U.S. 287, 68 S. Ct. 550, 92 L. Ed. 701, that the Patents and Processes Agreements were illegal on their face. Our factual findings also dispose of the defendants' contention that the arrangements involving joint companies do not fall within the jurisdiction of the Sherman Act. The language of the National Lead case is particularly appropriate:
"It has been alleged and proved that a conspiracy was entered into, in the United States, to restrain and control the commerce of the world, including the foreign commerce of the United States. The several agreements relating to manufacture and trade within the European markets are but some of the links in the chain which was designed to enthral the entire commerce * * *. The object of the government's attack is a conspiracy in the United States affecting American commerce, by acts done in the United States as well as abroad." 63 F.Supp. at pages 524-525.
Even if the arrangements involving joint companies abroad were considered independently of the other agreements, the decision of the Supreme Court in the Timken case would strongly indicate that they fall within the jurisdiction of the Sherman Act and are violative of its provisions.
We have applied the law as we see it to these findings made, and we have arrived at the following.
X. Conclusions of Law
1. This court has jurisdiction over the defendants duPont, ICI, ICI(NY), Remington, Lammot duPont, Walter S. Carpenter, Jr., and Charles K. Davis.
2. Beginning some time prior to 1920 and thereafter up to the filing of the complaint in this case, duPont and ICI, and from time to time during that period, Lammot duPont, Walter S. Carpenter, Jr., and Harry Duncan McGowan (known as Sir Harry McGowan and as Lord McGowan), Henry Mond (known as Lord Melchett), *594 CIL, EIL, CSAE, Duperial-Argentina, Duperial-Brazil, Bunge & Born, DAG, and I. G. Farben, and beginning with the year 1933, Remington and Charles K. Davis, were engaged in a combination and conspiracy in restraint of trade and commerce in chemical products, sporting arms and ammunition, among the several states of the United States and with foreign nations, and were parties to contracts, agreements, arrangements, and understandings in restraint of such trade and commerce, all in violation of section 1 of the Sherman Act.
3. Plaintiff is entitled to relief by appropriate decree of this Court.
Proposed decrees may be filed within thirty days from the date of the filing of this opinion and thereafter all will be heard on due notice.
NOTES
[*] Used
ATLAS Atlas Powder Company
BELGIAN COMPANIES Poudreries Reunies de Belgique Poudreries Royales de Wetteren-Coopal et cie.
BUNGE & BORN Bunge & Born Limitada S. A. Commercial Financier y Industrial
CBC Compania Brasileira de Cartuchos
CIL Canadian Industries, Ltd.
COSWIG Westfaelische Anhaltische Sprengstoff A. G.
CSAE Compania Sud-Americana de Explosivos
CXL Canadian Explosives, Ltd.
DAG Dynamit Aktiengesellschaft
DUCILO Ducilo S. A. Productora de Rayon
DUPERIAL-ARGENTINA Industrias Quimicas Argentinas "Duperial", S. A.
DUPERIAL-BRAZIL Industrias Chimicas Brasileiras "Duperial", S. A.
duPont E. I. duPont deNemours & Company, Inc.
EXL Explosives Industries, Ltd.
ELECTROCLOR Electrocolor S. A. Argentina
EXL Explosives Trades, Ltd.
HERCULES Hercules Powder Company
ICI Imperial Chemical Industries
ICI also NOBEL Nobel industries, Ltd.
ICI(NY) Imperial Chemical Industries (New York), Ltd.
I. G. Farben I. G. Farbenindustrie, A. G.
LA CELULOSA La Celulosa Argentina S. A.
LPL Leathercloth Proprietary, Ltd.
NCF Nobel Chemical Finishes, Ltd.
NOBEL also ICI Nobel Industries, Ltd.
NORWEGIAN COMPANY Norsk-Spraengsto-findustri A/S
ORBEA Cartucheria Orbea Argentina S. A.
PRIMITIVA Cia. Primitiva de Gas
REMINGTON Remington Arms Company, Inc.
SOLVAY & BELGIAN COMPANY Solvay et Cie.
WINCHESTER Winchester Repeating Arms Company
[1] No opinion for publication.
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IN THE SUPREME COURT OF TEXAS
((((((((((((((((
No. 04-0155
((((((((((((((((
Gte Mobilnet Of South Texas Limited Partnership D/B/A Verizon Wireless,
v.
CELLULAR MAX, INCORPORATED
((((((((((((((((((((((((((((((((((((((((((((((((((((
On Petition for Petition for Review
((((((((((((((((((((((((((((((((((((((((((((((((((((
ORDER
1. The motion to stay proceedings, being treated as a motion to
abate, filed on July 13, 2004, is granted, and this case is ABATED to allow
the parties to proceed with settlement negotiations.
2. This case is removed from the Court's active docket until
August 31, 2004, by which time the parties must file either a status report
or a motion to dismiss. The parties shall immediately notify this Court
about any changes in status in the settlement proceedings.
Done at the City of Austin, this 19 day of July, 2004.
[pic]
Andrew Weber, Clerk
Supreme Court of Texas
By Nancy J. Vega, Chief Deputy Clerk
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637 F. Supp. 675 (1986)
William ZIEGLER, as Owner of the Yacht "GEM," Plaintiff,
v.
Brion RIEFF, Brion Rieff Yacht Builders, Inc. and Saybrook Marine Service, Defendants.
No. 86 Civ. 468 (CHT).
United States District Court, S.D. New York.
June 4, 1986.
*676 Healey & McCaffrey, New York City, for plaintiff; Thomas H. Healey, of counsel.
McGlynn, Reed, Hense & Pecora, Point Pleasant, N.J., for defendant Saybrook Marine Service; Raymond F. Reed, of counsel.
OPINION
TENNEY, District Judge.
The plaintiff, William Ziegler ("Ziegler"), brought this action against the defendants seeking compensation for the loss of certain accessories and fittings, which the plaintiff claims were lost or stolen from his yacht while it was in the care, custody and control of the defendants. Saybrook Marine Service ("Saybrook"), one of the defendants, now moves to dismiss the action, pursuant to Fed.R.Civ.P. ("Rule") 12(b), claiming that the Court lacks subject matter and personal jurisdiction.[1] Saybrook also contends that the action should be dismissed because the plaintiff brought the action in the wrong venue.
For the reasons set forth briefly below, the Court concludes that there is admiralty jurisdiction over the plaintiff's contract claims and the Court will exercise ancillary jurisdiction over the plaintiff's negligence claims. The Court also concludes that the proper venue for this action is Connecticut, and, therefore, directs that the case be transferred to the United States District Court for the District of Connecticut.
DISCUSSION
1. Subject Matter Jurisdiction
The plaintiff contends that the instant action is within the admiralty jurisdiction of this Court pursuant to 28 U.S.C. § 1333, because the claim arose out of a maritime contract.[2] The Court agrees.
The plaintiff claims that the defendants agreed to take custody of and care for his boat. Specifically the plaintiff argues that he "arranged for defendants ... to care for, service, transport and harbor his yacht, the `GEM.'" Affidavit in Opposition, at 1. The plaintiff's complaint, fairly read, essentially alleges that the defendants contracted to either dock or store the plaintiff's yacht.[3]
*677 Admiralty jurisdiction over contract claims is determined by reference to the nature and subject of the contract. See Ford Motor Co. v. Wallenius Lines, 476 F. Supp. 1362, 1365 (E.D.Va.1979). Schuster v. Baltimore Boat Sales, Inc., 471 F. Supp. 321, 322 (D.Md.1979). The crucial question is whether the relevant agreement has a "maritime flavor." Ford v. Wallenius, 476 F.Supp. at 1366.
It is well established that contracts for service or repair of vessels are maritime in nature. See Schuster v. Baltimore, 471 F.Supp. at 322; Fireman's Fund American Ins. Co. v. Boston Harbor Marina, Inc., 285 F. Supp. 36, 39 (D.Mass.1968), rev'd on other grounds, 406 F.2d 917 (1st Cir.1979); Leyendecker v. Cooper, 1978 A.M.C. 1544, 1546 (D.Md. 1978). Recent cases have also held that contracts for seasonal storage of a vessel are maritime in nature and provide a sufficient basis for finding admiralty jurisdiction. See, e.g., Omaha Indemnity Co. v. Whaleneck Harbor Marina, Inc., 610 F. Supp. 154, 156 (E.D.N.Y.1985); Medema v. Gombo's Marina Corp., 97 F.R.D. 14, 15 (N.D.Ill.1982); American Eastern Dev. Corp. v. Everglades Marina, Inc., 608 F.2d 123, 124 (5th Cir.1979); Schuster v. Baltimore, 471 F.Supp. at 322. These courts reasoned that storage contracts were similar to contracts for repairing a vessel. See Omaha Indem. v. Whaleneck, 610 F.Supp. at 155-56. In Everglades Marina, the court noted that storage contracts are also similar to contracts involving docking and wharfage. See 608 F.2d at 124; see also Selame Assoc., Inc. v. Holiday Inns, Inc., 451 F. Supp. 412, 418 (D.Mass.1978) ("A contract to provide wharfage or storage is a maritime contract and a breach of this contract is cognizable in admiralty.").
The Court agrees that it is appropriate to consider storage contracts as being maritime contracts. Storing a vessel may increase or preserve the vessel's seaworthiness, and, therefore, a storage contract has a direct connection with navigation.
In the instant case, it is not clear from the papers whether the parties agreed that the boat would be kept on land or in the water. The result is the same, however, in light of the cases and reasoning set forth above. There is a strong maritime flavor to the agreement at issue here, and the plaintiff's yacht was not removed from navigation as a result of the agreement.[4] Indeed, it appears that the purpose of the agreement was to ensure that the yacht would be available and in reasonable condition when the plaintiff wished to use it.
Accordingly, the Court concludes that there is admiralty jurisdiction in the instant case, and the defendant's motion to dismiss for lack of subject matter jurisdiction is denied. Because the negligence claims being asserted arise out of the same nucleus of operative facts as the contract claims, the Court will exercise ancillary jurisdiction over the negligence claims. See United Mine Workers v. Gibbs, 383 U.S. 715, 86 S. Ct. 1130, 16 L. Ed. 2d 218 (1966).
2. Personal Jurisdiction and Venue
In federal admiralty practice, personal jurisdiction and venue analyses *678 merge so that venue is proper in any district in which valid service of process may be had on the defendant. See Ingersoll Milling Machine Co. v. J.E. Bernard & Co., 508 F. Supp. 907, 909 (N.D.Ill.1981); Gipromer v. S.S. Tempo, 487 F. Supp. 631, 633 (S.D.N.Y.1980); Societe Commerciale de Transports Transatlantiques v. S.S. "African Mercury", 366 F. Supp. 1347, 1349 (S.D.N.Y.1973). The question of whether a non-domiciliary defendant is amenable to service is determined in accordance with the applicable state long-arm statute. See Ingersoll v. Bernard, 508 F.Supp. at 909.
In the case at bar, the plaintiff has alleged no facts that would indicate that personal jurisdiction can be asserted over any of the defendants under New York's long-arm statute. See N.Y. C.P.L.R. § 302 (McKinney 1972). Indeed, the plaintiff has failed to point to any connection between New York and the litigation. As previously noted, all of the parties reside or are located in Connecticut.
Saybrook, who is moving to dismiss the complaint, is incorporated and has its principal place of business in Connecticut. In addition, the purported loss or theft of property occurred in Connecticut. Saybrook contends that it has had no contacts with this district and therefore is not subject to in personam jurisdiction, and that venue is improper. See International Shoe Co. v. State of Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 158, 90 L. Ed. 95 (1945) and its progeny. In response, the plaintiff argues that he should be permitted to engage in preliminary discovery in order to ascertain what contacts the defendants have had with this district. The plaintiff also states that if venue is improper, he has no objection to having the case transferred to the proper court. See Affidavit in Opposition, at 2.
Although the Court would be willing to permit the plaintiff to engage in preliminary discovery for jurisdictional purposes, this appears to be an unnecessary expenditure of time and money. It appears that the interests of justice would best be served by transferring the case to the United States District Court for the District of Connecticut pursuant to 28 U.S.C. §§ 1404(a) and 1406(a). All of the parties are in Connecticut, and the alleged loss of property occurred there. In addition, the plaintiff does not object to having the case transferred. See Affidavit in Opposition, at 2.
It is not necessary to determine whether there is personal jurisdiction over the defendants in this district merely to transfer the case. The court has the power to transfer an action even if the court lacks personal jurisdiction over the defendants. See Corke v. Sameiet M.S. Song of Norway, 572 F.2d 77, 80 (2d Cir.1978); Gipromer v. SS Tempo, 487 F.Supp. at 632.
Having determined that this action should be transferred brings the entire discussion back to the proposition that venue is proper in any district in which valid service of process may be had on the defendant. See 1 Moore's Federal Practice ¶ 0.144[13.1] (2d ed. 1979). The only question which remains unanswered, therefore, is whether the defendants in this action could have brought this action in the district court in Connecticut. Counsel for Saybrook states in an affidavit that "both Defendants are in Connecticut [and the] alleged incident occurred in Connecticut." Affidavit of Raymond F. Reed at ¶ 6. He also contends in that affidavit that this case should be determined under the laws of Connecticut. These statements are consistent with the allegations set forth in the plaintiff's complaint. Thus, it appears from the record that the plaintiff could have brought this action in Connecticut.[5] The Court concludes, therefore, that the case should be transferred.
In sum, the defendant's motion to dismiss the action for lack of subject matter jurisdiction and personal jurisdiction is denied. *679 The action is hereby transferred to the United States District Court for the District of Connecticut.
So ordered.
NOTES
[1] The defendants Brion Rieff ("Rieff") and Brion Rieff Yacht Builders, Inc. ("Rieff Builders") have not submitted any papers to date.
[2] There is no diversity jurisdiction in this case since all the parties are from Connecticut. The plaintiff and the defendant Rieff are both residents of Connecticut. Rieff Builders is also located in Connecticut. Saybrook is incorporated in Connecticut and has its principal place of business there. Complaint, ¶ 1-3.
[3] It is not clear from the papers whether the agreement between the parties was written or oral. It is immaterial, however, since maritime contracts need not be in writing to be valid and enforceable. See T.N.T. Marine Service, Inc. v. Weaver Shipyards & Dry Docks, Inc., 702 F.2d 585, 588 (5th Cir.), cert. denied, 464 U.S. 847, 104 S. Ct. 151, 78 L. Ed. 2d 141 (1983); Tarstar Shipping Co. v. Century Shipline, Ltd., 451 F. Supp. 317, 323 (S.D.N.Y.1978), aff'd, 597 F.2d 837 (2d Cir.1979); Selame Assoc., Inc. v. Holiday Inns, Inc., 451 F. Supp. 412, 418 (D.Mass.1978).
[4] Saybrook contends that it did not enter into an agreement with the plaintiff. See Affidavit of Raymond F. Reed, ¶¶ 2-3. Saybrook raises this issue by denying that it entered into an agreement with the plaintiff, and then stating, without any further comment, that "Brion Rieff was a tenant at Saybrook Marine Service." Apparently Saybrook is arguing that any agreement that exists was between the plaintiff and the other defendants, Rieff or Rieff Builders, and that Saybrook was not a party to or bound by such an agreement. The issue, however, has not been briefed and will not be considered at this time.
It should also be noted that there has been no allegation that the plaintiff's boat was still under construction so that the case would involve a contract to build a vessel, rather than a storage contract. See 1 Benedict, Admiralty § 189 (1981).
[5] After the case has been transferred, Saybrook may renew its motion to dismiss for lack of personal jurisdiction if there is a meritorious basis for asserting that the court in Connecticut does not have in personam jurisdiction.
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
____________________________________
)
MOHAMMED AHMED SLAM, )
AL-KHATEEB (ISN 689), )
)
Petitioner, )
)
v. ) Civil Action No. 09-745 (RCL)
)
BARACK H. OBAMA, President )
of the United States, et al., )
)
Respondents. )
____________________________________)
ORDER
Before the Court is respondents’ Motion for Leave to Amend and Supplement the Factual
Return for petitioner (filed June 5, 2009) and respondents’ Unopposed (Second) Motion for
Leave to Supplement Factual Return (filed June 25, 2009). Amended CMO § I.D.1 requires
respondents to file a certificate as to the production of exculpatory evidence within 14 days of
filing a factual return. Misc. No. 08-442, Doc. [940] (Nov. 6, 2008), as amended by Doc. [1315]
(Dec. 16, 2008) (D.D.C.) (Hogan, J.). Common sense dictates that a similar requirement attach
to any proposed amendments to a factual return. New exculpatory evidence could easily have
come into the government’s possession in the course of assembling their pending motions to
amend and supplement (or in the course of assembling materials for other detainees).1
1
See Gherebi v. Bush, Civ. No. 04-1164, Doc. [164] (D.D.C. 2008) (Walton, J.), stating
the scope of respondents’ exculpatory-disclosure obligation:
The government shall disclose to the petitioner all reasonably available evidence
in its possession that tends materially to undermine the information presented to
support the government’s justification for detaining the petitioner. In this context,
1
Respondents did not attach such a certification to either of their motions, nor have they filed such
certifications with the Court since their motions. The Court will not consider granting
respondents’ motions unless respondents have completed the required searches. It is therefore
hereby
ORDERED that respondents’ Motion for Leave to Amend and Supplement the Factual
Return for petitioner is DENIED without prejudice as to its refiling alongside a certification
either that all reasonably available exculpatory evidence in the government’s possession has been
disclosed or that the government possesses no reasonably available exculpatory evidence that has
yet to be disclosed; and it is further
ORDERED that respondents’ Unopposed (Second) Motion for Leave to Supplement
Factual Return is DENIED without prejudice as to its refiling alongside a certification either that
all reasonably available exculpatory evidence in the government’s possession has been disclosed
or that the government possesses no reasonably available exculpatory evidence that has yet to be
disclosed.
SO ORDERED.
Signed by Royce C. Lamberth, Chief Judge, on July 6, 2009.
the term “reasonably available evidence” means evidence contained in any
information reviewed by attorneys preparing factual returns for all detainees;
however, the scope of this disclosure obligation is not limited to evidence
discovered by the attorneys preparing the factual return for the petitioner. The
term also includes any other evidence the government discovers while litigating
habeas corpus petitions filed by detainees at Guantanamo Bay or any other United
States military facility.
(amending slightly Amended CMO § I.D.1) (emphasis added) (citation omitted).
2
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04-04-2014
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
CARLOS CURTIS
Petitioner,
Crimina1 Action No. 03-533
v. Civil Action No. 08-805
UNITED STATES OF AMRICA
FELE@
Jur,ozzom
Respondent.
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UehU$.
Brankrupt?y£sgggtrtasnd
MEMORANDUM OPINION
This matter comes before the Court on Petitioner's Motion
Under 28 U.S.C. § 2255 to Vacate, Set Aside, or Correct Sentence
[Dkt. No. l2l]. Petitioner Carlos Curtis, a prisoner proceeding
pro §§ in this matter,1 petitions this Court to set aside or
correct his sentence pursuant to 28 U.S.C § 2255.2 Upon
consideration of the Motion, Opposition, and the entire record
herein, for the reasons discussed below, Petitioner's motion is
denied.
1 Petitioner refused the Court’s offer to appoint counsel to
represent him in this Motion [Dkt. No. l36].
2 Section 2255 reads in pertinent parts
A prisoner in custody under sentence of a court
established by Act of Congress claiming the right
to be released upon the ground that the sentence
was imposed ill violation of 'the Constitution or
laws of the United States, or that the court was
without jurisdiction to impose such sentence, or
that the sentence was in excess of the maximum
authorized by law, or is otherwise subject to
collateral attack, may move the court which imposed
the sentence to vacate, set aside or correct the
sentence,
I. BACKGROUND
On March 31, 2004, a nine-count superseding indictment was
filed in the United States District Court for the District of
Columbia, charging petitioner with sex trafficking of children
(Counts 1 and 2); transportation of minors for prostitution (Counts
3 and 4); coercion or enticement of a minor (Count 5);
transportation of a person for prostitution (Count 6);
l transportation of child pornography (Count 7); acts relating to
material constituting or containing child pornography (Count 8);
and tampering with a witness (Count 9).
The Government provided testimony from two child victims, A.P.
and C.B., that was corroborated by testimony from A.P.'s
grandmother, C.B.’s stepmother, and Michael Goodwin, an associate
of the Petitioner, The Government also presented physical evidence
that included pornographic photographs of A.P., receipts from
motels discussed during testimony, and evidence of Petitioner's
prior convictions of child prostitution to demonstrate his intent.
Gn July 2, 2004, after hearing testimony from eleven
Government witnesses over five days, a jury found Petitioner guilty
of Counts 1-4, 6 and 8, and acquitted Petitioner on Counts 7 and
9.3 On March l7, 2006, this Court found Petitioner to be a career
criminal and sentenced him to concurrent life terms of imprisonment
on each count, followed by concurrent supervised release terms of
3 The Court dismissed Count 5 at the close of the Government’s
case.
_2_
aj
4~3'*'*'-*-'-------11-ll1ll!!!!!!!!llllllllllllllIlllllll`
five years for Counts 1 and 2 and three years for the remaining
counts. Petitioner filed a direct appeal claiming that his prior
bad acts should not have been permitted as evidence under Rule
404(b) of the Federal Rules of Evidence, and that the Court
incorrectly classified him as a career criminal. On March 20,
2007, the Court of Appeals rejected these challenges and affirmed
the convictions. United States v. Curtis, 481 F.3d 836 (D.C. Cir.
2007).
II. ANALYSIS
On May 5, 2008, Petitioner filed the present Motion claiming
that he was convicted with a defective indictment in violation of
Rules 6(c) and (f) of the Federal Rules of Criminal Procedure, and
that his trial and appellate counsel were constitutionally
ineffective.
A. Petitioner Has Not Estab1ished that the Grand Jury
Indictment Was Defective.
In order to claim that he was convicted with a defective
indictment because of ineffective counsel, without having raised
that issue on direct appeal, Petitioner must establish two
elements. First, he must establish “cause” for why he did not
previously raise this claim. Second, he must establish that
“actual prejudice” would result by denying the claim. §§g Bousley
v;_Qni;g;L§;a;es, 523 U.S. 614, 622 (1998); United States v. FradV,
456 U.S. l52, 167-68 (1982); United States v. Pettigrew, 346 F.3d
1139, 1144 (D.C. Cir. 2003); United States v. Da1e, 140 F.3d 1054,
1056 (D.C. Cir. l998).
Petitioner’s defective indictment claim based on ineffective
counsel fails on multiple procedural grounds. First, there is a
“presumption of regularity . . . in the grand jury process.”
United States v. Mechanik, 475 U.S. 66, 75 (O’Connor, J.,
concurring). Since Petitioner fails to provide any explanation for
“cause,” i.e., why he failed to raise this claim on appeal, the
Court need not consider whether he will suffer “actual prejudice,”
if his petition is denied. United States v. Fradv, 456 U.S. 152,
168 (l982).
Further, Petitioner was required by Rule 12(b)(3)(B) of the
Federal Rules of Criminal Procedure to raise the defective
indictment claim before trial. Since a timely objection was not
made by Petitioner before trial, as required by the Rule, it is
proper to dismiss any potential Rule 6 challenge “on the ground
that it was not timely brought.” United States v. Wilson, 434 F.2d
494, 496 (D.C. Cir. 1970).
Petitioner's remaining two arguments are unpersuasive. First,
Petitioner's argument that his indictment contained irregularities
is without factual support. Petitioner argues that his indictment
does not affirmatively demonstrate that each juror concurred with
the indictment as required by Federal Rule of Criminal Procedure
6(c). The Rule states that the foreperson will “sign all
indictments” and “record the number of jurors concurring in every
_4_
indictment and will file the record with the clerk of the court,
but the record may not be made public unless the court so orders.”
Fed. R. Crim. P. 6(c). The record does not show any
inconsistencies with the Rule: Petitioner's superseding indictment
was submitted by the foreperson and stamped “FILED IN OPEN COURT;”
and there is no indication that Petitioner requested the Court to
order the jurors’ concurrences be made public. See United States
v. Glasser, 116 F.2d 690, 695 (7th Cir. 1940) (where an indictment
was filed in open court, in the presence of judges and court
officers, and endorsed by the grand jury, it sufficiently appeared
that the indictment was properly returned). Further, “[f]ailure of
the foreman to sign or endorse the indictment is an irregularity
and is not fatal.” Fed. R. Crim. P. 6(c) advisory committee's
note; See also Frisbie v. United States, 157 U.S. 160 (l895).
Therefore, even if Petitioner's trial counsel had raised these
arguments prior to trial, he would not have prevailed on them, and
Petitioner would have suffered no prejudice.
Second, Petitioner argues that his indictment is analogous to
a flawed indictment and relies on Gaither v. United States, 413
F.2d 1061 (D.C. Cir. 1969). In that case, the indictment was
defective because the grand jury voted only to “present” the
defendants with the charge of grand 1arceny, but did not “pass on
the actual terms of an indictment,” which were drafted by the
prosecutor and signed by the foreperson. Id. at 107l. In
_5_
contrast, the record in this case lacks “any evidence that
[Petitioner's] indictment was returned in the way described in
Gaither.” DeVincent v. United States, 602 F.2d 1006, 1009 (lst
Cir. l979).
B. Petitioner’s Trial Counse1 Was Not Ineffective.
To prevail on his claim of ineffective assistance, Petitioner
must demonstrate two elements. First, he must show that counsel
was deficient by making “errors so serious that counsel was not
functioning as the ‘counsel’ guaranteed the defendant by the Sixth
Amendment.” Second, he must show that counsel's deficiency
“prejudiced the [Petitioner].” Strickland v. Washington, 466 U.S.
668, 687 (1984). To demonstrate deficient performance, Petitioner
“must identify the acts or omissions of counsel” that could not be
considered “reasonable professional judgment . . . in light of all
the circumstances” such that the “acts or omissions were outside
the wide range of professionally competent assistance.” ld; at
690.
Trial counsel is a highly experienced Federal Defender and has
competently appeared before this Court on numerous occasions.
Nonetheless, the Petitioner cites the following examples of
ineffective assistance at trial: (a) counsel “prevented” him from
testifying; (b) counsel “failed” to present Petitioner’s defense of
innocence; (c) counsel told the jury in opening statements that
Petitioner would testify but he did not testify; (d) counsel failed
_6_
to raise the grand jury “irregularities” in a pre-trial motion; (e)
counsel did not request the Court to instruct the jury that it
could draw no adverse inference from Petitioner’s failure to
testify; and (f) counsel failed to request jury instructions that
jury notes were not evidence.
Despite the Petitioner’s claim of ineffective assistance, the
Court finds that counsel performed well within “the wide range of
professionally competent assistance.” lg; Additionally, any
concern about “prejudice” stemming from counsel's performance would
be minimized by the Government’s strong case against Petitioner.
Id. at 687.
Petitioner incorrectly argues that counsel prevented him from
testifying. On June 30, 2004, during four different exchanges with
the Court, trial counsel explained in Petitioner’s presence that
Petitioner did not intend to testify. Tr. at 4, 6, 7, 112 (June,
30, 2004). As this Court previously explained, “[Petitioner]
had every opportunity to disagree with his counsel's
representations, if he wished to do so.” United States v. Curtis,
No. 03-CR~533(GK), 2004 WL 33l2951, at *2 (D.D.C. Dec. 7, 2005).
Furthermore, even if Petitioner could demonstrate deficient
performance, Petitioner fails to demonstrate prejudice because he
did not explain how counsel prevented him from testifying, why he
failed to notify the Court of counsel's actions, or why Petitioner
delayed raising this issue until filing the current Motion,
_7_
4AgW 541---11111-I1lIllllllllllllllllllllllllllllllllllIlIllllllllll
Petitioner incorrectly argues that counsel's decision to not
present witnesses demonstrates that he failed to present
Petitioner’s innocence claim. Counsel attempted other defense
techniques that included challenging the credibility of Government
witness Michael Goodwin, Furthermore, Petitioner fails to identify
the witnesses, or provide any information about the content of the
potential witness testimony, that would prove his innocence.
Petitioner argues that counsel prejudiced the jury by stating
that Petitioner would testify during his opening statement, but
failed to call Petitioner as a witness at trial, However, the
Court instructed the jury that opening statements are not evidence
on three separate occasions -~ twice before opening statements and
once before closing statements. Tr. at 18 (June 23, 2004) and Tr.
at 11 (July l, 2004). The jury is presumed to follow the
instructions of the Court. United States v. Mathis, 216 F.3d 18,
25 (D.C. Cir. 2000).
Moreover, it cannot be assumed that the jury would credit the
testimony he now claims he would have given, namely that Michael
Goodwin, one of the Government’s eleven witnesses was lying,
especially since the Petitioner fails to provide any details about
what he would have said. See United States v. Terry, 366 F.3d 3l2,
316 (4th Cir. 2004) (defendant “provides no concrete evidence of
what he would have testified in exculpation” and “says only that he
would have impeached [the witness'] credibility, but omits any
_3_
details that explain why the district court would have given his
claims any weight”). Thus, where the Government’s strong case
against Petitioner makes it “easier to dispose of an ineffective
[counsel] claim on the ground of lack of sufficient prejudice
that course should be fo11owed.” Strickland, 466 U.S. at 697.
Petitioner also argues that counsel's failure to raise grand
jury “irregularities” in a pre-trial motion constituted ineffective
counsel. This argument fails because Petitioner did not provide a
compelling explanation for “cause” and would not likely be able to
show “actual prejudice” in light of the strength of the
Government’s case. See supra, at Part I.
Petitioner’s argument that counsel did not request a jury
instruction that no adverse inference could be drawn from his
failure to testify is factually inaccurate. Counsel requested and
was granted such an instruction. Tr. at 23 (July l, 2004).
Petitioner’s argument that counsel did not request a jury
instruction that jury notes were not evidence is also factually
inaccurate. The Court instructed the jury that note-taking was
optional and that notes were “only an aid to help your memory.”
Tr. at 15 (June 23, 2004).
C. Petitioner’s Appellate Counsel Was Not Ineffective.
The Court also rejects the Petitioner’s claim of ineffective
appellate counsel. Petitioner argues that appellate counsel's
failure to raise the above-mentioned issues constituted ineffective
counsel. Appellate counsel may use professional judgment to
determine which claims to raise on appeal. Jones v. Barnes, 463
U.S. 745, 751 (l983). Appellate counsel “need not (and should not)
raise every non-frivolous claim,” but should select claims “to
maximize the likelihood of success on appeal.” Smith v. Robbins,
528 U.S. 259, 288 (2000). For the reasons discussed above, the
challenges are without merit and appellate counsel may have decided
not to raise them as a legitimate exercise of his professional
judgment. Even if Petitioner shows that appellate counsel was
\\
deficient, which he has not, he still must demonstrate a
reasonable probability that, but for his counsel's unreasonable
failure, he would have prevailed on his appeal.” Id. at 285. The
Government’s strong case against Petitioner makes this very
unlikely.
For the foregoing reasons, it is hereby
ORDERED, that Petitioner’s Motion Under 28 U.S.C. § 2255 to
Vacate, Set Aside, or Correct Sentence is denied.
,;/Q/@; @zlré¢@l@
Date G1adys Kessler
U.S. District Court Judge
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wi
FILED
UNITED STATES DISTRICT COURT `|UN 2 9 2089
FOR THE DISTRICT OF COLUMBIA C|erk, U.S. District and
Bankruptcy Courts
)
Sean J. Hopkins, )
)
Petitioner, )
)
v. ) Civil Action No.
)
Warden Anderson, )
)
Respondent. )
MEMORANDUM OPINION
Petitioner has filed an application to proceed in forma pauperis and a pro se petition for
habeas corpus. This application to proceed in forma pauperis will be granted and the petition
will be dismissed for lack of jurisdiction.
Petitioner is a prisoner under sentence imposed by the Superior Court for the District of
Columbia in 1994 following a jury trial who is currently confined at the United States Medical
Center for Federal Prisoners in Springfield, Missouri. Petitioner filed this habeas petition under
28 U.S.C. § 2254 to challenge his Superior Court conviction and sentence. Specifically, he
contends that he was denied effective assistance of counsel during his criminal proceedings, and
that the trial court entertaining his post-conviction collateral attack erred when it refused hold an
evidentiary hearing on the issue of ineffective assistance of counsel. Pet. at 6, 8, 10.
Collateral challenges to sentences imposed by the Superior Court must be brought in that
court under D.C. Code § 23-1 lO. See Blair-Bey v. Quick, 151 F.3d 1036, 1042 (D.C. Cir. l998)
(§ 23-110 is exclusive remedy for such challenges). Here, petitioner’s motion under § 23-110
was denied, and the denial was affirmed on appeal. Pet. at 7. "An application for a writ of
habeas corpus in behalf of a prisoner who is authorized to apply for relief by motion [under § 23-
l10] shall not be entertained by . . . any Federal . . . court if it appears . . . that the Superior
Court has denied him relief, unless it also appears that the remedy by motion is inadequate or
ineyj"ective to test the legality of his detention. " D.C. Code § 23-1 l0(g) (emphasis added).
Unlike other prisoners convicted in state courts or those convicted in a United States District
Court, "District of Columbia prisoner[s] ha[ve] no recourse to a federal judicial forum [under
either Section 2254 or Section 2255] unless [it is shown that] the local remedy is inadequate or
ineffective to test the legality of his detention." Garris v. Lindsay, 794 F.2d 722, 726 (D.C. Cir.
1986) (intemal footnote and quotation marks omitted); see Byrd v. Henders0n, 119 F.3d 34, 36-
37 (D.C. Cir. 1997) ("ln order to collaterally attack his sentence in an Article III court a District
of Columbia prisoner faces a hurdle that a federal prisoner does not.")
Generally,"[s]ection 23-110 has been found to be adequate and effective because it is
coextensive with habeas corpus." Saleh v. Braxton, 788 F. Supp. 1232 (D.D.C. 1992); accord
Blair-Bey v. Quick, 151 F.3d at 1042 (describing § 23-110 remedy as "analogous to 28 U.S.C.
§ 2255 for prisoners sentenced in D.C. Superior Court who wished to challenge their conviction
or sentence.").
In determining whether the local remedy is ‘inadequate or ineffective, ’ we
are guided by judicial interpretations of the statutory provisions enabling federal
prisoners to challenge their convictions. The federal and local statutes are nearly
identical in language, and functionally they are equivalent. The remedy now
available to District of Columbia prisoners was pattemed after that conferred upon
federal prisoners, and both remedies are commensurate with habeas corpus. That
judges of the Superior Court do not have the tenure and salary protection afforded
federal judges does not call for a different conclusion. "[T]he judges of the
Superior Court of the District of Columbia must be presumed competent to decide
all issues, including constitutional issues, that routinely arise in the trial of
criminal cases."
Garris v. Lindsay, 794 F.2d at 726 (quoting Swain v. Pressley, 430 U.S.372, 382-83 (l977))
(footnotes omitted). The mere denial of relief by the local courts does not render the local
2
remedy inadequate or ineffective. See id. at 727; Charles v. Chandler, 180 F.3d 753, 756-58 (6th
Cir. 1999) (citing cases); Wilson v. Ojjice of the Chairperson, 892 F. Supp. 277, 280 (D.D.C.
1995).
Petitioner has been denied relief under § 23-1 10. He has not claimed, and it does not
appear, that a motion under § 23-110 is inadequate or ineffective to test the legality of his
conviction and detention. Therefore, his habeas petition before this court must be dismissed for
lack of j urisdiction. An appropriate order accompanies this memorandum opinion.
Date: United States District Judge
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
SCOTT VAN VALIN, et al., )
)
Plaintiffs, )
)
v. ) Civil Action No. 09-961 (RMC)
)
GARY LOCKE, Secretary, )
Department of Commerce, et al., )
)
Defendants. )
)
MEMORANDUM OPINION
Scott Van Valin, Ken Dole, Rick Bierman, Theresa Weiser, Donald Westlund, and
Richard Yamada are charter fishing operators in area 2C (Southeast Alaska). They brought this suit
against the following Defendants: Gary Locke, in his official capacity as Secretary of the
Department of Commerce; Dr. Jane Lubchenco, in her official capacity as Administrator of the
National Oceanic and Atmospheric Administration; and Dr. James Balsinger, in his official capacity
as Acting Administrator of the National Marine Fisheries Service (“NMFS”).1 Plaintiffs challenge
a Final Rule adopted by the Secretary of Commerce on May 6, 2009, effective June 5, 2009. See 74
Fed. Reg. 21194. The only provision of the Final Rule that Plaintiffs challenge is the limitation on
the harvest of Pacific halibut to one halibut per calendar day by guided charter vessel anglers in Area
2C (Southeast Alaska).
1
NMFS is a division of the National Oceanic and Atmospheric Administration, an agency
within the Department of Commerce. For ease of reference Defendants are collectively referred
to as “the Secretary.”
I. FACTS
A. Prior Litigation
This is the Secretary’s second attempt to limit charter fishermen to a one-fish daily
bag limit in Area 2C. A substantially similar group of plaintiffs challenged a rule that imposed a
one-halibut-per-day limit in 2008. See Van Valin v. Gutierrez, No. 08-941 (D.D.C.) (challenging
73 Fed. Reg. 30504, May 28, 2008 final rule). In that case, the Court granted the plaintiffs’ request
for a temporary restraining order and then granted a preliminary injunction on June 20, 2008,
enjoining the enforcement of the 2008 rule. The Court found that plaintiffs made a clear showing
of irreparable harm because they had received cancellations of charter bookings for the 2008 season
due to the one fish limit, causing them great monetary loss and threatening the very existence of their
businesses. See Bracco Diagnostics v. Shalala, 963 F. Supp. 20, 29 (D.D.C. 1997) (economic injury
may amount to irreparable harm if no adequate compensatory relief is available). The Court also
found that plaintiffs had made a clear showing of likelihood of success on the merits on their claim
that the Secretary violated his own regulations in violation of the Administrative Procedure Act, 5
U.S.C. § 551 et seq. The 2008 rule was based on the 2003 guideline harvest level regulations, and
yet it limited the halibut harvest by the charter sector in anticipation of the projected 2008 harvest
— instead of regulating to a past guideline harvest level as contemplated by the 2003 regulation.
After the Court granted the preliminary injunction, the Secretary withdrew the 2008 rule. On
November 18, 2008, the Court dismissed Van Valin v. Gutierrez as moot. Van Valin v. Gutierrez,
587 F. Supp. 2d 118 (D.D.C. 2008).
B. Statutory and Regulatory Provisions
Under the Northern Pacific Halibut Act (the “Halibut Act”), 16 U.S.C. §§ 773-773k,
-2-
the Secretary has broad authority and discretion to “adopt such regulations as may be necessary to
carry out the purposes and objectives of the Convention and the Act.” Id. § 773c(b)(1); see 50
C.F.R. §§ 300.60 - 300.66. The “Convention” referred to is a U.S. - Canadian treaty, the Convention
for the Preservation of the Halibut Fishery of the Northern Pacific Ocean and Bering Sea, Ottawa,
1953, 5 U.S.T. 5, T.I.A.S. 2900 (as amended by the Protocol Amending Convention, Washington,
1979, 32 U.S.T. 2483, 2487, T.I.A.S. 9855). Under the Halibut Act, the International Pacific Halibut
Commission (“IPHC”), established by Convention, can recommend regulations regarding Northern
Pacific Halibut to the U.S. Secretaries of State and Commerce. 16 U.S.C. § 773c(c). If approved
by both Secretaries, the Secretary of Commerce promulgates the regulations via publication in the
Federal Register. Id.; 50 C.F.R. § 300.62.
The Halibut Act also provides the Northern Pacific Management Council (the
“Council”) with authority to recommend regulations to the Secretary to allocate harvesting privileges
among U.S. fishermen. 16 U.S.C. § 773c(c). The Halibut Act requires that allocation
determinations be fair and equitable. Id. Every year, the IPHC sets the annual total constant
exploitation yield (“Total CEY”), that is, the total amount of halibut that may be harvested by all
fishing sectors — commercial, sport (charter and unguided), and subsistence — in a given area in
a given year. 74 Fed. Reg. at 21194. The IPHC then subtracts estimates of all non commercial
removals (including sport, subsistence, bycatch, and waste) to determine the remainder. The
remainder constitutes the available commercial catch, i.e., the Fishery CEY. Id.
In 2003, the Council recommended that the Secretary adopt a guideline harvest policy
to use as a benchmark for monitoring the harvest of Pacific halibut. The Secretary adopted the policy
and promulgated a regulation, which provides that the guideline harvest level (“GHL”) may be
-3-
adjusted downward if the IPHC reduces the CEY. 68 Fed. Reg. 47256. The GHL regulations were
set up to follow and react to actual harvest figures, i.e., harvest restrictions would be adopted in the
year following a year that the GHL was exceeded. “Given the one-year lag between the end of the
fishing season and availability of that year’s harvest data, management measures in response to the
guided recreational fleet’s meeting or exceeding the GHL would take up to two years to become
effective.” Id. at 47276. “[I]f the GHL is exceeded in a given year, appropriate harvest reduction
measures would be imposed in following years to reduce harvests incrementally by the percentage
at which the previous year’s harvest exceeded the GHL.” 67 Fed. Reg. 3867, 3870 (GHL proposed
rule Jan. 28, 2002).
C. The Current Litigation
In recent years, the charter sector has exceeded its GHL in Area 2C by significant
margins: by 22% in 2004, by 36% in 2005, by 26% in 2006, and by 34% in 2007. 73 Fed. Reg. at
78277-78 (proposed rule);2 see 74 Fed. Reg. at 21203 (the charter sector harvest has increased by
107% between 1999 and 2005). Preliminary estimates are that the charter sector harvested more than
double the 2008 GHL. 73 Fed. Reg. 78277-78. While it has been the policy of the Council that the
charter sector should not exceed the GHL, no regulations have been imposed on the charter sector
limiting the charter harvest until the recently promulgated Final Rule. Only the commercial sector
has been subject to harvest limits. The commercial sectors’ limits have been reduced by 54%
between 2005 and 2009. 74 Fed. Reg. at 21207.
The lack of limits on the charter harvest did not pose a problem when the halibut
2
The Final Rule adopts a proposed rule published December 22, 2008, by NMFS at the
request of the Council. See 73 Fed. Reg. 78276 (Proposed Rule).
-4-
biomass was large and the non commercial harvest was small and stable. As part of the normal
cycle, the biomass of halibut is declining at this time; however, the charter harvest is escalating.
Accordingly, the Council recommended that the charter harvest be regulated, and that the Secretary
adopt the Final Rule at issue in this case. The Final Rule limits each charter sport fisherman to one
halibut per calendar day based on the GHL. 74 Fed. Reg. 21194.
The Complaint alleges three causes of action: (1) the Secretary violated the APA by
promulgating the Final Rule without analyzing whether the allocation of the halibut harvest in Area
2C was fair and equitable; (2) the Secretary violated the APA by unreasonably relying on old data
from 1995 through 1999 when it promulgated the GHL in 2003; and (3) the Secretary promulgated
the Final Rule in violation of the Halibut Act because the Final Rule does not provide a fair and
equitable allocation of the halibut harvest. Plaintiffs seek a preliminary injunction enjoining
enforcement of the Final Rule. The Court held a hearing on the motion on June 4, 2009, and denied
the motion for the reasons set forth in this Memorandum Opinion.
II. STANDARD OF REVIEW
A. Preliminary Injunction Factors
A court must consider four factors in deciding whether to issue a preliminary
injunction:
1. whether the movant has shown a substantial likelihood of success on
the merits;
2. whether the movant would suffer irreparable injury if the injunction
is not granted;
3. whether the issuance of a preliminary injunction would cause
substantial harm to other interested parties; and
-5-
4. whether the public interest would be served by the issuance of an
injunction.
Mova Pharm. Corp. v. Shalala, 140 F.3d 1060, 1066 (D.C. Cir. 1998). The foregoing factors should
be balanced on a “sliding scale,” i.e., a lesser showing on one factor can be surmounted by a greater
showing on another factor. CSX Transp., Inc. v. Williams, 406 F.3d 667 (D.C. Cir. 2005). Even so,
in order to justify intruding into the ordinary litigation process by issuing a preliminary injunction,
it is critical that a movant 1) make a substantial showing of likelihood of success on the merits, Am.
Bankers Ass’n v. Nat’l Credit Union Admin., 38 F. Supp. 2d 114, 140 (D.D.C. 1999), and 2) make
a showing of at least some injury. CityFed Fin. Corp. v. Office of Thrift Supervision, 58 F.3d 738,
746 (D.C. Cir. 1995). A preliminary injunction is “an extraordinary remedy that should be granted
only when the party seeking the relief, by a clear showing, carries the burden of persuasion.” Cobell
v. Norton, 391 F.3d 251, 258 (D.C. Cir. 2004).
B. Administrative Procedure Act
The APA requires a reviewing court to set aside an agency action that is “arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A);
Tourus Records, Inc. v. Drug Enforcement Admin., 259 F.3d 731, 736 (D.C. Cir. 2001). In making
this inquiry, the reviewing court “must consider whether the [agency’s] decision was based on a
consideration of the relevant factors and whether there has been a clear error of judgment.” Marsh
v. Oregon Natural Res. Council, 490 U.S. 360, 378 (1989) (internal quotation marks and citation
omitted). At a minimum, the agency must have considered relevant data and articulated an
explanation establishing a “rational connection between the facts found and the choice made.”
Bowen v. Am. Hosp. Ass’n, 476 U.S. 610, 626 (1986). An agency action usually is arbitrary or
-6-
capricious if
the agency has relied on 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 of U.S. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).
As the Supreme Court has explained, “the scope of review under the ‘arbitrary and
capricious’ standard is narrow and a court is not to substitute its judgment for that of the agency.”
Motor Vehicle Mfrs. Ass’n, 463 U.S. at 43; see Henley v. FDA, 77 F.3d 616, 621 (2d Cir. 1996).
Rather, the agency action under review is “entitled to a presumption of regularity” and the court must
consider only whether the agency decision was based on relevant factors and whether there has been
a clear error of judgment. Citizens to Pres. Overton Park, Inc. v. Volpe, 401 U.S. 402, 415 (1971),
abrogated on other grounds by Califano v. Sanders, 430 U.S. 99 (1977). In cases involving
scientific or technical decisions within the agency’s area of expertise, the agency is entitled to a
“high level of deference.” Serono Labs., Inc. v. Shalala, 158 F.3d 1313, 1320 (D.C. Cir. 1998).
Regarding fishery management decisions like the one at issue here, it is especially appropriate for
a court to defer to the agency’s choice of “appropriate conservation and management measures
based on [its] evaluations of the relevant quantitative and qualitative factors.” Nat’l Fisheries Inst.
v. Mosbacher, 732 F. Supp. 210, 223 (D.D.C. 1990).
III. ANALYSIS
A. Motion for Preliminary Injunction
Plaintiffs have made a clear showing of irreparable harm because they have received
cancellations of charter bookings for the 2009 season due to the one-fish limit, causing them great
-7-
monetary loss and threatening the very existence of their businesses. See, e.g., Pls.’s Mem. in Supp.
of Prelim. Inj. (“Pls.’ Mem.”), Ex. 3 (Van Valin Aff., indicating that 12 clients for 2009 season
cancelled and 42 regular clients declined to book). The charter fishing season is a three-month
season beginning on June 1. The Final Rule goes into effect on June 5. If the Final Rule is not
enjoined on or close to June 5, Plaintiffs may lose their businesses. The Secretary acknowledged the
Final Rule “is likely to have adverse impacts on charter business profitability in 2009 and that some
charter operators may fail or leave the business.” 74 Fed. Reg. at 21208.
Even so, in order to justify intruding into the ordinary litigation process by issuing
a preliminary injunction, Plaintiffs must make a substantial showing of likelihood of success on the
merits. See Am. Bankers, 38 F. Supp. 2d at 140. This they have failed to do.
First, Plaintiffs’ allegation that the Secretary violated the APA by promulgating the
Final Rule without analyzing whether the allocation of the halibut harvest in Area 2C was fair and
equitable is without merit. The Halibut Act does not require that the Secretary make a specific
finding regarding fairness and equity; the Act simply requires that any allocation be fair and
equitable. The Act provides:
If it becomes necessary to allocate or assign halibut fishing privileges
among various United States fishermen, such allocation shall be fair
and equitable to all such fishermen, based on the rights and
obligations in existing Federal law, reasonably calculated to promote
conservation, and carried out in such manner that no particular
individual, corporation, or other entity acquires an excessive share of
the halibut fishing privileges.
16 U.S.C. § 773c(c) (emphasis added).
Second, Plaintiffs have not made a substantial showing of likelihood of success on
the merits on their claim that the Final Rule is not fair and equitable, as it appears that the Secretary
-8-
considered the relevant factors and made a rational determination based on those factors. In
examining the administrative record, it is important to understand what the phrase “fair and
equitable” means under the statute. The Halibut Act’s requirement that any allocation be “fair and
equitable” refers to criteria set forth in the Magnuson-Stevens Fishery Conservation Act, 16 U.S.C.
§ 1853(b)(6). And under the Magnuson Act, NMFS can establish a limited access program to
achieve optimum yield in a fishery after taking into account the following factors:
(1) present participation in the fishery;
(2) historical fishing practices in, and dependence on, the fishery;
(3) the economics of the fishery;
(4) the capability of fishing vessels used in the fishery to engage in
other fisheries;
(5) the cultural and social framework relevant to the fishery and any
affected communities;
(6) the fair and equitable distribution of access privileges; and
(7) any other relevant considerations.
Id. § 1853(b)(6) (emphasis added).
National Standard Four of the Magnuson Act addresses allocation of fishing
privileges as follows:
If it becomes necessary to allocate or assign fishing privileges among
various United States fishermen, such allocation shall be (A) fair and
equitable to all such fishermen; (B) reasonably calculated to promote
conservation; and (C) carried out in such manner that no particular
individual, corporation, or other entity acquires an excessive share of
such privileges.
Id. § 1851(a)(4). Regulations implementing National Standard Four provide that the allocation of
-9-
fishing privileges should be rationally connected to the furtherance of a legitimate objective and
recognize that “[i]nherent in an allocation is the advantaging of one group to the detriment of
another.” 50 C.F.R. § 600.325(c)(3)(i)(A);3 accord Nat’l Fisheries, 732 F. Supp. at 225 (regulations
that made distinctions based on the type of gear used were fair and equitable even though they
imposed greater limits on commercial fishermen than on recreational fishermen). “[C]ourts have
declined to second-guess the Secretary’s judgment simply because the provisions of a [Fishery
Management Plan] or a plan allocation ‘have a greater impact upon’ one group or type of fishermen.”
North Carolina Fisheries Ass’n v. Gutierrez, 518 F. Supp. 2d 62, 89 (D.D.C. 2007) (citing Nat’l
Fisheries, 732 F. Supp. at 225).
For example, in National Coalition for Marine Conservation v. Evans, 231 F. Supp.
2d 119 (D.D.C. 2002), the plaintiffs challenged the closure of a fishing area, asserting that the
regulation was unfair to fishermen who owned smaller boats that could not travel beyond the closed
area. The court held that the regulation did not violate the equity requirement of National Standard
Four because NMFS had properly evaluated the benefits and costs imposed by the closure and had
compared the consequences with the status quo and alternative allocation schemes. Id. at 131-32.
Similarly, here the Secretary evaluated the benefits and costs imposed by the one-fish
bag limit. The Environmental Assessment (“EA”)4 for the Final Rule examined the economic impact
of the one-fish limit on the different groups involved in the halibut fishery including: charter boat
3
An allocation is considered equitable where a hardship imposed on one group is
outweighed by the benefits received by another. 50 C.F.R. § 600.325(c)(3)(i)(B).
4
The EA is the March 2009 Regulatory Impact Review/Final Regulatory Flexibility
Analysis/Environmental Assessment of the Regulatory Amendment to Implement Guideline
Harvest Level Measures in the Halibut Charter Fisheries in International Pacific Halibut
Commission Regulatory Area 2C, attached to the Complaint as Exhibit C.
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clients, full and half day providers, commercial longline operators, local residents, consumers, and
the public. EA at 31-45; id. at 48-49 (Comparative Chart); see also id. at 39 (illustrative table
estimating potential losses to the commercial sector over the next three years if the status quo is
maintained). The very purpose of this analysis was to evaluate the equities and the impact of the
one-fish bag limit and compare it to the status quo.
Further, the Final Rule reveals that the Secretary considered the allocation of the
halibut harvest. The Final Rule was promulgated specifically due to the Secretary’s concern
regarding allocation:
Harvests by charter vessel anglers exceeded the GHL in Area 2C each
year from 2004 to 2007, and the best available estimates indicate that
the 2008 GHL also was exceeded (Table 1 and Figure 1 of this
preamble). Harvests of halibut by the charter sector above its GHL
reduce the Fishery CEY. By reducing the amount of fish available to
the commercial sector, the charter harvests created an allocation
concern. Charter removals should be close to the GHL or the
methodology used by the IPHC to determine the Fishery CEY is
undermined and results in a de facto reallocation from the
commercial sector in subsequent years.
74 Fed. Reg. at 21194.5 Moreover, the issues of fairness and equity were raised and considered in
5
The preamble also indicates that the Final Rule was based on a conservation concern:
Charter vessel harvests in excess of the GHL also create a
conservation concern by compromising the overall harvest strategy
developed by the IPHC to conserve the halibut resource. The Total
CEY and the Fishery CEY have decreased each year since 2004
reflecting declines in the estimated halibut biomass. As the Total
CEY decreases, harvests of halibut should decrease to help
conserve the resource. Hence, the GHL is linked to the Total CEY
so that the GHL decreases in a stepwise fashion as the Total CEY
decreases. Despite a decrease in Total CEY and the GHL in recent
years, charter vessel harvests have remained high and in excess of
the GHL . . . raising the concern that such overharvesting by the
charter sector poses a conservation risk . . . .
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comments to the Final Rule. For example, Comment 46 alleged that the IPHC allocation procedures
that set the GHL violate fairness and equity, and the Secretary responded:
Any resource allocation policy likely will result in some resource
users feeling unfairly burdened with the costs of reducing their use of
the resource. As the halibut resource has declined in abundance in
Area 2C in recent years, the commercial longline fishery’s catch
limits have been substantially reduced from 10,930,000 lbs [ ] in 2005
to 5,020,000 lbs [ ] in 2009. This represents a 54 percent reduction
over four years. During part of this period (2005 through 2007)
charter vessel anglers in Area 2C have had record high levels of
harvest.
74 Fed. Reg. at 21207. The Secretary promulgated the Final Rule for the very purpose of addressing
fairness and equity — in order to address the imbalance caused by the de facto reallocation from the
commercial industry to the charter industry. Id. at 21214.
Third and finally, Plaintiffs have not shown likelihood of success on the merits of
their allegation that the Secretary violated the APA by unreasonably relying on old data from 1995
through 1999 when it promulgated the GHL in 2003. The Halibut Act does not indicate what type
of scientific evidence the Secretary should use in making allocation decisions. However, National
Standard Two of the Magnuson Act indicates that NMFS should use the “best scientific information
available.” 16 U.S.C. § 1851(a)(2). “Far from being rigid, the standard is a practical one requiring
only that fishery regulations be diligently researched and based on sound science, such that NMFS
is not obliged to rely upon perfect or entirely consistent data.” North Carolina Fisheries, 518 F.
Supp. 2d at 85 (citing The Ocean Conservancy v. Gutierrez, 394 F. Supp. 2d 147, 157 (D.D.C.
2005), aff’d 488 F.3d 1020 (D.C. Cir. 2007); internal quotation marks omitted). Courts have upheld
decisions made on the best available evidence, recognizing that some degree of speculation and
74 Fed. Reg. at 21194-95.
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uncertainty is inherent in the decision-making process. Id.
Comment 34 to the Final Rule asserted that the GHL “was set using incorrect,
inconsistent or dated information. . . . In order for present participation to be properly considered,
the Secretary would have to look at more recent catch data for guided anglers and commercial
harvesters . . . .” In response the Secretary explained:
NMFS disagrees that incorrect, inconsistent or dated information was
used for the GHL or this action. The Council and NMFS have used
the best information available at each step of the process, beginning
with the GHL, and continuing through this final rule. The Council
and NMFS analyzed and considered data . . . includ[ing] past and
present participation, historical dependence of various sectors on the
halibut resource, economic impacts of the action on various sectors,
cultural and social framework of the various sectors, impacts on other
fisheries, and other relevant considerations. . . . The commenter is
referred to the GHL analysis and the analysis that accompanies this
action for further details on the data considered in developing these
actions. The GHL analysis is available on the Council Web site at
http://www.fakr.noaa.gov/npfmc/current_issues/halibut_issues/hali
but.htm6 and the analysis for this action is available on the NMFS
A l a s k a R e g i o n W e b s i t e a t
http://www.alaskafisheries.noaa.gov/sustainablefisheries/halibut/ch
arters.htm.7
74 Fed. Reg. at 21204. As explained above, the EA for the Final Rule examined the economic
impact of the one-fish limit on the different groups involved in the halibut fishery. EA at 31-45; id.
at 48-49 (Comparative Chart). Further, the EA included recent data — data from 1995 through 2007
— regarding guided charter participation in the halibut fishery in Area 2C. Id. at 21 (Table 4). With
respect to this third allegation as well, Plaintiffs have failed to make a substantial showing of
likelihood of success on the merits.
6
A link to the EA for the 2003 GHL can be found here.
7
A link to the EA for the 2009 Final Rule can be found here.
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B. Motions for Intervention
On May 26, 2009, the following individuals and organizations moved to intervene
as defendants in this suit: (1) commercial fishermen Linda Behnken, Annah Taft Perry, Ryan
Nichols, Josh Moore, David Gibson, Sherri and Kurt Wohlhueter, and Christopher Knight; (2)
halibut processors Seafood Producers Cooperative, Halibut Association of North America, and North
Pacific Seafoods, Inc.; (3) subsistence fisherman Carolyn Heuer; (4) commercial and subsistence
fishermen of the Hoonah Indian Association; and (5) the local communities City of Pelican and City
of Port Alexander, which benefit from tax collections that arise from commercial earnings. See Mot.
to Intervene [Dkt. # 4]. Plaintiffs object to intervention for the purpose of challenging the
preliminary injunction, but not for the purpose of addressing the merits. The Secretary takes no
position with regard to the motion to intervene. Then, on June 12, 2009, the Metlakatla Indian
Community, which includes subsistence and commercial fishermen, filed a motion to intervene.
Plaintiffs and the Secretary take no position on the intervention of the Metlakatla Indian Community
and the other proposed intervenors do not oppose.
An applicant may intervene as of right when the applicant (1) makes a timely motion;
(2) has an interest relating to the property or transaction which is the subject of the action; (3) is so
situated that the disposition of the action may as a practical matter impair or impede the applicant’s
ability to protect that interest; and (4) where the applicant’s interests are not adequately represented
by the existing parties. Fed. R. Civ. P. 24(a); see also Sierra Club v. Van Antwerp, 523 F. Supp. 2d
5, 6 (D.D.C. 2007). A court, in its discretion, also may permit intervention where the applicant (1)
makes a timely motion; (2) has a claim or defense; and (3) that claim or defense shares with the main
action a common question of law or fact. Fed. R. Civ. P. 24(b); see also EEOC v. Nat’l Children’s
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Ctr., 146 F.3d 1042, 1046 (D.C. Cir. 1998).
When confronted with a substantially similar motion to intervene in the 2008
litigation, the Court allowed permissive intervention (and not intervention as of right) with regard
to the merits of this case and not with regard to the question of preliminary injunction. The Court
explained:
[T]he Court will not permit intervention for the purpose of
challenging the preliminary injunction for two reasons. First, the
motion to intervene was not timely with regard to the preliminary
injunction issue. The original motion was not filed until after the
temporary restraining order and only two days before the preliminary
injunction hearing. See, e.g., Doe v. Duncanville Ind. School Dist.,
994 F.2d 160, 167 (5th Cir. 1993) (district court properly denied
motion to intervene as untimely when it was filed two days before the
hearing on the motion for preliminary injunction). Second, the
motion to intervene does not establish standing to intervene with
regard to the preliminary injunction, as the Proposed Intervenors have
not shown that they would be negatively impacted by the preliminary
injunction. To demonstrate standing, a plaintiff must establish: “(1)
it has suffered an ‘injury in fact’ that is (a) concrete and particularized
and (b) actual or imminent, not conjectural or hypothetical; (2) the
injury is fairly traceable to the challenged action of the defendant; and
(3) it is likely, as opposed to merely speculative, that the injury will
be redressed by a favorable decision.” Friends of the Earth, Inc. v.
Laidlaw Envtl. Servs., 528 U.S. 167, 180-81 (2000) (citing Lujan v.
Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)).
Temporary injunctive relief in this case will not affect the
quota of halibut allocated to commercial fishermen in 2008. The total
allowable catch for the commercial sector was set by the International
Pacific Halibut Commission (“IPHC”) and the Secretary for the 2008
season, and a delay in the effectiveness of the Final Rule will have no
impact on the allowable harvest for the commercial sector for 2008.
See 73 Fed. Reg. 12280 (Mar. 7, 2008). Thus, the 2008 commercial
harvest will not be affected by the preliminary injunction. Therefore,
the halibut processors to whom the commercial fishermen sell fish
and the communities to whom they pay taxes will not be affected by
the preliminary injunction. Similarly, there is no showing that
Proposed Intervenor Carolyn Heuer, a subsistence fisherman, would
be impacted by the preliminary injunction. Neither the preliminary
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injunction nor the Final Rule affects subsistence fishermen.8
Van Valin v. Gutierrez, No. 08-941 (D.D.C.) (Order filed Aug. 19, 2008 [Dkt. # 30]).
Like in the 2008 case, permissive intervention is allowed with regard to the merits
and not the issue of preliminary injunction. The motions to intervene do not establish standing to
intervene with regard to the preliminary injunction because the proposed intervenors have not shown
that they would be negatively impacted by a grant or denial of preliminary injunction. Temporary
injunctive relief (or denial of such relief) will not affect the quota of halibut allocated to commercial
fishermen in 2009 because the total allowable catch for the commercial sector has been set for the
2009 season. Further, the IPHC has stated that if the one-fish rule does not become effective, it
would consider further regulations on the charter sector, not the commercial sector.9
Because the 2009 commercial harvest would not be affected by a preliminary
injunction, the halibut processors to which the commercial fishermen sell fish and the communities
to which they pay taxes will not be affected by the preliminary injunction. Similarly, there is no
showing that subsistence fishermen would be impacted by the grant or denial of a preliminary
injunction. The subsistence sector is treated like the recreational sector — the subsistence catch, the
sport catch, bycatch, and wastage are deducted from the CEY to arrive at the allowable commercial
catch. In the short term, the subsistence fishermen will not be affected by any limits, or lack thereof,
placed on the charter sector. Therefore, intervention will be permitted, limited to the merits of this
8
Subsistence harvests were not restricted by the 2008 rule. See 73 Fed. Reg. at 30518
(resp. to cmmt. 84).
9
The IPHC commented on what it might do if the one-fish rule were enjoined in its Jan.
20, 2009 News Release, available at http://www.iphc.washington.edu/halcom/newsrel/2009/
nr20090120.htm (last visited June 10, 2009).
-16-
case.
IV. CONCLUSION
For the reasons set forth above, Plaintiffs’ motion for preliminary injunction [Dkt.
# 2] is denied. The motions to intervene as defendants [Dkts. ## 4 & 10] are denied in part and
granted in part. Intervention is denied with regard to the question of a preliminary injunction, and
permissive intervention is granted with regard to the merits of this case. A memorializing order
accompanies this Memorandum Opinion.
Date: June 25, 2009 __________/s/______________________________
ROSEMARY M. COLLYER
United States District Judge
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385 F. Supp. 161 (1974)
UNITED STATES of America
v.
John N. MITCHELL et al., Defendants.
Crim. No. 74-110.
United States District Court, District of Columbia.
November 14, 1974.
Watergate Special Prosecution Force, Washington, D. C., James F. Neal, Associate Sp. Prosecutor, Jill Wine Volner, Peter A. Rient, Richard Ben-Veniste, George T. Frampton, Jr., Asst. Sp. Prosecutors, for plaintiff.
William S. Frates, Frates, Floyd, Pearson, Stewart, Proenza & Richman, Miami, Fla., for defendant John D. Ehrlichman.
OPINION
SIRICA, District Judge.
This matter comes before the Court on the proffer by the government of testimony by Fred Fielding concerning certain statements made to him by a previous government witness, John Dean, and the objection interposed by counsel for defendant John Ehrlichman to such testimony.
This question initially arose on Tuesday, November 5, 1974, when the government proposed to call Mr. Fielding to testify in order to rehabilitate Mr. *162 Dean. Mr. Ehrlichman's attorney vigorously objected and argued that such testimony would be "rank hearsay," and that it was clearly inadmissible in this case. The government's counsel offered to orally cite cases to support what he intended to do, but no explanatory memorandum had been submitted, and on the basis of the oral argument the objection was sustained. (Trans. 5388-5391.)
Since then the government has submitted memoranda specifically explaining the purpose for which Mr. Fielding will be called and citing legal authority to support this procedure. Likewise, counsel for Mr. Ehrlichman has submitted a memorandum setting forth the arguments and authorities in opposition to the admissibility of such testimony.
On direct examination, Mr. Dean testified to a conversation he had with defendant Ehrlichman on June 21, 1972. According to Dean, he was told by Mr. Ehrlichman at that time to "deep six" a briefcase containing electronic gear which had been found in the safe of E. Howard Hunt, but that he rejected this suggestion and subsequently persuaded Ehrlichman that it should be turned over to the F.B.I.
On cross-examination of Dean, counsel for Ehrlichman attempted to show that Dean's testimony about this episode was untrue. For example, Mr. Frates attempted to show that Dean knew the meaning of the term "deep six" without having to have Ehrlichman explain it to him. And in his opening statement, Mr. Frates asserted that the proof would refute the government's assertion that Ehrlichman had instructed Dean to "deep six" material from Hunt's safe and that Dean's credibility in this respect was suspect since he was "hard-bargaining for immunity" when he first accused Ehrlichman to the original prosecutors.
In order to refute the suggestion made by Mr. Frates that Dean's incriminating testimony was fabricated at a time when Dean was bargaining for immunity and was, therefore, motivated to lie about the involvement of "higher-ups," the government wants to introduce testimony from Fred Fielding to the effect that on or about June 21, 1972, Dean told him of Ehrlichman's instruction to "deep six" the evidence, and that Dean expressed concern about the wisdom of doing so.
The testimony of Mr. Fielding is offered by the government solely for the purpose of rebutting the suggestion that Dean's "deep six" testimony was untrue and to assist the factfinders in assessing his credibility.
Mr. Ehrlichman's counsel objects, contending that a distinction must be made between testimony offered to rehabilitate an impeached witness, and testimony offered to corroborate his testimony. He claims that impeachment of a witness gives rise to rehabilitation when the impeachment goes not to the truthfulness of the witness' testimony, but to the character or reputation of the witness for veracity. He also contends that Dean's out-of-court statement to Fielding that Ehrlichman told him to "deep six" the briefcase is offered for the truth of the contents of the statement, and is inadmissible hearsay. Mr. Frates maintains that the testimony is sought to corroborate Dean's testimony, and not to rehabilitate Dean's reputation.
Furthermore, he contends that when Dean made the alleged remark to Fielding, Dean was actively involved in the cover-up, and had a strong motive to falsify his remark to Mr. Fielding. Dean is alleged to have made other false statements during the same period of time that were attended by the same motivation. [Just what motive Dean had for lying to Mr. Fielding at that time is not made clear, however.] Mr. Ehrlichman also asserts that since Dean has admitted that he lied on several occasions, it is impossible to rehabilitate his reputation for veracity.
Rehabilitation evidence is allowed only when there is a need to rehabilitate. As both WEBSTER'S NEW INTERNATIONAL DICTIONARY (2d ed. 1957) and BLACK'S LAW DICTIONARY (4th ed. 1951) indicate, "rehabilitate" means: "To invest or *163 clothe again with some right, authority, or dignity; to restore to a former capacity; to reinstate; to qualify again."
It is thus essential that before one can rehabilitate, there must first have been an impeachment, a taking-away of dignity, a disqualification. And it is necessary that the proposed rehabilitation evidence be directed at the particular impeachment that occurred.
If the only reasons for allowing Fielding to testify about a prior consistent statement of Dean were the two reasons particularized in the government's memoranda (Mr. Frates' remark in his opening statement, and his reference on cross-examination to Dean's sailing experience) there would be good reason to agree with Mr. Ehrlichman's objection.
A remark in Mr. Frates' opening statement that he would refute the government's assertion that Ehrlichman told Dean to "deep six" the briefcase would not be enough, standing alone, to constitute a substantial impeachment of the later testimony of Dean, especially in this trial when the opening statements were all so very long, and Dean's testimony was so lengthy.
Nor would the fact that Mr. Frates briefly noted in his cross-examination of the witness Dean that the witness had once owned a sailboat, constitute a substantial impeachment of Dean's testimony that it was Ehrlichman, not he, who suggested that the evidence be "deep sixed." This reference to Dean's knowledge of nautical terms was brief (he was cut off by the Court), very subtle (it is possible that some jurors did not realize that the question implied that Dean had originated that term), and of minimal impeachment value (when compared with the weight and detail of the accusations made by Mr. Dean).
But a review of the transcript of Mr. Frates' entire cross-examination and re-cross-examination of the witness Dean supplies ample reason for admitting the prior consistent statement. (Trans. at 3662-3782 and 3839-3850.) During his cross-examination, Mr. Frates (1) stressed that the witness had hidden, concealed, and destroyed evidence and directed others to do the same; (2) emphasized that the witness had committed perjury, suborned perjury, taken advantage of others less knowledgable than himself, and had misused his legal abilities; (3) tried to show the witness had altered his testimony since he had first been interviewed by prosecutors; (4) impugned his honesty with regard to money Dean used which did not belong to him, implying that no I.O.U. check had been written to cover the money used; (5) implied the witness was not as opposed to the Liddy plan as he had suggested he was; (6) implied that the witness had omitted certain facts from his testimony for self-serving reasons; (7) implied that the words which the witness had ascribed to some defendants were actually the witness' own words; and most importantly, (8) directly raised the issue of "bargaining for immunity" to imply that the witness had a motive for implicating some of the defendants who were more notable public figures than himself, in order to get favored treatment. (Trans. at 3739-3740.)
In other words, defendant Ehrlichman, through his attorney, made a substantial, sustained attack on the credibility of the witness. Not only in the opening statement of Mr. Frates but also in his cross-examination he raised the issue that Dean's testimony was suspect because it was first given when he was "hard-bargaining for immunity."
Because Mr. Ehrlichman opened the door on cross-examination, the government should be allowed to call a witness who can allegedly testify that before Mr. Dean was bargaining for immunity, long before he had the motive suggested by Mr. Ehrlichman for fabricating his testimony, Mr. Dean made a prior consistent statement.
The present situation is quite similar to the situations in several cases cited in the government's memorandum. In United States v. Zito, 467 F.2d 1401 (2d Cir. 1972) the two appellants had been convicted of conspiracy to extort. At *164 trial the victim of a loan-sharking scheme, Mr. Doran, was called to testify about a loan, interest rates, threats, etc. Several other witnesses testified about statements Mr. Doran had made to them which paralleled his trial testimony about threats, etc.
The appellants asserted that this supportive testimony was inadmissible as mere corroborative testimony, but the trial court was upheld by the Court of Appeals which noted:
The defense attorney's opening statement to the jury and his persistent inquiries during the cross-examination reflected an intense interest in the fact that Doran had committed many crimes in his attempts to raise money for the Zitos [defendants] for which he had not been indicted. In this manner `the defense at least suggested to the jury that [the prosecution's principal witness] hoped for clemency for himself, and that his trial testimony was a fabrication, as a reward for which he hoped to go unwhipped of justice.' . . . A trial judge normally has great discretion in determining if a prior consistent statement is authorized to rebut a defense charge of recent fabrication, . . . and we cannot say here, in light of the obvious motive to falsify, that the trial judge erred in drawing the inference that the defense had suggested that Doran had concocted his story to escape punishment. Id. at 1404 (citations omitted).
Similarly, in United States v. DiLorenzo, 429 F.2d 216 (2d Cir. 1970), cert. denied, 402 U.S. 950, 91 S. Ct. 1609, 29 L. Ed. 2d 120 (1971), in appealing his conviction for interstate transportation of stolen securities and conspiracy, the appellant urged that it was error to allow into evidence testimony of a witness about a prior statement of a government witness. After the witness had testified that the appellant was his source of the stolen securities:
[T]he defense sought to impeach his credibility by showing that by his helpful testimony he was seeking leniency from the government in the pending sentencing on his conviction. In such a case, prior consistent statements may be used to rehabilitate a witness where under the circumstances it will be reasonably possible for the jury to say that the prior consistent statement did in fact antedate the motive disclosed on cross-examination. . . . The testimony was properly allowed into evidence, and the trial judge gave instruction limiting its purpose to the fact that the statement was made and not for the truth of the statement. Id., 429 F.2d at 220.
See also United States v. Rodriguez, 452 F.2d 1146 (9th Cir. 1972); United States v. DeLaMotte, 434 F.2d 289 (2d Cir. 1970), cert. denied, 401 U.S. 921, 91 S. Ct. 910, 27 L. Ed. 2d 825 (1971).
Furthermore, Volume IV WIGMORE ON EVIDENCE (Chadbourn rev. 1972) includes a section on this topic. Section 1128 indicates:
A consistent statement, at a time prior to the existence of a fact said to indicate bias, interest, or corruption, will effectively explain away the force of the impeaching evidence . . . . The former statements are therefore admissible. Id. at 268. (Italics in original.)
Therefore, it is this 14th day of November, 1974, by the Court
Ordered that defendant John Ehrlichman's objection to the admissibility of the testimony of Mr. Fred Fielding concerning a prior consistent statement made by John Dean be, and the same hereby is, overruled; and it is further
Ordered that the government submit to the Court prior to the appearance of Mr. Fielding a proposed instruction concerning the limited purpose for which his testimony may be received.
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________________
)
G. KEYS PC/LOGIS NP, et al., )
)
Plaintiffs, )
)
v. ) Civil Action No. 08-1413 (PLF)
)
MAISHA POPE, )
)
Defendant. )
__________________________________________)
MEMORANDUM OPINION
In their complaint plaintiffs allege various common law claims arising from their
consultancy on a home renovation project for the defendant. The matter is now before the Court
on defendant’s motion to dismiss or, in the alternative, to transfer the case to the Superior Court
of the District of Columbia. After a careful review of the complaint and the parties’ papers, the
Court concludes that it does not have subject matter jurisdiction over plaintiffs’ claims. It
therefore will transfer the case to the Superior Court.
Plaintiff G. Keys PC/LOGIS NP is a consulting company and plaintiff Gregg
Keys is the sole owner of G. Keys PC/LOGIS NP and a consultant for the company. See
Complaint ¶¶ 2, 3. Both are allegedly Missouri residents. See id. Defendant Maisha Pope, a
District of Columbia resident, allegedly entered into a contract with plaintiffs to oversee
renovation work on her home. See id. ¶¶ 8-11. Plaintiffs allege that after fourteen months of
work defendant suspended the project and halted further payments. See id. ¶ 25. Plaintiffs filed
suit in this Court for breach of contract, unjust enrichment, and trespass to chattels.
Defendant moves to dismiss the complaint or to transfer the case to the Superior
Court on two grounds: (1) the parties are not in fact diverse, and (2) there is a proceeding
pending before the District of Columbia Department of Regulatory Affairs regarding the same
alleged contract. Regardless of whether these arguments justify dismissal, the Court has
discerned a separate defect in plaintiffs’ complaint, the failure to allege the amount in
controversy necessary to give a federal court jurisdiction in a diversity action. This failing
requires the Court sua sponte to transfer the case to the Superior Court.
Federal courts are courts of limited jurisdiction, possessing only the power
conferred by the Constitution and by statutes enacted by Congress. See Kokkonen v. Guardian
Life Ins. Co. of America, 511 U.S. 375, 377 (1994); Loughlin v. United States, 393 F.3d 155,
170 (D.C. Cir. 2004). A federal court does not presume that a cause of action lies within its
limited jurisdiction. Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. at 377; Bush v.
Butler, 521 F. Supp. 2d 63, 70 (D.D.C. 2007). All plaintiffs bear the burden of establishing that
the Court has subject matter jurisdiction. See Price v. College Park Honda, Civil Action No.
05-0624, 2006 WL 1102818 at *6 (D.D.C. Mar. 31, 2006) (citing Rosenboro v. Kim, 994 F.2d
13, 17 (D.C. Cir. 1993)).
When it perceives that subject matter jurisdiction is in question, the Court should
address the issue sua sponte. See Prunte v. Universal Musical Group, 484 F. Supp. 2d 32, 38
(D.D.C. 2007) (citing Doe by Fein v. District of Columbia, 93 F.3d 861, 871 (D.C. Cir. 1996)
(noting that, because subject matter jurisdiction “goes to the foundation of the court’s power to
resolve a case, [] the court is obliged to address it sua sponte”)). “Subject-matter jurisdiction
cannot be forfeited or waived and should be considered when fairly in doubt.” Ashcroft v. Iqbal,
2
129 S. Ct. 1937, 1945 (2009). When considering the issue of subject matter jurisdiction, the
Court must accept all of the complaint’s well-pleaded factual allegations as true and draw all
reasonable inferences from those allegations in the plaintiffs’ favor. See Gov’t of Rwanda v.
Rwanda Working Group, 150 F. Supp. 2d 1, 4 (D.D.C. 2001).
The complaint in this case alleges that the Court’s jurisdiction is established by 11
D.C. Code § 921, 28 U.S.C. § 1331 and 28 U.S.C. § 1332. Section 1331, governing federal
question jurisdiction, is irrelevant because none of the claims in this case raise a federal question.
See Bush v. Butler, 521 F. Supp. 2d at 71 (“A federal district court does not have federal
question jurisdiction over state law torts.”). Nor does 11 D.C. Code § 921 provide a basis for
jurisdiction in this Court — it relates only to the jurisdiction of the Superior Court. More likely,
plaintiffs intended to assert federal jurisdiction based solely on diversity of citizenship under 28
U.S.C. § 1332. See Complaint ¶ 1 (“The matter in controversy exceeds, exclusive of interests
and costs, the sum specified by 28 U.S.C. § 1332.”).
The diversity statute, 28 U.S.C. § 1332, provides for federal jurisdiction over civil
actions between citizens of different states, but only where the amount in controversy, exclusive
of interest and costs, exceeds $75,000. See 28 U.S.C. § 1332(a). Plaintiffs do not allege
damages in an amount that meets this jurisdictional bar.1 Plaintiffs seek damages that total
1
It appears that plaintiffs’ counsel interpreted 11 D.C. Code §921(a)(2) as placing a
cap of $50,000 on the amount in controversy for civil cases over which the Superior Court had
jurisdiction, and thereby somehow created an independent basis for jurisdiction in the United
States District Court for the District of Columbia. Read in its entirety, however, Section 921
limited Superior Court jurisdiction with an amount in controversy cap of $50,000 only for the
first thirty months after the effective date of the Court Reorganization Act. See 11 D.C. Code
§ 921(a)(6) (“Immediately following the expiration of the thirty-month period beginning on such
effective date, the court has jurisdiction (regardless of the amount in controversy) of any civil
action or any other matter, at law or in equity, brought in the District of Columbia.”) (emphasis
3
$52,764.08, “plus interests, costs, and attorney’s fees, any and all additional damages that may be
incurred between the date of filing of the Complaint and trial, plus prejudgment interest, punitive
damages, and such other relief that this Court deems just and proper.” Complaint at 11.
Plaintiffs also demand return of the personal property which is the subject of Count III (trespass
to chattels) — namely, a ladder, a ShopVac machine with attachments, and an unopened, full
propane tank. See id. ¶ 42. These additional allegations do not raise the amount in controversy
from $52,764.08 to an amount above the $75,000 jurisdictional bar.
First, while the ladder, the ShopVac machine, and the propane tank certainly have
some value (although plaintiffs do not allege a precise amount), the dollar value of these
common pieces of construction equipment could not reasonably make up the approximately
$22,000 difference between plaintiffs’ alleged damages and the amount in controversy
requirement. Second, plaintiffs have not alleged what, if any, “additional damages” might occur
between the date on which the complaint was filed, less than a year ago, and trial. The Court will
not rely on the possibility of such speculative damages in determining whether plaintiffs have
met their burden to establish jurisdiction. See Breakman v. AOL, LLC, 545 F. Supp. 2d 96, 107
(D.D.C. 2008).
Third, courts in this district have determined that attorneys’ fees generally are not
included in an analysis of the amount in controversy, unless provided for by statute or contract.
See Breakman v. AOL, LLC, 545 F. Supp. 2d at 107; Wexler v. United Air Lines, 496 F. Supp.
2d 150, 154 (D.D.C. 2007); Griffin v. Coastal Int’l Sec., Inc., Civil Action No. 06-2246, 2007
added). The District of Columbia Court Reorganization Act of 1970, became law on July 29,
1970, see Pub. L. No. 91-358, 84 Stat. 473, and this thirty-month period therefore has long since
expired.
4
U.S. Dist. LEXIS 40041 at *8 (D.D.C. June 4, 2007); Brand v. Gov’t Emples. Ins. Co., Civil
Action No. 04-1133, 2005 U.S. Dist. LEXIS 44787 at *16-18 (D.D.C. Nov. 29, 2005); Srour v.
Barnes, 670 F. Supp. 18, 22 (D.D.C. 1987). Plaintiffs have not identified any statutory or
contractual basis for attorneys’ fees in this case, and the Court does not perceive any basis for
such in the allegations of the complaint.
Finally, plaintiffs mention a request for punitive damages as part of their desired
damage award. “Punitive damages may generally be included when calculating the amount in
controversy under 28 U.S.C. § 1332(a).” Wexler v. United Air Lines, 496 F. Supp. 2d at 154
(citing Nwachukwu v. Karl, 223 F. Supp. 2d 60, 66 (D.D.C. 2002)). “When the existence of
federal jurisdiction depends on a claim for punitive damages, the court should ‘scrutinize the
punitive damage claim to ensure that it has at least a colorable basis in law and fact. . . . Liberal
pleading rules are not a license for plaintiffs to shoehorn essentially local actions into federal
court through extravagant or invalid punitive damage claims.’” Hunter v. District of Columbia,
384 F. Supp. 2d 257, 261 (D.D.C. 2005) (quoting Kahal v. J.W. Wilson & Assocs., Inc., 673
F.2d 547, 548 (D.C. Cir. 1982)).
Plaintiffs allege causes of action both in tort and in contract. Punitive damages
typically are not available for a breach of contract. See Fireman’s Fund Ins. Co. v. CTIA, 480 F.
Supp. 2d 7, 12-13 (D.D.C. 2007). “Punitive damages may be awarded in a tort action if the
defendant’s tortious behavior is accompanied by ‘fraud, ill will, recklessness, wantonness,
oppressiveness, wilful disregard of the plaintiff's right, or other circumstances tending to
aggravate the injury.’” Hunter v. District of Columbia, 384 F. Supp. 2d at 261 (quoting Butera v.
District of Columbia, 235 F.3d 637, 657 (D.C. Cir. 2001)). Nowhere in plaintiffs’ complaint do
5
they allege fraud, ill will, recklessness, or any of the other aggravating factors necessary to make
an award of punitive damages appropriate. In fact, the only allegation related to punitive
damages in the complaint is the inclusion of an unquantified request in the catchall damage
demand. This vague allegation does not give plaintiffs’ claims for punitive damages a “colorable
basis in law,” Hunter v. District of Columbia, 384 F. Supp. 2d at 261, and is insufficient to meet
plaintiffs’ burden to establish jurisdiction.
For the foregoing reasons, the Court concludes that plaintiffs have not met the
amount in controversy requirement for diversity jurisdiction and that it therefore may not
exercise jurisdiction over plaintiffs’ claims. It will transfer the case to the Superior Court of the
District of Columbia. An Order accompanying this Memorandum Opinion will issue this same
day.
/s/____________________________
PAUL L. FRIEDMAN
United States District Judge
DATE: June 19, 2009
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________________
)
A.N.S.W.E.R. COALITION, )
)
Plaintiff, )
)
v. ) Civil Action No. 05-0071 (PLF)
)
KEN SALAZAR, )
Secretary of the Interior, et al., )
)
Defendants.1 )
__________________________________________)
MEMORANDUM OPINION AND ORDER
This matter is before the Court as a result of the parties’ dispute about the
meaning of the Court’s Memorandum Opinion and Order of November 14, 2008. By that
Opinion, the Court granted in part plaintiff’s motion to compel the defendants to provide
additional discovery under Rule 56(f) of the Federal Rules of Civil Procedure. See
A.N.S.W.E.R. Coalition v. Kempthorne, Civil Action No. 05-0071, Memorandum Opinion and
Order at 3 (Nov. 14, 2008) (the “Opinion”).
At a status conference on November 17, 2008, counsel for defendants requested
clarification about the requirements of the Opinion. Following the status conference, the Court
issued the following Minute Order:
As ordered at the November 17, 2008 status conference, on or
before November 19, 2008, defendants shall file copies of all
memoranda, e-mails, or other written documents issued to
1
The Court has substituted Ken Salazar, the current Secretary of the Interior, for
the former Secretary, Dirk Kempthorne, as a defendant in this case pursuant to Rule 25(d) of the
Federal Rules of Civil Procedure.
individuals charged with searching files at the Secret Service and
the Department of the Interior regarding the scope of the searches
that were to be conducted for documents relating to Count II of
plaintiff’s amended complaint. On or before November 26, 2008,
plaintiff shall file a notice identifying the perceived areas of
deficiency, if any, in these searches and the language it proposes be
used in memoranda to be issued to these individuals directing them
to conduct further searches in compliance with this Court’s
Memorandum Opinion and Order of November 14, 2008.
Defendants shall file a response to this notice on or before
December 2, 2008.
A.N.S.W.E.R. Coalition v. Kempthorne, Civil Action No. 05-0071, Minute Order (D.D.C. Nov.
18, 2008).
Defendants subsequently filed hundreds of pages of documents regarding the
scope of their searches. As required by the Court’s Minute Order, plaintiff then identified what it
saw as multiple areas of deficiency, and proposed its own directive for a supplemental search.
See Plaintiff’s Praecipe to the Court Pursuant to November 18, 2008 Minute Order. In their
Response to Plaintiff’s Praecipe, defendants argued that no further search should be required.
After reviewing its earlier Opinion as well as the parties’ filings, the Court maintains its position
that defendants must conduct additional searches; it also concludes, however, that the searches
plaintiff proposes are broader than the Court intended and not necessary under Rule 56(f) of the
Federal Rules of Civil Procedure.2
The essence of the parties’ discovery dispute is whether defendants have met their
discovery obligations with respect to Count II of plaintiff’s Amended Complaint by searching
2
Limited discovery is permitted under Rule 56(f) of the Federal Rules of Civil
Procedure when a party opposing summary judgment shows by affidavit or declaration that “for
specified reasons, it cannot present facts essential to justify its opposition.” FED . R. CIV . P. 56(f);
see also Bourbeau v. Jonathan Woodner, Co., 600 F. Supp. 2d 1, 3-4 (D.D.C. 2009).
2
only for documents that relate to the Secret Service’s decision to ban sign supports. In its earlier
Opinion the Court stated:
The Court’s Order of November 13, 2007, directing the defendants
to provide discovery under Rule 56(f), was not, as defendants
characterize it, limited to discovery relating to “the decision by the
Secret Service to ban supports for signs at the 2005 inauguration.”
. . . [T]he Court’s Order was broader, encompassing the
production of all documents respecting plaintiff’s “claims relating
to the prohibition of sign supports” at the 2005 Presidential
Inaugural Parade. . . .
Opinion at 1-2. The word “prohibition” connotes something much broader than a particular
“decision.” Through defendants’ filings, as well as in defendants’ counsel’s representations in
open court, it has become clear to the Court that defendants have not been willing to
acknowledge this distinction — a distinction between the decision by the Secret Service to ban
sign supports at the 2005 Inauguration and the full scope of plaintiff’s claims which are
embodied in Count II: Does the prohibition of sign supports violate the First Amendment and the
Equal Protection Clause? See A.N.S.W.E.R. Coalition v. Kempthorne, 537 F. Supp. 2d 183, 191
(D.D.C. 2008); see also Defendants’ Response to Plaintiff’s Praecipe to the Court (“Def. Resp.”)
at 3. Although documents uncovered as a result of a search for records relating to a decision
made by the Secret Service to ban sign supports may constitute a significant part of the discovery
that is relevant to the prohibition claim in Count II, such a search is not sufficient. Defendants
have yet to convince either plaintiff or this Court that they have not unduly limited the scope of
their search for responsive documents.
In addition, defendants do not account for the other two areas of deficiency
identified in the Court’s November 2008 Opinion. First, they do not address the Secret Service’s
3
failure to produce communications with various governmental entities and individuals. See
Opinion at 2. Such communications must be provided if they relate to plaintiff’s claims.
Second, defendants’ filings have yet to convince the Court that they have conducted adequate
searches for copies of the Presidential Advance Manual from October 2002. See Opinion at 3.
Defendants correctly point out that the Court did not grant plaintiff a whole new
bite at the discovery apple, see Def. Resp. at 2, and that many of the searches requested by
plaintiff in its Praecipe go beyond what the Court ordered or intended (for example, documents
relating to the 2001 Inauguration) and are otherwise overbroad. Therefore the Court will
eliminate subsections a, b, and f as well as the proposed search terms: “protest,” “protestor,”
“protester,” “demonstration,” “demonstrate,” “demonstrator,” and “parade” from plaintiff’s
proposed directive. In addition, it will direct the parties to meet and confer and attempt to agree
upon (1) a methodology for defendants’ searches that is consistent with this Memorandum
Opinion; (2) a list of files and electronic databases likely to contain responsive records and a list
of individuals likely to possess, have possessed or have responsibilities relating to the records to
be searched for and produced; and (3) a list of search directives that are likely to result in
documents relating to the prohibition on sign supports and plaintiff’s corresponding
constitutional claims in Count II, but that are not broader than the limited discovery provided for
by Rule 56(f) of the Federal Rules of Civil Procedure and by this Memorandum Opinion.
Accordingly, it is hereby
4
ORDERED that the Court will adopt in part the recommendations in plaintiff’s
Praecipe to the Court [82], and will order defendants to conduct additional searches, as described
in this Memorandum Opinion, utilizing the method and protocol described in the immediately
preceding paragraph; it is
FURTHER ORDERED that on or before July 2, 2009, the parties shall file a joint
written report to inform the Court of the expected deadline for the production of the documents
by defendants to plaintiff, as well as how the parties wish to proceed with the remainder of the
case.
SO ORDERED.
/s/_______________________
PAUL L. FRIEDMAN
United States District Judge
DATE: June 18, 2009
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
___________________________________
)
THOMAS W. WHALEN, )
)
Petitioner, )
)
v. ) Civil Action No. 09-0584
)
SUPERIOR COURT OF THE )
DISTRICT OF COLUMBIA, et al., )
)
Respondent. )
___________________________________ )
MEMORANDUM OPINION
Petitioner, a prisoner proceeding pro se, filed a “Petition Under the All Writs Act and
Habeas Corpus Jurisdiction” requesting that this Court require the D.C. Court of Appeals to act
consistent with the United States Supreme Court’s mandate in Whalen v. United States, 445 U.S.
684 (1980), declare that the Superior Court of the District of Columbia was without jurisdiction
to re-sentence him in 1981, and order the Superior Court to respond to his pending motion to
amend judgment. The Court construed the filing as a petition for a writ of habeas corpus
challenging the 1981 Superior Court sentence and dismissed it for lack of subject matter
jurisdiction based on the availability of a remedy in the form of a motion in the Superior Court
under D.C. Code § 23-110. See Whalen v. Superior Court, No. 09-0584, 2009 U.S. Dist. LEXIS
30204 (D.D.C. Apr. 9, 2009). Petitioner now seeks reconsideration of that decision, arguing that
(1) § 23-110 is an inappropriate remedy because he is not challenging his conviction or sentence,
and (2) federal courts have power to issue a writ of mandamus to enforce the Supreme Court’s
judgment.
In his original petition, petitioner alleged that following the Supreme Court’s reversal and
remand of the D.C. Court of Appeals’ decision in his state case, “the superior court of D.C.
violated the precedence of the supreme court and again issued an unconstitutional sentence by
running the two sentences consecutively.” (Petition at 2.) Thus, it seems clear that, despite his
protestations to the contrary, petitioner is in fact challenging his sentence. As this Court noted in
its prior opinion, challenges of this nature must be brought by motion in the Superior Court under
§ 23-110. Mandamus relief is inappropriate when, as here, another adequate remedy is available.
Council of & for the Blind of Del. County Valley, Inc. v. Regan, 709 F.2d 1521, 1533 (D.C. Cir.
1983) (en banc).
Even if that were not the case, however, this Court lacks jurisdiction to grant the
mandamus relief petitioner requests. It is well established that federal courts cannot review the
decisions of the District of Columbia courts. See In re Taylor, No. 04-7070, 2004 WL 2009373,
at *1 (D.C. Cir. Sept. 9, 2004) (per curiam) (denying petition for writ of mandamus “because this
court has no authority over the Superior Court of the District of Columbia”); In re Carter, No.
92-8033, 1992 WL 381041, at *1 (D.C. Cir. Dec. 2, 1992) (per curiam) (noting that the D.C.
Circuit “has no authority to issue a writ of mandamus directed to the Superior Court of the
District of Columbia”). “A challenge to an order or judgment of the Superior Court goes before
the District of Columbia Court of Appeals, . . . and this Court ‘is without authority to review
final determinations of the District of Columbia Court of Appeals in judicial proceedings.’”
Long-El v. Fenty, 593 F. Supp. 2d 50, 52 (D.D.C. 2009) (quoting D.C. Court of Appeals v.
Feldman, 460 U.S. 462, 476 (1983)).
2
For these reasons, the Court will deny petitioner’s motion for reconsideration. A separate
Order accompanies this Memorandum Opinion.
/s/
ELLEN SEGAL HUVELLE
United States District Judge
Date: June 15, 2009
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
IN RE PAPST LICENSING GMBH & CO. KG
LITIGATION
Misc. Action No. 07-493 (RMC)
MDL Docket No. 1880
This Document Relates To:
The First Wave Cases --
Fujifilm Corp. v. Papst, 07-cv-1118;
Matsushita Elec. Indus. Co., Ltd. v. Papst, 07-cv-1222;
Papst v. Olympus Corp., 07-cv-2086;
Papst v. Samsung Techwin Co., 07-cv-2088;
Papst v. Ricoh Co. Ltd., 07-cv-612;
Hewlett Packard Co. v. Papst, 08-cv-865; and
Papst v. Nikon Corp., 08-cv-985.
MEMORANDUM OPINION REGARDING CLAIMS CONSTRUCTION
Papst Licensing GMBH & Co. (“Papst”) acquired two patents from inventor Michael
Tasler and in this MDL has alleged that digital camera manufacturers that sell products in the United
States have infringed its patents. Pursuant to Markman v. Westview Instruments, Inc., 517 U.S. 370
(1996), the Court is required to construe the contested claims of the patents before a jury can
determine whether the accused products infringe.
I. FACTS
Papst alleges that the Camera Manufacturers1 (also referred to as “CMs”) infringe
1
This Opinion relates to the First Wave Cases listed in the caption. The Camera Manufacturers
who are parties in the First Wave Cases include: Fujifilm Corporation; Fujifilm U.S.A., Inc.; Fujifilm
Japan; Matsushita Electric Industrial Co., Ltd.; Victor Company of Japan, Ltd.; Olympus Corporation;
Olympus Imaging America Inc.; Samsung Techwin Co.; Samsung Opto-Electronics America, Inc.,
Panasonic Corporation of North America; JVC Company of America; Ricoh Corporation; Ricoh
Company Ltd.; Ricoh Americas Corporation; Hewlett-Packard Company; Nikon Corporation; and
Nikon, Inc.
two patents: U.S. Patent Nos. 6,470,399 (“ ’399 Patent”) and 6,895,449 (“ ’449 Patent”)
(collectively the “Patents”). The Court held a claims construction hearing on September 22 through
24, 2008, with the benefit of extensive briefing and arguments by Papst and the Camera
Manufacturers.2 For purposes of this MDL, Papst is treated as the plaintiff regardless of how any
individual lawsuit originated in its home court.
Papst is a German company, whose business is to acquire and enforce intellectual
property rights. That is, it acquires patents on products or methods invented by others and then
searches the world for products it might challenge for infringement. When faced with such a
challenge, the allegedly infringing party chooses whether (1) to enter into a licensing agreement and
pay royalties to Papst or (2) to take part in patent infringement litigation, either as a defendant in an
infringement suit seeking damages filed by Papst or as a plaintiff in a suit seeking declaratory
judgment of non-infringement against Papst. In this case, Papst acquired certain rights to the Patents
from the inventor, Michael Tasler. Papst then sought to negotiate license agreements with
manufacturers of digital cameras all over the world. When numerous manufacturers who sell digital
cameras in the United States refused to enter licensing agreements with Papst, Papst and the
manufacturers filed lawsuits against one another and this MDL ensued.
The invention at issue is a “Flexible Interface for Communication Between a Host
and an Analog I/O Device Connected to the Interface Regardless of the Type of the I/O Device.”
’399 Patent, Title; ’449 Patent, Title (lower case substituted). “In this title I/O means input/output
device,” Tr. 1:6 (Papst), but the I/O device is repeatedly referred to as a “data transmit/receive
2
The parties’ briefs include: Papst’s Markman Br. [Dkt. # 173]; CMs’ Markman Br. [Dkt.
# 188]; Papst’s Reply [Dkt. # 193]; and CMs’ Surreply [Dkt. # 197]. Citations to the transcript of
the Markman hearing are identified as “Tr. day #:page # (Party),” with days 1, 2, and 3 representing
the transcripts of September 22, 23, and 24, 2008, respectively.
-2-
device” in the Patents. See, e.g., ’399 Patent, col. 13:1-2 & col. 3:43-44 (stating “regardless of the
type of the data transmit/receive device attached”); ’449 Patent, col. 11:63-64 & col. 4:6-7 (same).
The invention was designed to provide fast data communication between an analog I/O device and
a digital computer (“host device”) by converting the analog data to digital, formatting it, and
transferring the data to the computer without the need for special software; this was accomplished
by telling the computer that the invented interface device was an I/O device already known to the
computer (and for which the computer already had drivers), regardless of what kind of data
transmit/receive device was attached to the interface device. ’399 Patent, Abstract; ’449 Patent,
Abstract. When the computer responded with a data request command, the interface device
interpreted the command as a data transfer request and forwarded the digitized data originating from
the analog data transmit/receive device. ’399 Patent, col. 13:9-13.3 “It is the object of the present
invention to provide an interface device for communication between a host device [computer] and
a data transmit/receive device whose use is host device-independent and which delivers a high data
transfer rate.” ’449 Patent, col. 3:20-23 (emphasis added); see ’399 Patent, col. 3:24-27 (“It is an
object of the present invention to provide an interface device for communication between a host
device and a data transmit/receive device whose use is host device-independent and which delivers
a high data transfer rate.”).
The ’399 Patent was issued on October 22, 2002, with an application date of March
3
The ’449 Patent Claims contain no similar provision expressing the transfer of data from
the data transmit/receive device through the interface device and to the computer. See ’449 Patent,
col. 12:1-7 (after the interface device signals that it is a customary storage device, the computer
“communicates with the interface device by means of the driver for the storage device customary”
in the computer and the interface device simulates a “virtual file system” to the computer); but see
id., col. 4:55-61 (the ’449 Patent specification mimics the specification for the ’399 Patent in
describing data transfer).
-3-
3, 1998; the ’449 Patent was issued on May 17, 2005, with an application date of August 15, 2002.
As of March 1998, when Mr. Tasler applied for the ’399 Patent, “interface devices themselves were
known but they had certain problems. . . . [T]o get these prior art interface devices to talk to
computers, they required these sophisticated drivers which were prone to malfunction and had poor
data transfer rates.” Tr. 1:5 (Papst).4 Another problem with the prior art was that “if you start[ed]
installing specific drivers for each piece of hardware that you add[ed] to the computer, these drivers
[could] start butting heads with each other . . . [and] [t]he computer crashe[d].” Id. 1:6 (Papst).
Drivers “are the software programs that are used by the computer[] to communicate with the
hardware that’s attached to the computer. So for each and every hardware device that you connect
to a computer there has to be a driver that allows the computer to communicate with that hardware
device. So when you attach[ed] these prior art interface devices, we [had] drivers that caused
problems.” Tr. 1:5 (Papst). However, all kinds of computers could “communicate with . . . very
common hardware devices such as hard disk drives” and printers. Id. 1:7 (Papst). “The present
invention is based on the finding that both a high data transfer rate and host device-independent use
can be achieved if a driver for an input/output device customary in a host device, normally present
in most commercially available host devices, is utilized,” instead of special software. ’399 Patent,
col. 4:23-27; see also ’449 Patent, col. 3:27-30 (same).
[T]o make his invention flexible [Mr. Tasler sought]
to simulate one of these customary devices [such as the hard
disk drive already on the computer] and be able to
communicate with the computer with the language that it
already knew and to in fact configure the data to simulate
files and file systems that the computers would expect to
see, [making the communication between the device and the
4
The Court here provides Papst’s explanation of prior art to explain the invention, but the
Court is not making any findings concerning the prior art.
-4-
computer] faster and more reliable.
He also saw that by not writing drivers, specific drivers
for his own interface device and instead causing the
computer to use the drivers that were supplied by the
computer makers that he would achieve a more reliable
invention, a more reliable data communication and in fact,
the drivers for certain of these devices such as the disk
drives were highly optimized for each operating system so
they worked very well and transferred data at a very fast rate
compared to the drivers for the known interface devices.
Also he made it easier to hook one of these up. He put
into the interface device the ability to respond to an inquiry
from a computer and generate a response that would cause
the computer to recognize it as a piece of hardware that [the
computer] already knew about and then by doing that [the
interface device] allowed the computer to install, recognize
and install the interface device without any input from the
person who is using the computer [because no special driver
was needed].
Tr. 1:7-8 (Papst).
To illustrate the nature of the invention at the claims construction hearing, Papst
showed a “prototype board” (an integrated circuit board) and “matched up” the devices on the
prototype board “that corresponded with some of the things that are shown” in Figure 2 of each
Patent. Id. 1:11 (Papst); see also id 1:19-20 (Papst). “[T]he circuit board itself was designed by Mr.
Tasler,” id. 1:13 (Papst), meaning that Mr. Tasler himself selected and arranged the configuration
and connections between the parts on the circuit board. Id. 1:13-14 (Papst). Papst noted calibration
relays on the right side of the board, suggesting the inputs, amplifiers, and sample and hold circuits
in Figure 2, where the interface device would be connected to the data transmit/receive device. Id.
1:11 (Papst). The prototype board also had a digital signal processor, an EEPROM (electrically
erasable programable read only memory) chip for non-volatile memory, and volatile random access
-5-
memory (RAM). Id. Volatile memory is no longer retained when the computer is turned off, while
non-volatile memory remains. Tr. 3:138 (Papst). In addition, a small computer system interface
(SCSI) chip was on the prototype board where the interface device would be connected to the
computer, in order to “generate[] the signals that actually communicate with the computer.” Id.
Under the ’399 Patent, the interface device was designed to “receive analog data and convert it to
digital data and put it in a form that [could] be transferred to the host computer.” Id. 1:21-22 (Papst).
Digitizing analog data was insufficient by itself; the interface device was also designed to achieve
“formatting it into a proper file, put[ting] it in a file system that the host computer [could]
recognize,” because, otherwise, “the standard driver, disk driver for a computer would not be able
to use that digital information.” Id. 1:22 (Papst). The ’449 Patent does not “recite that the interface
device has to receive analog data,” id. 1:21 (Papst), but “[w]ith respect to the [’]399 Patent, the
Patent [O]ffice thought they were patenting an interface device that received analog data and
processed it and provided it to a host computer. And that’s what the claims covered.” Id. 1:25
(Papst).
The ’399 and ’449 Patents share the same drawings and much of the same
specification. The ’449 Patent is a “continuation or divisional” patent that covers other aspects of
the invention and that “claims priority back to the 399 Patent.” Id. 1:27, 30 (Papst). The ’449 Patent
omits references to analog-to-digital conversion but “add[s] in the requirement that when it responds
to the inquiry command [from the computer], [the interface device] identifies itself as a storage
device.” Id. 1:29 (Papst).
“[T]he interface device . . . is configured by the processor and the memory. That
certainly suggests some software.” Id. 1:30 (Papst). In addition, the ’399 Patent references a “first
command interpreter” and a “second command interpreter,” both of which are “configured.” Id. 1:31
-6-
(Papst). Thus, at the Markman hearing, Papst asserted that the Patents have aspects of both a
hardware patent and a software patent. Id.; but see Papst’s Markman Br. at 2 (stating that the
interface device, “in the context of [the] patents-in-suit, is a hardware device that serves as a bridge
between a computer . . . and a data device that acquires or transmits data”).
The first Claim of each Patent contains most of the terms that need to be construed.
Claim One of the ’399 Patent states:
What is claimed is:
1. An interface device for communication between a host device,
which comprises drivers for input/output devices customary in a host
device and a multi-purpose interface, and a data transmit/receive
device, the data transmit/receive device being arranged for providing
analog data, comprising:
a processor;
a memory;
a first connecting device for interfacing the host device with the
interface device via the multi-purpose interface of the host device;
and
a second connecting device for interfacing the interface device with
the data transmit/receive device, the second connecting device
including a sampling circuit for sampling the analog data provided by
the data transmit/receive device and an analog-to-digital converter for
converting data sampled by the sampling circuit into digital data,
wherein the interface device is configured by the processor and the
memory to include a first command interpreter and a second
command interpreter,
wherein the first command interpreter is configured in such a way that
the command interpreter, when receiving an inquiry from the host
device as to a type of a device attached to the multi-purpose interface
of the host device, sends a signal, regardless of the type of the data
transmit/receive device attached to the second connecting device of
the interface device, to the host device which signals to the host
-7-
device that it is an input/output device customary in a host device,
whereupon the host device communicates with the interface device
by means of the driver for the input/output device customary in a host
device, and
wherein the second command interpreter is configured to interpret a
data request command from the host device to the type of
input/output device signaled by the first command interpreter as a
data transfer command for initiating a transfer of the digital data to
the host device.
’399 Patent, col. 12:41-67 & col. 13:1-13.
Claim One of the ’449 Patent states:
What is claimed is:
1. An interface device for communication between a host device,
which comprises drivers for input/output devices customary in a host
device and a multi-purpose interface, and a data transmit/receive
device comprising the following features:
a processor;
a memory;
a first connecting device for interfacing the host device with the
interface device via the multi-purpose interface of the host device;
and
a second connecting device for interfacing the interface device with
the data transmit/receive device,
wherein the interface device is configured by the processor and the
memory in such a way that the interface device, when receiving an
inquiry from the host device as to the type of a device attached to the
multi-purpose interface of the host device, sends a signal, regardless
of the type of the data transmit/receive device attached to the second
connecting device of the interface device, to the host device which
signals to the host device that it is a storage device customary in a
host device, whereupon the host device communicates with the
interface device by means of the driver for the storage device
customary in a host device, and
-8-
wherein the interface device is arranged for simulating a virtual file
system to the host, the virtual file system including a directory
structure.
’449 Patent, col. 11:45-67 & col. 12:1-6.
II. LEGAL STANDARDS
A. Claims Construction Principles Generally
The “claims” of a patent are those descriptions of the invention that are numbered and
follow the introductory phrase, “[w]hat is claimed.” An understanding of a patented invention must
start and end with the claims themselves which identify and distinguish the inventor’s invention.
To determine whether a patent claim has been infringed, a court must undertake a two-step process.
The court first construes or interprets each contested claim, or phrase or word within a claim, to
determine its meaning and scope; only afterward are the claims compared to the accused device(s).
O.I. Corp. v. Teckmar Co. Inc., 115 F.3d 1576, 1580 (Fed. Cir. 1997). This litigation is at the first
stage of this process.
The interpretation of patent claims is exclusively a question of law. Markman, 517
U.S. 370. In claims construction, a court must interpret the words of each contested claim from the
perspective of one skilled in the art at the time of invention, in light of the patent documents and the
prosecution history. Phillips v. AWH Corp., 415 F.3d 1303, 1313 (Fed. Cir. 2005). Words in the
claims of a patent are given their ordinary and customary meaning, that is, the meaning that the term
would have had to a person of ordinary skill in the pertinent art at the time of the invention. Id. at
1312-13. “[T]he ‘ordinary meaning’ of a claim term is its meaning to the ordinary artisan after
reading the entire patent.” Id. at 1314. Although words are generally given their ordinary meaning,
“a patentee may choose to be his own lexicographer and use terms in a manner other than their
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ordinary meaning, as long as the special definition of the term is clearly stated in the patent
specification or file history.” Vitronics Corp. v. Conceptronics Inc., 90 F.3d 1576, 1582 (Fed. Cir.
1996). When a specification expressly defines terms or defines terms by implication, the
specification will be held to limit the claims accordingly. Phillips, 415 F.3d at 1321. Phillips
discredited the approach of prior cases holding that claim terms were to be given the broadest
possible ordinary meaning and that the specification should only be consulted for a clear disavowal
of such meaning. Id. at 1319-21. The Phillips court reasoned that this approach resulted in unduly
expansive claim construction and improperly restricted the role of the specification in claim
construction. Id. (disavowing Texas Digital Systems, Inc. v. Telegenix, Inc., 308 F.3d 1193 (Fed.
Cir. 2002) and cases following its approach).
Claim construction should be undertaken independent of any consideration of how
the claims may or may not be read on the accused product. SRI Int’l v. Matsushita Elec. Corp. of
Am., 775 F.2d 1107, 1118 (Fed. Cir. 1985). “[C]laims are not construed to ‘cover’ or ‘not to cover’
the accused device. That procedure would make infringement a matter of judicial whim.” Id.; see
also Wilson Sporting Goods Co. v. Hillerich & Bradsby Co., 442 F.3d 1322, 1326-27 (Fed. Cir.
2006) (the court should not prejudge the infringement analysis by construing claims with an aim to
include or exclude a particular product, but knowledge of the accused product is helpful to provide
context and focus).
In construing a claim, a court starts with the intrinsic evidence of its meaning — the
claims, the specification, and the prosecution history. Vitronics, 90 F.3d at 1582; see Pitney Bowes
Inc. v. Hewlett-Packard Co., 182 F.3d 1298, 1305 (Fed. Cir. 1999) (the starting point for claim
interpretation must be the claims themselves). The “prosecution history” of a patent is the complete
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public record of the proceeding before the U.S. Patent and Trademark Office (“PTO”). Phillips, 415
F.3d at 1317. The public record includes the original application and any claim amendments and
explanations made by the applicant. Vitronics, 90 F.3d 1582. For example, a patent applicant may
limit claims during prosecution by modifying claim language to overcome examiner rejection, by
distinguishing a reference, or by disavowing claim coverage. Omega Eng’g Inc. v. Raytek Corp.,
334 F.3d 1314, 1323-25 (Fed. Cir. 2003). The specification of a patent “must include a written
description of the invention or discovery and of the manner and process of making and using the
same, and is required to be in such full, clear, concise, and exact terms as to enable any person
skilled in the art or science . . . to make and use the same.” PTO Rules § 1.71(a). “The specification
must set forth the precise invention . . . in such a manner as to distinguish it from other inventions
and from what is old.” Id. § 1.71(b). The specification is the “single best guide to the meaning of
a disputed term.” Vitronics, 90 F.3d 1582.
The Federal Circuit has recognized a fine line between reading a claim in light of the
specification and reading a limitation into a claim from the specification. Phillips, 415 F.3d at 1323.
The former is appropriate and necessary; the latter constitutes error. Id. For example, a discussion
in a specification of a particular embodiment of an invention does not normally confine the invention
to that particular embodiment. Id. (citing Nazomi Comm., Inc. v. ARM Holdings, PLC, 403 F.3d
1364, 1369 (Fed. Cir. 2005)). “To avoid importing limitations from the specification into the claims,
it is important to keep in mind that the purposes of the specification are to teach and enable those
of skill in the art to make and use the invention and to provide a best mode for doing so.” Id. at
1323. Usually the specification clearly states whether it is setting out specific examples of the
invention or whether the patentee intends the embodiments in the specification to be coextensive
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with the claims. Id. A court does not improperly read a limitation into a claim where the claim
contains the term and the court looks to the specification for a definition of the term, even if that
definition is set forth in a preferred embodiment. Curtiss-Wright Flow Control Corp. v. Velan, Inc.,
438 F.3d 1374, 1378-80 (Fed. Cir. 2006) (claim limited by the term “adjustable” and specification
defined term).
Courts may not redraft claims to make them operable or to sustain their validity. Chef
America, Inc. v. Lamb-Weston, Inc., 358 F.3d 1371, 1374 (Fed. Cir. 2004). However, “[w]hen
claims are amenable to more than one construction, they should when reasonably possible be
interpreted so as to preserve their validity.” Modine Mfg. Co. v. U.S. Int’l Trade Comm’n, 75 F.3d
1545, 1557 (Fed. Cir. 1996).
B. Use of Expert Testimony
Expert testimony regarding the construction of claim terms is outside the claims, the
specification, and the prosecution history and is, therefore, extrinsic to those vital sources of
information. If the intrinsic information from those sources is unambiguous or sufficient for claims
construction, a court should not rely on extrinsic evidence, such as expert testimony, to determine
the meaning of the claims. Boss Control, Inc. v. Bombardier, Inc., 410 F.3d 1372, 1377 (Fed. Cir.
2005); Bell & Howell Doc. Mgmt. v. Altek Sys., 132 F.3d 701, 706 (Fed. Cir. 1977). That is,
extrinsic evidence may not be “used to vary claim terms from how they are defined, even implicitly,
in the specification or file history.” Vitronics, 90 F.3d 1584-85. However, extrinsic evidence may
be considered for the purpose of:
(1) providing background on the technology;
(2) explaining how an invention works;
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(3) ensuring that the court’s understanding of the technical aspects
comports with that of a person skilled in the art; and/or
(4) establishing that a particular term in the patent or prior art has a
particular meaning in the relevant field.
Phillips, 415 F.3d at 1318. Whether to admit extrinsic expert testimony lies in a court’s discretion.
Inpro II Licensing, S.A.R.L. v. T-Mobile USA, Inc., 450 F.3d 1350, 1357 (Fed. Cir. 2006); Serio-US
Indus., Inc. v. Plastic Recovery Tech. Corp., 459 F.3d 1311, 1319 (Fed. Cir. 2006). If admitted,
expert testimony must be considered in the context of the patent and the file history. Phillips, 415
F.3d at 1319.
In this case, the Court held a tutorial hearing on September 3, 2008, prior to the
Markman hearing. At the tutorial, the Court heard and admitted evidence from experts falling under
the first three categories identified in Phillips. Papst also sought to admit expert evidence for the
purpose of the claims construction hearing. Papst submitted with its opening brief the declaration
of an expert, C. Douglass Locke, Ph.D. See Papst’s Markman Br., Ex. C. Because the intrinsic
evidence — the claims, the specification, and the prosecution history — provide the full record
necessary for claims construction, the Court did not admit expert testimony at the Markman hearing.
To the extent that Papst relies on the Locke Declaration for the definition of the claims in the Patents,
see Papst’s Markman Br. at 21-24, the Court will disregard the Declaration.
III. ANALYSIS
The Camera Manufacturers have asked the Court to construe a series of terms from
the Patents. Papst approached the Markman briefing with a less specific (and less helpful) analysis
that combined terms and concepts directed more to the accused cameras than to the invention itself.
The task is made more difficult because the invention was never, as far as the record reveals, actually
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manufactured or used as contemplated by the inventor. The Court directed argument at the hearing
to follow the order of terms identified by the Camera Manufacturers in Exhibit R to their opening
Markman Brief [Dkt #188] and thereafter to address a few additional terms proposed for
construction by Papst (some of the latter are no longer at issue). Thus, the Court construes the
following terms from the Patents:
A. “interface device”
B. “host device”
C. “data transmit/receive device”
D. “for communication between [the host device and the data transmit/receive
device]”
E. “multi-purpose interface”
F. “interfacing”
G. “a first connecting device for interfacing the host device with the interface device
via the multi-purpose interface of the host device”
H. “second connecting device for interfacing the interface device with the data
transmit/receive device”
I. “first command interpreter” and “sends a signal regardless of the type of data”
J. “second command interpreter”
K. “wherein the interface device is configured by the processor and memory to
include a first command interpreter and a second command interpreter”
L. “inquiry” and “inquiring”
M. “the driver”
N. “an input/output [storage] device customary in a host device”
O. “the driver for the input/output [storage] device customary in a host device”
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P. “the usual driver for the input/output [storage] device”
Q. “whereupon the host device communicates with the interface device by means of
the driver for the input/output [storage] device customary in a host device”
R. “the digital data”
S. buffer terms — “a buffer to buffer data to be transferred between the data
transmit/receive device and the host device” and “a data buffer for permitting
independence in terms of time of the data transmit/receive device attachable to the
second connecting device from the host device”
T. “virtual files”
U. “simulating a virtual file system”
V. “specific driver for the multi-purpose interface”
W. “digital signal processor”
X. “memory”
Y. “root directory” and “processor”
Z. Claim Two of the ’399 Patent
A. “interface device”
The Camera Manufacturers propose that the term “interface device” be construed to
mean “a stand-alone device that a user can readily physically connect to and disconnect from a host
device and a data transmit/receive device and that directs communication between these devices
when they are connected.” Tr. 1:104 (CMs). They assert that the invented “interface device” is for
communicating between a host device and a data transmit/receive device, i.e., the invention is neither
the host nor the data transmit/receive device, but rather a separate device that enables active
communication between the other two. Papst retorts that “interface device” should be construed to
mean the structure defined in the body of the Claims and that nothing in the Claims requires the
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interface device to be separate from the data transmit/receive device.5
Claim One of the Patents contains a preamble that limits the Claim. Claim One of
the Patents states:
What is claimed is:
1. An interface device for communication between a host device,
which comprises drivers for input/output devices customary in a host
device and a multi-purpose interface, and a data transmit/receive
device, the data transmit/receive device being arranged for providing
analog data, comprising:
a processor;
a memory;
a first connecting device . . .; and
a second connecting device . . . .
’399 Patent, col. 12:41-53 (emphasis added); ’449 Patent, col. 11:45-57(same). The preamble to
Claim One is the portion in italics above. Papst asserts that the term “interface device” as set forth
in the preamble does not limit the Claim and thus the term should not be construed by the Court.
Specifically, Papst contends that the preamble uses the words “[a]n interface device . . . comprising,”
thereby indicating that the invention is defined in the body of the Claim, i.e., “a processor; a
memory; a first connecting device . . . ; and a second connecting device . . . .” ’399 Patent, col.
12:48-54; ’449 Patent, col. 11:51-57. Papst further argues that to construe the term “interface
5
Papst recognizes that the data transmit/receive device may be separate from the interface
device. It appears to argue, however, that according to the invention the interface device and the data
transmit/receive device could be in a single device. See Tr. 1:123 (Papst) (“[T]he data
transmit/receive device, you know, that’s the part that doesn’t have to be part of the interface device.
. . . [T]his claim would be infringed whether or not you include the data transmit/receive device in
the final product.”). Papst does not contend that the interface device could be inside the chassis of
the host device, the computer.
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device” in the preamble would be to improperly import limitations from the specification into the
Claim. See Phillips, 415 F.3d at 1323.6
The preamble to Claim One serves as a claim limitation for three reasons. First, “[i]f
the claim preamble, when read in the context of the entire claim, recites limitations of the claim, or
if the claim preamble is necessary to give life, meaning, and vitality to the claim, then the claim
preamble should be construed as if in the balance of the claim.” Pitney Bowes, 182 F.3d at 1305
(internal quotation omitted). In these Patents, the preamble is limiting because it describes structures
that comprise the invention and the relationships among those structures: “An interface device for
communication between a host device . . . and a data transmit receive device.” See ’399 Patent, col.
12:42-45; ’449 Patent, col. 11:46-49.
Second, where a preamble provides an antecedent basis for terms found in the body
of the claims, it acts as a “necessary component of the claimed invention” and serves as a claim
limitation. Bicon, Inc. v. Straumann Co., 441 F.3d 945, 952-53 (Fed. Cir. 2006). Here, the body of
the Patents repeatedly refers back to the structures first identified in the preamble by using the word
“the” and thus incorporates the terms by reference. See, e.g., ’399 Patent, col. 12:50-52 (“a first
connecting device for interfacing the host device with the interface device . . . .”); ’449 Patent, col.
11:53-55 (same).
Third, where a preamble is used during prosecution of the patent to distinguish prior
art, the preamble may serve as a claim limitation. In re Cruciferous Sprout Litig., 301 F.3d 1343,
1347 (Fed. Cir. 2008). In the prosecution history for the ’399 Patent, Mr. Tasler distinguished prior
6
Despite its position that the term “interface device” should not be construed, Papst concedes
that the terms “host device” and “data transmit/receive device” which are also found in the preamble
“may benefit from further explanation because some actual claim elements are defined in terms of
their relationship to those terms.” Papst’s Markman Br. at 15.
-17-
art (the McNeil patent, U.S. Patent No. 5,499,378) by amending the preamble to state “. . . and a
data transmit/receive device, the data transmit/receive device being arranged for providing analog
data . . . .” CMs’ Markman Br., Ex. C (“ ’399 File History”) at 4-7 (underlined in original to show
additional phrase). The preamble, as amended to distinguish prior art, serves as a claim limitation.
In sum, because the preamble describes the structure of the invention and gives
meaning to Claim One, it must be interpreted as a claim limitation. Accordingly, the term “interface
device” as used in the preamble should be construed.
The body of Claim One of the Patents indicates that the “interface device” is a stand-
alone device. The ’399 Patent describes the communication (via the interface device) between a host
device and a data transmit/receive device as involving a first command interpreter that, when asked
by the computer “as to a type of a device attached to the multi-purpose interface of the host device
[computer], sends a signal, regardless of the type of the data transmit/receive device attached to the
second connecting device of the interface device . . . that it is an input/output device customary in
a host device.” ’399 Patent, col. 12:66-67 & col. 13:1-5. The ’449 Patent is similar:
the interface device is configured by the processor and the memory in such
a way that the interface device, when receiving an inquiry from the host
device as to the type of a device attached to the multi-purpose interface of
the host device, sends a signal, regardless of the type of the data
transmit/receive device attached to the second connecting device of the
interface device, to the host device which signals to the host device that it
is a storage device customary in a host device . . . .
’449 Patent, col. 11:59-67. In both Patents, the language “regardless of the type of the data
transmit/receive device attached” strongly indicates that various kinds of data transmit/receive
devices could be attached and that, therefore, the interface device was neither a permanent part of
the data transmit/receive device nor of the host device/computer.
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Similar language is repeated throughout both Patents. See, e.g., ’399 Patent, Title,
Abstract & col. 3:43-44 (“regardless” language); ’449 Patent, Title, Abstract & col. 4:6-7 (same);
see also ’399 Patent, col. 3:24-27 (“It is an object of the present invention to provide an interface
device for communication between a host device and a data transmit/receive device whose use is
host device-independent . . . .”); ’449 Patent, col. 3:20-23 (“It is the object of the present invention
to provide an interface device for communication between a host device and a data transmit/receive
device whose use is host device-independent . . . .”) (emphasis added).
That the data transmit/receive device must be a separate device from the invention
is not mere happenstance but an integral aspect of what was invented. Whatever uncertainty on this
point may exist after studying the Claims is eliminated upon a review of the specification. The
specification always describes three separate devices: the computer, the data transmit/receive device
(an I/O device), and the interface device. See, e.g., ’399 Patent, Title, Abstract, col. 1:1-14, col.
3:25-28, col. 5:30-32, col. 5:47-63, Figs. 1-2 and accompanying text; ’449 Patent, Title, Abstract,
col. 1:1-17, col. 3:21-23, col. 4:35-36, col. 4:40-63, Figs. 1-2 and accompanying text; see also ’399
Patent, col. 5:56-60 (describing Figure 1 as showing that the “second connecting device can be
attached by means of an output line 16 to a data transmit/receive device which is to receive data from
the host device or from which data is to be read, i.e. acquired, and transferred to the host device.”);
’449 Patent, col. 4:55-59 (same).
As explicitly explained in the specification, one of the problems with prior art, when
attached “to a device whose data is to be acquired,” was that “it is often very difficult to implement
such interfaces for portable systems and they offer few possibilities for adaptation with the result
that such systems offer little flexibility.” ’399 Patent, col. 1:21-22 & 31-34 (emphases added); ’449
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Patent, col. 1:22-23 & 32-35 (same). And yet portability and flexibility were critical because “[t]he
devices from which data is to be acquired cover the entire electrical engineering spectrum.” ’399
Patent, col. 1:34-35; ’449 Patent, col. 1:35-36. “[A]n interface may be put to totally different uses.
It is therefore desirable that an interface be sufficiently flexible to permit attachment of very different
electrical or electronic systems to a host device by means of the interface.” ’399 Patent, col. 1:56-59
(emphasis added); ’449 Patent, col. 1:57-60 (same).
The invention was designed to answer these shortcomings of prior art and to provide
a “flexible interface” that would allow communication between a computer and “an analog I/O
device . . . regardless of the type of the I/O device.” ’399 Patent, Title; ’449 Patent, Title. The
specification touts the “enormous” benefit of allowing communication between a computer and
many different types of data transmit/receive devices:
In the interface device according to the present invention an
enormous advantage is to be gained, as apparent in the embodiment
described in the following, in separating the actual hardware required
to attach the interface device 107 to the data transmit/receive device
from the communication unit . . . as this allows a plurality of
dissimilar device types to be operated in parallel in identical manner.
’399 Patent, col. 8:23-31 (emphases added); ’449 Patent, col. 7:23-31 (same). It is well-settled that
“[w]hen a patent thus describes the features of the ‘present invention’ as a whole, this description
limits the scope of the invention.” Verizon Servs. Corp. v. Vonage Holdings Corp., 503 F.3d 1295,
1308 (Fed. Cir. 2007). The description in the specification, therefore, necessarily limits the scope
of the ’399 and ’449 Patents when it refers to the enormous advantage of “the present invention,”
7
At times, the specification refers to the invention, its various components, and the devices
to which it connects by numbers shown in Figure One as follows: interface device 10; host device
11; first connecting device 12; digital signal processor 13; memory 14; second connecting device 15;
and data transmit/receive device 16. See ’399 Patent, Sheet One; ’449 Patent, Sheet One.
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to allow a plurality of dissimilar input/output devices to be accessed.
The specification also explains that the interface device provides a “universal
solution” without regard to the types of data transmit/receive devices from which data may be
acquired. ’399 Patent, col. 12:37-40 (“The interface device 10 thus provides a universal solution
which can cover the entire spectrum of possible data transmit/receive devices.”); ’449 Patent, col.
11:41-44 (same). Examples of transmit/receive devices that can be connected to a computer via the
interface device include a “diagnostic radiology system in a medical engineering environment” and
a “multimeter.” ’399 Patent, col. 1:34-54; ’449 Patent, col. 1:35-55. The specification also notes
the advantage to users of the interface device that they can obtain data from almost any data transmit/
receive device with little prior knowledge:
By creating and editing a configuration file, normally a text file which
is simple to understand with little prior knowledge, users of the
interface device 10 are able to perform essentially identical operator
actions for almost any data transmit/receive devices which can be
attached to the second connecting device via the line 16, thus
eliminating a source of error arising from users having to know many
different command codes for different applications.
’399 Patent, col. 7:37-45; ’449 Patent, col. 6:37-45; see also ’399 Patent, col. 1:34-46 (explaining
that the interface device could be used to simplify the data read/acquisition work of field
technicians); ’449 Patent, col. 1:35-47 (same).
As one learns from studying the Patents, the purpose of the invention was to allow
fast communication between dissimilar data transmit/receive devices and computers, without the
need for special software drivers. Thus, the invention cannot properly be limited to an interface
device that is incapable of allowing a plurality of dissimilar transmit/receive devices to be connected
or that cannot be flexible and portable to allow a plurality of dissimilar transmit/receive devices to
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be attached.
This conclusion is further buttressed by the identical Figures that accompany each
Patent. Figure 1 of each Patent “shows a general block diagram of the interface device according
to the present invention,” see ’399 Patent, col. 5:38-39; ’449 Patent, col. 4:41-42, and the Figure
indicates that the data transmit/receive device is off the sheet, out of sight, not part of the Figure, and
not part of the invention. ’399 Patent, Sheet 1 (“to data transmit/receive device”; lower case
substituted); ’449 Patent, Sheet 1 (same). Figure 2 of each Patent, which depicts a preferred
embodiment of the invention, also indicates that the data transmit/receive device and the host device/
computer are separate and apart from the invention. ’399 Patent, Sheet 2; ’449 Patent, Sheet 2. The
specification and Figures further indicate that the interface device is separate from the host computer
and the transmit/receive device because it is designed to plug into an electrical outlet. See ’399
Patent col. 9:65-66 (“The complete interface device 10 is supplied with power by an external AC/DC
converter 1800 . . . .”); ’449 Patent, col. 8:65-66 (same); see also ’399 Patent, Sheet 2; ’449 Patent,
Sheet 2.
The prosecution history of the ’399 Patent also supports the conclusion that the
interface device is a stand-alone device. Mr. Tasler amended Claim One to add the phrase, “wherein
the first command interpreter is configured in such a way that the command interpreter, when
receiving an inquiry from the host device as to [the] a type of a device attached to the multi-purpose
interface of the host device.” ’399 File History at 7 (underlined in original to show additional
phrase; brackets in original to show deleted word).8 The change from “the device” to “a device” is
8
Interestingly, Mr. Tasler reverted to the language “the device” in the ’449 Patent. ’449
Patent, col. 11:62.
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a change to more general language, indicating that the interface device was intended to be attached
to, and detached from, various types of input/output devices. Mr. Tasler also explained to the PTO
that “it is clear that the data transmit/receive device to be connected to the second connecting device
of the subject interface provides analog data.” Id. at 5 (emphasis added). The statement that the data
transmit/receive device is “to be connected” similarly indicates that the inventor did not intend the
interface device to be permanently affixed to a single data transmit/receive device, as it is “to be
connected” to various data transmit/receive devices.
Papst argues that interpreting “interface device” to mean a stand-alone device would
“improperly import[] the limitations from the spec[ification] to the claims. The claims don’t say
stand alone, they don’t say physically connect, or readily connect or disconnect . . . .” Tr. 1:84
(Papst). The Court disagrees. The interface device, as discussed further below, “sends a signal,
regardless of the type of the data transmit/receive device attached to the second connecting device
of the interface device.” ’399 Patent, col. 13:1-5; ’449 Patent, col. 11:63-65. Claim One
contemplates and intends that a variety of transmit/receive devices may be connected to the interface
device, which is also connected to the computer. To fulfill claim One, the “interface device” must,
therefore, be a “stand-alone device.”
B. “host device”
Claim One of both Patents claims “[a]n interface device for communication between
a host device, which comprises drivers for input/output devices customary in a host device and a
multi-purpose interface, and a data transmit/receive device . . . .” ’399 Patent, col. 12:42-45
(emphasis added); ’449 Patent, col. 11:46-49 (same). The Camera Manufacturers propose that “host
device” be construed to mean “a general purpose computer that connects to and controls the
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operation of peripherals,” CMs’ Markman Br. at 9, while Papst proposes “a general purpose
computer to which hardware devices may be attached, such as Personal Computers (“PCs”) and other
host computer systems as described in the patent written description, including drivers for
input/output devices customary in a host device and a multi-purpose interface.” Papst’s Revised
Appendix of Claim Constructions [Dkt. # 244, Ex. C] (“Papst’s App.”) at 2. Papst also objects to
the phrase “controls the operation of peripherals” in the Camera Manufacturers’ proposed definition.
Neither Figure One nor Figure Two of the Patents shows a “host device;” the Figures only indicate
where one would be connected to the invention.
The Patent Claims refer solely to a “host device,” but the specification clarifies the
nature of the intended host device. See ’399 Patent, col. 1:9-11 (“The present invention relates to
the transfer of data and in particular to interface devices for communication between a computer or
host device and a data transmit/receive device . . .”) (emphasis added); ’449 Patent, col. 1:13-15
(same). Thus, the “host device” is a computer, and the Court uses the terms interchangeably
hereafter.
The specification identifies “common host devices which can be, for example, IBM
PCs, IBM-compatible PCs, Commodore PCs, Apple computers or even workstations.” ’399 Patent,
col. 4:31-33; ’449 Patent, col. 3:34-36. The specification further requires the host device to have “a
driver for an input/output device customary in a host device,” such as, “drivers for hard disks, for
graphics devices or for printer devices,” of which the hard disk driver is the preferred embodiment.
’399 Patent, col. 4:25-30, 34-36; ’449 Patent, col. 3:29-34, 38-40. The Patents tout the advantage
of attaching “host devices or computer systems” by means of the invention to a “device whose data
is to be acquired.” ’399 Patent, col. 1:20-22; ’449 Patent col. 1:21-23. Thus, the inventor intended
-24-
his “host device” to include most computers — PCs, Apples, workstations — as long as they had
a driver for a customary input/output device and a multi-purpose interface.
As the Camera Manufacturers suggest, there is little substantive difference between
their construction of “host device” and that offered by Papst, although they argue that their definition
is more clear and concise. It may be that the development of computers since the application for the
’399 Patent makes it somewhat more complicated: the inventor specified customary drivers and a
“multi-purpose interface” that had to be present in his “host device,” intimating that not all
computers of that time necessarily had such devices inside their chassis. See ’399 Patent, col. 4:27-
30 (“Drivers for input/output devices customary in a host device which are found in practically all
host devices are, for example, drivers for hard disks, for graphics devices or for printer devices.”);
’449 Patent, col. 3:31-34 (same); see also ’399 Patent, col. 5:9-12 (“As support for hard disks is
implemented as standard in all commercially available host systems, the simulation of a hard disk,
for example, can provide host device-independent use.”); ’449 Patent, col. 4:14-17 (same).9 Now
all computers come so equipped. Nonetheless, construing the Claims as of the relevant time period,
the Court concludes that the Camera Manufacturers’ proposal omits two critical aspects of the host
device, without which the invention cannot operate: customary drivers and a multi-purpose
interface.
9
See ’399 Patent, col. 4:44-56 (“Multi-purpose interfaces comprise both an interface card
and specific driver software for the interface card. The driver software can be designed so that it can
replace the [Basic Input/Output System or “BIOS”] driver routines. Communication between the
host device and the devices attached to the multi-purpose interface then essentially takes place by
means of the specific driver software for the BIOS routines of the host device. Recently however
drivers for multi-purpose interfaces can also be integrated in the BIOS system of the host device as,
alongside classical input/output interfaces, multi-purpose interfaces are becoming increasingly
common in host devices.”); ’449 Patent, col. 3:48-60 (same).
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As to the Camera Manufacturers’ proposal that “host device” be defined as a
computer that “controls the operation of peripherals,” the Court finds that this aspect of a host device
is critical to the ability of a host device to communicate through the invented interface device. That
is, the host device must have internal drivers, i.e., software, to instruct hardware how to operate. As
Papst acknowledged, drivers “are the software programs that are used by the computer[] to
communicate with the hardware that’s attached to the computer. So for each and every hardware
device that you connect to a computer there has to be a driver that allows the computer to
communicate with that hardware device.” Tr. 1:5 (Papst). The specification explains that such
drivers can instruct a hard drive (the preferred embodiment) that is internal to the computer, or such
drivers can instruct a printer that is external to the computer. In all instances, the driver instructs the
how and when of hardware operation and thus directs it. Further discussion of the element of
“control” is found below in the construction of the term “driver.”
The Court construes “host device” in the Claims of the Patents to mean “a general
purpose computer that connects to and directs the operation of peripherals, including drivers for
input/output devices customary in a host device and a multi-purpose interface.”
C. “data transmit/receive device” and “the data transmit/receive device being arranged for
providing analog data”10
Mr. Tasler did not invent a data transmit/receive device, and Papst objects to any
construction of the term. Tr. 1:136 (Papst) (“So our first position, of course, is that we shouldn’t be
defining this as part of the claimed invention.”). While Papst asserts that the term “data
10
“In the 399 Patent the claims do require that the . . . interface device be able to receive
analog data. In the 449 Patent the claims do not recite that the interface device has to receive analog
data.” Tr. 1:21 (Papst).
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transmit/receive device” is not a claim limitation, Papst concedes that the term may be construed “for
context” as “a device that receives input and provides data to the interface device.” Papst’s App. at
2. The Court agrees that it should not define the nature of a data transmit/receive device. What is
at issue, however, is the communication capability between the invented interface device and a data
transmit/receive device, which is very much part of construing the Claims, and the Court construes
“data transmit/receive device” in this context.
The parties disagree as to whether the “data transmit/receive device” mentioned in
the Patents must be capable of performing two-way communication. Papst cites to the specification,
to wit, “The present invention relates to the transfer of data and in particular to interfaces for
communication between a computer or host device and a data transmit/receive device from which
data is to be acquired or with which two-way communication is to take place.” ’399 Patent, col. 1:9-
13 (emphasis added); ’449 Patent, col. 1:13-17 (same). The Camera Manufacturers propose to
construe the term as “a device that transmits data to and receives data from the host device when
connected to the host device by the interface device.” CMs’ Markman Br. at 10 (emphasis added).
The Court turns to the claim language in the first instance and then to the specification
for elucidation. Phillips, 415 F.3d at 1315 (the specification is the “single best guide to the meaning
of a disputed term” and “[u]sually it is dispositive”). The preamble to Claim One of the Patents
states, “[a]n interface device for communication between a host device . . . and a data
transmit/receive device . . . .” ’399 Patent, col. 12:42-45 (emphasis added); ’449 Patent, col. 11:47-
49 (same). “Communication between” suggests bi-lateral interchanges.11
11
Claim One of the ’399 Patent uses the words “to” or “from” when discussing one-way
communication. See, e.g., ’399 Patent, col. 13:8-13 (“wherein the second command interpreter is
configured to interpret a data request command from the host device to the type of input/output
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Figures 1 and 2 that accompany both Patents show bidirectional arrows connecting
the invention to the data transmit/receive device.12 Figure 1 “shows a general block diagram of the
interface device according to the present invention” and Figure 2 shows a “detailed block diagram
of an interface device according to a preferred embodiment of the present invention.” ’399 Patent,
col. 5:38-42; ’449 Patent, col. 4:41-44 (emphases added); see ’399 col. 9:29-30 (“In the preferred
embodiment of the interface device 10 shown in FIG. 2 . . . .”); ’449, col. 8:29-30 (same); but see
’399 col. 9:15-16 (“Figure 2 shows a detailed block diagram of an interface device, according to the
present invention”) (emphasis added); ’449, col. 8:15-16 (same). Again, the description of features
of “the present invention” limits the scope of the invention. Verizon, 503 F.3d at 1308. In
explaining the invention, Mr. Tasler specified that “[t]he digital signal processor 13 and the memory
means 14 are also attached to a second connecting device 15 by means of bidirectional
communication lines (shown for all lines by means of two directional arrows).” ’399 Patent, col.
5:49-56; ’449 Patent, col. 4:51-55 (same except “bidirectional” is spelled “bi-directional”). In other
words, communication goes in both directions.
Additionally, in providing background to the invention, the specification states that
“[t]he devices from which data is to be acquired cover the entire electrical engineering spectrum”
and constitute “very different electrical or electronic systems.” ’399 Patent, col. 1:34-35, 56-59;
device signaled by the first command interpreter as a data transfer command for initiating a transfer
of the digital data to the host device.”) (emphases added).
12
While Figure 2 shows bidirectional arrows between the interface device and the
transmit/receive device, the other portions of Figure 2 reveal unidirectional interaction, with single
direction arrows flowing from the sample and hold circuit (which receives data from the
transmit/receive device) toward the other components of the interface device, including the analog
to digital converter and the digital signal processor. See ’399 Patent, Sheet 2; ’449 Patent, Sheet 2.
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’449 Patent, col. 1:36-37, 57-60; see also ’399 Patent, col. 12:37-40 (the specification concludes,
“[t]he interface device thus provides a universal solution which can cover the entire spectrum of
possible data transmit/receive devices.”); ’449 Patent, col. 11:41-44 (same).
Even more pointed language in the specification describes Figure 1 as showing:
The second connecting device can be attached by means of an output
line 16 to a data transmit/receive device which is to receive data from
the host device or from which data is to be read, i.e. acquired, and
transferred to the host device. The data transmit/receive device itself
can also communicate actively with the host device via the first and
second connecting device . . . .
’399 Patent, col. 5:56-62; ’449 Patent, col. 4:55-61. This language supports the conclusion that, as
its name implies, the data transmit/receive device is to “receive data from the host device,” or it is
the site “from which data is to be read” and it “can also communicate actively with the host device.”
Id. The specification also notes an “important advantage of the interface device of the present
invention” is the “extremely high data transfer rates by using, for data interchange, the host device-
own [sic] BIOS routines.” ’399 Patent, col: 8:43-46; ’449 Patent, col. 7:43-47 (emphasis added).
In every instance, the Claims, Figures, and specification refer to data transmit/receive
devices and not to “data transmit devices” or “data transmit or receive devices.” In fact, the name
of the interface device itself emphasizes that both data transfer and receipt are important attributes
of the data transfer/receive device: the invention is a “flexible interface for communication between
a host and an analog I/O device,” i.e., the data transmit/receive device is an input and output device.
’399 Patent, Title; ’449 Patent, Title. While the data transmit/receive device does not engage in two-
way communication at all times, the Claims and specification require it to have the capability of two-
way communication. The Court thus construes the term “data transmit/receive device” to mean “a
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device that is capable of transmitting data to and receiving data from the host device when connected
to the host device by the interface device.”
D. “for communication between [the host device and the data transmit/receive device]”
Papst proposes that “for communication between” the computer and the data
transmit/receive device should be construed to include one-way or two-way communication, or both.
Papst’s App. at 2. The Camera Manufacturers propose that the phrase “for communication between”
means “for transmitting of information bidirectionally and actively between the two devices.” CMs’
PowerPoint Slides [Dkt. # 267] (“CMs’ Slides”) at 55.
As more fully explained above, the preamble to Claim One states, “[a]n interface
device for communication between a host device . . . and a data transmit/receive device . . . .” ’399
Patent, col. 12:42-45 (emphasis added); ’449 Patent, col. 11:47-49 (same). “Communication
between” implies bilateral interchanges. The specification describes active communication and data
interchange between the host device and the data transmit/receive device via the interface device.
See ’399 Patent, col. 5:56-62 (“The data transmit/receive device itself can also communicate actively
with the host device via the first and second connecting device . . . .”); ’449 Patent, col. 4:55-61
(same); ’399 Patent, col. 8:43-46 (an “important advantage of the interface device of the present
invention” is the “extremely high data transfer rates by using, for data interchange, the host device-
own [sic] BIOS routines.”); ’449 Patent, col. 7:43-47 (same). Accordingly, the Court accepts, with
slight modification, the construction proposed by the Camera Manufacturers, finding it consistent
with the construction of the term “data transmit/receive device” to require bidirectional
communication. “For communication between” the computer and the data transmit/receive device
means “for transmitting of information bidirectionally between the two devices.”
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E. “multi-purpose interface”
The Camera Manufacturers propose that “multi-purpose interface” be construed to
mean “a communication interface designed for use with multiple devices having different functions
from each other.” CMs’ Slides at 62. Papst proposes that it means “a computer interface which
supports more than one type of device.” Papst’s App. at 2. Papst conceded at the Markman hearing
that the definition proposed by the Camera Manufacturers is satisfactory, as long as it provides that
multiple devices are connected one at a time. Tr. 1:156-57 (Papst) (“COURT: Your problem is
temporal, not otherwise. You don’t have any problem with multiple devices having different
functions from each other as long as they’re plugged in one at a time? PAPST: Right, Your
Honor.”). The Patents do not answer this point,13 and the Court declines to add an unspoken
limitation. With the parties’ essential agreement, the Court thus construes “multi-purpose interface”
to mean “a communication interface designed for use with multiple devices that can have different
functions from each other.”
F. “interfacing”
The Patents state, “a first connecting device for interfacing the host device with the
interface device via the multi-purpose interface of the host device; and a second connecting device
for interfacing the interface device with the data transmit/receive device . . . .” ’399 Patent, col.
12:51-55; ’449 Patent, col. 11:54-58. Papst suggests that “interfacing” refers to “establishing
communication with the computer,” i.e., electronic data communication and not physical connection.
13
See ’399 Patent, col. 4:48 (ambiguously stating, “[c]ommunication between the host device
and the devices attached to the multi-purpose interface then essentially takes place by means of the
specific driver software for the multi-purpose interface . . . ” without indicating whether such devices
are connected to the multi-purpose interface one at a time).
-31-
Papst’s App. at 3; see also Tr. 1:158-59 (Papst). The Camera Manufacturers insist that “interfacing”
means “physically connecting.” CMs’ Slides at 69.
Papst proposes the better construction. “Interfacing” means establishing
communication or enabling communication between two devices. Figure 2, the preferred
embodiment of the invention, shows a 10MB/s SCSI interface chip. See ’399 Patent, Sheet 2; ’449
Patent, Sheet 2. The chip does the work of interfacing with the host computer, while the 50-pin
connector to which it is attached does the job of connecting.14
The Camera Manufacturers object to Papst’s proposed construction by pointing out
that “interfacing” is what the first and second connecting devices do, while communicating is what
the command interpreters do. The Court does not disagree. But the Court does not interpret
“interfacing” as communicating. “Interfacing” means making communication possible.
“[I]nterfacing isn’t really about the physical connections, it’s about establishing the communication
and in getting information across the boundary.” Tr. 1:166 (Papst). Interfacing “is getting the right
electrical signals in the right order with the right voltages with the right timing.” Tr. 2:13 (Papst).
Accordingly, the Court construes “interfacing” as used in the Patent Claims as meaning “establishing
communication with.”
G. “a first connecting device for interfacing the host device with the interface device via the
multi-purpose interface of the host device”
The parties part ways dramatically on the construction of the term “the first
connecting device” in the phrase “a first connecting device for interfacing the host device with the
interface device via the multi-purpose interface of the host device.” See ’399 Patent, col. 12:51-53;
14
See discussion of the term “connecting device” below.
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’449 Patent, col. 11:53-55. The Camera Manufacturers propose that the “first connecting device”
is “a physical plug or socket for permitting a user to readily attach and detach the interface device
with the host device.” CMs’ Slides at 77. Papst does not construe the term “connecting device” as
an object, but jumps instead to the interfacing function of the first connecting device and proposes
that the first connecting device be construed to mean “the circuit device used to couple the interface
device to the multi-purpose interface of a computer.” Papst’s App. at 3 (emphasis added). Papst
asserts that “the first connecting device needs to be interpreted along with the entire paragraph . . .
and it’s the connecting device for interfacing with the multi-purpose interface.” Tr. 2:12 (Papst).
Papst then goes on to describe its interpretation of “interfacing:”
[Interfacing] means adhering to the protocols for the electrical signals
and the formatting of the data as it goes out [and] when it’s being
transmitted from one device to another. And that’s how you achieve
interfacing in the context of this claim.
...
So while the software is generating the information that gets sent, the
connecting device is what actually, . . . that’s where the information
gets turned into a signal and in the case of a SCSI [small computer
system interface] interface gets put on a wire . . . . [T]hat’s what is
meant by interfacing and this is getting the right electrical signals in
the right order with the right voltages with the right timing.
Id. at 12-13 (Papst).
The Claims, Figure 2, and the specification do not support Papst’s definition as it
would apply to “first connecting device.” The Claims explain that the first connecting device is used
“for interfacing,” for establishing communication as defined above. That function does not describe
the physical nature of the first connecting device itself. Taken into a different context, Papst’s
proposed construction would confuse a wall socket that accepts the plug from a lamp with the
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function that, once a plug is entered into a wall socket, the wall socket allows alternating current to
reach the lamp and light its bulb. Despite this function, no one could confuse the wall socket itself
with the current that flows after a plug is inserted.
The specification illustrates the physical nature of the first connecting device. The
specification describes the first connecting device as containing various devices which require a
physical, wired connection:
In the preferred embodiment of the interface device 10 shown in FIG.
2, the first connecting device 12 of FIG. 1 contains the following
components: an SCSI interface 1220 and a 50-pin SCSI connector
1240 for attachment to an SCSI interface present on most host
devices or laptops. The SCSI (small computer system interface) 1220
translates the data received via the SCSI connector 1240 into data
understood by the DSP 1300, as known by those skilled in the art.
Further, the first connecting device 12 comprises an EPP (enhanced
parallel port) with a data transfer rate of approx. 1 MBps which
delivers a more moderate data transfer rate of 1 MBps by comparison
to the data transfer rate of 10 MBps of the SCSI interface. The EPP
1260 is connected to a 25-pin D-shell connector 1280 to permit
attachment to a printer interface of a host device for example.
Optionally, the first connecting device 12 also comprises a 25-pin
connector 1282 which permits the attachment of 8 digital outputs and
8 digital inputs 1284 at the host device.
’399 Patent, col. 9:29-47; ’449 Patent, col. 8:30-48. Figure 2 shows a “25-pin connector,” a “25-pin
D-shell connector,” and a “50-pin SCSI connector” for connecting a cable between the interface
device and the host device/computer. See ’399 Patent, Sheet 2; ’449 Patent, Sheet 2; see also Tr.
1:164-65 (Papst) (the SCSI device shown in Figure 2 would require a wired connection).
Further, the specification refers to “attachment” of various types of transmit/receive
devices, via the interface device, to a host computer. See ’399 Patent, col. 1:56-59 (“It is therefore
desirable that an interface be sufficiently flexible to permit attachment of very different electrical
or electronic systems to a host device by means of the interface.”) (emphasis added); ’449 Patent,
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col. 1:57-60 (same). And, the specification refers to a “line” connecting the host computer and the
interface device: “whereby the [second command interpreter] begins to transfer data from the data
transmit/receive device via the second connecting device and via the line 11 to the host device.”
’399 Patent, col. 6:53-67 (emphasis added). The terms “attachment”and “line” connote a physical
connection.
The “first connecting device” is, therefore, a socket with a varying physical
arrangement of pins (connectors) that allows different cables — whatever cable would allow
connection to the relevant host device/computer — to be plugged into the interface device. The
socket’s pin arrangement could change as the nature of cables changed. The applicable cables that
were known to those trained in the art as of 1998, when Mr. Tasler applied for the ’399 Patent, were
exhibited to the Court during the tutorial and were physical objects that required physical pin
receptors to connect to a device.15
A socket is the opposite of a plug; that is, a socket is the “female” end of a connection
and a plug is the “male” end. While Figure 2 illustrates sockets with pins that allow cables to
connect the host device/computer with the invented interface device, such an arrangement is only
a preferred embodiment and its opposite might also be anticipated to comply fully with the invention.
Thus, a first connecting device may be either a physical socket or a plug. See, e.g., CMs’ Markman
Br., Ex. D, Am. Heritage Dictionary of Computer and Internet Words 59 (2001) (connector defined
as “A coupler used to join two cables or to plug a cable into a port or interface.”); id., Ex. E, Am.
15
A similar assortment of connectors, although considerably smaller, can be seen on the back
and sides of today’s laptop computers.
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Heritage Dictionary of Computer Words 54 (1995) (same).16
Papst contends that a first connecting device does not need to be a physical plug or
socket because the patented device could use a wireless multi-purpose interface. Tr. 1:159-61
(Papst). Papst confuses “interfacing” and “connecting device.” The former concerns “the protocols
for the electrical signals and the formatting of the data,” Tr. 2:12 (Papst), while the latter is a physical
device in these Patents. Accordingly, the Court construes “first connecting device” to mean “a
physical socket or plug for permitting a user to attach and detach the interface device to and from
a host device/computer.”
H. “second connecting device for interfacing the interface device with the data
transmit/receive device”
The parties construe the “second connecting device” in ways similar to their
constructions of the term “first connecting device.” The Camera Manufacturers propose a “ physical
plug or socket for permitting a user to readily attach and detach the interface device with a plurality
of dissimilar data transmit/receive devices.” CMs’ Slides at 87. Papst distinguishes between the
’399 and ’449 Patents in its definition: Papst would define the “second connecting device” in the
’449 Patent just like it would define the term “first connecting device” — as “the circuit device used
to couple the data transmit/receive device to the interface device” — and Papst would interpret the
term “second connecting device” in the ’399 Patent as the structure recited in the Claim, that is, “a
16
Dictionaries may be consulted at any time to better understand the technology involved in
the case. Vitronics, 90 F.3d at 1584 n.6. Courts may look to dictionary definitions when construing
claim terms, “so long as the dictionary definition does not contradict any definition found in or
ascertained by a reading of the patent documents.” Id.; see Phillips, 415 F.3d at 1321 (cautioning
that “too often [courts] have condoned the adoption of a dictionary definition entirely divorced from
the context of the written description” of the patent.).
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sampling circuit for sampling the analog data provided by the data transmit/receive device and an
analog-to-digital converter for converting data sampled by the sampling circuit into digital data.”
Papst App. 3 & 9-10; see ’399 Patent, col. 12:55-60. Papst contends that the second connecting
device in the ’399 Patent is a device for sampling and converting analog to digital, not a mere
connector.
It is unlikely that the same term, used in different parts of essentially the same patent,
should have entirely different meanings. See Fin Control Sys. Pty, Ltd. v. OAM, Inc., 265 F.3d 1311,
1318 (Fed. Cir. 2001) (there is a presumption that the same term used in multiple patent claims has
the same meaning). In the ’399 Patent, Papst would substitute specific functions that the second
connecting device performs in the stead of its physical reality while the Camera Manufacturers
would omit altogether any reference to the necessary capabilities. For the ’449 Patent, Papst again
retreats to the electronic circuitry that is operable when the second connecting device of the interface
device is attached to the transmit/receive device by defining the second connecting device by its
function and ignoring the physical nature of the connecting device itself.
The prosecution history is helpful. As initially presented to the PTO, Claim One of
the ’399 Patent referred to a second connecting device for interfacing. Tr. 1:185 (CMs). To avoid
prior art, Mr. Tasler later amended his patent by inserting the language specifying that the second
connecting device included a sampling circuit and an analog to digital converter. ’399 File History
at 7 (version with markings to show changes). This history indicates that the processing capabilities
of the second connecting device, although present and critical in the interface device, do not detract
from its fundamental status as a physical connector.
The “second connecting device” itself is a plug or socket that accepts the “output line”
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and allows the connection to be made between the invented interface device and the data
transmit/receive device. The specification states that the second connecting device “can be attached
by means of an output line 16 to a data transmit/receive device which is to receive data from the host
device or from which data is to be read, i.e. acquired, and transferred to the host device.” ’399
Patent, col. 5:56-60 (emphases added); ’449 Patent, col. 4:55-59 (same). The specification again
refers to physical “attachment” via a “line” when it describes the flexibility of the interface device:
“[U]sers of the interface device 10 are able to perform essentially identical operator actions for
almost any data transmit/receive devices which can be attached to the second connecting device via
the line 16, thus eliminating a source of error arising from users having to know many different
command codes for different applications.” ’399 Patent, col. 7:39-43 (emphasis added); ’449 Patent,
col. 6:39-42 (same). The preferred embodiment of the second connecting device is a BNC [Bayonet
Neill-Conselman] input. See ’399 Patent, col. 9:49-53 (“Preferably, the second connecting device
comprises 8 BNC inputs . . . .”); ’449 Patent, col. 8:49-53 (same). The specification underscores the
physical nature of the second connecting device by referring to the “actual hardware required to
attach the interface device 10 to the data transmit/receive device,” ’399 Patent, col. 8:26-27; ’449
Patent, col. 7:26-27, and the “specific hardware symbolized by the second connecting device.” ’399
Patent, col. 8:34; ’449 Patent, col. 7:34.
The Court construes the “second connecting device” in the ’399 Patent to mean “a
physical plug or socket for permitting a user readily to attach and detach the interface device with
a plurality of dissimilar data transmit/receive devices, including a sampling circuit for sampling the
analog data provided by the data transmit/receive device and an analog-to-digital converter for
converting data sampled by the sampling circuit into digital data.” In the ’449 Patent, the “second
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connecting device” means “a physical plug or socket for permitting a user readily to attach and
detach the interface device with a plurality of dissimilar data transmit/receive devices.”
I. “first command interpreter” and “sends a signal regardless of the type of data
transmit/receive device”
These terms are used in the context of the ’399 Patent as follows: “the first command
interpreter . . . , when receiving an inquiry from the host device as to a type of a device attached to
the multi-purpose interface of the host device, sends a signal, regardless of the type of the data
transmit/receive device attached to the second connecting device of the interface device, to the host
device which signals to the host device that it is an input/output device customary in a host device,
whereupon the host device communicates with the interface device by means of the driver for the
input/output device customary in a host device.” ’399 Patent, col. 12:64-67 & col. 13:1-8 (emphases
added).
The Camera Manufacturers would define “first command interpreter” as a “software
program for interpreting an inquiry from a host device and sending a signal to the host device in
response to the inquiry that ‘lies to the host computer as to the real nature of the data transmit/receive
device.’” CMs’ Slides at 96. They argue:
Because the first command interpreter is expressed as being “include[d]” in
the interface device as a result of “configur[ing]” by the processor and
memory, and that it is “configured in such a way” to respond to any inquiry,
the first command interpreter must be a software program or module. Then,
when receiving an inquiry from the host device, the first command
interpreter sends a signal in response, which necessarily requires that it must
have interpreted the inquiry to determine what signal to send. This part of
the construction appears to be undisputed by Papst. See Papst [Markman]
Br. at 18.
CMs’ Markman Br. at 18-19. Papst says that “[t]he first command interpreter should be construed
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to be capable of receiving an ‘inquiry’ from the computer (‘host device’). An ‘inquiry’ should be
construed to mean an instruction seeking information concerning the type of the device attached to
a computer.” Papst’s Markman Br. at 18. Papst contends that the phrase “sends a signal . . . to the
host device” means that “the signal sent by the first command interpreter in response to the inquiry
[is] consistent with a signal that an input/output device customary in a host device would provide
in response to that inquiry, and that such [a] response is not based on what data transmit/receive
devices may be associated with the interface device.” Papst’s App. at 3-4.
In its briefs, Papst initially explained, “The patent attorney for the ’399 patent argued
that the claims were allowable over the cited prior art because, among other things, ‘when asked by
the host device as to the type of device connected to the interface, [the first command interpreter]
lies to the host computer as to the real nature of the data transmit/receive device.’” Id. at 19
(emphasis added). In its Reply brief, Papst shifted its position. It now insists that “the CMs
mistakenly argue that the first command interpreter ‘lies’ to the host computer as to the true nature
of the data transmit/receive device. However, that is not what the claim says . . . . The signal sent
in response to the inquiry identifies the interface device as an input/output device customary in a host
device, regardless of what data transmit/receive device may be attached.” Papst’s Reply at 18
(emphasis added). Disavowing its initial interpretation, Papst argues that it is not necessary for the
invention to lie, id., and then states that, “by identifying itself as an input/output device customary
in a host device, the interface device could be said to ‘lie’ about the data transmit/receive device
because customary devices (disk drivers, CD-ROMs, etc.) do not have data transmit/receive
devices.” Id. Papst urges the Court to “give effect to the claims of the patent as finally worded, not
to the remarks of an attorney.” Id. at 20.
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To bring the critical language back to the discussion, Claim One of the ’399 Patent
states:
wherein the first command interpreter is configured in such a way that the
command interpreter, when receiving an inquiry from the host device as to
a type of a device attached to the multi-purpose interface of the host device,
sends a signal, regardless of the type of the data transmit/receive device
attached to the second connecting device of the interface device, to the host
device which signals to the host device that it is an input/output device
customary in a host device, whereupon the host device communicates with
the interface device by means of the driver for the input/output device
customary in a host device . . . .
’399 Patent, col. 12:64-67 & col.13:1-8 (emphases added). Since the parties do not dispute that the
first command interpreter is a software program or module that, when receiving an inquiry from the
host device, interprets the inquiry and sends a signal in response, the Court need only construe the
antecedent of “it” in the sixth line of the quote above.
Papst’s Reply argument is correct — the interface device sends a signal that it, the
interface device, is an input/output device that can communicate with the computer by way of a
driver that is customary in the computer. Notably, it is the interface device itself that is “attached
to the multi-purpose interface of the host device.” ’399 Patent, col. 12:67 & col. 13:1. However,
this fact does not fully resolve the issue because both the interface device and the data
transmit/receive device can be said to be attached to the computer — by way of the first and second
connecting devices. The data transmit/receive device is merely the point of data origin and the
computer is merely the point of data destination (or the reverse) along a single continuum effected
by the invention. See id., col. 4:60-62 (“The data transmit/receive device itself can also
communicative actively with the host device via the first and second connecting device . . . .”).
The ’399 Patent specification informs how the invention would work. When the
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interface device is connected between a computer and a data transmit/receive device and the
computer is booted up, the normal BIOS routines of the computer issue an INQUIRY instruction.
See id., col. 5:2-15. “The digital signal processor 13 in the interface device receives this inquiry
instruction via the first connecting device and generates a signal” to the computer. Id., col. 6:10-12.
This signal indicates to the computer that, for example, a hard disk drive is attached. Id. Upon
receiving this response, the computer asks to read the boot sequence of a customary hard disk drive
and the interface device’s digital signal processor sends a virtual boot sequence. Id., col. 5:19-32.
“Once the host device has received this data, it assumes that the interface device . . . is a hard disk
drive.” Id., col. 5:32-35 (emphasis added); see also id., col. 5:58-59 (“As described above, the
interface device appears to the host device as a hard disk” in the preferred embodiment.). While this
description relates most precisely to the preferred embodiment of a hard disk drive, its description
of how the interface device operates provides clarity to define the “it” from the quote above. “It”
must be the interface device and not the data transmit/receive device. Any question about which
device is “it” is further answered by the fact that data does not begin to be sent from the data
transmit/receive device to the interface device until the computer and the interface device have
established communication; only then does the second command interpreter begin “to transfer data
from the data transmit/receive device via the second connecting device” where analog data is
sampled and converted to digital data, then on to “the first connecting device and via the line 11 to
the host device.” Id., col. 5:64-67.
In arguing that “it” refers to the data transmit/receive device and not the invented
interface device, the Camera Manufacturers rely on the prosecution history. Mr. Tasler specifically
distinguished the ’399 Patent over prior art (the McNeill Patent, U.S. Patent No. 5,499,378), by
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stating, “[McNeill] does not include a first command interpreter that . . . lies to the host computer
as to the real nature of the data transmit/receive device.” ’399 File History at 6 (emphasis added).
Mr. Tasler also told the PTO, “[In McNeill,] the initiator asks for a hard disk and the target states
that there is a hard disk” and, unlike the invention, the McNeill device “does not lie as to the true
type of the data transmit/receive device.” Id. (emphasis added). The Claims and specification for
the ’399 Patent control, however, with prosecution history a third, but less important, leg to the stool.
“An applicant’s inaccurate statement cannot override the claim language itself, which controls the
bounds of the claim.” Storage Tech. Corp. v. Cisco Sys., Inc., 329 F.3d 823, 832 (Fed. Cir. 2003).
The Court thus construes “first command interpreter” in the ’399 Patent to be “a
software program for interpreting an inquiry from a host device and sending a signal to the host
device in response to the inquiry, which signal tells the host computer that the interface device is an
input/output device customary in a host device regardless of the type of transmit/receive device
attached to the interface device.”
J. “second command interpreter”
While Papst suggests that “a second command interpreter is capable of receiving a
data request command from the host device, and to initiate [sic] the transfer of digital data to the
computer,” Papst’s App. at 4, the Camera Manufacturers propose to construe “second command
interpreter” in the ’399 Patent as “a software program for translating data request commands from
the host into data transfer commands understandable by a plurality of dissimilar data transmit/receive
devices.” CMs’ Markman Br. at 20.
More specifically, Papst objects to defining the second command interpreter as a
software program for “translating” data request commands for use by another device. Tr. 2:127
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(Papst). But Papst concedes that the command interpreter “decodes” such commands: “[S]o what
the command interpreter does is it takes those numbers and it decodes them and it figures out what
it’s been asked to do and then it does it . . . . It’s not something that translates it into use by another
device.” Id.
The ’399 Patent contemplates “translating” by describing in the specification that the
second command interpreter interprets and decodes commands from the host computer:
[T]he second command interpreter carries out the read/write
assignment to specific functions. If the user now wishes to read data
from the data transmit/receive device via the line 16, the host device
sends a command, for example “read file xy”, to the interface device.
As described above, the interface device appears to the host device as
a hard disk. The second command interpreter of the digital signal
processor now interprets the read command of the host processor as
a data transfer command, by decoding whether “xy” denotes, for
example, a “real-time input” file, a “configuration” file or an
executable file, whereby the same begins to transfer data from the
data transmit/receive device via the second connecting device and via
the line 11 to the host device.
’399 Patent, col. 6:53-67 (emphases added).
The construction proposed by the Camera Manufacturers is clearer and derives
directly from the Claims and specification. Therefore, the Court construes “second command
interpreter” in the ’399 Patent to mean “a software program for translating data request commands
from the host device into data transfer commands understandable by a plurality of dissimilar data
transmit/receive devices.”
K. “wherein the interface device is configured by the processor and memory to include a first
command interpreter and a second command interpreter”
The Camera Manufacturers propose that the phrase “wherein the interface device is
configured by the processor and memory to include a first command interpreter and a second
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command interpreter” in the ’399 Patent means that “the processor of the interface device runs a
program from its memory to determine the data transfer parameters of the interface device for the
first and second command interpreters.” CMs’ Slides at 115. The Court will adopt this construction.
After initially proposing no construction for this phrase, at the Markman hearing
Papst proposed that it be interpreted to mean that “the interface device has first and second command
interpreters and that they are implemented by the processor and the memory.” Papst’s PowerPoint
Slides [Dkt. # 244, Ex. A] (“Papst’s Slides”) at 79; see Tr. 2:59 (Papst). Papst contends that the use
of the passive voice, in the phrase “the interface device is configured by” does not suggest the active
running of a software program. But as the Camera Manufacturers note, “the first and second
command interpreters have to know how to communicate with the data transmit/receive device.
They have to know how to make that data transfer occur and presumably it could be different for any
particular data transmit/receive device.” Tr. 2:63 (CMs). Moreover, even Papst’s proposed
construction recognizes that the command interpreters are “implemented” by the processor and the
memory, implying that the processor runs a program from its memory.
Papst argues that the Camera Manufacturers’ construction would render dependent
Claim Eight meaningless, and thus it should be disfavored. See Cytologix, 424 F.3d at 1173 (if
possible, a court should avoid an interpretation of one claim that renders another meaningless). “[A]
claim in dependent form shall contain a reference to a claim previously set forth and then specify a
further limitation of the subject matter claimed. A claim in dependent form shall be construed to
incorporate by reference all the limitations of the claim to which it refers.” 35 U.S.C. § 112. In other
words, a dependent claim incorporates all of the limitations of the claim from which it “depends”
and adds something new; thus, a dependent claim has a narrower scope than the claim from which
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it depends. Further, “the presence of a dependent claim that adds a particular limitation gives rise
to a presumption that the limitation in question is not present in the independent claim.” Phillips,
415 F.3d at 1315. Claim Eight provides:
An interface device according to claim 7, wherein the virtual files
comprise a configuration file in text format which are stored in the
memory means and using which the user can configure the interface
device for a specific data transmit/receive device.
’399 Patent, col. 13:37-41. Papst contends that because Claim Eight addresses the idea of
configuring the interface device, Claim One must not deal with configuring the device. Tr. 2:60
(Papst).
Papst’s argument fails. Claim Eight is unrelated to the construction of the “wherein”
clause regarding configuration of the interface device to include command interpreters. Claim Eight
merely refers to a separate mechanism, “configuration files,” that can be used to configure the
interface device “on the fly.” Tr. 2:65 (CMs). The phrase “[w]herein the interface device is
configured by the processor and memory to include a first command interpreter and a second
command interpreter” as used in the ’399 Patent means that “the processor of the interface device
runs a program from its memory to determine the data transfer parameters of the interface device for
the first and second command interpreters.”
L. “inquiry” and “inquiring”
Independent Claims One, Eleven, and Fourteen of the ’399 Patent and independent
Claims One, Seventeen, and Eighteen of the ’449 Patent recite that the host device sends an
“inquiry” to the interface device to determine the type of device attached to the host device. ’399
Patent, col. 12:66 (Claim One), col. 14:6 (Claim Eleven) & col. 14:47 (Claim 14, using the word
“inquiring” instead of “inquiry”); ’449 Patent, col. 11:61 (Claim One), col. 13:28 (Claim Seventeen)
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& col. 14:19 (Claim Eighteen, using the word “inquiring” instead of “inquiry”). Papst asserts that
“inquiry” should be defined generally to mean “an instruction seeking information concerning the
type of the device attached to a computer.” Papst’s App. at 3. Relying on the specification, the
Camera Manufacturers contend that “inquiry” should be defined specifically as “the SCSI inquiry
command” and that “inquiring” should be defined as “sending the SCSI inquiry command.” CMs’
Markman Br. at 33.
The specification uses the word “inquiry” as follows:
Preferably, the interface device according to the present invention
simulates a hard disk with a root directory whose entries are “virtual”
files which can be created for the most varied functions. When the
host device system with which the interface device according to the
present invention is connected is booted and a data transmit/receive
device is also attached to the interface device 10, usual BIOS routines
or multi-purpose interface programs issue an instruction, known by
those skilled in the art as the INQUIRY instruction, to the
input/output interfaces in the host device. The digital signal
processor 13 receives this inquiry instruction via the first connecting
device and generates a signal which is sent to the host device (not
shown) again via the first connecting device 12 and the host line 11.
This signal indicates to the host device that, for example, a hard disk
drive is attached at the interface to which the INQUIRY instruction
was sent.
’399 Patent, col. 5:67 & col. 6:1-15 (emphases added); ’449 Patent, col. 4:66-67 & 5:1-15 (same).
The parties agree that an INQUIRY command, in all capital letters, represents a very specific SCSI
command. See Tr. 2:78 (Papst) (“[W]hen you’re using all capital letters that would be a signal that
you’re talking about a defined command.”); accord CMs’ Surreply at 21.
The parties disagree regarding the meaning of “inquiry” when lowercase letters are
used. The Camera Manufacturers assert that the word “inquiry” in the Claims must mean the SCSI
inquiry because when the specification uses the lower case word “inquiry” it says “this inquiry
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instruction” referring back to the phrase “the INQUIRY instruction.” CMs’ Slides at 120. Papst
would interpret “inquiry” to be broader than a SCSI INQUIRY because the Claims do not state
“inquiry” in all capital letters. “[W]hen you are using lower case letters that means you are talking
in normal English. In the claims here they’re using the lower case version meaning it’s generic.”
Tr. 2:78 (Papst). Papst further explains its position: “I think it’s wise to follow the convention of
how to use those examples that’s [sic] given in the SCSI specification which does draw the
distinction between using all caps and the lower case.” Tr. 2:101 (Papst).
The distinction between independent and dependent claims supports Papst’s
construction. As explained above, a dependent claim incorporates all of the limitations of the claim
from which it “depends” and adds something new. See 35 U.S.C. § 112. Thus, a dependent claim
necessarily has a narrower scope than the claim from which it depends. Dependent Claim Four, not
in contention here, recites that the multi-purpose interface of the computer is a SCSI interface and
that the first connecting device also comprises a SCSI interface. “So that’s why the . . . first
command interpreter is not limited to the SCSI command set because that limitation is added by a
dependent claim and you get a presumption that there must be some difference” between Claim One
and Claim Four. Tr. 2:79 (Papst).
The Camera Manufacturers argue that the specification actually defines the word
“inquiry,” so that Mr. Tasler acted as his own lexicographer. See Vitronics, 90 F.3d at 1582. They
go on to argue that this express definition trumps Papst’s claim differentiation argument. See O.I.
Corp., 115 F.3d at 1583; see also Hormone Research Found., Inc. v. Genentech, Inc., 904 F.2d 1558,
1567 n.15 (Fed. Cir. 1990) (the doctrine of claim differentiation “cannot overshadow the express and
contrary intentions of the patent draftsman”). The Camera Manufacturers note that Mr. Tasler knew
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to state “for example” when merely providing an example. See ’399 Patent, col. 6:14-16 (“[t]his
signal indicates to the host device that, for example, a hard disk drive is attached at the interface
. . . . ”) (emphasis added).
Despite the fact that the specification does not use the words “for example,” the
context of the paragraph makes it clear that the SCSI INQUIRY is discussed as an example of a
preferred embodiment of the invention. The Camera Manufacturers’ interpretation takes the phrase
“this inquiry instruction” out of context and makes too much of it. The paragraph begins with the
word “preferably,” indicating that the specification is discussing a preferred embodiment. In the
phrase “this inquiry device,” the word “this” refers back to the example being discussed, the SCSI
INQUIRY. The paragraph does not assert more — it does not say the inquiry instruction is the SCSI
INQUIRY. The language of the Claims ultimately controls, and the Claims use the lower case term
“inquiry.” The Court thus construes the term “inquiry” as “an instruction seeking information
concerning the type of the device attached to a computer” and the term “inquiring” as “sending an
instruction seeking information concerning the type of the device attached to a computer.”
M. “the driver”
The term “driver” is recited in Claims One, Two, Eleven, Fourteen, and Fifteen of
the ’399 Patent: in Claim One, the host device “comprises drivers for input/output devices
customary in a host device,” col. 12:43-44; in Claim Two, “the drivers for input/output drivers
customary in a host device comprise a hard disk driver,” col. 13:14-15; in Claim Eleven, the host
device “comprises a multi-purpose interface and a specific driver for this interface,” col. 13:52-53,
and “the host device communicates with the interface device by means of the specific driver for the
multi-purpose interface,” col. 14:13-15; in Claim Fourteen, the host device “comprises drivers for
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input/output devices customary in a host device,” col. 14:32-33, and “the host device communicates
with the interface device by means of the usual driver for the input/output device” customary in a
host device, col. 14:55-57; and in Claim Fifteen, “the drivers for input/output devices customary in
a host device comprise a driver for a storage device and in particular for a hard disk drive,” col. 14:
63-65. The ’449 Patent references “driver(s)” multiple times as well: in Claim One, the host device
“comprises drivers for input/output devices customary in a host device,” col. 11:47-48; in Claim
Seventeen, the host device “comprises a multi-purpose interface and a specific driver for this
interface,” col. 13:15-16, and “the host device communicates with the interface device by means of
the specific driver for the multi-purpose interface,” col. 14:1-3; and, in Claim Eighteen, the host
device “comprises drivers for input/output devices customary in a host device,” col. 14:9-10.
The Camera Manufacturers propose that the word “driver” be construed to mean “the
set of software routines used to control an input/output device.” CMs’ Markman Br. at 24. They
note the IEEE Dictionary definition for driver “as a computer program, i.e., a set of software routines
that controls a peripheral device and reformats data for transfer to and from the device.” Id., see The
New IEEE Standard Dictionary of Electrical & Electronics Terms 387 (5th ed. 1993) (“New IEEE
Dictionary”) (attached to CMs’ Markman Br. as Ex. G). According to the Camera Manufacturers,
“the driver must be what actually enables the host device to communicate with and control an
input/output device.” CMs’ Markman Br. at 25.
Papst disagrees, noting that not all IEEE definitions for the word “driver” contain the
word “control” because “control is possible but not necessary.” Papst’s Reply at 26. Papst urges
the Court to consider the definition offered by its expert, Dr. Locke: “A driver translates generic
commands (such as to ‘read’ or ‘write’ a file) from high level computer programs into a sequence
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of very specific commands that a particular hardware device can understand (such as ‘seek’ or ‘load
register).’” Id. at 27.
As the Court explained above in the discussion of “host device,” drivers are software
programs used to communicate with hardware:
[T]he host device must have internal drivers, i.e., software, to instruct
hardware how to operate. As Papst acknowledged, drivers “are the
software programs that are used by the computer[] to communicate
with the hardware that’s attached to the computer. So for each and
every hardware device that you connect to a computer there has to be
a driver that allows the computer to communicate with that hardware
device.” Tr. 1:5 (Papst). The specification explains that such drivers
can instruct a hard drive (the preferred embodiment) that is internal
to the computer, or such drivers can instruct a printer that is external
to the computer. In all instances, the driver instructs the how and
when of hardware operation and thus directs it.
See supra section III.B. of this Opinion.
In addition, the specification makes it clear that a driver is a set of routines required
to drive a device. See ’399 Patent, col. 12:14-16 (“using a driver software for the multi-purpose
interface which comprises the BIOS routines customary in host device”); ’449 Patent, col. 11:16-18
(same); see also ’399 Patent, col. 11:32-42 (the hardware-oriented side of the “ASPI manager” is
matched to an interface and the other side is the user software side); ’449 Patent, col. 10:32-42
(same). Accordingly, the Court construes “driver” to mean “the set of software routines used to
direct a device, for example, an input/output device or a multi-purpose interface.”
N. “an input/output [storage] device customary in a host device” and
O. “the driver for the input/output [storage] device customary in a host device”
Claim One of the ’399 Patent recites:
wherein the first command interpreter is configured in such a way that
the command interpreter, when receiving an inquiry from the host
device as to a type of a device attached to the multi-purpose interface
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of the host device, sends a signal, regardless of the type of the data
transmit/receive device attached to the second connecting device of
the interface device, to the host device which signals to the host
device that it is an input/output device customary in a host device,
whereupon the host device communicates with the interface device
by means of the driver for the input/output device customary in a host
device . . . .
’399 Patent, col. 12:64-67 & col. 13:1-8 (emphases added).17
Claim One first states that the interface device sends a signal to the computer that it
is “an input/output device customary in a host device” and then that the computer communicates by
means of the “driver for the input/output device customary in a host device.” Id. The parties agree
that the “input/output device” must be “customary in a host device.” But they disagree about what
“customary in a host device” means and about whether the adjectival phrase “customary in a host
device” modifies “driver.” The Camera Manufacturers contend that the phrase modifies both —
“an input/output device customary in a host device” means a “data input/output [ ] that was normally
present within the chassis of most commercially available computers at the time of the invention,”
17
For purposes of construing the contested meaning here, the differences between the ’399
Patent and the ’449 Patent are not relevant. The ’449 Patent states:
wherein the interface device is configured by the processor and the memory
in such a way that the interface device, when receiving an inquiry from the
host device as to the type of a device attached to the multi-purpose interface
of the host device, sends a signal, regardless of the type of the data
transmit/receive device attached to the second connecting device of the
interface device, to the host device which signals to the host device that it
is a storage device customary in a host device, whereupon the host device
communicates with the interface device by means of the driver for the
storage device customary in a host device . . . .
’449 Patent, col. 11:59-67 & col. 12:1-3 (emphases added to identify words not present in the ’399
Patent). For clarity, the Court omits reference to the “storage device” in the ’449 Patent in the
remainder of this discussion.
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Tr. 2:85 (CMs), and “the driver for the input/output device customary in a host device” means “the
driver normally present in most commercially available computers at the time of the invention.”
CMs’ Markman Br. at 26.
According to Papst, the phrase “customary in a host device” modifies “input/output
device” and not “driver.” Papst’s Reply at 24-25; Papst’s Slides at 105. Papst asserts that the phrase
“an input/output device customary in a host device” means “a hardware device that inputs or outputs
data with respect to a host computer, and is a device that is sufficiently common such that software
drivers for communicating with the input/output device are typically provided with the host
computer as it is purchased. Input/output devices customary in a host device include, for example,
hard disk drives, floppy disk drives, CD-ROM drives, tape drives or printers.” Papst’s App. at 4.
Papst proposes that “the driver for the input/output device customary in a host device” should be
construed in context to mean “upon receiving the ‘signal,’ the host device automatically uses one
or more software driver for use with the customary input/output devices to communicate with the
interface device.” Id.
The phrase “customary in a host device” raises three questions: (1) what does
“customary” mean?; (2) “customary” as of when?; and (3) what does “in” a host device mean? Tr.
2:85 (CMs). First, the specification expressly defines “customary” as “normally present in most
commercially available host devices” as follows:
The present invention is based on the finding that both a high data
transfer rate and host device-independent use can be achieved if a
driver for an input/output device customary in a host device, normally
present in most commercially available host devices, is utilized.
Drivers for input/output devices customary in a host device which are
found in practically all host devices are, for example, drivers for hard
disks, for graphics devices or for printer devices.
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’399 Patent, col. 4:23-27; ’449 Patent, col. 3:27-31. When a specification expressly defines a term,
as it does here, it acts as a dictionary. See Vitronics, 90 F.3d at 1582. Accordingly, “customary”
means “normally present in most commercially available host devices.”
The next question — customary as of when? — must be answered: as of 1998 when
Mr. Tasler applied for the ’399 Patent. A court must interpret the words of a contested claim from
the perspective of one skilled in the art at the time of invention. See Phillips, 415 F.3d at 1313. The
word “customary” is time-dependent, like the word “conventional” construed by the court in
Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318, 1326 (Fed. Cir. 2008). There, the court
determined that “conventional” when modifying the term “internet browser” meant web browsers
in existence at the time of the invention. See id.; accord PC Connector Solutions LLC v. SmartDisk
Corp., 406 F.3d 1359, 1363-64 (Fed. Cir. 2005) (input/output port “normally” connectible to a
computer port meant technology existing at the time of the invention). A claim cannot be interpreted
to have different meanings at different times. See PC Connector, 406 F.3d at 1363. The word
“customary” means customary in a host computer at the time of the invention.18
With regard to the third question — what does “in” a host device mean? — the
answer is straightforward in the context of the phrase “the driver for the input/output device
customary in a host device.” The Camera Manufacturers assert that “in” means “in,” that is, within
the chassis of the host computer. Tr. 2:86 (CMs). The specification makes it clear that certain
“drivers” are “normally present in most commercially available host devices,” i.e., are normally
18
The Camera Manufacturers argue that Papst conceded that customary is a time-dependent
term. Tr. 2:86 (CMs) (“Mr. Kuwala said this very morning that customary is a time dependent term
and therefore, it has to be customary at the time of the invention.”). Papst did not concede this issue,
however. It merely noted that you “might argue” that the word “customary” imposes a time
limitation. Tr. 2:41 (Papst).
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inside most computers:
The present invention is based on the finding that both a high data
transfer rate and host device-independent use can be achieved if a
driver for an input/output device customary in a host device,
normally present in most commercially available host devices, is
utilized. Drivers for input/output devices customary in a host device
which are found in practically all host devices are, for example,
drivers for hard disks, for graphics devices or for printer devices. .
. . [T]he hard disk driver is utilized in the preferred embodiment of
the interface device of the present invention. Drivers for other
storage devices such as floppy disk drives, CD-ROM drives or tape
drives could also be utilized in order to implement the interface
device according to the present invention.
’399 Patent, col. 4:23-39 (emphases added); ’449 Patent, col. 3:26-43 (same). As the specification
further explains, the interface device sends a signal to the computer that the computer is
communicating with an input/output device, and the interface device then communicates with the
computer using either a driver present in the computer’s BIOS system or a specific driver for the
multi-purpose interface. See ’399 Patent, col. 5:5-20; ’449 Patent, col. 4:9-24.
The interface device according to the present invention therefore
simulates, both in terms of hardware and software, the way in which
a conventional input/output device functions, preferably that of a hard
disk drive. As support for hard disks is implemented as standard in
all commercially available host systems, the simulation of a hard disk,
for example, can provide host device-independent use. The interface
device according to the present invention therefore no longer
communicates with the host device or computer by means of a
specially designed driver but by means of a program which is present
in the BIOS system (Basic Input/Output System) and is normally
precisely matched to the specific computer system on which it is
installed, or by means of a specific program for the multi-purpose
interface.
’399 Patent, col. 5:5-20; ’449 Patent, col. 4:9-24 (same). Thus, what is “in” the computer are the
drivers for internal computer components (such as the multi-purpose interface or an internal hard
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disk drive) and for various peripherals, some of which are always outside the computer such as
printers.
The Patent requires “drivers” to be “customary.” Again, the parties agree that the
“input/output device” must be “customary in a host device.” Since every input/output device has its
own driver, for every input/output device that is “customary” there must also be a driver that is
“customary.” This explains the statement in the specification that “[d]rivers for I/O devices
customary in a host device which are found in practically all host devices are, for example, drivers
for hard disks, for graphics devices or for printer devices.” ’399 Patent, col. 4:27-30; ’449 Patent,
col. 3:31-34. Because all input/output devices must have individual drivers to function, and because
Mr. Tasler referenced “customary input/output devices,” the Court concludes that when he also
referenced “drivers for the input/output device customary in a host device,” he meant that such
drivers themselves must be customary in a host device.
The question — what does “in” a host device mean? — is more difficult in the
context of the phrase “an input/output device customary in a host device.” The Camera
Manufacturers again assert that “in” means “within the chassis of the host computer.” CMs’
Markman Br. 29. Papst suggests that an input/output device “in” a computer should be construed
more broadly to mean “with respect to,” as in “a hardware device that inputs or outputs data with
respect to a host computer.” Papst’s App. at 4. “We don’t read in as requiring it to be inside. It
means part of the system.” Tr. 2:80 (Papst).
The parties’ conflicting interpretations arise from the garbled language of the Claims.
The specification clarifies that drivers must be internal to the host device: “[d]rivers for I/O devices
customary in a host device which are found in practically all host devices.” ’399 Patent, col. 4:27-
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30; ’449 Patent, col. 3:31-34. But in describing such drivers, the specification refers to drivers for
printers. The parties agree that printers are not inside a computer. Tr. 2:80 (Papst); Tr. 2:87 (CMs).
The specification expressly defines “drivers customary in a host device” in relation
to the devices that such drivers direct. Those devices described are both inside and outside a
computer. However, the interface device “signals to the host device that it is an input/output device
customary in a host device.” The phrase “customary in a host device” refers to the immediately
antecedent noun “device;” there is no other antecedent word that the phrase reasonably could modify.
Thus, the input/output must be “customary in a computer.” And the word “in” should be construed
in accordance with its ordinary meaning to mean “within,” not “with respect to” as Papst proposes.
Papst’s construction ignores the word “in,” rendering it superfluous, and such a construction is
disfavored. See Merck, 395 F.3d at 1372 (a construction that gives meaning to all the terms of the
claim is preferred over one that does not). Papst’s assertion — that the Patent must mean
input/output devices customary in a computer system because the specification refers to drivers for
devices both inside and outside the chassis of the computer — might be what the inventor meant
to say when he wrote his Patent. But the Patent does not say that the interface device “signals to the
host device that it is an input/output device for which the host device has drivers that are customary
in a host device.” The Court must construe the claims of the Patent as they are written.
Accordingly, the Court finds that “an input/output device customary in a host device”
must be construed similarly to the phrase “the driver for the input/output device customary in a host
device.” “An input/output device customary in a host device” in the ’399 Patent means a “data
input/output device that was normally present within the chassis of most commercially available
computers at the time of the invention,” and “the driver for the input/output device customary in a
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host device” means “the customary driver(s) in a host device used to communicate with customary
internal and external input/output device(s), which driver(s) were normally present within the chassis
of most commercially available computers at the time of the invention.” Thus, “a storage device
customary in a host device” in the ’449 Patent means a “storage device that was normally present
within the chassis of most commercially available computers at the time of the invention,” and “the
driver for the storage device customary in a host device” means “the customary driver(s) in a host
device used to communicate with customary internal and external storage device(s), which driver(s)
were normally present within the chassis of most commercially available computers at the time of
the invention.”
P. “the usual driver for the input/output [storage] device”
Claim Fourteen of the ’399 Patent and Claim Eighteen of the ’449 Patent both use
the phrase “the usual driver for the input/output [storage] device” as follows:
regardless of the type of the data transmit/receive device attached to
the second connecting device of the interface device, responding to
the inquiry from the host device by the interface device in such a way
that it is an input/output device customary in a host device,
whereupon the host device communicates with the interface device by
means of the usual driver for the input/output device . . . .
’399 Patent, col. 14:51-57 (emphasis added); ’449 Patent, col. 14:22-28 (same, but referring to a
storage device and not an input/output device). The Camera Manufacturers assert that the phrase
is indefinite because it has no antecedent basis, but to the extent that the phrase can be construed,
it should be construed to mean the driver normally present in most commercially available computers
at the time of the invention. Papst contends that “usual” modifies “input/output device” or “storage
device” and not the term “driver.” Thus, Papst seeks to construe the phrase as “a software driver that
is normally used by the computer to communicate with the customary hardware device.” Papst’s
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proposal fails to follow the English language. The analysis is the same as the analysis of the phrase
“the driver for the input/output [storage] device customary in a host device” discussed above. In
Claim Fourteen of the ’399 Patent, the phrase “the usual driver for the input/output device” means
“the customary driver(s) in a host device used to communicate with customary internal and external
input/output device(s), which driver(s) were normally present within the chassis of most
commercially available computers at the time of the invention.” In Claim Eighteen of the ’449
Patent, the phrase “the usual driver for the storage device” means “the customary driver(s) in a host
device used to communicate with customary internal and external storage device(s), which driver(s)
were normally present within the chassis of most commercially available computers at the time of
the invention.”
Q. “whereupon the host device communicates with the interface device by means of the driver
for the input/output [storage] device customary in a host device”
The Camera Manufacturers correctly point out that this phrase “whereupon the host
device communicates with the interface device by means of the driver for the input/output [storage]
device customary in a host device” does not need to be construed separately from its constituent
claim terms, which have already been construed.
Papst suggests that the phrase be interpreted to mean that “upon receiving the signal,
the host device automatically uses one or more software drivers developed for use with the
customary input/output [storage] devices to communicate with the interface device.” Papst’s App.
at 4. This construction uses the word “automatically,” thereby inserting a limitation not present in
the Patents. Because there is no intrinsic evidence that supports this limitation, the Court will not
adopt Papst’s proposal. The phrase does not need to be construed separately from its component
words and phrases, which the Court already has construed.
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R. “the digital data”
The phrase “the digital data” comes from the very last phrase of Claim One of the
’399 Patent, which states: “wherein the second command interpreter is configured to interpret a data
request command from the host device to the type of input/output device signaled by the first
command interpreter as a data transfer command for initiating a transfer of the digital data to the host
device.” ’399 Patent, col. 13:8-12. The Camera Manufacturers note the antecedent reference to “the
digital data” — “the second connecting device including a sampling circuit for sampling the analog
data provided by the data transmit/receive device and an analog-to-digital converter for converting
data sampled by the sampling circuit into digital data.” Id., col. 12:55-59 (emphasis added). From
these two references, they suggest that “the digital data” should be construed to mean “the same
digital data output from the analog to digital converter, unmodified by additional processing.” CMs’
Surreply at 21. Papst offers a more expansive definition, to wit, “the ‘digital data,’ while referring
to the data digitized in the second connecting device, includes data that has undergone further
processing, such as digital signal processing.” Papst’s Slides at 112; see Papst’s App. at 4; ’399
Patent, col. 13:26-27 (Claim Five, reciting that the processor is a digital signal processor). When
the specification describes the preferred embodiment of the invention, it describes the processing by
the interface device of the data acquired from the transmit/receive device — “the digital signal
processor implements a fast Fourier transformation (FFT) in real time and also optional data
compression of the data to be transferred from the data transmit/receive device to the host device.”
Id., col. 9:24-26. Papst has the better approach.
The specification for the ’399 Patent states that in the preferred embodiment “[t]he
digital signal processor 1300 provides on-board digital data processing.” ’399 Patent, col. 10:56-57
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(the number 1300 refers to the location of the processor on Figure 2). Such digital signal processing
is only limited by the size of the memory, as the specification explains:
As a result of the option of storing any files in agreed formats in the
memory means 14 of the interface device 10, taking into account the
maximum capacity of the memory means, any enhancements or even
completely new functions of the interface device 10 can be quickly
implemented. Even files executable by the host device, such as batch
files or executable files (BAT or EXE files), and also help files can
be implemented in the interface device . . . .
’399 Patent, col. 7:49-54; see also id., col. 8:37-42 (“Further, an experienced user can intervene at
any time on any level of the existing second connecting device by making use of the above
mentioned option of creating a configuration file or adding or storing new program sections for the
second connecting device.”). Thus, “the digital data” means “the data as it is output by the analog
to digital converter, and/or the data as it is output by the analog to digital converter after it has
undergone additional processing, such as digital signal processing.”
S. buffer terms — “memory means comprising a buffer to buffer data to be transferred
between the data transmit/receive device and the host device” and “a data buffer for
permitting independence in terms of time of the data transmit/receive device attachable to the
second connecting device from the host device attachable to the first connecting device”
Dependent Claim Three of the ’399 Patent provides, “[a]n interface device according
to claim 1, wherein the memory means comprises a buffer to buffer data19 to be transferred between
the data transmit/receive device and the host device.” ’399 Patent, col. 13:18-21 (emphasis added).
Dependent Claim Sixteen of the ’449 Patent provides, “[a]n interface device in accordance with
claim 1 wherein the memory has a data buffer for permitting independence in terms of time of the
data transmit/receive device attachable to the second connecting device from the host device
19
The parties agree that “a buffer to buffer data” means a buffer to accomplish the task of
buffering. Tr. 3:64 (Papst & CMs) .
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attachable to the first connecting device.” ’449 Patent, col. 13:9-13 (emphasis added).
The Camera Manufacturers define “a buffer to buffer data” and “a data buffer” as
volatile memory used to temporarily store data to compensate for differences between the rate in the
flow of data between the data transmit/receive device and the host device. Papst proposes that
“memory means comprising a buffer” is memory adapted to store the data gathered by the
transmit/receive device until it is transferred to the computer, thus allowing time independence in
terms of when the data is acquired and when the data is later transferred to a host computer.
Under Papst’s construction, the data could be stored indefinitely. In essence, Papst
asserts that a buffer can be temporary or semi-permanent memory; it could be non-volatile
EEPROM20 memory. Tr. 3:70. This definition would make the term “buffer” indistinguishable from
the term “memory” in Claim One of the Patents, giving Claim Three of the ’399 Patent and Claim
Sixteen of the ’449 Patent the same scope as Claim One — a violation of the doctrine of claim
differentiation. As explained previously, a dependent claim references a prior claim and specifies
a further limitation. See 35 U.S.C. § 112. The presence of a dependent claim creates a presumption
that the limitation set forth in the dependent claim is not present in the independent claim. See
Phillips, 415 F.3d at 1315.21
The ordinary meaning of the term “buffer” is a “temporary memory for data, normally
used to accommodate the difference in the rate at which two devices can handle data during a
transfer.” Oxford Dictionary of Computing 55 (4th ed. 1996) (attached to CMs’ Markman Br. as Ex.
20
EEPROM is electrically erasable programable read only memory.
21
Papst asserts vaguely that the claim differentiation doctrine is not violated because Claim
Three “further defines memory.” Papst’s Reply at 33. Because Papst does not explain how it further
defines memory, the Court does not credit this vague assertion.
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O). Thus, a buffer is temporary. See id. (a buffer is “temporary memory” used “during transfer.”)
A buffer is used to synchronize the transfer of data between two devices to accommodate the
difference in the rate at which one device can transfer data and the other can receive the data.
[Buffering is a] programming technique used to compensate for the
slow and possibly erratic rate at which a peripheral device produces
or consumes data. If the device communicates directly with the
program, the program is constrained to run in synchronism with the
device; buffering allows program and device to operate
independently. Consider a program sending output to a slow device.
A memory area (the buffer) is set aside for communication: the
program places data in the buffer at its own rate, while the device
takes data from the buffer at its own rate. Although the device may
be slow, the program does not have to stop unless the buffer fills up;
at the same time the device runs at full speed unless the buffer
empties.
Id.; see also The IEEE Standard Dictionary of Electrical and Electronic Terms 113 (6th ed. 1996)
(attached to Papst’s Reply as Ex. F, corrected copy filed at Dkt. # 270) (a buffer is “[a] device in
which data are stored temporarily, in the course of transmission from one point to another; used to
compensate for a difference in the flow of data, or time of occurrence of events, when transmitting
data from one device to another”).
The buffer is described in the specification: “the memory means can have an
additional buffer for purposes of synchronizing data transfer from the data transmit/receive device
to the interface device and data transfer from the interface device to the host device. Preferably, the
buffer is implemented as a fast random access memory or RAM buffer.” ’399 Patent, col. 7:26-31;
’449 Patent, col. 6:26-31; see also ’399 Patent, col. 10:17-20 (under the preferred embodiment a
“random access memory . . . serves as a data buffer to achieve independence in terms of time of the
output line 16 from the output lines 11a, 11b, and 11c to the data transmit receive device and to the
host device respectively”); ’449 Patent, col. 9:17-20 (same). The buffer in the interface device is
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used in the way ordinary buffers are — for “synchronizing data transfer from the data
transmit/receive device to the interface device 10 and data transfer form the interface device 10 to
the host device.” ’399 Patent, col. 7:26-29; ’449 Patent, col. 6:27-29.
Papst points out that the specification explains that a “buffer can be implemented in
the memory means 14 to permit independence in terms of time.” ’399 Patent, col. 9:8-12; ’449
Patent, col. 8:8-12. But this statement must be read in context. It comes from a description of a
preferred embodiment of the invention, specifically a buffer implemented by a random access
memory. The specification describes an ongoing process of data transfer, not the storage of data
separated by days, weeks, or months from the time of its transfer as Papst suggests. The Court
construes “a buffer” (for buffering data) and “a data buffer” as “memory used to store data
temporarily to compensate for differences between the rate in the flow of data between the data
transmit/receive device and the host device.”
T. “virtual files”
Claim Seven of the ’399 Patent provides, “An interface device according to claim 2,
which further comprises a root directory and virtual files which are present on the signaled hard disk
drive and which can be accessed from the host device.” ’399 Patent, col. 13:33-36. Papst defines
“virtual files” based on the type of media on which such files are stored as meaning “files which
appear to be present on an emulated disk drive, yet which are not actually on a rotating disk.”
Papst’s App. at 5. The Camera Manufacturers offer instead that a “virtual file” is “a file that does
not physically exist as a file in the interface device but appears to the host device to be an actual file,
and references data to be transmitted between the data transmit/receive device and the host device.”
CMs’ Markman Br. at 38.
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Claim Seven depends from Claim Two; under Claim Two, the interface device
signals to the host device/computer that the interface device is a hard disk. See ’399 Patent, col.
13:33 & 13-17. The “signaled hard disk drive” in Claim Seven refers back to the signal first
mentioned in Claim Two. That signaled hard disk drive, which does not exist in fact, “further
comprises a root directory and virtual files,” id., col. 13:34, which also do not exist in fact.
The 1993 New IEEE Dictionary defined the term similarly to the construction
proposed by the Camera Manufacturers. In the context of a “virtual record,” “virtual” was defined
as: “a record that appears to be but is not physically stored; rather, it is constructed or derived from
existing data when its contents are requested by an application program.” New IEEE Dictionary at
1461 (attached to CMs’ Markman Br. as Ex. G); see also Oxford English Dictionary at 674 (2d ed.
1989) (defining “virtual” in the context of computers to mean “not physically existing as such but
made by software to appear to do so from the point of view of the program or the user”) (attached
to CMs’ Markman Br. as Ex. P). The ’399 Patent and the specification do not indicate that Mr.
Tasler used the term “virtual file” in any unique way, such as that proposed by Papst, and the Court
construes the term to have its ordinary meaning.
Papst argues that if one interprets “virtual file” to mean “a file that does not physically
exist as such but is made by software to appear to do so from the point of view of the program or the
user,” Claim Seven would be inconsistent with Claims Eight, Nine, and Ten which, Papst asserts,
cover “virtual files that are actually stored in the interface device.” Papst’s Reply at 35. Papst mis-
reads these Claims. Each says, “wherein the virtual files comprise” a configuration file “stored in
the memory means,” ’399 Patent, col. 13:38 (Claim Eight); batch files or executable files for the
microprocessor “stored in the interface device,” id., col. 13:43-44 (Claim Nine); and batch files or
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executable files for the host device “stored in the interface device.” Id., col:13:48-49 (Claim Ten).
The Court perceives no conflict among the Claims. Virtual files that are “stored in
the memory means” or “stored in the interface device” are no less virtual for that reason. Under
Claims Eight, Nine, and Ten, what is “stored” are software instructions in the interface device which
instruct the interface device to present data as if in real files of the types described, but which files
are, in actuality, non-existent. The Court adopts the definition from the New IEEE Dictionary as the
most clear and pertinent: “virtual files” in Claim Seven of the ’399 Patent means “files that appear
to be but are not physically stored; rather, they are constructed or derived from existing data when
their contents are requested by an application program so that they appear to exist as files from the
point of view of the host device.”
U. “simulating a virtual file system”
The phrase “simulating a virtual file system” is found in Claim One of the ’449 Patent
as follows: “wherein the interface device is arranged for simulating a virtual file system to the host,
the virtual file system including a directory structure.” ’449 Patent, col. 12:4-6; see also id., col.
14:4-7 (Claim Seventeen) (“the virtual file system including a file allocation table and a directory
structure”); id., col. 14:29-32 (Claim Eighteen) (same). The phrase might be thought a bit circuitous,
in that a virtual file is already a simulated file. See Tr. 3:119 (Papst) (“[T]his is unusual language.
It probably wouldn’t have been my first choice . . . .”). With the additional word “system,” however,
the phrase can be readily construed.
As Claims One, Seventeen, and Eighteen of the ’449 Patent make clear, the Patent
covers a virtual system of files, with a virtual directory structure. See ’449 Patent, col. 12:6.
Dependent Claim Two identifies additional types of virtual files which could be in the virtual system
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referenced in Claim One: a virtual configuration file, a virtual executable or batch file, or a virtual
data file. See id., col. 12:8-12; see also id. col. 12:27-28 (Claim Seven) (referencing a “virtual boot
sequence”). A “virtual file system,” such as that described in the ’449 Patent, is one that is “not
physically existing as such but made by software to appear to do so.” Oxford English Dictionary at
674 (defining “virtual” in the context of computers) (attached to CMs’ Markman Br. as Ex. P);
accord New IEEE Dictionary at 1461 (“virtual record” is a record that “appears to be but is not
physically stored”) (attached to CMs’ Markman Br. as Ex. G). The Court construes “simulating a
virtual file system” to mean “appearing to be a system of files, including a directory structure, that
is not physically stored; rather, it is constructed or derived from existing data when its contents are
requested by an application program so that it appears to exist as a system of files from the point of
view of the host device.”
V. “specific driver for the multi-purpose interface”
Claim Eleven of the ’399 Patent states:
wherein the first command interpreter is configured in such a way that
the command interpreter, when receiving an inquiry from the host
device as to a type of a device attached to the multi-purpose interface
of the host device, sends a signal, regardless of the type of the data
transmit/receive device attached to the second connecting device of
the interface device, to the host device which signals to the host
device that it is an input/output device customary in a host device,
whereupon the host device communicates with the interface device
by means of the specific driver for the multi-purpose interface . . . .
’399 Patent, col. 14:4-15 (emphasis added). Claim Seventeen of the ’449 Patent cites the same
phrase as:
wherein the interface device is configured using the processor and the
memory in such a way that the interface device, when receiving an
inquiry from the host device as to a type of a device attached to the
multi-purpose interface of the host device, sends a signal, regardless
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of the type of the data transmit/receive device attached to the second
connecting device of the interface device, to the host device which
signals to the host device that it is a storage device customary in a
host device, whereupon the host device communicates with the
interface device by means of the specific driver for the multi-purpose
interface . . . .
’449 Patent, col. 13:26-34 & col. 14:1-3 (emphasis added).
The Camera Manufacturers contend that “the specific driver for the multi-purpose
interface” means the set of software routines that control the multi-purpose interface that are
developed for the particular multi-purpose interface. CMs’ Slides at 240. Ignoring the word
“specific,” Papst asserts that this means a driver for the multi-purpose interface, i.e., a software
driver that enables a host system to communicate via a multi-purpose interface. Papst’s App. at 5.
The specification explains why the word “specific” is used in these Claims:
[C]ommunication between the host device and the multi-purpose
interface can take place not only via drivers for input/output devices
customary in a host device which reside in the BIOS system of the
host device but also via specific interface drivers which, in the case
of SCSI interfaces, are known as multi-purpose interface ASPI
(advanced SCSI programming interface) drivers. This ASPI driver,
which can also be referred to as an ASPI manager, is specific to a
special SCSI host adapter, i.e. to a special multi-purpose interface,
and is normally included by the manufacturer of the multi-purpose
interface.
’399 Patent, col. 11:9-19; ’449 Patent, col. 10:9-19.
Papst’s construction ignores the term “specific.” Because the Court should avoid
interpreting the Claims in a way that renders any term superfluous, see Merck, 395 F.3d at 1372, the
Court will not adopt Papst’s proposal. “Specific driver for the multi-purpose interface” is deemed
to mean “the set of software routines that control the multi-purpose interface and that are developed
for the particular multi-purpose interface.”
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W. “digital signal processor”
Claim Five of the ’399 Patent provides, “An interface device according to claim 1,
wherein the processor is a digital signal processor.” ’399 Patent, col. 13:26-27. Papst asserts that
a “digital signal processor” means a “processor with a highly parallel, pipeline architecture optimized
to perform repetitive operations.” Papst’s App. at 5.22 The Camera Manufacturers contend that a
digital signal processor is simply a processor — any kind of microprocessor — including a digital
signal processor. See CMs’ Slides at 248.
Papst is correct that the “digital signal processor” in Claim Five cannot be any kind
of microprocessor. Claim Five is a dependent claim. Thus, it includes the limitations of Claim One,
but also adds something new, rendering it more narrow than Claim One. See 35 U.S.C. § 112; Tr.
3:38. Claim One is broad. It recites that interface device includes a “processor.” ’399 Patent, col.
12:48. The specification expressly notes that while a preferred embodiment would include a digital
signal processor, it could include any type of processor: “In a preferred embodiment of the present
invention, the digital signal processor 13, which need not necessarily be implemented as a digital
signal processor but may be any other kind of microprocessor . . . .” ’399 Patent, col. 6:48-51
(emphasis added); see also id., col. 9:18-19 (“[T]he DSP can be any DSP”). Because “processor”
in Claim One means any kind of processor, the term “processor” in Claim Five must be more
limited. See 35 U.S.C. § 112 (“[A] claim in dependent form shall . . . specify a further limitation of
the subject matter claimed.”). To interpret Claim Five as coextensive with Claim One would render
Claim Five meaningless. Such a construction is disfavored. See Cytologix, 424 F.3d at 1173. The
22
Neither party presented any argument at the hearing on the definition of “digital signal
processor.” Tr. 3:134 (Papst) (“[W]e don’t have any further presentation on digital signal processor
in Claim 5.”)
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Court adopts, with some modification, Papst’s proposed construction: a “digital signal processor”
as specified in Claim Five of the ’399 Patent means a “processor optimized to perform repetitive
computations used in digital signal processing such as multiply-accumulates.”
X. “memory”
Papst asserts that the term “memory” as used in Claim One of both the ’399 and the
’449 Patents should be construed by the Court and that the term means “any type of semiconductor
memory such as EPROM, EEPROM, and RAM,”23 Papst’s App. at 2, as these are examples given
in the Patents. See, e.g., ’399 Patent, col. 7:23-25 (“In addition to the digital signal processor
memory, which comprises the operating system of the digital signal processor and can be
implemented as an EPROM or EEPROM”); ’449 Patent, col. 6:23-26 (same); ’399 Patent, col.
10:14-15 (“In FIG. 2, the memory means 14 of FIG. 1 is implemented by an EPROM”); ’449 Patent,
col. 9:14-15 (same); ’399 Patent, col. 9:18-20 (“[T]he DSP can be any DSP but preferably has a 20-
MB on-chip random access memory (RAM)”); ’449 Patent, col. 8:18-21 (same). The Camera
Manufacturers contend that the term need not be construed but if the Court decides to do so, the term
should be interpreted broadly to mean “any type of memory,” which could include a hard drive.
CMs’ Slides at 245.
The key difference between the parties’ proposed definitions is whether the term
“memory” can include a hard drive. The Camera Manufacturers agree with Papst that the inventor
23
RAM is volatile memory; EPROM and EEPROM are non-volatile memory. Tr. 3:138
(Papst). ROM in EPROM and EEPROM is read only memory. Tr. 3:142 (CMs). The specification
explains that the non-volatile memory in the interface device is used for storing instructions like the
operating system. See ’399 Patent, col. 7:23-26 (“In addition to the digital signal processor
instruction memory, which comprises the operating system of the digital signal processor and can
be implemented as an EPROM or EEPROM, the memory means can have an additional buffer . . .
.”); ’449 Patent, col. 6:23-27 (same).
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did not disclose an actual hard drive as part of the interface device, Tr. 3:141 (CMs), but they insist
that the term “memory” is broad and could include a hard drive. Papst’s proposed definition
necessarily excludes a hard drive because a hard drive is electro-mechanical (and not semiconductor)
and Papst’s proposed definition is “any type of semiconductor memory.” Papst’s App. at 2.
Papst further argues that “memory” is not used in the Patents to mean a storage
device, which could include a hard disk drive, and thus memory should be construed to exclude hard
drives. The Patent refers to storage devices “such as hard disk drives, tape drives, and floppy
drives.” Tr. 3:136 (Papst); accord ’399 Patent, col. 4:36-39 (“Drivers for other storage devices such
a floppy disk drives, CD-ROM drives or tape drives could also be utilized.”); ’449 Patent, col. 3:39-
42 (same); see also ’399 Patent, col. 11:66-67 & col. 12:1-3 (“Using the ASPI manager . . . the
present invention can now obtain active access to a[] SCSI hard disk . . . which . . . cannot be a
virtual but a real SCSI mass storage device . . . .”) (emphasis added); ’449 Patent, col. 11:1-5 (same).
Papst’s construction is strained. Just because the specification refers to storage
devices such as hard drives does not mean that the “memory” cannot include a hard drive. And just
because the specification referred to three types of semiconductor memory does not mean that
“memory” can only include semiconductor memory. The IEEE dictionary definition at the time of
the invention defines “memory” as “Memory (electronic computation). See: storage; storage
medium.”
New IEEE Dictionary at 797. The IEEE dictionary defines “storage” broadly as:
Storage (1) (electronic computation).
....
(B) Any device in which information can be stored, sometimes called
a memory device.
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(C) In a computer, a section used primarily of [sic] storing
information. Such a section is sometimes called a memory or store
(British).
Notes: (1) the physical means of storing information may be
electrostatic, ferroelectric, magnetic, acoustic, optical, chemical,
electronic, electric, mechanical, etc., in nature. (2) pertaining to a
device in which data can be entered, in which it can be held and from
which it can be retrieved at a later date. See store.
(2) (data management). In a computer, one or more bytes that are
used to store data.
Id. at 1294-95. Papst’s distinction between memory and storage is not reflected in the New IEEE
Dictionary, nor is its distinction between semiconductor memory and other physical means of storing
memory. “Memory” means “any type of memory.”
Y. “root directory” and “processor”
Papst also asks the Court to construe the terms “root directory” and “processor.” The
term “root directory” appears in Claim Seven, which provides:
An interface device according to claim 2, which further comprises a
root directory and virtual files which are present on the signaled hard
disk drive and which can be accessed from the host device.
’399 Patent, col. 13:33-36. Claim Seven depends from Claim Two, which provides:
An interface device according to claim 1, wherein the drivers for
input/output drivers customary in a host device comprise a hard disk
driver, and the signal indicates to the host device that the host device
is communicating with a hard disk.
Id., col. 13:13-17.
The Camera Manufacturers assert that it is not necessary to interpret these terms, but
if the Court deems it necessary, they agree to Papst’s proposed construction. Tr. 3:82 (CMs). Papst
asserts that “root directory” means a directory that is not in another directory. Papst’s App. at 5. The
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specification states, “Preferably, the interface device according to the present invention simulates
a hard disk with a root directory whose entries are ‘virtual’ files which can be created for the most
varied functions.” ’399 Patent, col. 5:67 & col. 6:1-3. And Papst asserts that “processor” should be
interpreted to mean any kind of microprocessor, including a digital signal processor. Papst’s App.
at 2. Because the Camera Manufacturers concede to Papst’s construction of these terms, the Court
adopts Papst’s construction: “root directory” means “a directory that is not in another directory” and
“processor” means “any kind of microprocessor, including a digital signal processor.”
Z. Claim Two of the ’399 Patent
Claim Two of the ’399 Patent provides:
An interface device according to claim 1, wherein the drivers for
input/output drivers customary in a host device comprise a hard disk
driver, and the signal indicates to the host device that the host device
is communicating with a hard disk.
’399 Patent, col. 13:13-17. Papst argues in its Reply that the Court should construe Claim Two of
the ’399 Patent, Papst’s Reply at 31-32, but did not present any further argument on this issue at the
hearing.24 The Camera Manufacturers assert that there is no need to construe Claim Two because
it consists of terms already construed in the context of Claim One. There is a presumption that the
same term used in multiple claims has the same meaning. See Fin Control Sys. Pty, 265 F.3d at
1318. Because the Court already construed the component terms, it is not necessary to construe
Claim Two.
IV. CONCLUSION
Accordingly, the Claims of the Patents are deemed to have the meanings ascribed to
24
Tr. 3:134 (Papst) ([W]e’re considering whether or not to present further argument on hard
disk drive which is in Claim 2”). None was presented.
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them above. A memorializing order accompanies this Memorandum Opinion.
Date: June 12, 2009 __________/s/_____________________________
ROSEMARY M. COLLYER
United States District Judge
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FILED
JUL 1 7 2009
UNITED sTATEs 1)1sTR1cT couRT clerk, u.s. oascricr and
FoR THE DISTRICT oF CoLUMBIA B°""'“P*CV C°“'*S
ANDRE DAvID LEFFEBRE, )
Plaintiff, §
v. § Civil Action No.
SAMUEL B. KENT, et al., §
Defendants. §
MEMoRANDIJM oP1N1oN
This matter is before the Court on plaintiff’ s application to proceed in forma pauperis and
his pro se comp1aint. The Court will grant the application and dismiss the complaint for the
reasons stated below.
Plaintiff is a federal prisoner who currently is incarcerated at the Administrative
Maximum facility in Florence, Colorado. Generally, he alleges that the indictment against him
"failed to carry a Grand Jury Mans/foremans [sic] signature," Compl. at 4, that the defendants
conspired "to obtain a [sic] illegal and wrongful conviction" against him, ia'. at 6, that the United
States District Court for the Southern District of Texas had no jurisdiction over his person or the
criminal matter, id. at ll, and that his current incarceration is unlawful, id. at 7. For these
alleged violations of his rights under the United States Constitution, plaintiff demands "a sum
certain of $777,000,000." Id. at 12-13.
Plaintiff may be awarded damages only if he first establishes that his conviction has been
invalidated by "revers[al] on direct appeal, expunge[ment] by executive order, declar[ation of
invalidity] by a state tribunal authorized to make such determination, or . . . a federal court’s
issuance of a writ of habeas corpus." Heck v. Humphrey, 512 U.S. 477, 486-87 (1994); accord
Whz'te v. Bowie, 194 F.3d 175 (D.C. Cir. 1999) (table). P1aintiff does not satisfy this prerequisite
and therefore his complaint fails to state a claim upon which relief can be granted. For these
reasons, the Court will dismiss the complaint under 28 U.S.C. § l9l5A(b)(l). See, e.g., Lejj”ebre
v. Cothren, No. G-06-l50, 2007 WL 4l98554, at *l (S.D.Tex. Nov. 26, 2007) (dismissing suit
because "a judgment in favor of Plaintiff awarding him damages for defendant Cothren’s alleged
omission implies the invalidity of Plaintift’s conviction," and thus is barred under Heck);
Leffebre v. Carter, No. G-06-l49, 2007 WL 4206180, at *l (S.D. Tex. Nov. 26, 2007) (same);
Lejj’ebre v. United States Fed. Corp., No. l:O7-CV-743, 2007 WL 3389994, at *l (E.D. Tex.
Nov. l4, 2007) (adopting Magistrate Judge’s Report and Recommendation to dismiss suit
seeking to recover damages for allegedly unconstitutional imprisonment, or for other harm
caused by actions whose unlawfulness would render plaintiff’s imprisonment invalid, under
Heck).
An Order consistent with this Memorandum Opinion is issued separately on this same
United States District iiudge
date.
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
IONA D. CALHOUN,
Plaintiff,
v. Civil Action 06-01441 (HHK)
PAUL F. PROUTY,
Administrator,
General Services Administration,
Defendant.
MEMORANDUM OPINION
Iona Calhoun brings this action against Paul F. Prouty, the administrator of the General
Services Administration, in his official capacity (“GSA”), alleging that GSA discriminated
against her on the basis of her race and gender, and retaliated against her for administrative
complaints and union activity in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C.
§§ 2000(e) et seq. (2006) (“Title VII”). Calhoun also alleges that GSA discriminated against her
on the basis of age in violation of the Age Discrimination in Employment Act, 29 U.S.C. §§ 621
et seq. (2006) (“ADEA”). Finally, Calhoun alleges GSA paid her less than male employees for
substantially similar work in violation of the Equal Pay Act, 29 U.S.C. § 206(d) (2006) (“EPA”).
Before the court is GSA’s motion to dismiss or, in the alternative, for summary judgment
[#42]. Upon consideration of the motion, the opposition thereto, and the record of this case, the
Court concludes that the motion should be granted.
I. FACTUAL BACKGROUND
Calhoun is a Black female who was 56 years old at the time of the first alleged incident,
discriminatory non-selection.1 In December 2000, she was working in the Office of Information
Technology (“OIT”) as a GS-13 Computer Specialist. That month, OIT announced a GS-14
Computer Specialist vacancy. Paul Whitson, the Division Director of OIT, normally would have
made the selection, but he was on vacation before the application period ended and when the
selection was made. Before leaving for vacation, Whitson discussed the position with the
Deputy Director of OIT, Wanda Peterson-Parker, who made the selection in his absence.
Whitson told Peterson-Parker he believed Tokey Bradfield (an Asian-American woman over 40),
who had worked for him in the OIT administrative office, was best qualified for the job.
Calhoun applied for the GS-14 Computer Specialist position before the application period
ended, but after Whitson had left for vacation. Thereafter, the human resources department
forwarded a list of three individuals deemed “best qualified” for the position to Peterson-Parker;
the list included Bradfield, Calhoun, and a third candidate (a Black woman). Peterson-Parker
selected Bradfield. Shortly thereafter, Calhoun filed an Equal Employment Opportunity (“EEO”)
complaint.
In August 2001, Calhoun was reassigned to the Office of Real Property (“ORP”) as a GS-
13 Program Specialist. Calhoun contacted the EEO office on May 31, 2002, informing that
office of the transfer and later filed administrative complaints of discrimination in connection
with her transfer based on race, age, sex, national origin, and reprisal.
1
Although the Amended Complaint purports to raise claims against GSA for wrongs that
occurred from August 2001 to April 2005, (Am. Compl. ¶ 5), plaintiff also clearly alleges an
incident of discrimination in December 2000, (Am. Compl. ¶¶ 25-31).
2
While at ORP in 2003 and 2004, Calhoun applied for GS-14 vacancies three times.
Stanley Langfeld, Director of the Real Property Policy Division, was the hiring officer for each
vacancy. For the first vacancy, in 2002, Langfeld selected Kenneth Holstrom, a white male.
Shortly after, Calhoun filed an EEO complaint over her non-selection. The next year, Langfeld
selected Robert Burmeister, a white male, for another position. When Burmeister declined the
position, Langfeld closed the vacancy instead of filling it with another applicant. Several months
later, Langfeld opened a substantially similar position and selected Virginia McDonald, a white
female. The human resources department gave Calhoun a higher personnel score than Holstrom
and Burmeister and a lower score than McDonald. Calhoun contacted the EEO office shortly
after both non-selections and later filed a formal complaint.
While at ORP, Calhoun also made certain requests for training and leave, which were
denied. During that time, ORP’s policy was to allow employees to attend two training events per
year so long as they were job related and within budgetary constraints. In 2002 and 2003,
Calhoun attended, on average, more than two events per year.
In 2002, Calhoun requested, and Langfeld denied, permission to attend a human resources
workshop, a Government and Media Perception seminar, an Armed Forces Communication
Luncheon, a SmartCard meeting, and an E-Authentication and Technology Forum. Langfeld also
denied Calhoun’s requests to attend the Human Resources workshop and the SmartCard meeting
as a union official. When Calhoun submitted a leave slip to attend the Human Resources
workshop (after being denied permission to attend), her leave was also denied. Calhoun
contacted and filed discrimination claims with the EEO office for each of these denials.
3
In 2003, Calhoun requested, and Langfeld denied, permission to attend the FOSE Expo
(an IT tradeshow), E-Gov’s Knowledge Management Conference, a Universal Standards of
Professional Appraisal Practice course, and a Building Owners and Managers Association
conference. Calhoun contacted and filed discrimination claims with the EEO office for each of
these denials as well.2
Calhoun also received written performance reviews while at ORP. During that time,
GSA annually rated employees “successful” or “unsuccessful.” These reviews were not tied to
any monetary benefit. In October 2002, Calhoun received a performance review for the past year
rating her as “successful,” but the review also contained comments by Langfeld that were critical
of her performance. Calhoun filed a formal complaint of discrimination based on race, color,
age, and reprisal in connection with the review. In October 2003, Calhoun received a
performance review for the past year also rating her as “successful” and containing similarly
critical comments by Langfeld.3 Calhoun also alleges that Langfeld denied her the same
employment awards as other employees.
Finally, Calhoun alleges that, from 2002 until her retirement in 2005, she was performing
the work of a GS-14 but only being paid the salary of a GS-13, unlike similarly situated male
employees.
2
Calhoun also alleges that she was denied selection for an Advanced Leadership
Development program. (Am. Compl. ¶ 8.) The identity and date of this program are not clear
from the record.
3
The Amended Complaint seems to allege that the 2002–2003 performance review was
part of an EEO claim for “disparate treatment . . . based on race, gender, color, equal pay, and
reprisal.” However, there is evidence suggesting this alleged claim refers to objections Calhoun
wrote on a copy of the performance review before it was filed, not a formal EEO administrative
complaint. (See Pl.’s Ex. 2 at 79, 81 (Calhoun Dep.); see also Def.’s Ex. 24 (Oct. 2003
Performance Review).)
4
II. ANALYSIS
GSA moves to dismiss or, in the alternative, for summary judgment on all of Calhoun’s
claims. For the reasons that follow, the Court grants the motion in its entirety.
A plaintiff must allege facts that, if true, would entitle her to prevail. Fed. R. Civ. P.
12(b)(6). A complaint which does not allege a set of facts that supports the claim must be
dismissed. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 561–563 (2007).
Summary judgment should be granted if there is no genuine issue of material fact and the
defendant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56. A fact is material if it
would affect the outcome of the case under the substantive law. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986). A dispute is genuine if the evidence shows a reasonable jury could
find for the non-moving party. Id. A plaintiff who faces a motion for summary judgment must
do more than “merely [assert] that the jury might, and legally could, disbelieve the defendant’s
denial” of discrimination; she must offer evidence supporting her allegations. Id. at 256.
A. Title VII and ADEA Discrimination Claims
The bulk of Calhoun’s claims arise under either Title VII or the ADEA, and stem from
her non-selection for job vacancies, denial of training and leave, reassignment to ORP,
performance reviews at ORP, and denial of employment awards.
Title VII prohibits an employer from discriminating against an employee based on race or
sex. 42 U.S.C. § 2000e-16(a). The ADEA prohibits an employer from discriminating based on
age, 29 U.S.C. § 623(a)(1), against any employee over 40, id. § 631(a). Both statutes also
prohibit an employer from retaliating against an employee for protected EEO activity, such as
5
filing a complaint of discrimination with the Equal Employment Opportunity Commission
(“EEOC”), 42 U.S.C. § 2000e-3(a); 29 U.S.C. § 623(d).
If an employee believes she has been discriminated against, she must begin an
administrative complaint process by contacting an EEO counselor within forty-five days of the
allegedly unlawful acts. 29 C.F.R. § 1614.105(a)(1) (2009). If the issue is not resolved within
thirty days, the employee may begin the formal complaint process. See, e.g., In re James, 444
F.3d 643, 644 (D.C. Cir. 2006) (outlining the administrative complaint process). Failure to
follow this timeline or file a formal complaint deprives the district court of subject-matter
jurisdiction over a civil claim. McDonnell Douglas Corp. v. Green, 411 U.S. 792, 798 (1973);
Park v. Howard Univ., 71 F.3d 904, 906-07 (D.C. Cir. 1995) (barring the plaintiff’s Title VII
claim for failure to exhaust administrative remedies); Washington v. Wash. Metro. Area Transit
Auth., 160 F.3d 750, 752–53 (D.C. Cir. 1998) (dismissing the plaintiff’s ADEA claim for failure
to exhaust administrative remedies).
A Title VII or ADEA claim in federal court is analyzed under the McDonnell Douglas
framework, 411 U.S. at 802–805, as simplified by Brady v. Office of Sergeant at Arms, 520 F.3d
490, 494 (D.C. Cir. 2008). Under McDonnell Douglas, the plaintiff has the initial burden of
establishing a prima facie case of discrimination or retaliation. 411 U.S. at 802. A prima facie
case of discrimination requires the plaintiff to show (1) she is a member of a protected class; (2)
she suffered an adverse employment action; and (3) the action creates an inference of
discrimination. E.g., Teneyck v. Omni Shoreham Hotel, 365 F.3d 1139, 1150 (D.C. Cir. 2004).
A prima facie case of retaliation requires a showing that the plaintiff engaged in a statutorily-
protected activity and suffered an adverse personnel action and that there is a causal connection
6
between the two. E.g., Brown v. Brody, 199 F.3d 446, 452 (D.C. Cir. 1999). Once the plaintiff
has shown a prima facie case, the burden shifts to the defendant to offer a legitimate, non-
discriminatory reason for the allegedly unlawful action. McDonnell Douglas, 411 U.S. at 802.
Once the defendant has provided a legitimate reason for its employment decision, the burden
shifts back onto the plaintiff, who must then show the defendant’s non-discriminatory reason is
pretext. Id. at 804.
Where Calhoun has failed to show that she suffered an adverse action, the Court need not
reach the Brady analysis. 520 F.3d at 494. Because the Court concludes that Calhoun has failed
to show her denial of training and leave and her critical performance reviews were adverse
employment actions, Calhoun has not stated a prima facie case for these claims, and GSA is
entitled to summary judgment.
Since GSA has offered legitimate, non-discriminatory reasons for its remaining alleged
adverse employment actions, under Brady the only question before the Court is whether Calhoun
has presented sufficient evidence for a reasonable jury to conclude that GSA unlawfully
discriminated against her, Brady, 520 F.3d at 494; assertions and speculation are insufficient to
avoid summary judgment, Brown, 199 F.3d at 458–59. The Court finds that Calhoun has not
presented sufficient evidence of unlawful discriminatory animus regarding the ORP non-
selections and her age, race, and retaliation claims regarding the OIT non-selection.
Finally, the Court concludes it does not have jurisdiction to hear Calhoun’s sex
discrimination claim regarding her OIT non-selection, her claims relating to her transfer from
OIT to ORP, and her claims under the EPA. Therefore, the Court also dismisses these claims.
7
1. Non-selection at OIT
Calhoun alleges Whitson discriminated against her on the basis of age, sex, race, and
retaliation when he did not select her for a GS-14 position in December 2000, at OIT.4 Because
Calhoun has not produced evidence that Whitson’s stated reason for not selecting her was
pretextual, GSA is entitled to summary judgment.
Calhoun argues that even though she had not applied for the position when Whitson told
Peterson-Parker to hire Bradfield, Whitson would have known who could apply for the position,
and he named the one applicant on the referral list who was not Black. GSA responds with
Whitson’s affidavit offering legitimate reasons for the non-selection. Whitson testified he
worked with Bradfield for several years, that her work was always exemplary, and that she had
already shown him she could perform the duties of the GS-14 position. Furthermore, in
Whitson’s judgment, Calhoun’s qualifications “were based primarily on education and . . . she
did not have the depth of experience [Bradfield] had.” (Def.’s Ex. 5 at 3 (Whitson Aff.).)
Calhoun attempts to counter Whitson’s affidavit through Peterson-Parker’s testimony that
Calhoun was the best qualified candidate, and Bradfield the least qualified, and that the decision
to hire Bradfield “could have been” racially motivated. (Pl.’s Ex. 4 at 33 (Peterson-Parker
Dep.).)
4
Defendant has shown that Calhoun waived her claim based on sex discrimination at the
administrative hearing. (Def.’s Ex. 1 at 7 (EEOC H’rg, Jun. 6, 2006).) Plaintiff has also failed to
submit evidence contradicting Whitson’s testimony that he did not have knowledge of Calhoun’s
prior EEO activity. (Def.’s Ex. 5 at 2 (Whitson Aff.).) Therefore, the Court dismisses these
claims. See, e.g., Mitchell v. Baldridge, 759 F.2d 80, 86 (D.C. Cir. 1985) (requiring alleged
discriminating officer be aware of prior EEO activity for there to be a prima facie claim).
8
Peterson-Parker’s testimony is insufficiently probative of prohibited animus. At issue is
not the correctness of Whitson’s decision to hire Bradfield, but whether he did so for his stated
non-discriminatory reasons or rather because he was motivated by illegal considerations. See
Fischbach v. D.C. Dept. of Corr., 86 F.3d 1180, 1183 (D.C. Cir. 1996). Peterson-Parker’s
speculation that Whitson knew who “was qualified” and that the selection “could have been”
racially motivated, in no way addresses Whitson’s stated reasons for hiring Bradfield. Indeed,
Peterson-Parker herself testified to the EEOC counselor she did not believe the selection was
based on age, race, sex, or prior EEO activity. (Def.’s Ex. 39 at 2 (EEO Counselor Report, Jun.
7, 2001).) Because Calhoun has not presented any evidence to refute Whitson’s non-
discriminatory reason, GSA is entitled to summary judgment on plaintiff’s OIT non-selection
claims.5 Brown, 199 F.3d at 458.
2. Non-selection at ORP
Calhoun also alleges that Langfeld discriminated against her on the basis of age, sex,
race, and retaliation when he did not select Calhoun for three GS-14 positions in ORP between
2003 and 2004. Because Calhoun has not produced sufficient evidence showing that Langfeld’s
benign explanation was pretextual, the Court concludes GSA is entitled to summary judgment.
GSA argues the selectees’ “real property experience” made them more qualified than
Calhoun. Calhoun responds by noting human resources assigned her a higher personnel rating
than two of the selectees, though the selecting officer would not have received the score.
Calhoun also disputes the relevance of real property experience to these positions.
5
Without discriminatory intent (which plaintiff did not prove) Title VII does not provide
a cause of action for pre-selection. E.g., Washington v. Chao, 577 F. Supp. 2d 27, 46 (D.D.C.
2008).
9
Calhoun’s estimation of her credentials versus those of the selectees is again not the
issue. Rather, the dispositive issue is whether Calhoun was not selected for the position because
of unlawful discrimination. To survive summary judgment, Calhoun must submit evidence that
would reasonably support a conclusion that Langfeld’s stated reasons are pretextual. Calhoun
has not submitted any such evidence. Accordingly, GSA is entitled to summary judgment on
Calhoun’s claims of discrimination in her non-selections at ORP.
3. Denial of training and leave
Calhoun also alleges that Langfeld discriminated against her when he denied ten of her
requests for training and leave in 2002 and 2003. (Am. Compl. ¶¶ 16, 19.)6 GSA argues that
Calhoun has failed to show the denials were adverse employment actions. The Court concludes
that GSA is correct.
An adverse employment action is “a significant change in employment status, such as
hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a
decision causing significant change in benefits.” Burlington Indus., Inc. v. Ellerth, 524 U.S. 742,
761 (1998); see also Freedman v. MCI Telecomm. Corp., 255 F.3d 840, 845 (D.C. Cir. 2001)
(citing Turlington v. Atlanta Gas Light Co., 135 F.3d 1428, 1436 (11th Cir. 1998)) (denial of
training must be “materially related to the employee’s job responsibilities or possibilities of
advancement” to be adverse).
The closest Calhoun comes to alleging this level of harm is the statement “the completion
of [the USPAP course] would potentially entitle her to a certificate that could enhance her
career.” (Pl.’s Opp’n to Def.’s Mot. for Summ. J. at 44 (emphasis added).) However, this class
6
Calhoun seems to allege eleven denials of requests for training and leave. (Am. Compl.
¶¶ 8, 16, 19.) The Court only can identify ten from the record and complaint.
10
was the third in a series, and Calhoun did not pass the second class in the series; Calhoun has
also failed to show (or even properly to allege) that completing the course is all that would be
required to receive certification. (See Def.’s Ex. 14 at 11 (email, Oct. 7, 2003) (detailing further
requirements for certification).) Calhoun has not submitted evidence from which a reasonable
jury could conclude she suffered an adverse employment action from these denials of training.7
Therefore, GSA is entitled to summary judgment. Brown, 199 F.3d at 457.
4. Transfer to ORP
Calhoun also alleges she was discriminated against when she was transferred from OIT to
ORP. GSA responds with evidence that Calhoun failed to timely file an administrative
complaint, (Def.’s Ex. 9 at 4 (GSA letter, Nov. 12, 2002)), depriving this Court of jurisdiction,
Artis v. Greenspan, 158 F.3d 1301, 1302 (D.C. Cir. 1998) (granting Fed. R. Civ. P. 12(b)(1)
motion for failure to exhaust administrative remedies). GSA further argues Calhoun’s transfer
was not an adverse employment action. (Def.’s Mot. for Summ. J. at 31.) For the reasons set
forth below, the Court must dismiss Calhoun’s Title VII claims and grant summary judgment for
the GSA on Calhoun’s ADEA claim.
A plaintiff bringing suit under Title VII must have exhausted her administrative remedies.
The exhaustion requirement requires a claimant to contact an EEO counselor within forty-five
7
In addition, Langfeld testified he denied these requests for the legitimate reasons that
the sessions did not sufficiently relate to the work of ORP or attendance was limited and the
attendees had already been selected. (Def.’s Mot. for Summ. J. at 8-12.) Langfeld also denied
Calhoun permission to attend two of those sessions as a union representative because the
agreement between the union and GSA over what events union representatives must be allowed
to attend did not include those Calhoun requested. (Def.’s Ex. 22 at 1 (Official Reprimand);
Def.’s Ex. 14 at 2 (email, May 9, 2002)). Calhoun has submitted no evidence from which a
reasonable jury could conclude these reasons are pretext. Even if she had established a prima
facie case, GSA would be entitled to summary judgment.
11
days of the alleged discrimination. 29 C.F.R. § 1614.105(a)(1); Bowden v. United States, 106
F.3d 433, 437 (D.C. Cir. 1997). GSA has submitted evidence showing Calhoun did not contact
the EEO counselor until more than 270 days after her transfer.8 Because Calhoun did not timely
contact the EEO, the Court lacks jurisdiction over her race, sex, and retaliation claims in
connection with the transfer. The Court accordingly dismisses those claims.
A plaintiff who brings a suit under the ADEA is not required to exhaust her
administrative remedies. She is able to file suit directly in federal court. Still, such a plaintiff is
required to inform the EEOC of her decision to file in federal court within 180 days of the
alleged discriminatory event. 29 U.S.C. § 633a(d); see also Stevens v. U.S. Dep’t of Treasury,
500 U.S. 1, 5 (1991). Here, GSA has not proven that Calhoun did not inform the EEOC of her
decision to file a lawsuit. Consequently, for the purpose of analyzing the instant motion, the
Court must assume Calhoun did contact the EEOC. See Bowden, 106 F.3d at 437 (the burden of
showing failure to exhaust administrative remedies lies with the defendant). Still, Calhoun is not
able to prevail because she has not presented any evidence her transfer caused a significant,
tangible change in her employment status. Because Calhoun has failed to show she suffered an
adverse employment action when she was transferred, her claim that she was discriminated
against on the basis of age must be dismissed. Brown, 199 F.3d at 457.
5. Calhoun’s performance reviews
Calhoun also alleges that Langfeld discriminated against her in performance reviews
containing criticism of her work. GSA first argues that Calhoun did not file an EEO complaint
8
The Court may toll the forty-five day time limit for equitable reasons; however Calhoun
has submitted no reason justifying her lateness in contacting the EEO counselor. See Bowden,
106 F.3d at 437.
12
concerning the 2003 review, depriving this Court of subject-matter jurisdiction. GSA also argues
negative performance reviews are not adverse employment actions, and in any event, both
reviews rated her as “successful.” (Id. at 35-36.)
The record shows that Calhoun wrote her objections to the 2003 performance review on
the review sheet, but it does not show she filed a formal complaint on the matter. Nevertheless,
since the burden is on GSA to show otherwise, for the purposes of analyzing GSA’s motion for
summary judgment the Court assumes Calhoun contacted an EEO officer in a timely manner
concerning the 2003 performance review. See Bowden, 106 F.3d at 437.
Even so, GSA is correct in noting that negative performance reviews are not by
themselves adverse employment actions. Brown, 199 F.3d at 458. Because Calhoun has not
presented evidence of adversity beyond those evaluations, the Court concludes that Calhoun has
not established a prima facie claim of discrimination, and GSA is entitled to summary judgment.9
Id.
6. Denial of Employment Awards
Calhoun also alleges Langfeld denied her employment awards while she worked at ORP
because of her race, sex, color, and prior EEO activity. GSA contends Calhoun was given the
same employment awards as her coworkers. Calhoun has not offered any evidence supporting
her allegation of unequal employment awards. Therefore GSA is entitled to summary judgment
on the claim.
9
Calhoun also has not addressed GSA’s contention that these reviews were not even
negative, (see Def.’s Ex. 19 (Fant Decl.) (at the time, GSA used a “two-tired Performance
Management System . . . [where] employees would receive one of two ratings . . . ‘Successful’ or
‘Unsuccessful’”); Def.’s Ex. 20 (Oct. 2002 Performance Review) (rating Calhoun “successful”);
Def.’s Ex. 24 (Oct. 2003 Performance Review) (also rating Calhoun “successful”)).
13
B. Plaintiff’s Equal Pay Act Claim
Finally, Calhoun alleges that GSA violated the EPA by paying her less than male
employees for substantially similar work. Calhoun contends she was performing the work of a
GS-14 and only being paid at the GS-13 level, while male colleagues performing work of equal
skill, effort, and responsibility were being paid at the GS-14 level. (Am. Compl. ¶ 83.) GSA
responds that this Court lacks subject-matter jurisdiction over EPA claims in excess of $10,000.
(Def.’s Mot. for Summ. J. at 29-30.) GSA is correct and the motion is granted.
The EPA does not contain an independent grant of federal subject matter jurisdiction.
Absent such a grant, claims made under the EPA are subject to the Tucker Act, granting the
Court of Federal Claims exclusive jurisdiction over claims in excess of $10,000. 28 U.S.C. §
1346(a)(2) (granting district courts concurrent jurisdiction with the Court of Federal Claims over
civil actions “not exceeding $10,000” ); Waters v. Rumsfeld, 320 F.3d 265, 270 (D.C. Cir. 2003).
Neither Calhoun’s complaint nor her memorandum in opposition to the instant motion alleges
damages sought are less then $10,000. Based on the complaint, the Court infers they are more.
Therefore, the Court lacks jurisdiction and Calhoun’s EPA claims are dismissed.10
III. CONCLUSION
For the foregoing reasons, the Court concludes that GSA’s motion for dismissal or
summary judgment must be granted in full. An appropriate order accompanies this
memorandum opinion.
Henry H. Kennedy, Jr.
United Sates District Judge
10
Because the Court lacks jurisdiction it does not address GSA’s other defenses with
respect to Calhoun’s EPA claim.
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
DAVID KISSI,
Petitioner,
v.
Civil Action No. 09-1304 (RBW)
THOMAS SIMMONS, et al.,
Respondents.
MEMORANDUM OPINION
This matter is before the Court on David Kissi’s petition for a writ of habeas corpus. The
petition will be dismissed for lack of subject matter jurisdiction.
In the United States District Court for the Southern District of West Virginia, a jury found
petitioner guilty of two counts of bankruptcy fraud, three counts of obstruction of justice, and
two counts of contempt. See Writ of Habeas Corpus Petition (“Pet.”)1, Attachment (“Attach.”)
(Judgment in a Criminal Case, Case No. 8:05-cr-00254) at 31. On August 10, 2007, the
petitioner was sentenced to a prison term of 30 months and one day. Id. at 32.
In this action, petitioner attempts a collateral challenge to his conviction and sentence by
attacking the arrest warrant and the affidavit on which it was based, alleging that witnesses
offered perjured testimony at trial, and that judges, clerks, court reporters, and attorneys involved
in court proceedings in both the criminal action and in bankruptcy proceedings before United
1
The filing is actually titled “In Re: Writ of Habeas Corpus Pursuant To 5 USC
§ 706 2(A)(B)(D)(F) and 28 USC § 2241(c)(3).”
1
States Bankruptcy Court for the District of Maryland committed acts of misconduct. See
generally Pet. Petitioner demands his immediate release.2 See id. at 7. Challenges of this nature
must be presented to the sentencing court in a motion under 28 U.S.C. § 2255. See Morrison v.
Guzik, Nos. 97-6351, 97-6416, 1998 WL 380539, at *2 (10th Cir. June 30, 1998) (concluding
that a habeas petition asserting a “claim . . . ultimately predicated on his contention that the trial
court erred when it imposed a sentence that exceeded the statutory maximum” is properly
brought before the sentencing court by a § 2255 motion); Ojo v. Immigration & Naturalization
Serv.,106 F.3d 680, 683 (5th Cir. 1997) (finding that a motion under § 2255 “is the proper means
of attacking errors that occurred during or before sentencing”); Lopez v. Mukasey, No. 08-0717,
2008 WL 1985232, at *1 (D.D.C. May 5, 2008) (dismissing petition for lack of jurisdiction
“[b]ecause petitioner is challenging his conviction, [and] his recourse lies in a motion under 28
U.S.C. § 2255” before the United States District Court for the Northern District of Texas).
Section 2255 provides specifically that:
[a] prisoner in custody under sentence of a court established by Act
of Congress claiming the right to be released upon the ground that the
sentence was imposed in violation of the Constitution or laws of the
United States, or that the court was without jurisdiction to impose
such sentence, or that the sentence was in excess of the maximum
authorized by law, or is otherwise subject to collateral attack, may
move the court which imposed the sentence to vacate, set aside or
correct the sentence.
28 U.S.C. § 2255(a) (emphasis added). Moreover, the opportunity to challenge a conviction by a
motion to vacate the sentence generally precludes a challenge by means of a petition for habeas
corpus:
2
According to the Federal Bureau of Prisons’ Inmate Locator, petitioner’s
projected release date is August 30, 2009.
2
[a]n application for a writ of habeas corpus in behalf of a prisoner
who is authorized to apply for relief by motion pursuant to [28 U.S.C.
§ 2255], shall not be entertained if it appears that the applicant has
failed to apply for relief, by motion, to the court which sentenced him,
or that such court has denied him relief, unless it also appears that the
remedy by motion is inadequate or ineffective to test the legality of
his detention.
28 U.S.C. § 2255(e) (emphasis added).
The Court therefore will dismiss the petition without prejudice. An Order consistent with
this Memorandum Opinion is issued separately on this same date.
SIGNED on this 31st day of July, 2009.
/s/
REGGIE B. WALTON
United States District Judge
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
_______________________________________
)
)
LINDSAY HUTHNANCE, )
Plaintiff, )
)
v. ) Civil Action No. 06-1871 (RCL)
)
DISTRICT OF COLUMBIA, et al., )
Defendants. )
)
_______________________________________)
MEMORANDUM OPINION
On March 25, 2011 the jury returned a verdict in favor of Lindsay Huthnance, the
plaintiff in this case. Specifically, the jury found that Metropolitan Police Department Officers
Liliana Acebal and James Antonio falsely arrested Huthnance; that Acebal committed the tort of
assault and battery against Huthnance; that Acebal and Antonio violated Huthnance’s First,
Fourth, and Fifth Amendment rights under the United States Constitution; that the District of
Columbia violated Huthnance’s Fifth Amendment rights; that the District of Columbia was
deliberately indifferent to the constitutional First, Fourth, and Fifth Amendment rights of citizens
and that this deliberate indifference was a proximate cause of Huthnance’s injuries. Verdict
Form, Mar. 25, 2011, ECF No. 229. The jury awarded Huthnance $90,000 compensatory
damages and $7,500 punitive damages—$5,000 punitive damages against Acebal and $2,500
against Antonio. Currently before the Court is Defendants’ District of Columbia, Liliana Acebal,
and James Antonio’s Motion for Judgment As a Matter of Law, or for a New Trial, or for
Remittitur (“Motion for Judgment As a Matter of Law”). Apr. 28, 2011, ECF No. 241. Having
considered the Motion, the Opposition, the Reply, the record in this case—including the
1
evidence produced at trial—and the applicable law at length, the Court will grant the motion for
judgment as a matter of law in part and deny it in part, and it will deny the motion for a new trial
or remittitur for the reasons that follow.
I. Facts
Officers Acebal and Antonio arrested Huthnance on November 16, 2005 1 for disorderly
conduct, loud and boisterous. Huthnance claims that she was a victim of “contempt of cop,”
meaning the officers didn’t have probable cause to believe she had committed any crime and
instead arrested her merely because she had criticized the police. After her arrest, officers
transported her to the station and locked her in a cell while her arrest was processed. She
resolved her arrest through the District’s “post and forfeiture” procedure, meaning she posted
$25 collateral and was released from custody several hours later. After posting and forfeiting, no
criminal charges were ever brought against Huthnance, so no one ever reviewed her arrest. As a
result of her arrest, Huthnance spent several hours in jail, paid $25 to secure her release, claims
she experienced mental anguish, fear, and humiliation, and was saddled with a permanent arrest
record she claims she didn’t deserve.
Huthnance filed suit against Officers Acebal and Antonio 2 and the district of Columbia
asserting claims of false imprisonment, intentional infliction of emotional distress, assault and
battery, violations of her constitutional First, Fourth, Fifth, and Eighth Amendment rights, and
1
Huthnance testified that she was arrested at “approximately midnight” on “November 15,
2005.” Mar. 7, 2011 P.M. Trial Tr. 48. At times, Huthnance contended that her arrest was
actually at 11:55 p.m. on November 15th. The District claimed that she was arrested at around
2:00 a.m. on the morning of the 16th. The Court’s reference to November 16th as the arrest date
isn’t meant to take a side in that debate. Instead, because even Huthnance’s earliest estimate of
the time of her arrest is within five minutes of November 16th, the Court simply picks that date
for convenience’s sake.
2
Huthnance also sued Officer J. Morales, but the jury did not find him liable for any of her
claims. For that reason, the Court limits its discussion to Officers Acebal and Antonio.
2
violations of the Code of the District of Columbia, arising from her arrest and detention on
November 15th and 16th, 2005. Am. Compl. 2, May 7, 2007, ECF No. 13. By the time the case
went to the jury, several of Huthnance’s original claims had been dismissed or abandoned,
leaving the lay of the land at the time the jury was instructed:
- Claims against Officer Acebal: assault and battery; false arrest; and violations of
Huthnance’s constitutional First, Fourth, and Fifth Amendment Rights. Jury
Instructions 7, Mar. 24, 2011, ECF No. 222.
- Claims against Officer Antonio: false arrest and violations of her First, Fourth, and
Fifth Amendment rights. Id.
- Claims against the District of Columbia: violation of her Fifth Amendment rights
associated with differential treatment in its official policy regarding whether or not to
offer citizens citation release; violation of her First, Fourth, and Fifth Amendment
rights due to inadequate training and supervision. Id. at 13–17.
a. The Evidence at Trial
Huthnance testified that on the night of her arrest, she was having friends over for dinner
at her apartment at around 8:00 p.m. Mar. 7, 2011 P.M. Trial Tr. 49. She testified that she and
her three dinner companions split a bottle of wine between the four of them and that dinner
ended at 10:00 p.m. Id. After dinner, she and her guests decided to take a ten-minute walk to a
local bar called the Raven for drinks. Id. at 49–50. Huthnance testified that she had “a couple of
beers” at the Raven and later clarified her testimony to specify that she had exactly two beers. Id.
at 50. As midnight approached, Huthnance felt that it was time to return home because she had to
go to work the next morning. Id. She and her boyfriend, Adrien Marsoni, left the Raven at
around 11:45 p.m. Id. On their way home, Huthnance and Marsoni stopped at a 7-Eleven
convenience store about half a block away from the Raven to buy cigarettes and noticed a slew
of police officers and police vehicles outside the 7-Eleven. Id. at 51. She testified that she said
3
nothing to the police officers outside the 7-Eleven and proceeded inside to make her purchase.
Id.
Once inside the store, Huthnance saw more police officers inside and asked “what was
going on.” Id. at 52. She testified that the police officers told her it was “none of [her] business
and to move on.” Id. at 52. What she didn’t know was that MPD had recently made that 7-Eleven
into a police substation in response to a rash of robberies in the Mount Pleasant neighborhood.
There was a sign posted on the door to alert citizens and brigands alike to the convenience
store’s substation status, but Huthnance never noticed the sign. Id.
This is where, according to Huthnance, things get dicey. She testified that after being told
to mind her own business, she turned to her boyfriend and said, “Wow, nice use of my tax
dollars.” Id. That observation prompted one of the officers—according to Huthnance—to
respond confrontationally, demanding that she repeat what she had just said. Id. Huthnance
declined that invitation and simply said, “I wasn’t talking to you,” and left the store. Id.
Huthnance claims her tax-dollars comment wasn’t meant to goad the officers. She
explained that this was her neighborhood, and she was naturally concerned to see such a heavy
police presence there. She only asked why they were there out of that natural concern. Id. at 53.
Huthnance testified that she didn’t know which officer told her to mind her own business
because she wasn’t looking in their direction at the time that they said it. Id. Although she didn’t
take note of the officer’s identity, she did testify that she was “quite shocked . . . and frustrated
that they would talk to [her] that way.” Id. at 54. Nevertheless, despite that frustration, she
“didn’t respond” and left. Id.
After exiting the 7-Eleven, Huthnance heard her boyfriend talking to someone and turned
around just in time to hear him say “fuck off” to a police officer. Id. at 55. She testified that she
4
and Marsoni continued to walk up the street until they realized they were being followed and two
officers told them to stop. Id. The officers asked for identification, and Huthnance asked why she
was being stopped and whether she was under arrest. Id. at 54–55. The officers never responded
to her questions. Huthnance testified that after continuously asking why they were being stopped
and receiving no answer, she demanded one of the officer’s badge numbers. Id. at 55. Huthnance
testified that immediately after she requested the officer’s badge number, she was “told to place
[her] hands up against the wall and put in handcuffs.” Id.
Huthnance testified that the officer her boyfriend had told to “fuck off” was Antonio. Id.
at 57. She testified that she heard Marsoni say nothing else to Antonio and that it was her
intention to continue walking home and not to have any more interactions with the police that
night. They didn’t get far, however, before they realized they were being followed and were told
to stop by Officers Antonio and Acebal. Id. at 58. Acebal asked the couple for their
identification. Id. at 59. Huthnance didn’t give Acebal her license and instead asked why she
was being stopped. Id. at 60. Officer Acebal didn’t respond to Huthnance’s questions, and after
several rounds of this to-and-fro, Huthnance asked for Officer Acebal’s badge number. Id.
“That’s when [she] was told to place [her] hands against the wall and [she] was put in
handcuffs.” Id.
Although Huthnance testified that she refused to hand over her identification, she also
testified that she didn’t refuse to place her hands against the wall when Officer Acebal ordered
her to do so. Id. After Huthnance was told to place her hands against the wall, Officer Acebal
patted her down. Id. at 61. Huthnance testified that she continued to ask why she had been
stopped and if she was being arrested, but to no avail. Id. In fact, she testified that “at no time
during any of this that happened was I told that I was arrested.” Id. She testified that virtually all
5
of her interactions were with Officer Acebal. Id. Importantly, Huthnance concedes that she was
“upset,” and described her tone of voice throughout the encounter as follows:
At first it was probably close to a normal tone of voice, but as I asked questions
and got absolutely no answer or even was told that I was being arrested, I did
raise my voice when I asked for the officer’s badge number. . . . At no time was I
screaming at the top of my lungs.
Id. at 61–62.
Huthnance testified that while she “can’t be a hundred percent sure” because her head
was against a brick wall and Marsoni was behind her “in [her] peripheral vision,” she believed he
was talking with Officer Antonio and had given him his identification. Id. at 62–63. She testified
that she was not deferential to the officers, but Marsoni—who wasn’t arrested that night—was.
Id. at 63. After being placed in handcuffs, Huthnance was led to a police car and was driven to
the station. Id. at 64.
Huthnance testified that although she did raise her voice when she demanded Officer
Acebal’s badge number, she neither yelled at nor cursed any of the officers at any point from the
time she left the 7-Eleven until she was put into the squad car. Id. She also testified that she
never saw any lights coming on in the apartment buildings across the street, people peering out
of windows, or anyone gathering on the street to see what all the hubbub was about. Id. at 65.
Huthnance also testified to several problems with the narrative of her arrest contained in
the PD-163 filled out at the station afterwards. She testified that it was inaccurate in several
respects, including the following:
- The PD-163 said she was arrested at 1:45 a.m. on November 16, 2005, but she claims
she was arrested around midnight. Id. at 69.
- The PD-163 claims she was yelling while inside the 7-Eleven, which she denies. Id.
at 69.
6
- The PD-163 says that after she exited the 7-Eleven, she turned around, faced the
store, extended her middle finger, and yelled to the officers: “Fuck you, mother
fuckers!” Huthnance denies (1) turning around, (2) extending her middle finger, and
(3) saying—much less yelling—any of those words. Id. at 70.
- The PD-163 says that after officers told Huthnance to move along, she continued to
curse at officers. She denies that she cursed at any point. Id.
- The PD-163 says that Huthnance was stopped for identification purposes so she could
be issued a 61D citation, but she claims that no one ever told her that she would get a
ticket that night. Id.
- The PD-163 says that Huthnance turned around and yelled at the officer: “I want your
fucking badge number.” Huthnance concedes that she demanded the badge number
but insists that she never yelled in anyone’s face and never cursed. Id.
- The PD-163 says that the officer told her to place her hands on the wall and refrain
from screaming, but Huthnance says she was never told to refrain from screaming
because she never screamed. Id. at 72.
- The PD-163 says that Huthnance refused the officer’s commands, yelled again in the
officer’s face, and refused to place her hands on the wall for safety. Huthnance,
though, contends that she didn’t yell in the officer’s face and did put her hands on the
wall when she was told to do so. That said, she admits that she didn’t hand over her
identification when it was requested. Id.
- The PD-163 says that the officer advised Huthnance for a third time to refrain from
screaming, and her response was: “Fuck you, little bitch.” Huthnance denies
screaming, being told to stop screaming, and using the referenced abusive language.
Id.
- The PD-163 says that Huthnance said several things that she denies ever saying,
including: “Fuck you, bitch”; “I’m a citizen of this country”; and “What are you
going to arrest me for, being drunk with a burrito?” She admits to saying “What a
waste of my tax dollars” and “I know my rights.” Id. at 72–73.
- The PD-163 also says that Huthnance was unemployed but (1) she wasn’t, and (2) she
never said she was. Id.
- The PD-163 misspelled Marsoni’s name and gave an incorrect address for him. Id.
- The PD-163 reported that Huthnance hadn’t made a telephone call, but she says that
she did. Id.
- The PD-163 reported her telephone number incorrectly. Id. at 75.
7
- The PD-163 said Huthnance was a “female impersonator.” Huthnance says she
wasn’t a female impersonator and was offended that the PD-163 said so. Id.
Huthnance was placed in a squad car in handcuffs and driven to the police station. Id. at
78. She testified that once she arrived at the station, she was handcuffed to a chair and left by
herself. Id. at 79. She remained there for forty-five minutes, asking everyone she saw if she had
been arrested. Id. Eventually, she needed to use the bathroom and was handed a roll of toilet
paper, led to a cell, and told she could use a toilet in the cell. Id. The door was then closed and
she was locked in the cell. Id. About an hour later Officer Antonio came back and offered her a
phone call. Id. After that officer left, she was alone in the cell for another hour before she finally
saw Officer Acebal. Id. at 80. Huthnance testified that Officer Acebal returned her identification
and handed her a piece of paper. Id. Officer Acebal told Huthnance that if she signed it, she was
free to go. Id.
Huthnance testified that she didn’t read the piece of paper (nor was she told anything
else about it) before she signed it because she “just wanted to get out of jail.” Id. After she signed
the form, she put it in her pocket thinking she was about to be released from jail, but she wasn’t
actually released until 7:00 a.m. Id. at 87. Huthnance testified that she never read the entire form
and instead only read the part that said what she was charged with. Id. She testified that she
“didn’t know what it meant, to be honest.” Id. She testified that she never told anyone that she
wanted to pay a fine and have her case dropped, never asked for post and forfeit, never paid a
fine, neither told nor asked anyone to pay a fine for her, and was never offered any alternative to
the way she was released. Id. at 88. She testified that she wasn’t offered citation release and
didn’t know what that was. Id. at 88–89. When asked if she would have preferred an option like
citation release had it been offered, she testified that she would have. Id. at 89.
8
After Huthnance finished testifying, she called Philip Eure, the Executive Director of the
D.C. Government’s Office of Police Complaints. Mar. 8, 2011 A.M. Trial Tr. 14. He described
the OPC’s role as an independent agency tasked with advising MPD on identifying problems
based on the complaints that come into its office and making new policy recommendations, id. at
19, and one of those recommendations in particular—the 2003 CCRB Report (technically titled
“Disorderly Conduct Arrests Made by Metropolitan Police Department Officers”), which dealt
with MPD disorderly conduct arrests. Id. at 42. He testified that this report described OPC’s
extensive study of disorderly conduct arrests in the District and made policy recommendations
that went to the Mayor and the City Council. Id. at 43. The purpose of the study and the report
was to
bring primarily to MPD’s attention the fact that [OPC] had received a number of
complaints from citizens believing they had been wrongfully arrested for
disorderly conduct, and [OPC] wanted to cite some of this anecdotal evidence,
and really let MPD—bring to their attention and let them know that there was a
problem that needed to be addressed.
Id. at 58. After extensive study, the OPC had concluded that a significant number of improper or
unlawful disorderly conduct arrests might be going unnoticed and recommended several policy
changes for MPD to address the problem. See, e.g., id. at 101; Mar. 8, 2011 P.M. Trial Tr. 6.
Next, Huthnance’s boyfriend, Adrien Marsoni, testified and corroborated much of her
story. Mar. 8, 2011 P.M. Trial Tr. 63. Then Huthnance called Lieutenant Ralph A. Neal, who
had served as an MPD officer for 32 years, to testify regarding MPD’s training and supervision
policies regarding disorderly conduct arrests and about Huthnance’s arrest. Mar. 9, 2011 P.M.
Trial Tr. 5. He was the supervising officer who had signed off on Huthnance’s PD-163, and he
testified as to why he believed that her arrest was based on probable cause.
9
After Lieutenant Neal’s testimony, Huthnance called Inspector Michael I. Eldridge, the
Director of MPD’s Disciplinary Review Branch. Id. at 73. His office reviews and processes
officer misconduct cases and proposes and carries out the disciplinary actions against officers, up
to and including termination. Id. He testified about how complaints are filed and processed and
discussed Huthnance’s arrest and its documentation specifically. He testified that if he were the
supervising officer reviewing Huthnance’s PD-163, he wouldn’t have found that it stated
probable cause for a disorderly conduct arrest. Id. at 83.
Next, Sergeant Michael Smith testified by deposition designation. Id. at 114. He testified
about his training on disorderly conduct arrests, how MPD higher-ups review PD-163s, and
about his memory of what happened at the 7-Eleven the night of Huthnance’s arrest. He recalled
arriving at the 7-Eleven at approximately midnight and seeing officers Acebal and Antonio
talking with a man and a woman about fifty feet away from the store. Id. at 128. He purchased a
cup of coffee and left, but remembered that the woman wasn’t in handcuffs when he saw her and
wasn’t screaming. Id. at 129. He testified that he was about fifty feet from them and couldn’t
hear their voices. Id. He also testified that at the time that he left, no crowd had formed on the
street, and he didn’t remember any cars slowing down to see what was going on. Id. at 130. He
confirmed Inspector Eldridge’s testimony that Huthnance’s PD-163 was insufficient and too
vague to state probable cause for a disorderly conduct arrest. Id. at 131–34.
Finally, Huthnance called Timothy J. Longo, her expert witness. Mar. 10, 2011 A.M.
Trial Tr. 4. Mr. Longo is the Chief of Police for the City of Charlottesville, Virginia, but
Huthnance called him to testify as her police practices expert. Id. at 5. Like Eldridge and Smith,
Longo testified that there wasn’t sufficient evidence for an officer to reasonably believe there
was probable cause to arrest Huthnance for disorderly conduct. Id. at 49. Instead, he testified that
10
she was actually arrested “for challenging the police.” Id. He also testified that the District was
on notice of a potential problem with disorderly conduct arrests. Id. at 50. He went on to testify
that “the post and forfeit process allows for potentially bad disorderly conduct arrests going
undetected. They are not being reviewed for judicial scrutiny, if nothing else. A determination is
not being made by a prosecutor to determine whether something is viable for prosecution. So I
think that leads to a foreseeable risk of constitutional violations.” Id. at 52. He also testified that
MPD’s response to this problem was inadequate. Id. at 52–53. Moreover, he testified that MPD
has a practice of conducting and condoning unlawful contempt of cop arrests under the guise of
disorderly conduct arrests. Id. at 53.
Longo explained that he felt that MPD was inadequately training its officers and cited
Lieutenant Neal’s testimony as proof of that opinion. Id. at 53–54. Specifically, he testified that
Lieutenant Neal “failed to notice . . . glaring deficiencies in a document that is supposed to set
out probable cause for arrest.” Id. at 54. In fact, Longo testified that it was hard for him to
believe Neal—the supervisor who signed off on Huthnance’s PD-163—“had any training
whatsoever in supervising PD 163s or in understanding the applicable rule of law as it pertains to
disorderly conduct.” Id. He even testified that “there is a tremendous possibility that had there
been adequate training, that had supervision been in place, that not only would [Huthnance’s]
arrest been avoided, but this procedure.” Id. at 55. He went on to testify in detail about exactly
how he came to the conclusions discussed above. Once Longo’s testimony finished, Huthnance
rested her case.
With Huthnance’s case complete, the District and the officer defendants orally moved for
judgment as a matter of law under Federal Rule of Civil Procedure 50(a). 3 Mar. 11, 2011 P.M.
3
Federal Rule of Civil Procedure 50(a) provides:
11
Trial Tr. 138. Defense counsel’s first argument was that “[t]hese individual officers, Acebal and
Antonio and Morales, are shielded from liability because their alleged actions, or in the case of
Officer Morales, lack thereof, were objectively reasonable.” Id. at 139. 4 Huthnance testified that
she was unaware whether Antonio actually did anything with respect to her arrest. Thus, there
was no evidence upon which a jury could conclude that he should be held liable on any of
Huthnance’s allegations. Id. at 140. Also, defense counsel argued, with regard to the First
Amendment claim, “there’s a lack of evidence with respect to Officers Antonio and Acebal, that
they were inside the 7-Eleven when she made these alleged provocative claims. . . . They can’t
be held liable for arresting her for something that they did not hear.” Id.
As to Acebal, defense counsel argued:
The arrest by Officer Acebal was reasonable, even if later determined to be
incorrect, given the facts that we’ve heard, the time of the occurrence, the
proximity to the residential apartment buildings across the street, testimony that
spectators were observed outside the 7-Eleven, Mr. Marsoni testified to that. And
also to Mr. Marsoni’s testimony that Ms. Huthnance was loud, that she was
yelling, that she was argumentative. That he told her to calm down repeatedly.
And her own admission that she did not present her ID when instructed to do so.
Id. at 140–41.
(a) Judgment as a Matter of Law
(1) In General. If a party has been fully heard on an issue during a jury trial and the court finds
that a reasonable jury would not have a legally sufficient evidentiary basis to find for the
party on that issue, the court may:
(A) resolve the issue against the party; and
(B) grant a motion for judgment as a matter of law against the party on a claim or defense that,
under the controlling law, can be maintained or defeated only with a favorable finding on
that issue.
(2) Motion. A motion for judgment as a matter of law may be made at any time before the case
is submitted to the jury. The motion must specify the judgment sought and the law and facts
that entitle the movant to the judgment.
4
The Court doesn’t consider arguments made with regard to Morales because the jury didn’t find
him liable for anything, and therefore, the motion for judgment as a matter of law is moot as to
him.
12
Regarding Huthnance’s claims of post-arrest deprivations, “There’s been no evidence
that she had a constitutional right to citation release, which appears to be one of her claims or a
claim central to her due process claim.” Id. at 141. Moreover, defense counsel insisted that there
was no evidence to suggest that Officers Acebal or Antonio were obligated to advise her of her
right to citation release or to any other type of release. Id. Officer Antonio wasn’t even placed at
the police station by any of the witnesses presented during Huthnance’s case in chief, according
to defense counsel. Id.
Defense counsel went on to request judgment as a matter of law for the District on
Huthnance’s First, Fourth, and Fifth Amendment claims. First, defense counsel argued that
Huthnance had failed to establish that a custom, policy, or practice of the District was the
motivating force behind the alleged impingement of her constitutional right. Id. Defense counsel
went on to argue that the district couldn’t have been placed on notice by the CCRB report and
cited case law as support. Id. at 141–42.
Next, defense counsel argued that Longo’s testimony regarding the adequacy of the
District’s post-and-forfeit training was anecdotal and insufficient. He was required to come
forward with “some study, some report, something that shows that he’s looked cross-
jurisdictionally at what others are doing with respect to training for disorderly conduct.” Id. at
151.
Regarding respondeat superior liability against the District for the false arrest claim,
defense counsel argued that “[t]here was 12-309 notice filed by the plaintiff so that any claim
resounding in tort of this sort is improper.” Id. at 152. This Court denied the Rule 50(a) motion,
13
and the defendants put on their case. Once all the evidence was in, 5 defense counsel moved for
judgment as a matter of law under Rule 50(a) once again. Counsel repeated most of the
arguments they had made after Huthnance rested but did raise a few additional arguments that
must be addressed.
First, defense counsel insisted that qualified immunity shielded Officers Antonio and
Acebal from liability for Huthnance’s allegations. Mar. 23, 2011 A.M. Trial Tr. 129. Earlier,
defense counsel had argued that Officer Acebal’s probable cause determination was reasonable
and extended that argument here, contending that Officer Antonio’s probable cause
determination was similarly reasonable. Id. at 132. Next, defense counsel argued that the
officers are “entitled to judgment as to the common law claim, the false arrest, based on the
partially subjective test, her false arrest claim fails as a matter of law because the officers’
testimony that they operated in good faith remains unrebutted.” Id. They argued that this “good
faith” defense extends to the assault and battery claim against Officer Acebal. Id. Finally,
defense counsel argued that neither Officer Antonio nor Officer Acebal was involved in the
decision to determine Huthnance’s eligibility for various release options. Id.
Counsel also expounded upon their Rule 50(a) motion in favor of the District. First, they
argued that Longo’s testimony should be rejected because he didn’t consider much of the
evidence in the defendants’ case in drawing his conclusions. Id. at 134–35. But because all
5
The Supreme Court has made clear that at the Rule 50 stage, “although the court should review
the record as a whole, it must disregard all evidence favorable to the moving party that the jury is
not required to believe. That is, the court should give credence to the evidence favoring the
nonmovant as well as that evidence supporting the moving party that is uncontradicted and
unimpeached, at least to the extent that the evidence comes from disinterested witnesses.” Reeves
v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 151 (2000) (internal quotation marks and
citations omitted). Therefore, the Court won’t describe the defendants’ evidence in detail and
will only mention defense evidence as necessary in its analysis below, meaning when that
evidence was uncontradicted, unimpeached, and from a disinterested witness.
14
inferences must be drawn in Huthnance’s favor, and because the defense testimony at issue was
contradicted, impeached, or from an interested witness, this argument is a non-starter. Reeves v.
Sanderson Plumbing Prods., Inc., 530 U.S. 133, 151 (2000) (“[A]lthough the court should
review the record as a whole, it must disregard all evidence favorable to the moving party that
the jury is not required to believe. That is, the court should give credence to the evidence
favoring the nonmovant as well as that evidence supporting the moving party that is
uncontradicted and unimpeached, at least to the extent that the evidence comes from
disinterested witnesses.”) (citations and internal quotation marks omitted).
Next, defense counsel argued that assuming the CCRB Report provided notice of a
widespread constitutional problem, there was evidence that the District made affirmative changes
in response to that report, rendering Huthnance’s deliberate indifference argument insufficient.
They also argued that Huthnance abandoned her due process right by failing to read the form that
the officers presented to her. Id. at 137. Because those options were presented to her, she
received due process, and her Fifth Amendment claim against the District on that score should
fail. Id.
After closing arguments and deliberation, the jury returned the verdict discussed above.
Defense counsel then timely renewed its Rule 50 motion—this time in writing and under Rule
50(b)—and moved in the alternative for a new trial and remittitur. Rule 50(b) provides:
(b) Renewing the Motion After Trial; Alternative Motion for a New Trial
If the court does not grant a motion for judgment as a matter of law made under
Rule 50(a), the court is considered to have submitted the action to the jury subject
to the court’s later deciding the legal questions raised by the motion. No later than
28 days after the entry of judgment—or if the motion addresses a jury issue not
decided by a verdict, no later than 28 days after the jury was discharged—the
movant may file a renewed motion for judgment as a matter of law and may
include an alternative or joint request for a new trial under Rule 59. In ruling on
the renewed motion, the court may:
15
(1) allow judgment on the verdict, if the jury returned a verdict;
(2) order a new trial; or
(3) direct the entry of judgment as a matter of law.
(c) Granting the Renewed Motion; Conditional Ruling on a Motion for a New
Trial.
(1) In General
If the court grants a renewed motion for judgment as a matter of law, it must also
conditionally rule on any motion for a new trial by determining whether a new
trial should be granted if the judgment is later vacated or reversed. The court must
state the grounds for conditionally granting or denying the motion for a new trial.
(2) Effect of a Conditional Ruling
Conditionally granting the motion for a new trial does not affect the judgment’s
finality; if the judgment is reversed, the new trial must proceed unless the
appellate court orders otherwise. If the motion for a new trial is conditionally
denied, the appellee may assert error in that denial; if the judgment is reversed,
the case must proceed as the appellate court orders.
II. Legal Standard
After a jury trial, the Court may grant a motion for judgment as a matter of law under
Rule 50 of the Federal Rules of Civil Procedure only if it finds that “a reasonable jury would not
have had a legally sufficient evidentiary basis to find for the party on that issue[.]” Fed. R. Civ.
P. 50(a)(1). Judgment as a matter of law is proper, “considering the evidence in the light most
favorable to the [non-movants] and making all reasonable inferences in their favor,” if the Court
concludes that there is no legally sufficient evidentiary basis for a reasonable jury to have found
in their favor under controlling law. Henry v. Pelland, 73 F.3d 397 (D.C. Cir. 1996); see Fox v.
District of Columbia, 990 F. Supp. 13, 19 (D.D.C. 1997). The jury’s verdict must stand “unless
the evidence, together with all inferences that can be reasonably drawn therefrom is so one-sided
[in favor of the moving party] that reasonable persons could not disagree on the verdict,” Milone
v. Washington Metropolitan Area Transit Auth., 91 F.3d 229, 231 (D.C. Cir. 1996), that is,
unless the nonmovant’s evidence is so insufficient that a reasonable finder of fact “could not
16
possibly find for the nonmovant.” 9 Moore’s Federal Practice § 50.60[1] at 50–87 (3d ed. 2002);
accord Muldrow ex rel. Estate of Muldrow v. Re-Direct, Inc., 493 F.3d 160, 165 (D.C. Cir.
2007).
In deciding a motion for judgment as a matter of law, the Court is not to resolve
legitimately disputed issues of fact already decided by the jury. Even if the Court finds the
evidence that led to the jury verdict unpersuasive, or that it would have reached a different result
if it were sitting as the fact-finder, that is not a basis for overturning the jury’s verdict and
granting judgment as a matter of law. Id. The Court may not grant the motion unless “the
evidence is such that, without weighing the credibility of the witnesses or otherwise considering
the weight of the evidence, there can be but one conclusion as to the verdict that reasonable
[persons] could have reached.” Me, Inc. v. Taylor, 157 F.3d 139, 142 (2d Cir. 1998).
Importantly, the Supreme Court has made clear that at the Rule 50 stage, “although the
court should review the record as a whole, it must disregard all evidence favorable to the moving
party that the jury is not required to believe. That is, the court should give credence to the
evidence favoring the nonmovant as well as that evidence supporting the moving party that is
uncontradicted and unimpeached, at least to the extent that the evidence comes from
disinterested witnesses.” Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 151 (2000)
(internal quotation marks and citations omitted).
Finally, because a post-trial Rule 50(b) motion is limited to a renewal of a Rule 50(a)
motion for judgment as a matter of law, the post-trial motion is limited to those grounds that
were specifically raised in the prior motion. Thomas v. Mineta, 310 F. Supp. 2d 198, 204 (D.D.C.
2004) (citing Tolbert v. Queens College, 242 F.3d 58, 70 (2d Cir. 2001)); see also Whelan v.
17
Abell, 48 F.3d 1247, 1251 (D.C. Cir. 1995) (holding that a movant who omits a theory from his
Rule 50(a) motion waives the theory as the basis for a Rule 50(b) motion).
III. Analysis
a. Judgment As a Matter of Law
The District first argues that it’s entitled to judgment as a matter of law on Huthnance’s
First and Fourth Amendment claims because she “did not establish deliberate indifference to a
known problem by District policymakers.” Mot. Judgment Matter of Law 9–10, Apr. 28, 011,
ECF No. 241. Section 1 of the Civil Rights Act of 1871, now codified at 42 U.S.C. § 1983,
provides a cause of action for monetary damages and injunctive relief against “[e]very person
who, under color of [law] . . . subjects or caused to be subjected, any person . . . to the
deprivation of any rights, privileges, or immunities secured by the Constitution . . . .” In Monell
v. Dep’t of Social Services, 436 U.S. 658 (1978), the Supreme Court ruled that a municipality is a
“person” who can be held liable under section 1983, but only when the municipality’s “policy or
custom . . . inflicts the injury.” Id. at 694. In subsequent cases, the Supreme Court and the D.C.
Circuit have held that a city’s inaction, including its failure to train or supervise its employees
adequately, constitutes a “policy or custom” under Monell when it can be said that the failure
amounts to “‘deliberate indifference’ towards the constitutional rights of persons in its domain.’”
City of Canton v. Harris, 489 U.S. 378, 388–89 & n.7 (1989) (recognizing municipal liability
under section 1983 for failure to train adequately); see Rogala v. District of Columbia, 161 F.3d
44, 56 (D.C. Cir. 1998) (recognizing liability for failure to train or supervise); Triplett v. District
of Columbia, 108 F.3d 1450, 1453 (D.C. Cir. 1997) (noting that “inaction giving rise to or
endorsing a custom” can be the basis for section 1983 liability).
18
The District makes three arguments against the deliberate indifference verdict. First, it
argues that Huthnance presented insufficient evidence of a known problem of constitutional
magnitude. Mot Judgment Matter of Law 9. Second, it argues that Huthnance presented
insufficient evidence that the district was deliberately indifferent to a known problem. Id. at 11.
Third, it argues that the District’s failure to take specific steps was not the moving force behind
Huthnance’s constitutional deprivations. The Court will take these arguments up in turn.
The District argues that Huthnance failed to show that it was on notice of a widespread
problem of improper disorderly conduct arrests by MPD officers. Relying on Carter v. District of
Columbia, 795 F.2d 116, 124 (D.C. Cir. 1986), the District argues that the CCRB report didn’t
put it on notice. Mot. Judgment Matter of Law 10. In Carter, plaintiffs asserted constitutional
and common law claims against five police officers, the police chief, and the District of
Columbia. The trial judge directed verdicts for the police chief and two of the officers on all
claims, and for the city on the constitutional tort claim asserted against it. The jury found liability
and awarded damages on the remaining claims, and the district court entered judgments for
plaintiffs. Carter, 795 F.2d at 118.
The Carter plaintiffs charged that the city and the police chief so neglected to train,
supervise, investigate, and discipline police officers as to acquiesce in pervasive misconduct—
including use of excessive force—that caused their constitutional deprivations. Id. at 122. To
make their case, the plaintiffs offered, among other things, “21 citizen complaints, out of 1315
filed, sustained by the Civilian Complaint Review Board (CCRB) during the period August 1982
to February 1984, and referred to Police Chief Turner for action.” Id. at n.6. The Court of
Appeals found this evidence insufficient because it “does not show . . . which, if any, of the 21
complaints involved misconduct similar to the abuses alleged by plaintiffs; it reveals only—and
19
without detail—that some 428 of the 1315 complaints alleged the use of excessive force.” Id.
The plaintiffs also presented testimony and evidence of six isolated incidents of District police
using excessive force. Id. at 123. It concluded that “the assorted actual instances of misconduct
demonstrated in this case do not line up to compose a common or widespread pattern of police
misbehavior adequate to establish § 1983 liability.”
The District argues that, like Carter, “the four sustained complaints identified by the
CCRB were scattered during the period FY 2001 through FY 2003, and did not evidence a
widespread problem with disorderly conduct arrests.” Mot. J. Matter of Law 13. It points out that
the CCRB report only concluded that there was a potential problem with disorderly conduct
arrests based on its comparison of MPD’s total arrests rates for disorderly conduct with other
jurisdictions. Pl.’s Ex. 4. Moreover, those statistics were drawn from 1995–2000, and plaintiff
introduced no evidence to suggest that the difference in rates continued in the years immediately
preceding her arrest in November 2005. Id.
The District’s Carter argument fails for several reasons. First, the District assumes,
without citation to authority, that to provide “notice,” the CCRB report must comprehensively
document a “widespread” problem of constitutional dimension. That assumption can’t withstand
scrutiny for two reasons: (1) the CCRB report could provide the District notice simply by giving
it enough information that it “should have known” about the underlying constitutional problem;
(2) the CCRB report wasn’t the only evidence of this problem available to the District. The Court
will explain each of these points in turn.
Deliberate indifference liability may “be premised on obliviousness or constructive
notice.” Farmer v. Brennan, 511 U.S. 825, 841 (1994); see also Connick v. Thompson, 131 S.Ct.
1350, 1360 (2011) (“[W]hen city policymakers are on actual or constructive notice that a
20
particular omission in their training program causes city employees to violate citizens’
constitutional rights, the city may be deemed deliberately indifferent if the policymakers choose
to retain that program.”); Bd. of County Comm’rs of Bryan County v. Brown, 520 U.S. 397, 407
(1997) (“[C]ontinued adherence to an approach that they know or should know has failed to
prevent tortious conduct by employees may establish the conscious disregard for the
consequences of their action—the ‘deliberate indifference’—necessary to trigger municipal
liability.”) (emphasis added and citations omitted). In light of the CCRB report’s discussion of
several violations, the post and forfeit procedure’s tendency to render citizens’ constitutional
rights vulnerable, its conclusion that “a significant number of improper or unlawful disorderly
conduct arrests might be going unnoticed,” and its recommendations to MPD to address the
problem, the District can’t put the blinders on and pretend that it didn’t know there was a
problem.
The District’s argument invites this Court to ignore the reality of the CCRB’s function as
a notice-providing entity. Its very job is to continuously evaluate MPD’s track record to identify
problems just like the one it found here and to make recommendations for resolving those
problems. The District makes the argument that if the CCRB report’s conclusions about a few
bad arrests put it on notice, then “‘practically every large metropolitan police force, it would
seem, could be targeted for liability,’” Mot. J. Matter Law 10 (quoting Carter, 795 F.2d at 123),
but that gets it backwards; if a large metropolitan police force can ignore the thorough study and
recommendations of an independent agency it created specifically to notify it of potential
problems, then no large metropolitan police force—it would seem—could ever be “targeted” for
liability. The Supreme Court has made clear that “notice” doesn’t require actual knowledge of
the precise extent and specific contours of a constitutional problem. It refers instead to a
21
municipality’s possession of enough information that it “should have known” of a constitutional
problem. The CCRB report provided the District with enough information that it should have
known of the constitutional problem that resulted in violation of Huthnance’s constitutional
rights.
It’s true that in Carter the Court of Appeals held that evidence from the CCRB report was
insufficient to support a jury’s verdict because it “does not show . . . which, if any, of the 21
complaints involved misconduct similar to the abuses alleged by plaintiffs; it reveals only—and
without detail—that some 428 of the 1315 complaints alleged the use of excessive force.” Id. But
just because the Court of Appeals found particular CCRB evidence insufficient in one situation
decades ago doesn’t mean that all CCRB evidence is forever blackballed and incapable of
putting the District on notice of a problem. The Court of Appeals in Carter had particular gripes
with the CCRB evidence before it: (1) lack of detail, and (2) lack of evidence of similarity
between the problems reported in the CCRB evidence and the plaintiffs’ concerns. Id.
Here, the there are no such problems. Huthnance was the victim of the exact same
problem the CCRB report warned about. Nor was the CCRB report based on only a handful of
“scattered” incidents of the type Carter found “not [to] coalesce into a discernable ‘policy.’” Id.
at 123. It also rested on (1) the disproportionately high percentage of the agency’s initial group
of police complaints that involved wrongful disorderly conduct arrests, (2) that all fully-
adjudicated complaints of wrongly disorderly conduct were sustained, (3) the existence of “a
significant number” of yet-to-be adjudicated complaints that appeared consistent with the four
unlawful and retaliatory disorderly conduct arrests the CCRB did adjudicate, (4) the possibility
that the “challenging” subjective judgments called for by the disorderly conduct statute permit it
to be used as a tool for retaliatory arrests, (5) the danger that the overwhelming use of post-and-
22
forfeit for disorderly conduct arrests shields them from review, thereby tacitly encouraging
retaliatory arrests, and (6) the considerable unexplained disparity in arrest rates between the
District and comparable jurisdictions. Pl.’s Ex. 4. These details separate this CCRB report
evidence from that the Court of Appeals rejected in Carter and support the report’s conclusion
that “a significant number of improper or unlawful disorderly conduct arrests” might be going
unnoticed, and that those thus far identified “are an important warning sign that requires action.”
Pl.’s Ex. 4 at 10, 21. The CCRB report thus provided the District with constructive notice of
widespread constitutional violations.
As mentioned above, the CCRB Report wasn’t the only source of notice to the District.
Both experts testified about a study performed by Dr. James Ginger that found over 34% of
disorderly conduct arrest reports from the first six months of 2005 failed to state probable cause
for arrest. Mar. 10, 2011 P.M. Trial Tr. 75; Mar. 21, 2011 PM Trial Tr. 115–22. Both experts
agreed that, had the District reviewed the PD-163s in a systematic fashion, these deficiencies—
and the larger problem of unconstitutional arrests that they indicate—would have been identified.
Mar. 10, 2011 A.M. Trial Tr. 50; Mar. 22, 2011 A.M. Trial Tr. 47–48. Both experts also testified
that even without the CCRB Report, the District was on constructive notice because it should
have been reviewing or sampling disorderly conduct arrest reports. Mar. 10, 2011 A.M. Trial Tr.
50; Mar. 10, 2011 P.M. Trial Tr. 81; Mar. 22, 2011 A.M. Trial Tr. 44, 47–48. This testimony was
uncontradicted. The Court wants to be clear that it isn’t saying that the District should have been
on notice because of this expert testimony. Instead, the expert testimony reveals that had the
District fulfilled its obligation to review its own arrest reports as the CCRB report recommended,
it would have seen indisputable evidence of widespread constitutional violations. In short, it
should have known of these problems even without the CCRB report. That said, the CCRB report
23
did a lot of the work for the District and put it in front of the Mayor, the City Council, and MPD
on a silver platter. Thus, the jury plainly had sufficient evidence to conclude that the District was
on notice of widespread constitutional violations related to the post-and-forfeit procedure.
Next, the District argues that Huthnance presented insufficient evidence that the District
was deliberately indifferent to a known problem. It argues that in response to the CCRB Report,
and prior to Huthnance’s arrest, the District improved its training materials and modified its
arrest procedure to ensure that citizens were provided with written notice about the collateral
forfeiture process and that arrestees sign an acknowledgment of their choice to forfeit collateral.
Mot. J. Matter Law 14. Thus, there was no basis for a finding of deliberate indifference. Id. The
District cites the D.C. Circuit’s decision in Warren v. District of Columbia, 353 F.3d 36, 39
(D.C. Cir. 2004), for the proposition that deliberate indifference “simply means” that “faced with
actual or constructive knowledge that its agents will probably violate constitutional rights, a
municipality may not adopt a policy of inaction.” Because it took some affirmative steps in
response to the CCRB report’s recommendations, the District argues that it clearly didn’t adopt a
“policy of inaction” and thus there was insufficient evidence to prove that it was deliberately
indifferent. This argument fails as well.
The District bases its argument on an overly-narrow reading of “policy of inaction.” The
term “policy of inaction” doesn’t refer exclusively to those municipalities that do literally
nothing in response to a known problem. Instead, as the D.C. Circuit made clear in Daskalea,
once the District and its policymakers “were on notice,” “substantial intervention” was required
to prevent liability for deliberate indifference. Daskalea, 227 F.3d at 441. In that case, like this
one, the District argued that it couldn’t be held liable for deliberate indifference because it had
issued a policy in response to the problem. Id. at 442–43. The Court of Appeals rejected that
24
argument, holding that “a paper policy cannot insulate a municipality from liability where there
is evidence, as there was here, that the municipality was deliberately indifferent to the policy’s
violation.” Id. (citations omitted). The “affirmative steps” the District points to in this case are
the same sort of “paper policy” that Daskalea makes clear doesn’t—on its own—do the trick.
Mot. J. Matter Law 15 (“The passage of a statute, modification of . . . procedures . . . and
revision of . . . training materials . . . demonstrate that the District was not deliberately
indifferent or indifferent at all to the CCRB’s recommendations.”)Thus, it can’t be said that
doing literally anything in response to a known problem is sufficient to avoid deliberate
indifference liability. Indeed, in light of Daskalea, it’s more accurate to equate a “policy of
inaction” with a failure to undertake “substantial intervention.” Id. at 441.
In this case, Huthnance presented a great deal of evidence at trial of the District’s
deliberate indifference. She demonstrated that the District made numerous representations to the
CCRB about steps it would take to address the concerns raised and recommendations made in
the 2003 Report. See Mar. 9, 2011 A.M. Trial Tr. 66–67, 71; Pl.’s Ex. 10 at 43. Huthnance also
showed that the District in fact took almost none of the steps recommended to the CCRB, and
may well have misrepresented those that it did take. Thus, it was undisputed that, despite the
District’s representations to the contrary:
• No sampling study of disorderly conduct arrests was performed, even though the
CCRB stated that “this review is critical” (Mar. 23, 2011 A.M. Trial Tr. 128; Pl.’s
Ex. 4 at 21; Pl.’s Ex. 104);
• No videotaped message from the MPD chief emphasizing the importance of
properly applying the disorderly conduct statute was created (Mar. 11, 2011 P.M.
Trial Tr. at 7–9; Pl.’s Ex. 11 at 39; Pl.’s Ex. 57 at 44 n.20);
• The dated and ineffective disorderly conduct training video was not revised (Mar.
11, 2011 P.M. Trial Tr. 7–9; Pl.’s Ex. 11 at 39);
25
• No roll call module on disorderly conduct was presented to incumbent officers in
June 2005 or at any other time (Mar. 10, 2011 P.M. Trial Tr. 42–43; Pl.’s Ex. 11
at 39; Pl.’s Ex. 38);
• No in-service training on disorderly conduct was provided to incumbent officers
until 2007, and the in-service training had no new or different information from
what had been in the deficient academy training materials for years (Mar. 10,
2011 P.M. Trial Tr. 46–50; Pl.’s Ex. 11 at 39; Pl.’s Ex. 39); and
• The District’s touted changes to the disorderly conduct statute occurred before the
CCRB Report was issued, and didn’t actually affect the disorderly conduct
offense (Mar. 9, 2011 A.M. Trial Tr. 44–46).
The jury also heard evidence that the District’s 30(b)(6) representative falsely testified under
oath that both the revised training video and the video from the chief had been produced and
shown to in-service MPD officers, and that the District didn’t admit that these videos were never
made until mere weeks before the original trial date. Mar. 11, 2011 PM Trial Tr. 3–5, 7–9. Both
experts agreed that these misrepresentations and/or failures to act were strong evidence of the
District’s deliberate indifference. Id. at 18; Mar. 22, 2011 A.M. Trial Tr. 44, 47–48, 50–51. Mr.
Gallagher went so far as to testify that the CCRB would have felt “duped” had it known just how
little MPD actually did. Mar. 22, 2011 P.M. Trial Tr. 68–70. Thus, there was easily sufficient
evidence upon which the jury could base its conclusion that the District was deliberately
indifferent.
Finally, the District argues that Huthnance failed to prove that its deliberate indifference
caused her wrongful arrest. Mot. J. Matter Law 14. The Court declines to address this argument,
however, because the District failed to raise it in its Rule 50(a) Motion. See Mar. 11, 2011 P.M.
Trial Tr. 138–53; U.S. Indus., Inc. v. Blake Const. Co., Inc., 671 F.2d 539, 548 (D.C. Cir. 1982).
Next, the District argues that Huthnance’s Fifth Amendment claim fails as a matter of
law. Mot. J. Matter Law 15. Although the defendants raise several arguments, the only argument
that they preserved by raising it at the Rule 50(a) stage was that Huthnance had no constitutional
26
right to citation release and waived any due process right she might have had by signing the form
presented to her at the police station that contained fine print informing her of her release
options. This argument succeeds, and the Court grants judgment as a matter of law in favor of
the District and the officer defendants on Huthnance’s Fifth Amendment claim for the reasons
that follow.
The Fifth Amendment to the United States Constitution prohibits—among other things—
differential treatment of similarly situated parties absent a sufficient governmental interest. See,
e.g., Tele-Communications of Key West, Inc. V. United States, 757 F.2d 1330, 1340 (D.C. Cir.
1985). The concept of “equal protection” embodied in the Fourteenth Amendment—which
applies only against the states—is reflected in the Fifth Amendment’s Due Process Clause,
which is enforceable against the District of Columbia. Bolling v. Sharpe, 347 U.S. 497, 500
(1954) (holding, through the doctrine that has come to be known as “reverse incorporation,” that
the Fifth Amendment rights of District of Columbia plaintiffs were violated because racial
segregation cannot be justified by a legitimate government interest).
Huthnance has argued—for years now—that she has been the subject of unjustified
differential treatment by the District in violation of her equal protection rights. She contends that
the District treats citizens arrested with probable cause differently than those arrested without it
and that it does so without a justifying legitimate government interest. MPD officers arrested her,
she insists, without probable cause and then denied her information about her entitlement to
citation release as a means of coercing her to choose the post-and-forfeit procedure. They did
this, she contends, so that they could effectively shield her unlawful arrest from the scrutiny of
later review. See Jury Instructions 12; Amended Compl. ¶¶ 27, 33, 43, 78–80, 101, 103. Not only
is avoiding review not a legitimate government interest to justify this differential treatment, it
27
actually tends to impinge citizens’ rights to be free from unlawful seizure (Fourth Amendment)
and to protest unlawful arrests and criticize the police (First Amendment).
The District counters that Huthnance’s argument fails because she was offered citation
release in the fine print of a form she signed to accept the post-and-forfeit procedure at the police
station on the night of her arrest. Huthnance says she never read the form because it was brought
to her filled out with instructions to sign it so that she could go home. The Court need not resolve
the question of whether the fine print provided Huthnance with notice, however, because even if
it did, Huthnance’s Fifth Amendment claim fails. In order to show that the unlawfully arrested
were treated differently than those arrested with probable cause, Huthnance would have to have
produced evidence that those arrested with probable cause were actually given more or better
notice of their citation release option than she was. This is the very heart of differential
treatment. She didn’t produce a shred of such evidence. Therefore, even if this Court were to
agree with her that the fine print on the form didn’t provide her with any opportunity to choose
citation release, without additional evidence that those arrested with probable cause were
actually treated differently in any way, her Fifth Amendment equal protection claim must fail.
The Court notes that one might argue that—based on the jury instructions and the
Amended Complaint—Huthnance’s Fifth Amendment claim was actually a substantive due
process claim based on violation of her right to citation release. Jury Instructions 12 (“She claims
that because citation release is never presented to arrested citizens as an option, the coercive
effect of possibly spending more time custody tilts the scales heavily in favor of paying the $25
collateral at the police station for many citizens.”); Amended Compl. ¶ 76. Huthnance denies this
characterization: “Nor may Defendants prevail based upon the only argument they did preserve:
that Plaintiff was not constitutionally entitled to citation release. This argument fundamentally
28
misstates Plaintiff’s Fifth Amendment claim.” Opp’n Mot. J. Matter Law 9. Be that as it may, the
Court—out of an abundance of caution—seeks to show why this claim couldn’t succeed under
the Fifth Amendment either. The reason it couldn’t succeed is simply that there is no authority
for the proposition that arrestees have a constitutional right to citation release. Indeed, the
Supreme Court has established that the government may detain an arrestee for up to forty-eight
hours prior to a probable cause determination. County of Riverside v. McLaughlin, 500 U.S. 44,
56 (1991). In light of that clear rule, it would be odd if the Constitution also required citation
release. It is also clear that the many other jurisdictions that don’t offer citation release aren’t in
standing violation of the Fifth Amendment simply because they don’t offer that option. Thus,
Huthnance can’t persuasively argue that her Fifth Amendment rights were violated because she
wasn’t offered citation release.
Finally, she might argue that the Court still hasn’t squarely addressed her precise Fifth
Amendment claim. She could argue that she was making neither a differential treatment claim,
nor a claim that she has a constitutional right to citation release. In her opposition, Huthnance
also argues that her “Due Process rights were violated by the practice of covering up ‘contempt
of cop’ arrests by funneling arrestees through the District’s unique post-an-forfeit release
procedure. . . . This practice deprived Plaintiff of the opportunity to make a knowing and
voluntary choice with regard to her rights, and, indirectly, the right to rebut state allegations of
criminal conduct through a trial and obtaining a binding, public judgment of acquittal from the
state itself.” Opp’n Mot. J. Matter Law 9. The problem with this phrasing is that it shows up in
neither the jury instructions nor the Amended Complaint. The Amended Complaint surely can’t
cover this argument because it is clearly and explicitly premised on the equal protection
principles of the Fifth Amendment’s Due Process Clause. Amended Compl. 14. Thus, this novel
29
phraseology is foreign to this case as it has existed for several years and, more importantly, as it
was presented to the jury. Thus, there wasn’t sufficient evidence for any reasonable jury to have
ruled in Huthnance’s favor on such a theory.
For these reasons, the Court denies the District’s argument for judgment as a matter of
law in all respects except one. The motion is granted insofar as it applies to Huthnance’s Fifth
Amendment claim against the District and the defendant officers. Because she failed to produce
sufficient evidence of differential treatment, no reasonable jury could have found an equal
protection violation here.
b. Motion for a New Trial
The District has five sets of arguments that these defendants are entitled to a new trial: (1)
the verdict was severely tainted by the failure to bifurcate; (2) improper admission of evidence;
(3) improper exclusion of evidence; (4) the submission of erroneous legal theories to the jury;
and (5) the submission of erroneous instructions to the jury. After explaining the legal standard
for a motion for new trial, the Court will consider each of these arguments in turn.
i. Legal Standard for A Motion for New Trial
A district court should deny a motion for new trial unless “the court is convinced that the
jury verdict was a seriously erroneous result where denial of the motion will result in a clear
miscarriage of justice.” Webb v. Hyman, 861 F. Supp. 1094, 1109–10 (D.D.C. 1994) (internal
quotations omitted). Courts hesitate to disturb jury verdicts “to protect the jury’s function in the
judicial system.” Id. at 1109. Indeed, a motion for a new trial asks the judge to “take[] over, if []
not usurp, the prime function of the jury as the trier of the facts.” Langevine v. District of
Columbia, 106 F.3d 1018, 1023 (D.C. Cir. 1997) (citations omitted).
30
Each of the bases of defendants’ motion is committed to this Court’s sound discretion as
is the general decision about whether to order a new trial. See, e.g., Muldrow v. Re-Direct, Inc.,
493 F.3d 160, 166 (D.C. Cir. 2007) (new trial and evidentiary rulings); McLaughlin v. State
Farm Mut. Auto. Ins. Co., 30 F.3d 861, 870 (7th Cir. 1994) (bifurcation); United States v. Weisz,
718 F.2d 413, 431 (D.C. Cir. 1983) (admission of evidence). Moreover, where an alleged error
could have been cured at trial, but was not, the issue cannot be raised later. See Dorocon, Inc. v.
Burke, NO. 02-2556, 2006 WL 468009, *3 (D.D.C. Feb. 27, 2006); see also Wright & Miller, 11
Federal Practice & Procedure Civ. §2805 (2d ed.). As discussed below, none of the defendants’
many arguments justifies disturbing the jury’s verdict and granting a new trial in this case.
ii. Bifurcation
First defendants argue that the Court’s denial of their motion to bifurcate entitles the
defendant officers to a new trial because evidence relevant only to Huthnance’s claims against
the District unfairly prejudiced their case. The problem with this argument is that the decision
whether to bifurcate a trial is left to this Court’s sound discretion, and defendants have failed to
show that they were actually prejudiced by the failure to bifurcate. Moreover, the defendants
failed to take certain easy steps that would have gone a long way toward curing this error at trial.
They didn’t request limiting instructions with regard to any of the allegedly prejudicial evidence
against the officers arising from the failure to bifurcate. Moreover, they didn’t assign different
lawyers to the officers and the district, thus exacerbating the alleged problem. Finally, while it
may be true that less contempt of cop evidence would have been admissible in a trial against the
individual officers by themselves, a good portion of it surely would have been relevant and
admissible. After all, Huthnance was entitled to establish that she was a victim of that
phenomenon, just as she was entitled to elicit evidence of deficient training and supervision to
31
prove that it was more likely than not that she was wrongly arrested because the officers were
poorly trained and supervised. Therefore, bifurcation wouldn’t have rendered all or necessarily
even most of this evidence inadmissible. Simply put, the defendants have failed to prove that this
Court’s decision not to allow bifurcation in this case caused the sort of prejudice that requires a
new trial. To the extent that there was any such damage, the District won’t be heard to complain
about it now in light of its failure to take obvious steps to mitigate that damage.
Relatedly, defendants argue that the District’s discovery responses further unduly
prejudice Antonio and Acebal. During discovery, Huthnance never served any written discovery
on Acebal or Antonio. Instead, all written discovery was served upon the District. During trial,
this Court allowed Huthnance to publish written discovery responses that the defendant officers
argue prejudiced them and require a new trial. This argument fails because the Court allowed
those defendants to testify that they didn’t assist in preparing the District’s written discovery
responses and allowed a limiting jury instruction on this point. In light of those precautions and
the lack of any evidence of actual prejudice, this Court will not disturb the jury’s verdict in this
case.
iii. Exclusion of Evidence
The defendants next argue that they’re entitled to a new trial because this Court
improperly excluded: (1) a 2005 lesson plan used by MPD to train recruits at the Academy on
disorderly conduct; (2) a “radio run log” that purportedly established that Huthnance was
arrested at around 2:00 a.m. on November 16, 2005; and (3) a blank two-sided PD-67 form that
defendants failed to produce until the weekend before trial. This Court finds that these exclusions
were proper, and even if they weren’t, they were harmless errors.
32
The defendants’ argument regarding the 2005 lesson plan fails because defendants
introduced a 2005 handout on disorderly conduct that contained almost identical information and
was distributed to MPD recruits at the academy in conjunction with the lesson plan. Def.’s Ex. 3.
Thus, the exclusion of the lesson plan itself couldn’t have been the sort of prejudicial error that
would merit a new trial. Moreover, this issue has already been briefed and argued by the parties
and defendants offer no new reason for this Court to reconsider its decision to exclude the lesson
plan (because of its introduction less than two weeks before trial). Thus, there is no reason to
grant a new trial based on the exclusion of the 2005 lesson plan.
The exclusion of the radio run log has also already been briefed and argued by the
parties. Emergency Mot. Exclude Purported Dispatcher’s Report, Mar. 14, 2011, ECF No. 214;
Mar. 14, 2011 A.M Trial Tr. 2–7. The defendants add nothing new to the arguments made then,
and the Court rejects them again for the same reasons. The District’s 30(b)(6) witness
affirmatively represented that the log couldn’t be conclusively linked to Huthnance’s arrest.
Emergency Mot. Exclude 4–6. Moreover, the exclusion of the run log—even if it was error—
was harmless. There was no evidence that the call to the dispatch happened contemporaneously
with the arrest, and the time of the arrest wasn’t determinative of liability. Thus, there’s no
reason to believe that this exclusion—even if was error, which it wasn’t—was prejudicial, and it
certainly doesn’t merit a new trial.
Defendants also complain about this Court’s missing evidence instruction to the jury,
which said:
There has been testimony about a dispatcher’s report that allegedly shows the
time that the arresting officers reported Ms. Huthnance’s arrest. However, the
defendants did not introduce this document into evidence. You may infer that the
dispatcher’s report was not introduced into evidence because it does not exist or
because it contains information that would have been unfavorable to the
defendants’ case.
33
Jury Instructions 3, ECF No. 222. Defendants fail to show that this instruction was unduly
prejudicial to them. As discussed above, even if the radio run log had been admitted, it wouldn’t
necessarily have meant that Huthnance’s time line was wrong or that defendants’ was correct
because there was no evidence that the call to dispatch happened contemporaneously with her
arrest. Moreover, as mentioned above, the time of arrest wasn’t a dispositive issue in this case.
Thus, even if this instruction was error, which it wasn’t, it was harmless and doesn’t require
disturbing the jury’s verdict in favor of a new trial.
The exclusion of the blank two-sided PD-67 has also been briefed and argued by the
parties, and defendants offer nothing new here to suggest that the exclusion was erroneous.
Emergency Mot. Strike District’s Amended Discovery Responses, Mar. 6, 2011, ECF No. 208;
Mar. 7, 2011 A.M. Trial Tr. 102–04. Indeed, the defendants admit that there was “some basis for
the exclusion.” Mot. J. Matter Law 27. Moreover, its exclusion was harmless even if it was error.
Defendants argue that “it would have been impossible for [Huthnance] to win” her Fifth
Amendment claim had the two-sided PD-67 been admitted into evidence because the missing
page described the citation release option. Id. But Huthnance testified emphatically that because
Acebal told her that she’d be released if she signed the PD-67, she didn’t read the form
(including any back page that may have existed) and wasn’t advised of her right to citation
release in any other way. Indeed, even if the two-sided form had been produced, the defendants
were unable to prove that the form Huthnance received had two sides. Thus, the exclusion of the
two-sided form wasn’t prejudicial, and the Court declines to grant a new trial on this ground.
The Court also notes that some of these documents were excluded because of defendants’
discovery misconduct, and it’s clear that the exclusion of relevant and highly probative evidence
is a potential sanction for a litigant’s failure to adhere to the discovery rules. Fed. R. Civ. P. 37.
34
This isn’t to say that this Court excluded these documents to sanction defendants. Instead, the
Court notes it merely to show that these problems—to the extent there is any problem—were
preventable. All the District had to do in many instances was follow the rules. The new trial
motion can’t be used to fix problems that should have been resolved long before trial ever
started.
iv. Inclusion of Evidence
Conversely, defendants object to testimony regarding the Ginger Report, all of Longo’s
testimony, all evidence relating to the post-and-forfeit procedure, all evidence regarding events
after Huthnance’s arrest, and all CCRB reports. Mot. J. Matter Law 28–38. These points have
already been thoroughly briefed and argued by the parties and ruled on by this Court. Mot.
Limine, Sept. 3, 2010, ECF No. 160; Mot. Limine, Sept. 10, 2010, ECF No. 161; Mot. Limine,
Sept. 10, 2010, ECF No. 162; Mot. Expedite, Sept. 11, 2010, ECF No. 163; Pretrial Conf. Tr.,
Sept. 13, 2010. Defendants provide no new reasons to believe the Court’s decisions on these
matters were incorrect much less that they require a new trial.
Defendants raise several objections to the testimony regarding the Ginger Report. Mot. J.
Matter Law 28–31: (1) Ginger wasn’t subject to cross-examination; (2) “there was no testimony
of an expert in statistics as to the validity of the methodology used to select the subset of reports”
that he reviewed; (3) if Ginger had been presented as a testifying expert, he wouldn’t have been
allowed to testify; and (4) testimony regarding his report was irrelevant or more prejudicial than
probative. Id.
The Court has already ruled on these objections and there is no need to go through every
jot and tittle of the parties’ arguments on this score again because it is abundantly clear that—in
this case—even if allowing reliance on Ginger’s report was error, it was harmless. Federal Rule
35
of Evidence 703 permits a testifying expert to rely on reports prepared by others for the specific
purpose of providing a basis for the testifying expert’s opinions as long as they are “of a type
reasonably relied upon by experts in the particular field.” Both experts testified that Ginger’s
report is of a type reasonably relied upon by experts in the field. Mar. 10, 2011 A.M. Trial Tr.
42; Mar. 21, 2011 P.M. Trial Tr. 123. Moreover, to the extent that the testifying experts
“parroted” Ginger’s conclusions, nothing prevented counsel from challenging those conclusions
by cross-examining the parroting expert witness. True, that would have been difficult for
defendants in light of the fact that their own expert endorsed Dr. Ginger’s report, but that only
shows that the defendants weren’t at all prejudiced by the inclusion of this testimony. In short,
the parties’ reliance on the Ginger report simply doesn’t require a new trial.
Defendants go on to argue that Longo’s testimony should have been excluded because:
(1) he was merely a “mouthpiece” for Dr. Ginger; (2) his testimony was “rife” with subjective
opinions; (3) he made legal conclusions in violation of Federal Rule of Evidence 702; (4) he
testified as to an ultimate issue; (5) his testimony wasn’t based on a standard of care and/or
wasn’t based on a comparison with the practices of other jurisdictions; (6) his opinions regarding
post-and-forfeit were “impermissibly subjective”; and (7) his testimony’s unfair prejudice
outweighed its probative value.” Mot. J. Matter Law 31–35. These arguments all fail.
First, although it’s true that Longo testified that he relied upon Ginger’s report, he also
testified that he performed his own independent review of the PD-163 arrest reports and
extensive case materials in forming his opinion. Mar. 10, 2011 A.M. Trial Tr. 46; Mar. 10, 2011
P.M. Trial Tr. 9; Mar. 11, 2011 A.M. Trial Tr. 85. Moreover, his testimony was extensive and
covered more ground than just Dr. Ginger’s report.
36
Second, defendants provide no examples of Dr. Ginger’s “subjective” opinions, nor any
explanation of how those opinions had an impermissible effect on the jury. Mot. J. Matter Law
31. Without more, this bare bones conclusory argument is simply insufficient to merit a new
trial.
Third, defendants’ argument that Longo testified as to legal conclusions is unpersuasive.
Although it’s true that experts shouldn’t testify as to legal conclusions, an expert may use terms
such as “probable cause” or “deliberate indifference,” as long as he or she uses them in a manner
that is readily understood by the jury and not likely to cause confusion or lead the jury to an
incorrect view of the law. Burkhart v. WMATA, 112 F.3d 1207, 1212–13; see also Hayter v. City
of Castle Rock, 154 F.3d 269, 274 (5th Cir. 1998) (allowing police practices expert to conclude
“that no reasonable officer could believe that he or she had probable cause” to make arrest at
issue). Defendants fail to point to any instance in which Longo’s testimony could have possibly
led the jury to an incorrect legal conclusion or a conclusion inconsistent with the jury
instructions. Indeed, it’s hard to imagine how a plaintiff could ever make a case for a violation of
the type alleged here without offering such testimony. Finally, to the extent there was error here
despite the arguments above, that error was harmless, especially in light of the fact that
defendants elicited the same sort of testimony from their own expert. Mar. 14, 2011 P.M. Trial
Tr. 114–20.
Fourth, defendants also fail to cite any instance of Longo testifying to an ultimate issue,
but even if they had, this argument would fail. Federal Rule of Evidence 704(a) makes clear that
experts may testify to ultimate issues. Moreover, defendants fail to show how any such testimony
was so prejudicial as to require a new trial.
37
Fifth, defendants argue that Longo’s testimony was inadmissible because it wasn’t based
on a standard of care or grounded in a comparison of the District’s practices with those of other
jurisdictions. But Longo clearly had an adequate basis for his testimony: he had three decades of
personal experience as a police officer, trainer, supervisor, and he was familiar with generally
accepted police practices. Expertise gained through personal experience is a valid basis for
expert testimony. See, e.g., United States v. Parra, 402 F.3d 752, 758–60 (7th Cir. 2005). This
Court accepted Longo’s qualifications and admitted him as an expert to testify following defense
counsel’s voir dire. Mar. 10, 2011 A.M. Trial Tr. 41. Thus, defendants can’t argue that Longo’s
testimony was without basis.
Moreover, the requirement that an expert articulate a “standard of care” applies to
negligence cases, not § 1983 municipal liability cases under Monell and its progeny. The two
cases defendants cite for the proposition that expert testimony must be based on a standard of
care address negligence claims. Mot. J. Matter Law 32 (citing Nat’l Tel. Coop. Ass’n v. Exxon
Mobil Corp., 244 F.3d 153, 154, 157 (D.C. Cir. 2001); Butera v. District of Columbia, 235 F.3d
637, 659 & n.29 (D.C. Cir. 2001). Even if this weren’t the case, nothing about this objection
indicates the sort of serious prejudice that would require a new trial.
Defendants also argue that Longo’s testimony should have been excluded because “he
had not done any studies or any analyses to figure out what other jurisdictions did to train on
either disorderly conduct or post-and-forfeit.” Mot. J. Matter Law 32. But “deliberate
indifference” liability isn’t based on failure to abide by prevailing standards. It is premised on
failing to provide training or supervision that is obviously necessary in light of the particular
facts that are actually known of that should be known to the municipality. City of Canton v.
38
Harris, 489 U.S. 378, 390 (1989). Defendants’ objection simply has no legal basis and even if it
did, they’re unable to show the sort of undue prejudice necessary to require a new trial.
Sixth, defendants object to Longo’s testimony regarding the post-and-forfeit procedure
because he had no personal experience with the procedure. Mot. J. Matter Law 32. But Longo
did testify about his extensive experience arresting people, including reviewing arrest reports for
adequacy of probable cause. Mar. 10, 2011 A.M. Trial Tr. 7, 12–13; Mar. 11, 2011 A.M. Trial
Tr. 5–9, 20–27. These experiences and his review of materials explaining the nature of post-and-
forfeit formed an adequate basis for his opinions. Importantly, if defendants were correct, no
expert in police practices, no matter how well-qualified, could opine regarding post-and-forfeit
unless he or she had worked as a police officer in the District of Columbia and used that
procedure personally because the District of Columbia is the only jurisdiction in the country to
use that procedure. Such a rule would insulate the most exotically unjust and newfangled of
police practices from criticism because of the scarcity of police practices experts who had
worked under them. It’s unsurprising, then, that defendants’ proposed rule—and its ironically
unfortunate consequence—isn’t the law.
Seventh, defendants’ argument that Longo’s testimony should be excluded under Rule
403 is unpersuasive. The only case the defendants cite holds that expert testimony should be
excluded under Rule 403 if it’s “on a subject that is well within the bounds of a jury’s ordinary
experience.” United States v. Montas, 41 F.3d 775, 784 (1st Cir. 1994). In fact, even where that
Court found such objectionable testimony, it still didn’t require a new trial. Id. This Court
concludes that new trial would be inappropriate here where there is no indication of undue
prejudice.
39
Defendants go on to argue that all evidence of post-and-forfeit should have been
excluded at trial. Mot. J. Matter Law 35. This argument fails before it gets started because it
could have been cured at trial and was not. Dorocon, Inc. v. Burke, NO. 02-2556, 2006 WL
468009, *3 (D.D.C. Feb. 27, 2006); see also Wright & Miller, 11 Federal Practice & Procedure
Civ. §2805 (2d ed.). Indeed it was never raised at trial. That said, it also fails because defendants
fail to explain how the admission of post-and-forfeit evidence was prejudicial to them.
Next, defendants argue that evidence of post-2005 occurrences should have been
excluded, and that its admission was prejudicial to them. Mot. J. Matter Law 35–36. There are
several reasons to reject this argument, but the most obvious one is that defendants can’t argue
that this evidence was prejudicial to them because they included similar evidence on their exhibit
list and introduced it at trial. Joint Pretrial Statement 19, Mar. 3, 2010, ECF No. 121; Notice of
Filing, Nov. 3, 2010, ECF No. 186. Moreover, there’s no legal basis for defendants’ argument. A
municipality’s post-incident conduct is relevant and admissible on Monell claims because it can
shed light on what policies existed at the time of the incident. See, e.g., Bordanaro v. McLeod,
871 F.2d 1151 (1st Cir. 1989). Finally, even if defendants were correct, they’ve failed to show
that the admission of this evidence was unduly prejudicial.
The defendants also argue that the CCRB reports and all testimony regarding them
should have been excluded because the reports “contain hearsay.” Mot. J. Matter Law 37. This
argument is wholly unpersuasive. First, it wasn’t raised before and is therefore barred at this
stage. Dorocon, Inc. v. Burke, NO. 02-2556, 2006 WL 468009, *3 (D.D.C. Feb. 27, 2006); see
also Wright & Miller, 11 Federal Practice & Procedure Civ. §2805 (2d ed.). Second, the hearsay
rule doesn’t bar admission of the CCRB reports because they’re public records of a
governmental agency, setting forth “factual findings resulting from an investigation made
40
pursuant to authority granted by law.” Fed. R. Evid. 803(8)(C). Third, the reports aren’t hearsay
to the extent they’re offered to show notice. Fed. R. Evid. 801(c).
v. Jury Instructions
Defendants level three objections to the jury instructions. They claim that (1) the
instruction on the disorderly conduct (loud and boisterous) statute is incorrect as a matter of law
or, at the very least, not a “clearly established interpretation of the statute; (2) the Court erred in
denying their proposed jury instruction on probable cause; and (3) the missing witness
instruction was improper. None of these arguments is persuasive.
Defendants object to the instruction explaining the elements —and thus probable cause
for arrest under—former D.C. Code § 22-1321(3), as interpreted by the D.C. Court of Appeals in
In re T.L., 996 A.2d 805 (D.C. 2010). They first argue that the instructions were wrong to state
that Huthnance’s alleged yelling wasn’t a violation of the law if it was “a reasonable protest of
the defendant officers’ unlawful or improper restrictions” on her liberty. Mot. J. Matter Law 38.
The problem with this argument is that the instruction properly captures, through the words
“reasonable,” “unlawful,” and “improper,” the balance between permitting protests of unlawful
police action and protecting the peace of sleeping residents that the T.L. Court implied must be
struck. 996 A.2d at 812–14.
Defendants also insist that the statute criminalized more than just “conduct disturbing
those inside their homes,” and that the inclusion of such a limitation in the instructions requires a
new trial. Mot. J. Matter Law 38–39. Defendants raised this argument at the hearing on jury
instructions on March 23, 2011. This Court rejected it then, and the defendants offer no new
argument in support of it. Mar. 23, 2011 A.M. Trial Tr. 18–25. Moreover, there is no reason to
believe that removal of the allegedly objectionable instruction would have altered the jury’s
41
verdict. Huthnance and her fact witnesses—including one MPD supervisor—testified that she
wasn’t yelling or making loud noises of any kind, at any point. In any case, the jury affirmatively
found that she was arrested because of the content of her speech, not its volume. Jury Instruction
10–11; Verdict Form 2.
Defendants’ objection that the instruction interpreting D.C. Code § 22-1321 shouldn’t
have been given because it wasn’t “clearly established law” is totally without merit. The “clearly
established law” question has to do with the qualified immunity analysis, not whether
Huthnance’s rights were violated. In any event, defendants waived this objection by not raising it
prior to the charging of the jury. Fed. R. Civ. P. 51(c)(1) & (d)(1)(A); Parker v. District of
Columbia, 850 F.2d 708, 715 (D.C. Cir. 1988); see also See Dorocon, Inc. v. Burke, NO. 02-
2556, 2006 WL 468009, *3 (D.D.C. Feb. 27, 2006); see also Wright & Miller, 11 Federal
Practice & Procedure Civ. §2805 (2d ed.). The same is true of defendant’s objection that this
Court’s failure to give their proposed instruction on probable cause requires a new trial. Fed. R.
Civ. P. 51(c)(1) & (d)(1)(A); Parker v. District of Columbia, 850 F.2d 708, 715 (D.C. Cir. 1988);
see also See Dorocon, Inc. v. Burke, NO. 02-2556, 2006 WL 468009, *3 (D.D.C. Feb. 27, 2006);
see also Wright & Miller, 11 Federal Practice & Procedure Civ. §2805 (2d ed.).
Finally, defendants claim that a new trial is warranted because of an improper missing
witness instruction. Mot. J. Matter Law 39–40. Antonio testified on cross-examination that two
previously unidentified individuals—an MPD officer named Crowley and a neighborhood
resident named Elena—were present in the vicinity of and witnessed Huthnance’s arrest. Mar.
14, 2011 A.M. Trial Tr. 63–64, 80–81. Because these witnesses hadn’t been disclosed in
discovery, this Court granted a missing witness instruction. Mar. 23, 2011 A.M. Trial Tr. 13–16;
Jury Instructions 3. Defendants claim that the instruction was improper because “the identity of
42
the person who transported plaintiff was of no (or limited) importance or relevance, and because
plaintiff never sent any written discovery to defendant Antonio.” Mot. J. Matter Law 39. These
arguments fall short.
First, the fact that Huthnance didn’t serve written discovery on Antonio is irrelevant
because he was questioned during his deposition about MPD and civilian witnesses to the arrest,
and testified that he didn’t recall the names of any such persons. Mar. 23, 2011 A.M. Trial Tr.
14–15. Second, defendants’ claim that Crowley’s identity was of little or no relevance is flat
wrong. Huthnance went to great lengths in discovery to identify and depose every individual
with first-hand knowledge of her arrest because she was convinced that they would corroborate
her position that she broke no law and was unconstitutionally arrested. The testimony of the only
two neutral eyewitnesses in this case—Marsoni and MPD Sgt. Michael Smith—both strongly
corroborated Huthnance’s case, and there is no reason to believe that “Elena” and Crowley
wouldn’t have done the same. Antonio’s testimony prejudiced Huthnance because it implied that
Huthnance didn’t call those witnesses because their testimony would be favorable to the defense,
and because she was deprived of the opportunity to use them to bolster her defense. The missing
witness instruction was therefore appropriate. Moreover, even if it were incorrect, defendants
have failed to show that it caused them undue prejudice requiring this Court to disturb the jury’s
verdict and order a new trial.
vi. Remittitur
Defendants argue that they’re entitled to remittitur on the ground that the compensatory
damages were excessive and that the evidence was insufficient to support punitive damages, but
neither argument is persuasive.
43
The Court need not tarry long on defendants’ objections to the amount of damages in this
case. A defendant claiming that a jury returned an excessive verdict must show that the amount
is “‘beyond all reason’ or ‘so great as to shock the conscience.’” Langevine v. District of
Columbia, 106 F.3d 1018, 1024 (D.C. Cir. 1997) (citation omitted). It isn’t enough to claim that
the award was “generous”; rather, it must constitute a “miscarriage of justice” to be reversible.
Id. at 1024 (citations omitted). This is a “heavy burden.” Carter v. Duncan-Huggins, Ltd., 727
F.2d 1225, 1239 (D.C. Cir. 1984). As the D.C. Circuit observed, the Court’s role in a remittitur
analysis is sharply limited:
In reviewing the actual amount of a jury’s award, our task is limited and a
reluctance to interfere is our touchstone. This limited role reflects the obvious fact
that we are not privy to the jury’s deliberations. In reviewing the amount of the
jury’s award, we thus need not—and indeed cannot—reconstruct the precise
mathematical formula that the jury adopted. Nor need we explore every possible
quantitative analysis or compute the basis of each penny and dollar in the award.
Our inquiry ends once we are satisfied that the award is within a reasonable range
and that the jury did not engage in speculation or other improper activity.
Id. at 1238–39. Moreover, a jury’s verdict is due particular deference “in cases involving
intangible non-economic injuries.” Langevine, 106 F.3d at 1024. Finally, a defendant alleging
that improper considerations influenced the award cannot succeed without “affirmatively
show[ing] . . . specific facts and circumstances from which [the court] may infer that the jury was
influenced by passion, prejudice or bias.” Ortega v. Kansas City, 659 F. Supp. 1201, 1212 (D.
Kan. 1987).
Defendants here can make no affirmative showing that the jury was inflamed by passion
or prejudice. The fact that the jury found Officer Morales not liable while finding Officers
Antonio and Acebal liable actually indicates that the jury was thoughtful and reflective about its
damages disbursement. If they were really inflamed with passion against the District and the
44
officers, then they would have blindly gone after all of them instead of carefully allotting specific
liability and damages to each officer.
Defendants argue that “[d]uring closing argument, plaintiff’s counsel impermissibly
asked the jury to award plaintiff $100,000.” Mot. J. Matter Law 40. There are at least two
problems with this argument. First, defendants waived it by failing to timely object or seek a
curative instruction. Hooks v. Wash. Sheraton Corp., 578 F.2d 313, 317 (D.C. Cir. 1977)
(holding that an objection to counsel’s closing argument wasn’t preserved where no timely
objection was made); see also Chicago & N.W. Ry. Co. v. Green, 164 F.2d 55, 64 (8th Cir. 1947)
(“A party is not entitled as a matter of right to seek a reversal for improper argument to the jury,
where he fails to make objections during its course or to take exceptions promptly at its close.”).
Second, even if the argument wasn’t waived, it lacks merit. At closing argument,
Huthnance’s counsel stated, “you’re going to hear that [Ms. Huthnance] doesn’t care about
whether you give her $1 or $1 million. What she cares about is reclaiming her name and her
reputation and not having an arrest record . . . .” Mar. 23, 2011 P.M. Trial Tr. 11. Later he said:
[Huthnance] would tell you . . . the money isn’t what matters, the money isn’t
what matters. If you want to give her a dollar, if you want to give her a hundred
dollars, if you want to give her $10,000, if you want to give her $100,000. What
matters is a judgment in her favor for some monetary relief that shows that yes,
her constitutional rights were violated. Yes, her right to not be falsely arrested
was violated. We ask you to return a verdict on every single count in her favor. If
it’s only for a dollar, if it’s for a thousand dollars, I ask you for a hundred
thousand dollars, cumulatively. And I thank you for all of your attention in this
case.
Id. at 97–98. Thus, Huthnance’s counsel (1) stressed that the amount of monetary damages
awarded was of minimal importance, (2) named numerous dollar amount ranging from one
million dollars to one dollar, and (3) convinced the jury to award an amount of damages in the
far low end of that range. This is not an indication of a jury that was acting out of inflamed
45
passions, and it is not an indication of a jury that was improperly influenced by plaintiff’s
counsel.
Furthermore, the damages award in this case was not excessive. Although Huthnance
presented “no evidence of physical injury or loss in pay,” she did testify to mental anguish
caused by the trauma of the arrest and by her wrongful arrest record, and the burden of having to
travel from New Zealand to the U.S. for the trial. Mot. J. Matter Law 40. The compensatory
damages award is adequately supported by the jury’s evaluation of her mental and emotional
suffering alone. As mentioned above, such an evaluation receives particular deference from
reviewing courts because it depends on the jury’s evaluation of her demeanor and truthfulness.
Edman v. Marano, 177 F. App’x 884, 888 (11th Cir. 2006). In short, this jury’s determination is
reasonable and should not be disturbed. See, e.g., Langevine, 106 F.3d at 1020–21 (upholding a
jury’s award of $200,000 in a 1993 trial under facts strikingly similar to those presented here).
Regarding the punitive damages award, the evidence was ample to sustain the award. For
example, in finding liability for First Amendment violations, the jury found that the defendant
officers arrested Huthnance for the content of her speech. Defendants cannot, and indeed make
no attempt to, explain how they could have arrested Huthnance based on the content of her
speech and yet not acted with reckless disregard for her constitutional rights. See, e.g., Smith v.
Wade, 461 U.S. 30, 33 (1983) (holding that the standard for punitive damages is “reckless or
callous indifference to the federally protected rights of others” shown by a preponderance of the
evidence). In fact, the jury had ample evidence of actual animus before it. For instance, the arrest
report falsely described Huthnance as a “female impersonator” and said that her modus operandi
was hatred of police. Pl.’s Ex. 1 at 1. Antonio testified that this report was written while all three
officers were present in a room, together, recalling the events of the arrest. Mar. 11, 2011 P.M.
46
Trial Tr. at 77, 117. The jury could properly infer that these inaccuracies weren’t oversights, but
were instead intentional jokes at Huthnance’s expense by officers who were outraged by her
speech and her challenge to their authority, and who had arrested her for that reason. The jury
could have reasonably rejected the officers’ denials of animus, based on their substantial
impeachment on cross-examination with the inconsistencies between each officer’s testimony
and the changes in each officer’s testimony over time. Mar. 23, 2011 P.M. Trial Tr. at 10–11,
19–21, 28–30. Based on all of the evidence before the jury, it could have reasonably concluded
that the officers knowingly made an illegal arrest because they didn’t like Huthnance’s speech
and her conduct and fabricated their testimony to the contrary. That finding sufficiently justifies
the punitive damages award in this case, which was moderate and calibrated to a reasonable
understanding of each officer’s relative responsibility for Huthnance’s injuries.
The Court notes that its decision to grant defendants’ judgment as a matter of law on
Huthnance’s equal protection claim doesn’t change its conclusion that the jury’s damages award
in this case was entirely reasonable and doesn’t entitle defendants to any reduction in the amount
of the award. The award in this case was moderate, and it remains unexceptionable even if none
of it may be attributed to Huthnance’s equal protection claim. The gravamen of her damages
award clearly related to her false arrest and the constitutional violations related to it, not
procedural niceties post-arrest.
IV. Conclusion
For the reasons discussed above, the defendants’ Motion for Judgment as a Matter of
Law is granted in part and denied in part, and their Motion for a New Trial or Remittitur is
denied. A separate order memorializing this opinion’s reasoning will issue today.
47
Signed by Royce C. Lamberth, Chief Judge, on July 19, 2011.
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484 F.Supp. 647 (1979)
John George BUSBY, Plaintiff,
v.
WORTHEN BANK & TRUST CO., N.A., Defendant.
No. LR-76-C-251.
United States District Court, E. D. Arkansas, W. D.
February 21, 1979.
*648 John F. Forster, Jr., North Little Rock, Ark., for plaintiff.
Robert S. Lindsey, John R. Tisdale, Little Rock, Ark., for defendant.
OPINION
ARNOLD, District Judge.
This is a suit in equity for removal of a trustee. The case was tried to the Court on January 23 and 24, 1980. The plaintiff, John George Busby, is one of the beneficiaries of the trust. For jurisdictional purposes, he is a citizen of the Commonwealth of Virginia. The defendant, Worthen Bank & Trust Company, a national banking association, is the sole trustee at present. For jurisdictional purposes, it is a citizen of the State of Arkansas. This court therefore has jurisdiction under 28 U.S.C. § 1332(a)(1).
Anna F. Massery, the settlor, created the trust by declaration on March 16, 1962. Originally there were two trustees: Worthen and John Vincent Busby, M.D., then the son-in-law of the settlor. Paragraph 1 of the trust instrument specifies that the name of the trust is the "Thelma M. Busby Trust," Thelma M. Busby being the daughter of the settlor and the then wife of John Vincent Busby, one of the original co-trustees. Under paragraph 3, the trustees are first directed to distribute to Ida Lock $100 per month. Mrs. Lock, who has since died, was the sister of the settlor. Paragraph 3 goes on to provide as follows:
The trustees may distribute such portion of the remaining net income or principal of the Trust to THELMA M. BUSBY and her children or to any one or more of them at such times and in such proportions as the Trustees, in their sole discretion, may determine to be needed for the care, education or welfare of such beneficiaries in accordance with their present standard of living.
Thelma M. Busby and John Vincent Busby had five children. Thus, there have been at one time or another seven beneficiaries of the trust, Mrs. Lock, Mrs. Busby, and the five Busby children. John George Busby, the plaintiff in this suit, is the oldest of these children.
On January 30, 1970, Thelma M. Busby was granted a divorce from John Vincent Busby. On February 1, 1974, after some inconclusive litigation in the Chancery *649 Court of Pulaski County, Arkansas, John Vincent Busby resigned as one of the cotrustees. Under paragraph 6 of the Declaration of Trust, Dr. Busby could have appointed some one to succeed him as a cotrustee. He elected not to do so. Under the same paragraph, Thelma M. Busby and Worthen could then have appointed a successor to Dr. Busby. They also elected not to do so, with the result that Worthen, ever since February 1, 1974, has been the sole trustee.
Removal of Worthen is requested on five separate grounds. Each of these grounds will be discussed in turn.
First. Plaintiff claims that "Worthen has exhibited favoritism towards and has been overly generous with one beneficiary," that is, his mother, Thelma Busby. Mrs. Busby has received distributions far in excess of the sums expended by the trustee for the benefit of the other beneficiaries, her five children. No purpose would be served by detailing each of ther expenditures. It is sufficient to say that all of these payments were made by Worthen in good faith and for Mrs. Busby's benefit. There is no evidence that any of the payments complained of benefited the trustee itself in any way, or that any fraud was involved. Under the trust instrument, distributions of income and principal are to be made "to any one or more of" the beneficiaries "at such times and in such proportions as the trustees, in their sole discretion, may determine to be needed for the care, education or welfare of such beneficiaries in accordance with their present standard of living." It would be difficult to conceive of broader language, and the Court is not authorized to substitute its judgment for the discretionary choices made by Worthen as trustee.
No abuse of discretion has been shown. Quite the contrary. The settlor obviously intended Mrs. Busby to be the primary beneficiary. The trust was given her name. She alone of all the beneficiaries was given the power to participate in the nomination of a successor trustee. When the trust was created the settlor's oldest grandchild was nine years old. One of the beneficiaries, James Baeder Busby, had not even been born. The settlor must have had her daughter primarily in mind when the trust was created. In addition, quite apart from any intention of the settlor manifested at the time of the creation of the trust, Mrs. Busby's circumstances have naturally placed her in a position of greater need. She is not able to earn her own living, at least not sufficiently to match the standard of living she enjoyed in 1962. She was divorced from her husband in 1970 after a marriage of 19 years and is probably not equipped to compete on the job market. She has some history of emotional difficulty. In view of all these factors, the Court finds that the trustee, in making payments to Mrs. Busby substantially in excess of those made for any other beneficiary, has been faithful to the trust instrument.
Second. The plaintiff next claims that "Worthen ... violated the trust and its fiduciary duty by making distributions and investments without the approval or concurrence of the co-trustee." A number of payments made to or for the benefit of Mrs. Busby between 1969, when she and her husband were separated, and 1974, when her husband resigned as co-trustee, are complained of. There is no doubt that Worthen took several actions without the concurrence of Dr. Busby, and that in doing so it violated the terms of the trust instrument. The instrument did not give any powers to either of the co-trustees individually. All powers were granted to the co-trustees collectively. On the other hand, most of the payments questioned were later ratified by Dr. Busby. This cannot be said of a series of payments of $400 a month beginning on January 30, 1970, the date of entry of the divorce decree, and ending on August 1, 1970. These payments were not even known to Dr. Busby until May 19, 1970, and when he later protested, they were stopped. The payments were resumed, but in a reduced amount, as of September 1, 1970, the resumption having been directed by an order of the Chancery Court of Pulaski County, Arkansas. Whether the making of unauthorized payments *650 from January through August of 1970 is sufficient to justify removal of Worthen as trustee will be discussed later in this opinion. The Court has not considered whether to surcharge Worthen for these payments. Plaintiff has expressly disclaimed any request for such relief.
Third. Plaintiff next asserts that "Worthen has managed the Trust assets imprudently and in breach of its fiduciary duty." This claim centers around plaintiff's theory that the return on the trust capital has been unreasonably low. A witness for the plaintiff has computed the annual yield on the trust assets for each year since 1965. Under his computations, the yield varied from 2.26% in 1973 to a high of 7.52% in 1968. In these days of inflation, the prudence of a trustee who could secure no greater return on investment might be questioned, but other evidence conclusively shows that the method of computation used by the plaintiff's expert is not reliable. The figures given are cash flow only. That is, no account is taken of the capital appreciation in value of the trust assets. When this factor is taken into account, the total rate of return over the life of the trust comes out to 7.97% after trustee's fees. For the year ending February 28, 1979, the rate of return was 16.4%.
The rate of return between 1962 and 1979 of 7.97% compares favorably with the performance of several recognized economic indices. The total rate of return for long-term government bonds over this period of time was 3.3% per year; for treasury bills, 5.1%; and for the consumer price index, surprisingly, only 4.9%. The beginning value of the trust was $199,806.89. Additional capital contributions were made in 1968 and 1969 in a total amount of $214,256.82. A total of $531,692.64 has been paid out over the years, but the market value of assets left in the trust as of February 28, 1979, was still $298,303.44. In addition, some of the assets of the trust, from time to time, have been real property occupied rent-free by beneficiaries. If those assets had been income-producing, the rate of return would have been even higher. No doubt the beneficiaries would have liked a higher yield, but based on all the evidence the Court must say that Worthen's performance was at least adequate, if not better. Some point was also made of the fact that the annual accountings have been lacking in detail and that some of the payments could have been more fully described. None of the individual beneficiaries testified that he or she had been misled, or that any information requested of the trustee had ever been denied. The evidence in support of this third allegation wholly fails to show any misconduct on the part of the trustee.
Fourth. Each of the grandchildren of the settlor testified that there were feelings of hostility between the beneficiaries and Worthen. Officers of the Bank, they complained, had been discourteous and insensitive. To be sure, some of the grandchildren did not get as much money from the trustee as they wanted, and sometimes the trustee probably seemed unsympathetic. Though the desires of the beneficiary are relevant, they cannot be controlling. Worthen was selected by the settlor. She had particular confidence in it. Further, not all of the beneficiaries are dissatisfied with Worthen. Mrs. Busby signed an affidavit asking that Worthen be removed, and the affidavit is in evidence, but her expression and demeanor while on the witness stand, even though for a brief time, clearly indicated that she did not want Worthen removed. The friction between Worthen and some of the beneficiaries was not so great as to interfere with the proper administration of the trust and cannot therefore be a ground for removal of the trustee. Restatement, Trusts 2d § 107(a), comment c, cited with approval in Riegler v. Riegler, 262 Ark. 70, 553 S.W.2d 37 (1977). Accord, Scott, Trusts § 107, at pp. 844-45 (3d ed. 1967).
Fifth. The most serious allegation relates to an incident of self-dealing by Worthen which involved the renegotiation in August, 1974, of a note which was at that time, and still is, an asset of the Trust.
On February 23, 1960, Dr. John V. and Thelma M. Busby executed a note for $21,926.25 to George W. and Anna F. Massery, *651 the parents of Thelma M. Busby. The note was secured by a mortgage on a home which was purchased with the proceeds of the loan. Mr. Massery delivered the note to Block Realty Company for collection. He died in 1961 and left his estate to his wife, Anna. Anna died in 1963, bequeathing her estate to Worthen as trustee of the Thelma M. Busby Trust, which as noted above, had been created by declaration of trust dated March 16, 1962. The assets of the estate, which included this note, were not delivered by the executor of Anna's estate, Dr. John V. Busby, to Worthen until 1967. On July 1, 1964, before the assets of the estate were delivered to Worthen, the Busbys sold their home to John E. and Joyce D. Lock; Mr. Lock is a first cousin of Mrs. Busby and the son of Ida Lock, one of the beneficiaries of the Trust. The Locks assumed the unpaid balance of $16,442.31 on the note. The sales contract provided that the note would continue to bear interest at the rate of 3% per annum and would be payable in the amount of $66.00 monthly, plus taxes and insurance,
... until (maturity date) May 10, 1973 at which time the note will be renegotiated or paid in full. ***
Should said note be negotiated, by the Locks, it shall bear interest at the rate of six percent (6%) per annum from the date of negotiation until paid.
The above quoted portions of the contract which are underlined were handwritten, and "JVB" was initialed beside them. Worthen had nothing to do with the negotiation of this contract.
In June, 1973, John Lock notified Worthen that the note had matured on May 10, 1973, and that he wished to renegotiate the loan. In August, 1974, the loan was renegotiated; the Locks executed a new note dated August 19, 1974, in the amount of $14,892.76, which included the principal balance of $13,513 on June 19, 1973, interest at 6% from that date until August 19, 1974, and the real estate taxes which were then due. The new note bore interest at the rate of 6% per annum, in accordance with the terms of the original sales contract between the Busbys and the Locks. Thelma Busby, the primary beneficiary of the trust, approved the terms of the renegotiated note. In 1974 John Lock was an employee of Worthen, and had been since about 1956. He is still an employee either of Worthen or of its parent, First Arkansas Bankstock Corporation (FABCO).
The plaintiff argues that the loan to the Locks in August, 1974, was a violation of 12 U.S.C. § 92a(h), which reads:
It shall be unlawful for any national banking association to lend any officer, director, or employee any funds held in trust under the powers conferred by this section [to act as a trustee or in other fiduciary capacity].
Worthen, on the other hand, argues that the renegotiation of the loan was perfectly legal because it was required by the terms of the July 1, 1964, sales contract between the Busbys and the Locks, which the trust had inherited. Worthen argues that as trustee, it had no choice but to abide by the terms of the contract and allow the Locks to renegotiate. The Court cannot agree. The prohibition of the statute is clear: it is unlawful for a national bank to lend an employee any funds held in trust, and that is what occurred in this case. There are mitigating factors, of course. There is no evidence that Worthen was motivated by self interest or other ulterior consideration in making the loan. Still, the loan violated the clear prohibition of the statute. Whether this is a sufficient ground for removal, when considered alongside other conduct of the trustee, will be discussed later.
Worthen relies also on 12 C.F.R. § 9.12(b) (1974)[1] which provides:
*652 (b) Property held by a national bank as fiduciary shall not be sold or transferred, by loan or otherwise, to the bank or its directors, officers, or employees, or to individuals with whom there exists such a connection, or organizations in which there exists such an interest, as might affect the exercise of the best judgment of the bank in selling or transferring such property, or to affiliates of the bank or their directors, officers or employees, except:
(1) Where lawfully authorized by the instrument creating the relationship or by court order or by local law; ***
Worthen argues that the loan fell within the exception set forth above because it was "lawfully authorized by the instrument creating the relationship" and "by local law." The Court cannot agree. The instrument creating the relationship is the trust declaration, not the sales contract, as suggested by Worthen. Other portions of Part 9 of Title 12 make this clear. For example, 12 C.F.R. § 9.11 (1974) requires that funds held by a bank in a fiduciary capacity be invested in accordance with the "instrument establishing the fiduciary relationship . .," and Part 9 when read as a whole makes clear that the "instrument" referred to in the self-dealing provisions of § 9.12(b) is the document which creates the trust relationship. The declaration of trust does not authorize loans to employees of Worthen or FABCO. Nor was the loan authorized "by local law." Worthen suggests that this term encompasses the common law of Arkansas governing contracts; since the law of Arkansas governing contract relations requires parties to abide by the terms of a contract lawfully negotiated, Worthen argues that the loan to Lock was authorized "by local law." The contention must be rejected. 12 C.F.R. § 9.1(f) (1974) defines local law as the "law of the State or other jurisdiction governing the fiduciary relationship." Worthen has cited no law of Arkansas, and the Court is aware of none, which would allow a trustee to make a loan to its employee or the employee of its parent company. It follows that the renegotiation of the loan to the Locks in August, 1974, violated the self-dealing provisions of 12 C.F.R. § 9.12(b) (1974).
The arguments earnestly advanced by the Bank, that it was required by contract to renegotiate the loan to John Lock, and that the contractual provision requiring renegotiation was already in existence when the note became an asset of the Trust, are not without force. The dispositive point, in this Court's judgment, however, is that Worthen is the trustee of an express trust. As such, it is subject to what is probably the highest standard of fiduciary duty known to the law. Doubts must be resolved against the trustee, and against its employees, and in favor of the beneficiaries. See Scott, Trusts §§ 170, 170.17, 170.25 (3d ed. 1967). The famous passage by Chief Judge (later Mr. Justice) Cardozo, speaking for the New York Court of Appeals, has lost none of its force:
Many forms of conduct permissible in a work-a-day world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the "disintegrating erosion" of particular exceptions. Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court.
Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545, 546 (1928). The same standard has been consistently applied by the Supreme *653 Court of Arkansas. See, e. g., Hardy v. Hardy, 222 Ark. 932, 940, 263 S.W.2d 690, 694 (1954). The trustee has a duty to avoid even the appearance of impropriety, and the making of a loan to an employee is inconsistent, both in appearance and in fact, with the loyalty it owes to the Trust and the beneficiaries.
Worthen could have avoided the problem in at least two ways. It could have refused to honor the Locks' contractual right of renegotiation, basing its refusal on 12 U.S.C. § 92a(h) and 12 C.F.R. § 9.12(b), which under the Supremacy Clause override the state law of contracts. Or it could simply have renegotiated the note and bought it from the Trust, thus eliminating any question of the propriety of lending trust funds to an employee, and preventing the Trust from losing interest income through retention of a six per cent note at a time when the market interest rate was about 8½ per cent.
Relief
The question of relief remains. Though the Court has found that Worthen's conduct fell short in two respects the making of certain payments in 1970 without the permission of the co-trustee, and the holding of the Lock note it does not follow that it must be removed as trustee. See Riegler v. Riegler, 262 Ark. 70, 553 S.W.2d 37 (1977), in which the Supreme Court of Arkansas adopted the standards of Section 107 of the Second Restatement of Trusts. The Restatement, among other things, says that "[a] court may remove a trustee if his continuing to act as trustee would be detrimental to the interests of the beneficiary. The matter is one for the exercise of reasonable discretion by the court." Comment a on § 107(a). In addition, according to Comment f, "[t]he court will less readily remove a trustee named by the settlor than a trustee appointed by the court or by a third person who is by the terms of the trust authorized to appoint a trustee." The reason is obvious. A trust is an expression of the property rights of the settlor, and her wishes as set forth in the declaration should be respected, unless the trustee has been guilty of such persistent and damaging misconduct that, on the whole, it would be in the best interest of the beneficiaries for it to be removed. It is not every mistake or neglect of duty, in short, that requires or justifies removal. See, e. g., Blumenstiel v. Morris, 207 Ark. 244, 180 S.W.2d 107 (1944); Harr v. Fordyce, 88 Ark. 192, 113 S.W. 1033 (1908); Williams v. Nichol, 47 Ark. 254, 1 S.W. 243 (1886).
The Court of Appeals for this Circuit has stated the general rule as follows:
A trustee appointed by will or deed may not be removed by the courts unless there appears a clear necessity for the removal to save the trust property. In the absence of such a showing the trustee appointed by the settlor cannot be removed because of a mistake of judgment nor always for a breach of the trust. Mere hostility between the trustee and the beneficiaries of the trust is alone insufficient in law to require the removal of the trustee.
Sternberg v. St. Louis Union Trust Co., 163 F.2d 714, 719 (8th Cir. 1947). This passage, though it does not come from an Arkansas case, is an apt summary of the principles of law that may be distilled from the several opinions of the Supreme Court of Arkansas on this subject. See also Scott, Trusts § 107.1 (3d ed. 1967).
The issue comes down to one of equitable discretion. Worthen's conduct as trustee, although not perfect, has been, when considered in the context of the full 17 years of the existence of the Trust, competent and in the best interests of the beneficiaries, viewing those interests in the light of trust instrument. Removal of Worthen would necessitate the Court's appointing a new trustee, and none has been suggested. As far as the unauthorized payments made in 1970 are concerned, they were unquestionably for the benefit of the primary beneficiary of the Trust, and Worthen may well have believed that the co-trustee, being recently divorced from her, would have a conflict of interest, in fact if not in law. Worthen should have applied to a court for *654 instructions, but if it had done so, the payments would almost certainly have been approved. As for the incident of the Lock note, though the Court is troubled by it in principle, the amount of actual loss to the Trust is not great when considered against the background of Worthen's overall performance as steward of the trust assets. The Court therefore finds that it would not be in the best interests of the beneficiaries for Worthen to be removed as trustee, and the request for removal will be denied.
Removal of the trustee is the only relief that has thus far been requested by the plaintiff, and ordinarily disposition of this request would conclude the case. Plaintiff has not asked that the trustee be directed to divest itself of the Lock note. Although a court of equity would have power to do so, the Court is not disposed to issue such a mandatory injunction sua sponte. On the other hand, simple dismissal of the complaint would leave the trustee in what the Court has held to be an unlawful position. The plaintiff, now that he knows that Worthen is not going to be removed, may wish to seek other, and lesser, relief. It would be inequitable to foreclose an opportunity to consider such relief without obtaining the views of the parties. Counsel for plaintiff is given until March 3, 1980, to file a motion for injunctive or other relief with regard to the Lock note. If such a motion is not filed, judgment will be entered dismissing the complaint with prejudice. If such a motion is filed, defendant will be given until March 13, 1980, to respond to it. If defendant believes that it would be unfair to decide the question without further proof, it should set out in its response what additional proof it would seek to offer. When these submissions have been received and considered, the Court will prepare a further opinion and enter final judgment. The question of attorney's fees will also be addressed at that time.
IT IS SO ORDERED this 20th day of February 1980.
NOTES
[1] In 1962, Congress enacted Pub.L. 87-722, which transferred jurisdiction over most of the trust activities of national banks from the Board of Governors of the Federal Reserve System to the Comptroller of the Currency. Pub.L. 87-722 is codified at 12 U.S.C. § 92a. The Comptroller then asked for suggestions for changes in regulations applicable to trust activities, and new regulations were promulgated pursuant to the authority granted the Comptroller by 12 U.S.C. § 92a(j). They appear at Part 9 of Title 12 of the Code of Federal Regulations. See Investment Co. Institute v. Camp, 401 U.S. 617, 621-22, 91 S.Ct. 1091, 1094, 28 L.Ed.2d 367 (1971). References in this opinion are to C.F.R. provisions in effect when the loan was made in August, 1974. The cited provisions are also currently in effect.
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638 F.Supp. 989 (1986)
Michael WOLLINS, Plaintiff,
v.
Abe ANTMAN and Sandra Antman, Defendants.
No. 84 CV 4709.
United States District Court, E.D. New York.
June 30, 1986.
*990 Messite & Davidson, P.C., New York City by Hy Davidson and Vivian Shevitz, for plaintiff.
Rosenthal & Curry by John E. Curry, East Meadow, N.Y., for defendants.
MEMORANDUM AND ORDER
McLAUGHLIN, District Judge.
This securities fraud action arises out of the sale of all the capital stock of Twentieth Century Cosmetics, Inc. ("Twentieth Century"), a small cosmetics company. Plaintiff, who purchased the stock in August 1984, claims that, in connection with the sale, defendants made several material misrepresentations and omissions of fact in violation of the federal and state securities *991 laws and the common law. The case was tried before me without a jury.
Background
The following facts are undisputed:
Twentieth Century is a New York corporation located in Brooklyn, New York. It is principally engaged in the manufacture and packaging of cosmetics and toiletries. Prior to August 1984, defendants Abe and Sandra Antman, husband and wife, each owned 50% of the corporation's stock and were its sole officers and directors.
In recent years, Twentieth Century had achieved a level of gross sales of approximately $200,000-$300,000 annually. A large portion of this business was attributable to one account Gardner Marketing Corporation ("Gardner") for which Twentieth Century packaged a product known as "Mona Nails." In October 1983, however, Gardner ceased doing business with Twentieth Century. Thereafter, Twentieth Century experienced a substantial decline in sales.
Sometime thereafter, defendants decided to sell the business and retire to Florida. Accordingly, on June 24, 1984, they placed an advertisement in the New York Times, indicating that the business was for sale. The plaintiff, Michael Wollins, who had no prior experience in the cosmetics business, responded to the advertisement.
In the ensuing weeks, plaintiff and defendants engaged in several conversations both in person and by telephone. Plaintiff visited the premises of Twentieth Century on at least two occasions. On one of these visits, plaintiff was accompanied by his accountant. The nature and degree of the representations made by defendants during this period form the basis of this lawsuit.
In any event, on July 24, 1984, the parties signed a contract wherein plaintiff agreed to purchase 100% of the Twentieth Century stock from defendants for the sum of $90,000.00. See Plaintiff's Ex. 5. The parties closed the deal on August 15, 1984.
Shortly thereafter, plaintiff demanded rescission. Upon defendants' refusal to rescind the agreement, this action ensued.
The Dispute
Plaintiff contends that in connection with the stock sale, defendants made several material misrepresentations and omissions with respect to the viability of the company and the nature and effect of the Gardner departure. Specifically, plaintiff alleges that defendants misrepresented the following: (a) that the Gardner account was "given up," when, in fact, it was "lost"; (b) that this account constituted only about 10-15% of the corporation's gross sales, when, in fact, it comprised nearly 70% of the business; and (c) that the lost business had been "more than" replaced by several smaller accounts, when, in fact, only a small fraction of the business had been replaced.
Plaintiff does not allege that the tax returns and records he was shown were inaccurate or fraudulent. Rather, he contends that his accountant was denied access to many of defendants' books and records. In particular, plaintiff and his accountant assert that they were never shown the defendants' "cash book," which, concededly, would have instantly revealed the precise impact of the loss of the Gardner account.
Plaintiff's version of the facts is, for the most part, supported by the testimony of his accountant and his lawyer, and to some extent, by the accounts of two disinterested individuals who had also visited defendants' premises as prospective purchasers, and to whom defendants allegedly made similar representations.[1] Not surprisingly, however, defendants and their accountant provided a dramatically different version of the parties' discussions.
*992 Defendants contend that they informed plaintiff of the circumstances surrounding the loss of the Gardner account; that they described Gardner as a "major" or "large" account, and that they never said the lost business had been replaced. More importantly, defendants contend that they provided plaintiff with access to all their books and records, and that plaintiff's accountant actually reviewed these records, including the cash book, on two occasions during his visit to the corporation and later at the closing. Thus, defendants argue that plaintiff was fully aware of all relevant facts at the time of purchase.
Put simply, the Court is confronted with a classic question of credibility. Plaintiff has devoted much effort both at trial and in his post-trial submissions to attacking defendants' credibility. In particular, plaintiff points to several alleged inaccuracies or inconsistencies in Mrs. Antman's testimony. See e.g., Plaintiff's Letter Dated April 30, 1986.
The Court has given much consideration to plaintiff's arguments. Nonetheless, having had the opportunity at the trial and at the post-trial hearing to hear the testimony of all the witnesses and to observe their demeanor while on the stand, and having considered all the evidence including the testimony of the two disinterested individuals this Court now resolves all issues of credibility in favor of the defendants.
Accordingly, the following constitute the Court's findings of fact and conclusions of law. Fed.R.Civ.P. 52.
Findings of Fact
Plaintiff first contacted the defendants by telephone in late June 1984. During this initial conversation, Mrs. Antman brushed him off because of his lack of experience in the cosmetics business. Apparently, however, when plaintiff called again a few days later, defendants began to take him seriously. Mrs. Antman testified that she did not remember whether the first conversation regarding the sales and gross profit of the company took place during this conversation, or during plaintiff's initial visit to the premises a few days later.
In any event, it is clear that in one of these early conversations, plaintiff was told that in the last few years, the business had registered gross sales in excess of $200,000, and had yielded a net profit of approximately $100,000 annually. Moreover, during plaintiff's first visit to the premises, Mrs. Antman advised plaintiff that the gross sales for the most recent fiscal year ending May 1984 were approximately $200,000. Mrs. Antman cautioned plaintiff, however, that the latter figure included a "large major account which [they] no longer had." Tr. at 152. Mrs. Antman identified this account as the Gardner Marketing or Mona Nails account. Mrs. Antman also advised plaintiff that the business was "currently" doing approximately $9,000-10,000 in gross sales per month.[2]
For the most part, however, this initial meeting merely focused upon orienting plaintiff to the operations of the business. Plaintiff concedes that he toured the premises and observed the dilapidated condition of the equipment. Mr. Antman showed plaintiff the type of work done at Twentieth Century, and Mrs. Antman informed him of the company's general buying and pricing procedures.
A few days later, plaintiff returned to Twentieth Century with his accountant. The accountant, who spent approximately three to four hours on the premises, was shown the general ledger (which was posted through March 1984), the cash book (which was current, and revealed the names of defendants' accounts) and certain tax returns and invoices. Tr. at 153-56; 199. During their discussions with plaintiff's accountant, the Antmans indicated that they no longer had a major account *993 Gardner Marketing which had left the company in October 1983 after defendants advised Gardner that they could not lower their prices.
Mrs. Antman advised plaintiff's accountant, as she previously had advised plaintiff, that the $200,000 gross sales figure for the most recent fiscal year, which ended in May 1984, included the Gardner account. Mrs. Antman concedes that she did not state precisely what percentage of Twentieth Century's total sales was attributable to the Gardner Marketing account (indeed, she admits that she does not know the percentage). Nonetheless, I find that the Antmans provided plaintiff's accountant with the books and records from which this information readily could have been determined.[3]
Finally, although the Antmans advised plaintiff and his accountant that the company had recently secured some new business including the seemingly promising West Cabot account[4] they did not at any time represent that the volume of sales lost from the Gardner account had been fully replaced.
On July 24, 1984, the parties met at defendants' attorney's office and executed a contract. See Plaintiff's Ex. 5. The contract states that the defendants agreed to sell all of the outstanding stock of the company to the plaintiff at a purchase price of $90,000. In addition to some fairly standard representations and warranties, and a requirement that Mr. Antman remain as an uncompensated employee of the corporation for one month after the sale, the contract provided that all corporate books and tax returns be supplied at the closing.[5]
The closing was held on August 15, 1984. Defendants brought to the closing the tax returns for the fiscal year ending May 1984, together with all books and records (including the cash book).[6]
Upon reviewing the cash book at the closing, plaintiff's accountant inquired whether an account had been lost. Defendants *994 were startled by this inquiry, since he had already been given all the details regarding the departure of the Gardner account. Nonetheless, they again advised the plaintiff that a major account had left Twentieth Century in October 1983. After plaintiff, his lawyer and his accountant caucused in the hall for approximately one hour, plaintiff's accountant asked defendants if they could guarantee that all the lost business had been replaced. Defendants answered that, while they had acquired some new accounts, they had not replaced the sales volume lost after Gardner's departure. Defendants again represented that the business was operating at a level of roughly $10,000 gross sales per month.
Apparently satisfied by this explanation, plaintiff agreed to close the deal. Upon consent of plaintiff's accountant, defendants' accountant left the closing with the cash book to enable him to complete his accounting functions. The cash book was then forwarded to plaintiff approximately one month after the closing.
Conclusions of Law
Securities Claims
Since the sale of Twentieth Century was structured as a sale of the capital stock of the corporation, it clearly constitutes a securities transaction within the ambit of the anti-fraud provisions of the federal securities laws. See Landreth Timber Company v. Landreth, ___ U.S. ___, 105 S.Ct. 2297, 2308, 85 L.Ed.2d 692 (1985); Golden v. Garafalo, 678 F.2d 1139, 1140, 1144 (2d Cir.1982). Accordingly, plaintiff alleges violations of Section 12(2) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. In addition, plaintiff raises a state law claim of securities fraud in violation of Article 23a of the General Business Law of the State of New York (the "Martin Act").
Although the elements of the various claims differ in certain respects, each claim requires proof of a material misrepresentation or omission of fact.[7] Because I find that all the information provided to plaintiff was true and accurate, and hence, that defendants made no misrepresentations of fact, the balance of this opinion will address the question whether defendants breached their duty of disclosure by omitting a material fact, i.e., the percentage of total sales represented by the Gardner account. See Chiarella v. United States, 445 U.S. 222, 228, 100 S.Ct. 1108, 1114, 63 L.Ed.2d 348 (1980).
An omitted fact is material if there is a substantial likelihood that a reasonable person would consider it important in determining his choice of action. TSC Industries, Inc. v. Northway, 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976); Klausner v. Ferro, 604 F.Supp. 1188, 1194 (E.D.N.Y.1985). As the Supreme Court noted in TSC Industries, the standard of materiality contemplates:
a showing of a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder. Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the "total mix" of information made available.
TSC Industries, supra, 426 U.S. at 449, 96 S.Ct. at 2132 (emphasis added).
In this case, defendants disclosed the fact that the previous year's gross sales figure included an account which had stopped doing business with Twentieth Century. The defendants identified this account by name, and described it as either a "large" or "major" account. Additionally, defendants disclosed the circumstances surrounding the account's departure.
*995 Likewise, defendants informed plaintiff of the approximate monthly sales figure being achieved by the business since the departure of the Gardner account. Finally, they permitted plaintiff's accountant to review the general ledger and the cash book. The former provided verification of the monthly gross sales figures for the period from May 1983 through March 1984, and hence, revealed the extent of the decline in monthly sales for the first four to five months after the loss of the Gardner account (October 1983). More importantly, the cash book revealed an up-to-the-minute account of the firm's operations, identifying each sale by customer name and amount, and hence, providing plaintiff with the information necessary to calculate the percentage of Twentieth Century's sales attributable to any one customer.
This is not a case where the purchaser's access to the desired information would have required voluminous and meticulous research. Cf. Metro Goldwyn-Mayer, Inc. v. Ross, 509 F.2d 930, 933 (2d Cir.1975). Nor is this a case where the purchaser could not have known that a specific item of information had been omitted. Clearly, upon being advised that the business had lost a "large major" account, plaintiff was aware that defendant had not elaborated on just how large the account was.[8]
Thus, in view of the information that was disclosed to plaintiff, this Court finds that a reasonable investor would not have found defendants' specification of the size of the Gardner account "as having significantly altered the `total mix' of information made available." TSC Industries, supra, 426 U.S. at 449, 453, 96 S.Ct. at 2134. In short, this Court finds that defendants did not omit to state any material facts. See Resort Car Rental Systems, Inc. v. Chuck Ruwart Chevrolet, Inc., 519 F.2d 317, 321 (10th Cir.1975); Staffin v. Greenberg, 509 F.Supp. 825, 835-37 (E.D.Pa.1981) aff'd, 672 F.2d 1196, 1205 (3d Cir.1982); Klamberg v. Roth, 473 F.Supp. 544, 551-52 (S.D. N.Y.1979).
Even assuming that defendants' failure to indicate the precise amount of business attributable to Gardner constituted a material omission of fact, however, plaintiff's securities claims cannot succeed. Plaintiff's claims under § 10 and § 17 and Rule 10b-5 of the federal securities laws and Article 23-A of the state blue-sky laws require a showing that plaintiff's reliance on defendants' actions caused him injury. See, e.g., Bennett v. United States Trust Co. of New York, 770 F.2d 308, 313, 315-16 (2d Cir.1985); Bloor v. Carro, Spanbock, Londin, Rodman & Fass, 754 F.2d 57, 61 (2d Cir.1985); McDaniel v. Compania Minera Mar de Cortes, 528 F.Supp. 152, 166 (D.Ariz.1981); Eriksson v. Galvin, 484 F.Supp. 1108, 1128 (S.D.N.Y.1980).
Concededly, in a case such as this involving allegations of non-disclosure, the element of reliance (or causation in fact) generally is presumed where plaintiff proves the withholding of a material fact in the face of an obligation to disclose. See Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54, 92 S.Ct. 1456, 1472, 31 L.Ed.2d 741 (1972). Defendants may rebut this presumption of reliance, however, by demonstrating that plaintiff had access to and knowledge of the omitted information, and therefore, that the alleged omission did not cause the injury suffered. Fisher v. Plessey Company Limited, 103 F.R.D. 150, 156 (S.D.N.Y.1984).
On the facts of this case, I find that defendants have successfully rebutted any presumption that defendants' omissions caused plaintiff's injuries. The conclusion is inescapable that plaintiff had full access to and knowledge of the information in question. There is simply no basis on this record for concluding that any further statements regarding the size of the Gardner account would have caused plaintiff to act differently. See List v. Fashion Park, Inc., 340 F.2d 457, 463-64 (2d Cir.1965); *996 Jackson v. Oppenheim, 411 F.Supp. 659, 668 (S.D.N.Y.1974), aff'd in part, reversed in part on other grounds, 533 F.2d 826, 830 n. 9 (2d Cir.1976).
Finally, plaintiff has failed to establish the element of scienter, i.e., defendant's willful or reckless disregard for the truth, as required by Rule 10b-5 and § 17. See Jackson v. Oppenheim, supra, 411 F.Supp. at 665. This Court is convinced that defendants made a good faith effort to disclose all material information with respect to the loss of the Gardner account and the state of the business at the time of the parties' negotiations.
Obviously dissatisfied with his purchase of Twentieth Century, plaintiff asserts that the business is, in fact, worth less than the $90,000 he paid for it. While sympathetic to plaintiff's predicament, the Court is reminded of the Supreme Court's admonition that "once full and fair disclosure has occurred, the fairness of the terms of the transaction is at most a tangential concern of the [securities laws]." Santa Fe Industries v. Green, 430 U.S. 462, 478, 97 S.Ct. 1292, 1303, 51 L.Ed.2d 480 (1977). Upon the facts of this case, the Court finds that plaintiff's federal and state securities claims must be denied.
Common Law Claims
In addition to his securities law claims, plaintiff has raised the common-law claims of breach of express and implied warranties and failure of consideration. Clearly, plaintiff's claim of failure of consideration is not a proper subject for judicial scrutiny, since defendants fully disclosed all material facts regarding the business at or before the date of the closing, and hence, the consideration received by the plaintiff was as represented by the defendants. See Spaulding v. Benenati, 57 N.Y.2d 418, 423, 442 N.E.2d 1244, 456 N.Y.S.2d 733, 735 (1982).
Likewise, there is no indication that defendants breached any of the warranties expressed in the contract, or otherwise took action which could be construed as a breach of their implied covenant of good faith and fair dealing. See Kirke LaShelle Co. v. Armstrong Co., 263 N.Y. 79, 87, 188 N.E. 163 (1933). Hence, plaintiff's common law claims are denied.
Accordingly, the Clerk is directed to enter judgment for the defendants.
SO ORDERED.
NOTES
[1] In addition to the above-mentioned witnesses, plaintiff called Randolph Hendrix, a former Twentieth Century employee, who provided a revealing account of the day-to-day operations of the business.
[2] A review of the cash book and the general ledger reveals that from October 1983 (when Gardner withdrew its business) to August 1984, the business, in fact averaged approximately $9,100 in gross sales per month.
[3] The cash book, which lists the amount of each sale and the identity of the customer, accurately revealed no sales to Gardner after October 1983. Likewise, the general ledger, which at that time was posted through March 1984, revealed a sharp decline in total sales for the months following October 1983. Hence, a quick perusal of the cash book and the general ledger would have revealed the percentage of Twentieth Century's business which the Gardner account comprised, and the overall impact of the loss of that account on the company's sales and earnings prospects.
[4] At trial, it was revealed that West Cabot cancelled its remaining orders with Twentieth Century approximately one month after the sale. Nothing in the record suggests, however, that defendants knew or could have known of this occurrence. In fact, there is some indication that West Cabot withdrew because it perceived that plaintiff was not devoting enough attention to the account.
[5] The original draft of the contract, which was prepared by defendants' attorney, contained a clause which provided that all books and records would be made available for plaintiff's review during the period prior to the closing. This paragraph was crossed out prior to the signing of the contract. See Plaintiff's Ex. 5. The paragraph was replaced by a handwritten rider indicating that the books and records would be supplied at the closing.
Plaintiff argues that this deleted paragraph constitutes compelling evidence that he was denied access to defendants' books and records prior to the closing. At the post-trial hearing, however, Mrs. Antman testified that the paragraph was deleted since plaintiff and his accountant had already reviewed the books and records on their prior visit, and since the records were to be made available still another time at the closing. The Court accepts defendants' explanation.
[6] At trial, to bolster their testimony that the cash book was brought to the closing, defendants testified that everyone at the closing was amused as Mrs. Antman made one final, ceremonial entry in the book. In his post-trial submission, however, plaintiff pointed out that no such entry appears in the cash book. Then, plaintiff moved to re-open the trial for the purpose of admitting the cash book. This motion was granted on March 13, 1986.
At the post-trial hearing, Mrs. Antman explained that she had made a copy of the cash book for her own personal records, and that, upon reflection, the entry previously referred to was made on the copy. See Defendants' Ex. AA. Again, having considered all the evidence and having observed the manner and demeanor of all the witnesses who testified, the Court credits defendants' explanation, and finds that the cash book was brought to the closing and made available to the plaintiff.
[7] As the Supreme Court has noted, "[S]ection 10b-5 is aptly described as a catchall provision, but what it catches must be fraud." Chiarella v. United States, 445 U.S. 222, 235, 100 S.Ct. 1108, 1118, 63 L.Ed.2d 348 (1980).
[8] Indeed, the fact that plaintiff knew of the omission is fatal to his § 12(2) claim. See Wigand v. Flo-Tek, Inc., 609 F.2d 1028, 1034 (2d Cir.1980).
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
_______________________________________
)
DALE SCOTT HEINEMAN, )
)
Petitioner, )
)
v. ) Civil Action No. 09-0582 (PLF)
)
LINDA SANDERS, )
)
Respondent. )
_______________________________________)
ORDER
For the reasons stated in the accompanying Memorandum Opinion, it is
ORDERED that this case is DISMISSED for lack of jurisdiction This is a final
appealable Order. See Rule 4(a), Fed. R. App. P.
SO ORDERED.
/s/________________________
PAUL L. FRIEDMAN
DATE: April 2, 2009 United States District Judge
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04-04-2014
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Opinion issued July 26, 2007
In The
Court of Appeals
For The
First District of Texas
____________
01-06-00175-CR
____________
BRANDON ELIAS HAND, Appellant
V.
THE STATE OF TEXAS, Appellee
On Appeal from the 208th District Court
Harris County, Texas
Trial Court Cause No. 1007789
MEMORANDUM OPINION
Appellant, Brandon Elias Hand, was convicted by a jury of burglary of a
habitation with intent to commit theft, and punishment was assessed at confinement
for 51 years. We affirm.
Appellant’s court-appointed counsel has filed a brief concluding that the appeal
is wholly frivolous and without merit. The brief meets the requirements of Anders
v. California, 386 U.S. 738, 744, 87 S. Ct. 1396, 1400 (1967), by presenting a
professional evaluation of the record and demonstrating why there are no arguable
grounds of error to be advanced. See High v. State, 573 S.W.2d 807, 811 (Tex. Crim.
App. 1978); Moore v. State, 845 S.W.2d 352, 353 (Tex. App.—Houston [1st Dist.]
1992, pet. ref’d).
Counsel represents that he has served a copy of the brief on appellant. Counsel
also advised appellant of her right to examine the appellate record and file a pro se
brief. See Stafford v. State, 813 S.W.2d 503, 510 (Tex. Crim. App. 1991). More than
30 days have passed, and appellant has not filed a pro se brief. Having reviewed the
record and counsel’s brief, we agree that the appeal is frivolous and without merit and
that there is no reversible error. See Bledsoe v. State, 178 S.W.3d 824, 826-27(Tex.
Crim. App. 2005).
We affirm the judgment of the trial court and grant counsel’s motion to
withdraw.
We deny any pending motions as moot.
PER CURIAM
Panel consists of Justices Taft, Jennings, and Bland.
Do not publish. Tex. R. App. P. 47.2(b).
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09-03-2015
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In October, 1904, the superior court in and for the county of Fresno, after due proceedings, taken in *Page 598
accordance with the provisions of the Code of Civil Procedure for the appointment of guardians of minors, appointed Charles Hudson the guardian of the person of Emma Ross, a female child, then of the age of six years, the ground for such appointment being, as appears from the finding of the court made upon the hearing of the petition therefor, that the father of said minor, Orrin W. Ross, had abandoned said minor to said Charles Hudson, who is the grandfather of said minor. The mother of said minor was at that time incompetent, and confined in a state asylum for the insane.
Hudson qualified as such guardian, and ever since has had the care and custody of such minor.
In his petition to be appointed such guardian of the person of said minor said Hudson alleged that the father of said minor was able to pay for the support of said minor, and prayed that he be required to pay therefor. The court, however, made no provision for the support of the minor by its father, and made no mention thereof in its order appointing the guardian.
On the twenty-third day of April, 1906, the said guardian petitioned said court for an order, requiring said Orrin W. Ross, the father of said minor, to pay said guardian for the support of said minor the sum of $25 per month thereafter. In this petition the guardian alleged that the father, Orrin W. Ross, was then able to pay a reasonable sum for the support of said minor, and that $25 per month was a reasonable sum therefor, and that she could be better supported were the court to make such order.
Orrin W. Ross filed an answer and cross-petition to said petition, and among other things alleged that he was able, ready and willing to take said minor, and to support her in his own home, and prayed the court to revoke the order appointing said Hudson the guardian of said minor, and for general relief.
The court upon the hearing made the following findings of fact:
1. That since the birth of said minor said Charles Hudson has supported and maintained her to the best of his ability, but that since November 4, 1906, his financial resources have become impaired, and he is not able now to provide adequately for the proper support and maintenance of said minor. *Page 599
2. That Orrin W. Ross, the father of said minor, has a comfortable home, is married, and able and willing to provide for, maintain and educate his said child at his own home.
3. That said Orrin W. Ross is a fit and proper person to have the care, custody and control of said minor, Emma Ross.
As conclusions of law the court decided that the guardian. Charles Hudson, was not entitled to an order that Orrin W. Ross pay him the sum of $25 per month, or any other sum, for the support of said minor, and that said Orrin W. Ross was entitled to a modification of the original judgment, so that he shall be entitled to have said minor visit him at his home one-half of the time she is not in school, and upon Saturdays and Sundays.
Judgment was entered accordingly, from which the guardian has appealed upon the judgment-roll.
Appellant contends, first, that the court had no power to order that the father have the right to have the child visit him at all. We cannot accede to this view of the law. Although a parent who knowingly and willfully abandons his minor child under the age of fourteen years forfeits the guardianship of such child (Civ. Code, sec. 246), the relationship of parent and child is not thereby entirely severed. When a court of competent jurisdiction appoints a guardian of the person of a minor, such minor becomes a ward of the court, and the guardian is in effect an arm of the court, and is subject to the control of the court in the discharge of his duties as such guardian. Such court has authority to control and direct the guardian in the performance of his trust so as to insure the proper care of the infant. (16 Am. Eng. Ency. of Law, 31; Lord v. Haugh,37 Cal. 657.)
Circumstances may make it desirable and conducive to the well-being of a child that a parent, who has been deprived of its custody or guardianship, have access to such child, and the court appointing the guardian has jurisdiction to so direct. (Woerner's American Law of Guardianship, 159.)
"In the management and disposition of the person or property committed to him, a guardian may be regulated and controlled by the court." (Civ. Code, 251.)
In the case at bar the court found the father to be a fit and proper person to have the custody of the minor, and under such circumstances it certainly was not an abuse of discretion *Page 600
to allow the father access to his child, though he had previously abandoned the child to its grandfather.
It is next urged that the judgment should be reversed because the court refused to order the father to pay the guardian some stated sum per month for the support of the child. Of course, we cannot reverse the judgment for this reason if the court had no power to make such order, or if under the circumstances disclosed by the record before us the court did not abuse its discretion in refusing such order.
Undoubtedly a father entitled to the custody of his minor child is liable for his support (Civ. Code, 196), and if a father "neglects to provide articles necessary for his child who is under his charge, according to his circumstances, a third person may in good faith supply such necessaries, and recover the reasonable value thereof from the parent." (Civ. Code, 207.)
Our statute also provides that a civil action may be brought by a child, or certain relatives, against the parent for abuse of parental authority, in which the duty of support may be enforced. (Civ. Code, 203.)
But appellant does not bring his case within any of the foregoing provisions of the code.
The child is not under the charge of his father, and the father is not now entitled to its custody, neither has he been deprived thereof by the proceedings authorized by section 203, Civil Code. The proceedings under which appellant was appointed guardian of the person of the child are the statutory proceedings for the appointment of guardians of minors contained in the Code of Civil Procedure, beginning with section 1747. Although it has been held that under such proceedings a father may be deprived of the custody of his child, it has never been held that in such proceedings he may be compelled to compensate the guardian for the support of such child. (Ex parte Miller, 109 Cal. 643, [42 P. 428].) On the contrary, Justice Temple, in a concurring opinion in the above-cited case, expressly holds that a parent deprived of the custody of his child by the summary proceeding laid down in the Code of Civil Procedure is no longer liable for its support, and that, aside from the cases of divorce and actions between the parents in regard to the custody of children, there is no other case in which the court has power to deprive the parent of his authority and yet hold him liable for *Page 601
the support of his child, except as provided in section 203, Civil Code.
There certainly is no provision in the Code of Civil Procedure, under which these proceedings were inaugurated, which expressly authorizes the court to compel the parent thus deprived of the custody of his child to pay the guardian for its support.
But whether or not such power may be inherent in the court, we do not think the record in this case shows an abuse of discretion on the part of the trial court.
The court found that the father is a fit and proper person to have the care and custody of his child, and that he has a comfortable home, is married, and is able and willing to provide for, maintain and educate his said child in his own home.
The general rule is that where a father has supplied his child with necessaries, or is ready to supply them, he cannot be held liable to a third person for necessaries furnished to the child without his knowledge. (21 Am. Eng. Ency. of Law, 1054.) In Chilcott v. Trimble, 13 Barb. (N.Y.) 504, it was said: "Where a parent is willing to support his infant child . . . no agreement of the father to pay for such support can be implied. . . . The law of nature, which requires the parent to support his infant offspring, designates his own house as the place where that duty shall be performed."
In this case the grandfather insists on retaining the custody of the child under his appointment as guardian of the child, in the face of the unchallenged finding of the court that the father is now a fit and proper person to have its custody, and is able and willing to support it in his own home.
Under these circumstances, even if we concede that the court has the power to order the father to pay the guardian for the support of his child, there was no abuse of discretion in refusing so to do.
The judgment is therefore affirmed.
Cooper, P. J., and Kerrigan, J., concurred. *Page 602
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511 F. Supp. 785 (1981)
GALLO WINE SALES OF NEW JERSEY, INC., Plaintiff,
v.
WHOLESALE WINE SALESMEN'S UNION, LOCAL 18, Distillery, Rectifying, Wine and Allied Workers International Union of America, AFL-CIO, Defendant.
No. 80 Civ. 3184 (GLG).
United States District Court, S. D. New York.
April 23, 1981.
*786 Seyfarth, Shaw, Fairweather & Geraldson, New York City, for plaintiff by Fredric H. Fischer, Kathleen M. McKenna, New York City, Joel H. Kaplan, Chicago, Ill., of counsel.
O'Dwyer & Bernstien, New York City, for defendant by Brian O'Dwyer, Joseph Licata, New York City, of counsel.
OPINION
GOETTEL, District Judge.
This labor dispute has come to this Court on a motion to enjoin arbitration and a cross motion to compel arbitration.
*787 THE FACTS
On June 1, 1975, the plaintiff ("Company") entered into a collective bargaining agreement ("1975 Agreement") with the defendant ("Union"), which, by its terms, was to expire on May 31, 1978. The 1975 Agreement included an "Earning Guarantee" clause, which provided that the "salesmen shall always receive a commission on any sale made or effected by the Employer in any manner or form, either directly or indirectly." 1975 Agreement, Art. VI(B). The 1975 Agreement provided for arbitration as follows:
Article XVI (A) Except as otherwise provided herein, in the event any dispute, difference, disagreement, grievance or controversy of any nature or character shall arise between the Employer and the Union, the parties agree that before any strike on the part of the Union or any lockout on the part of the Employer, such dispute shall be submitted to arbitration to the New York State Board of Mediation, pursuant to its rules. The decision of the arbitrator shall be final and binding on all the parties to the arbitration. The failure on the part of the Employer to agree to submit such dispute with the Union to arbitration or abide by the result of any such arbitration shall be deemed a breach of contract.
(B) Violations by the Employer of Article[s] ... VI ... shall constitute a breach of this agreement and an unfair labor practice, notwithstanding anything contained in Article XVI (A) or any other provision of this agreement. Any such violation shall entitle the Union to apply for, without notice, and obtain, without opposition, an injunction or other order restraining such breach and/or repetitions thereof from a court of competent jurisdiction, and in addition, the Union may resort to any other economic action free of any restriction or condition that may be imposed by any provision of this agreement, and without the necessity of first resorting to arbitration.
Article XXVI provided for negotiation for renewal of the 1975 Agreement.[1]
On March 14, 1978, pursuant to section 8(d) of the Labor Management Relations Act of 1947 ("LMRA"), 29 U.S.C. § 158(d), the Union sent timely notice to the Company of its intention not to renew or extend the 1975 Agreement and to negotiate a new agreement. On March 22, 1978, the Company acknowledged the Union's notice and expressed its similar intent. From April 1978 through September 1978, the parties negotiated for a new collective bargaining agreement, the central issue of which was the sales commission rate.
On September 25, 1978, the Union filed charges with the National Labor Relations Board ("Board"), charging the Company with the commission of an unfair labor practice for its refusal to bargain collectively with the Union with respect to, and for unilaterally changing, a term and condition of employment. On November 30, 1978, the Board issued a complaint, and on May 25, 1979, after nine days of hearings before Administrative Law Judge ("ALJ") Julius Cohn, the parties entered into a Settlement Agreement, which provided in part:
2. The parties recognize that settlement of this matter will create an interim period of time from the date of settlement to the date when the parties conclude bargaining with the execution of a collective bargaining agreement or reaching of impasse. Recognizing the existence of this interim period, and in light of the necessity to provide a compensation rate for the employees, compensation shall be calculated as follows .... The parties further recognize that the above compensation rates are not intended to *788 constitute contract terms or to reflect the parties' positions at collective bargaining negotiations and are meant for this interim period only.
3. The terms and conditions of employment currently in effect shall continue during said interim period, provided, however, that the "Earning Guarantee" shall be discontinued and terminated upon entering of this settlement.
Pursuant to the Settlement Agreement, the Company paid back-pay from October 1, 1978 through July 27, 1979 at 6¼%, the rate provided in the 1975 Agreement, and from July 27 onward at the rate dictated by the Settlement Agreement. On October 11, 1979, ALJ Cohn closed the hearing, and on October 31, 1979, the matter was officially closed by Arthur Eisenberg, Regional Director of the Board.
Negotiations for a new contract had resumed on May 25, 1979. Although no early agreement was reached and the Union struck on November 5, 1979, the Company continued to sell and deliver wine. On November 28, the parties entered into a new collective bargaining agreement ("1979 Agreement"), which excluded the "Earning Guarantee" clause and included a new arbitration procedure. Article V of the 1979 Agreement provides:
The parties agree that all disputes, grievances, issues or conflicts that may arise regarding the application or interpretation of any of the provisions of this Ageement [sic] shall, if they cannot be settled between the parties, be submitted to arbitration in the manner provided for under Article IV, section 4:02 above. The arbitrator shall not have the right, however, to change, modify, add to or subtract from any of the terms or provisions of this Agreement.
Article IV, section 4:02 provides in part:
In the event that any grievance is not settled between the parties pursuant to the grievance procedure set forth above and as hereinafter referred to, the Union or the Employer may submit the dispute to arbitration by the Federal Mediation and Conciliation Service under its rules then pertaining....
In addition, the covering Memorandum of Agreement attached to the 1979 Agreement provided:
(1) The parties have each had full opportunity to make proposals and counterproposals during the negotiations leading to this Agreement and this Agreement is in full settlement of any and all outstanding issues between the parties and replaces any previously existing contract or terms and conditions of employmennt [sic].
On February 21, 1980, the Union requested arbitration by the New York State Board of Mediation of a dispute "regarding commissions of the salesmen from May 1979 through November 1979." The Union withdrew the request on March 12 and resubmitted it on May 15. On June 5, 1980, this Court issued an order to show cause for a preliminary injunction with a temporary restraining order preventing the Union from proceeding with or further requesting arbitration concerning the payment of sales commissions for May 1979 through November 1979. Finally, on September 26, 1980, the Union filed a cross motion for an order staying the Company's action for injunctive relief and compelling arbitration, pursuant to § 301 of the LMRA, 29 U.S.C. § 185, and oral argument was heard on November 7.
THE ISSUES
The issues to be decided are: (1) whether either the 1975 Agreement was still in existence when the dispute arose or the obligation to arbitrate survived expiration of the 1975 Agreement; (2) whether the alleged dispute over the payment of sales commissions is arbitrable under the 1975 Agreement; (3) whether the obligation to arbitrate, if any, was vitiated by the Settlement Agreement, the strike, or the 1979 Agreement. Intertwined with, although not determinative of, these issues, is the issue of whether the dispute over the termination of the 1975 Agreement is itself arbitrable under the 1975 Agreement.
THE ARGUMENTS
The Company argues that even if the 1975 Agreement had not expired before the *789 alleged dispute arose over the sales commission rates, Article XVI(B) of the 1975 Agreement expressly excluded this dispute from the obligation to arbitrate; that the dispute "arose under" the Settlement Agreement; and that even if the Company had been obligated to arbitrate the dispute, the obligation was vitiated by the Settlement Agreement, the strike, the 1979 Agreement, and laches.
The Union asserts that the disputes over the expiration of the 1975 Agreement and the payment of commission rates are arbitrable because they arose under the 1975 Agreement and that the Union did not waive its right to arbitrate the dispute by striking, by endorsing the Settlement Agreement, or by entering the 1979 Agreement.
DISCUSSION
The obligation to arbitrate a dispute cannot arise solely by operation of law. Gateway Coal Co. v. United Mine Workers of America, 414 U.S. 368, 374, 94 S. Ct. 629, 635, 38 L. Ed. 2d 583 (1974). Rather, "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S. Ct. 1347, 1353, 4 L. Ed. 2d 1409 (1960). The question of "whether or not the company was bound to arbitrate, as well as what issues it must arbitrate, is a matter to be determined by the Court on the basis of the contract entered into by the parties." Atkinson v. Sinclair Refining Co., 370 U.S. 238, 241, 82 S. Ct. 1318, 1320, 8 L. Ed. 2d 462 (1962); see Proctor & Gamble Independent Union v. Proctor & Gamble Manufacturing Co., 312 F.2d 181, 184 (2d Cir. 1962), cert. denied, 374 U.S. 830, 83 S. Ct. 1872, 10 L. Ed. 2d 1053 (1963).
If the agreement between the parties is to submit "all grievances" to arbitration, the courts are without authority to weigh the merits of the dispute. United Steelworkers of America v. American Manufacturing Co., 363 U.S. 564, 567-68, 80 S. Ct. 1343, 1346-1347, 4 L. Ed. 2d 1409 (1960). Judicial inquiry is therefore limited to determining whether there is a collective bargaining agreement between the parties, and whether the alleged dispute falls within the agreement's arbitration provision. Id.; see United Steelworkers of America v. Warrior & Gulf Navigation Co., supra.
Once it has been determined that a collective bargaining agreement between the parties exists and contains an arbitration provision, "[a]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." United Steelworkers of America v. Warrior & Gulf Navigation Co., supra, 363 U.S. at 582-83, 80 S.Ct. at 1352-1353. As Judge Weinfeld stated, "when the parties have entered into a comprehensive arbitration provision, any challenge that a grievance is not intended to be covered thereunder must find support in unmistakeably clear language of exclusion." International Union of Electrical, Radio and Machine Workers v. Westinghouse Electric Corp., 218 F. Supp. 82, 84 (S.D.N.Y.1963), aff'd per curiam, 326 F.2d 758 (2d Cir. 1964).
Furthermore, in accordance with the national policy of encouraging arbitration of labor disputes, see, e. g., International Association of Machinists and Aerospace Workers v. General Electric Co., 406 F.2d 1046, 1048 (2d Cir. 1969), and of giving the parties to a dispute the bargained-for judgment of the designated arbitrator, see United Steelworkers of America v. American Manufacturing Co., supra, 363 U.S. at 568, 80 S.Ct. at 1346, "[d]oubts should be resolved in favor of coverage." United Steelworkers of America v. Warrior & Gulf Navigation Co., supra, 363 U.S. at 583, 80 S.Ct. at 1353; see Gateway Coal Co. v. United Mine Workers of America, supra, 414 U.S. at 377-78, 94 S.Ct. at 636-637; Rochdale Village, Inc. v. Public Service Employees Union, Local 80, 605 F.2d 1290, 1294-95 (2d Cir. 1979).
With these general legal principles in mind, we turn first to the question of *790 whether any obligation to arbitrate existed at the time the dispute over payment of commissions arose. Such an obligation could be derived either from the existence of the 1975 Agreement itself or from the continuation of obligation to arbitrate after the expiration of the 1975 Agreement.
"Because the duty to arbitrate can be imposed only by contract, it often occurs that questions of contract termination must be decided in order to determine whether a party is under such a duty." Rochdale Village, Inc. v. Public Service Employees Union, Local 80, supra, 605 F.2d at 1295. Generally, such questions are for the court. E. g., Proctor & Gamble Independent Union v. Proctor & Gamble Manufacturing Co., supra. However,
[i]f a court finds that the parties have agreed to submit to arbitration disputes "of any nature or character," or simply "any and all disputes," all questions, including those regarding termination, will be properly consigned to the arbitrator: "With that finding the court will have exhausted its function, except to order the reluctant party to arbitration."
Rochdale Village, Inc. v. Public Service Employees Union, Local 80, supra, 605 F.2d at 1295 (quoting United Steelworkers of America v. American Manufacturing Co., 363 U.S. 564, 571, 80 S. Ct. 1363, 1364-1365, 4 L. Ed. 2d 1409 (1960) (Brennan, J., concurring)). Therefore, because the arbitration clause in the 1975 Agreement in the instant case was broad and because termination allegedly occurred pursuant to a procedure "implicit in [the] contract,"[2] the question of termination is itself arbitrable. See id. at 1295-96 (quoting Local 4, International Brotherhood of Electrical Workers v. Radio Thirteen-Eighty, Inc., 469 F.2d 610, 613 (8th Cir. 1972).
Furthermore, even if the 1975 Agreement were found to have expired, that would not prevent arbitration of the merits of the dispute itself, because this Court finds that the obligation to arbitrate would have survived the termination of the 1975 Agreement. The relevant portion of the hiatus between the 1975 Agreement and the 1979 Agreement was covered by a side agreement, or agreed-upon extension of the terms of the expiring agreement the Settlement Agreement entered into on May 25, 1979. Questions regarding the existence or terms of a side agreement are for the court. Rochdale Village, Inc. v. Public Service Employees Union, Local 80, supra, 605 F.2d at 1297.
The Settlement Agreement provided in part: "The terms and conditions of employment currently in effect shall continue during said interim period." Grievance and arbitration procedures are terms and conditions of employment. General Warehousemen and Employees Union Local 636 v. J. C. Penney Co., 484 F. Supp. 130, 135 (W.D.Pa.1980). Thus, it appears that the arbitration provisions of the 1975 Agreement continued in effect in the period after May 25, 1979, during which the dispute over commission rates arose.
Moreover, the Supreme Court has held that a contractual obligation to arbitrate survives expiration of an agreement when the dispute between the parties is over an obligation "arguably created" by the expired agreement, if the agreement included an arbitration clause covering "any" grievance to arise between the parties, not merely those arising "under" the agreement. See Nolde Brothers, Inc. v. Local 358, Bakery & Confectionary Workers Union, 430 U.S. 243, 252, 97 S. Ct. 1067, 1072, 51 L. Ed. 2d 300 (1977); accord, Rochdale Village, Inc. v. Public Service Employees Union, Local 80, supra, 605 F.2d at 1295 n.6. In such a case, "the presumptions favoring arbitrability must be negated expressly or by clear implication." Nolde Brothers, Inc. v. Local 358, Bakery & Confectionary Workers Union, supra, 430 U.S. at 255, 97 S.Ct. at 1074.
*791 In the instant case, the obligation to pay sales commissions was "arguably created" by the 1975 Agreement, and the arbitration provision of Article XVI(A) covered "any dispute" that "shall arise between" the parties. Therefore, this Court finds that the obligation to arbitrate the dispute over the sales commission rates, if found to be arbitrable under Article XVI, would have survived termination of the 1975 Agreement.
The next question to consider is whether the dispute over sales commission rates is arbitrable under the 1975 Agreement. The Company argues that Article XVI(B) of the 1975 Agreement expressly excluded disputes over sales commission rates from the obligation to arbitrate. In support of its argument, the Company cites Standard Food Products Corp. v. Brandenburg, 436 F.2d 964 (2d Cir. 1970), in which the court considered an arbitration clause virtually identical to Article XVI of the 1975 Agreement, which is now before this Court. The Brandenburg court found the "unmistakably clear language of exclusion," International Union of Electrical, Radio and Machine Workers v. Westinghouse Electric Corp., supra, 218 F.Supp. at 84, that is necessary to remove a dispute from the coverage of a broad arbitration clause, such as the ones in Brandenburg and the instant case.
There is a fundamental difference, however, between the application of the exclusionary language in Brandenburg and the application proposed by the Company in the instant case. The language in the Brandenburg arbitration clause, with regard to employer violations of certain enumerated paragraphs of the agreement, explicitly preserves the right of the union to seek an injunction from a court or to resort to economic action "without the necessity of first resorting to arbitration." Compare 1975 Agreement, Art. XVI(B), supra. The Brandenburg court used that language in refusing to enjoin a strike by the union over a dispute involving a provision of one of the enumerated paragraphs, which seems to be precisely the sort of application intended for the exclusionary language. Here, in contrast, the Company urges the Court to construe the virtually identical language of the arbitration provision in the 1975 Agreement to relieve the Company of the obligation to arbitrate a dispute involving one of the enumerated paragraphs.
The language of Article XVI(B) does not explicitly relieve the Company or the Employer of any obligations; moreover, it seems clearly intended to be union-protective rather than employer-protective. Interpreting it in the way the Company proposes would involve stretching the language and reading between the lines, which are certainly inappropriate exercises for a court, given the Supreme Court's admonition that a "court should view with suspicion an attempt to persuade it to become entangled in the construction of the substantive provisions of a labor agreement, even through the back door of interpreting the arbitration clause, when the alternative is to utilize the services of an arbitrator." United Steelworkers of America v. Warrior & Gulf Navigation Co., supra, 363 U.S. at 585, 80 S.Ct. at 1354.
The limited role of a court in construing even the arbitration clause of a collective bargaining agreement has been repeatedly emphasized by the Supreme Court in cases finding that an arbitration clause is itself arbitrable under certain circumstances. The Supreme Court has stated:
The function of the court is very limited when the parties have agreed to submit all questions of contract interpretation to the arbitrator. It is confined to ascertaining whether the party seeking arbitration is making a claim which on its face is governed by the contract. Whether the moving party is right or wrong is a question of contract interpretation for the arbitrator.
United Steelworkers of America v. American Manufacturing Co., supra, 363 U.S. at 567-68, 80 S.Ct. at 1346. The Court also admonished that when a dispute arises as to the "meaning, interpretation and application" of a collective bargaining agreement, *792 arbitration should be ordered, because, "[w]hen the judiciary undertakes to determine the merits of a grievance under the guise of interpreting the grievance procedure of collective bargaining agreements, it usurps a function which under that regime is entrusted to the arbitration tribunal." Id. at 569, 80 S.Ct. at 1347. More recently, in Nolde Brothers, Inc. v. Local 358, Bakery & Confectionary Workers Union, supra, the Court reiterated:
"[T]he question of interpretation of the collective bargaining agreement is a question for the arbitrator. It is the arbitrator's construction which was bargained for; and so far as the arbitrator's decision concerns construction of the contract, the courts have no business overruling him because their interpretation of the contract is different from his."
430 U.S. at 253-54, 97 S.Ct. at 1073 (quoting United Steelworkers of America v. Enterprise Wheel & Car Corp., 363 U.S. 593, 599, 80 S. Ct. 1358, 1362, 4 L. Ed. 2d 1409 (1960). On the basis of those Supreme Court rulings, this Court finds that the dispute over the construction and effect of Article XVI is itself arbitrable, leaving for the arbitrator the question of whether the dispute over sales commission rates is arbitrable.
The final question is whether the obligation to arbitrate was vitiated by the Settlement Agreement, the strike, or the 1979 Agreement. The Company asserts that those three events negated the presumption of arbitrability of the dispute over payment of commissions, and, in effect, constituted a waiver on the part of the Union of its alleged right to arbitrate. The Union argues that those events did not vitiate the obligation to arbitrate the dispute over commission rates and that, in any event, the question of whether that alleged obligation to arbitrate was destroyed was itself a question for the arbitrator.
The issue of whether a Board settlement agreement of an unfair labor practice vitiates a company's contractual obligation to arbitrate the dispute that gave rise to the settlement, to this Court's knowledge, has never been litigated. Courts have frequently noted, however, the differences between arbitration and proceedings before the Board. See, e. g., Sea-Land Service, Inc. v. International Longshoremen's Association, 625 F.2d 38, 43 (5th Cir. 1980) ("[T]he existence of such concurrent NLRB jurisdiction is quite plainly extraneous to the arbitral process. It frequently happens that an alleged contractual default will also constitute an unfair labor practice; yet notwithstanding NLRB jurisdiction over the latter, the parties may nevertheless be enjoined to arbitrate the dispute ...."); International Union of Electrical, Radio and Machine Workers v. General Electric Co., 407 F.2d 253, 264 (2d Cir. 1968), cert. denied, 395 U.S. 904, 89 S. Ct. 1742, 23 L. Ed. 2d 217 (1969) ("the legal issues before [the Board] and an arbitrator are different"); Luckenbach Overseas Corp. v. Curran, 398 F.2d 403, 406 (2d Cir. 1968) ("Different issues are presented in each instance and it is conceivable ... that the arbitrator could fashion a remedy under the contract which would not conflict with Board policy or the Regional Director's decision."). Thus, this Court does not find the existence of the Settlement Agreement a necessary bar to arbitration. Consequently, arbitration of the sales commission dispute should be allowed if the arbitrator finds that the parties intended Article XVI(B) of the 1975 Agreement not to exclude arbitration of that dispute.
The strike and the 1979 Agreement, also, do not vitiate the obligation to arbitrate. Nor does the alleged laches on the part of the Union. The Company's argument, essentially, is that by striking, by entering the 1979 Agreement, and by delaying in seeking arbitration, the Union has waived any right to arbitration it might have had. This Court finds, however, that the question of waiver is itself a question for the arbitrator. Since Article XVI(A) of the 1975 Agreement covered "any dispute" and did not expressly take the issue of waiver outside the sphere of arbitration, the defense of waiver is a question to be resolved by the arbitrator rather than this Court. See World Brilliance Corp. v. Bethlehem Steel Co., 342 F.2d 362, 364-65 (2d Cir. 1965); Hiram Walker v. Local 2, 90 L.R.R.M. (BNA) 2971, 2974 (S.D.N.Y. Sept. 30, *793 1975); Auxiliary Power Corp. v. Eckhardt & Co., 266 F. Supp. 1020, 1022 (S.D.N.Y. 1966).
The issues of the strike, the 1979 Agreement, and laches also fall within the penumbra of the "procedural arbitrability" doctrine established by the Supreme Court in John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 84 S. Ct. 909, 11 L. Ed. 2d 898 (1964). Originally, the doctrine applied to disputes over whether the party seeking arbitration had complied with specific contractual conditions precedent to arbitration. The scope of the doctrine was extended in International Union of Operating Engineers, Local 150 v. Flair Builders, Inc., 406 U.S. 487, 92 S. Ct. 1710, 32 L. Ed. 2d 248 (1972), to cover claims by defendants in suits pursuant to section 301 of the LMRA that laches barred arbitration of a dispute arbitrable under a collective bargaining agreement.
For the reasons stated, the Company's motion to enjoin arbitration is denied, and the Union's motion to compel arbitration is granted. The clerk will enter judgment dismissing the complaint and in favor of the defendant directing the plaintiff to arbitrate.
SO ORDERED.
NOTES
[1] Article XXVI provided:
Negotiations for the renewal of this agreement shall commence at least 60 days prior to its expiration date. In the event that negotiations continue beyond the expiration term of this agreement, the Employer and the Union agree that this contract shall continue in full force and effect during the period of negotiations and the Union agrees that during the continuance of the negotiations there shall be no strike called except as provided in Article XVI (B) of this agreement, and the Employer agrees that during the period of negotiations there shall be no lockout.
[2] The Company claims that the exchange of letters between the parties manifested their intent to terminate the 1975 Agreement, see note 1 supra, while the Union alleges that their intent was to change a term and condition of employment and not to extinguish the 1975 Agreement in its entirety.
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/:lL~O
UNITED STATES DISTRICT COURT AUG3t
CI.rIc, u 2011
FOR THE DISTRICT OF COLUMBIA COurts fo~Sih District & 8
e District 0 ankruptcy
f COlumbia
JAMES M. VARDON, )
)
Plaintiff, )
)
v. ) Civil Action No. L1
)
THE FEDERAL RESERVE SYSTEM, )
)
Defendant. )
MEMORANDUM OPINION
This matter is before the Court on plaintiff's application to proceed in forma pauperis and
pro se complaint.
Plaintiff alleges that the Federal Reserve Bank's purported policies of maximum
employment, stable prices and moderate long-term interest rates have failed, and have resulted in
financial losses to plaintiff. See CompI. at 1-2. His claim fails because he does not have
standing to pursue them.
"So-called 'Article III standing' has three requirements: (1) the plaintiff has suffered 'an
injury in fact,' (2) that injury bears a causal connection to the defendant's challenged conduct,
and (3) a favorable judicial decision will likely provide the plaintiff with redress from that
injury." Hollander v. McCain, 566 F. Supp. 2d 63,67 (D.N.H. 2008) (quoting Lujan v.
Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)). The Supreme Court has "consistently held
that a plaintiff raising only a generally available grievance about government - claiming only
harm to his and every citizen's interest in proper application of the Constitution and laws, and
seeking relief that no more directly and tangibly benefits him than it does the public at large-
1
does not state an Article III case or controversy." Lujan v. Defenders of Wildlife, 504 U.S. at
573-74. "[S]tanding to sue may not be predicated upon an interest ... which is held in common
by all members of the public, because of the necessarily abstract nature of the injury all citizens
share." Schlesinger v. Reservists Comm. to Stop the War, 418 U.S. 208, 220 (1974). Here,
plaintiff cannot show that his injuries "spring from an 'injury in fact' - an invasion of a legally
protected interest that is 'concrete and particularized,' 'actual or imminent,' and 'fairly traceable'
to the challenged act of the defendant[s]." Navegar, Inc. v. United States, 103 F.3d 994,998
(D.C. Cir. 1997) (quoting Lujan v. Defenders of Wildlife, 504 U.S. at 560); see Beckman v.
Battin, 926 F. Supp. 971, 978 (D. Mont. 1995) ("Plaintiffs['] general assertion that they suffered
an increase in taxes as a result of the purchase of government bonds by the Federal Reserve, is an
interest held generally by the public, and as such, is insufficient to establish the personal injury
requirement."), ajJ'd, 83 F.3d 426 (9th Cir. 1996) (table); Hylandv. Obama, No. 09-0079,2009
WL 112855 (D.D.C. Jan 14,2009) (finding that plaintiff who challenged use of public funds to
"bailout" Wall Street firms lacked standing), aff'd, 373 Fed. App'x 83 (D.C. Cir. 2010).
An Order consistent with this Memorandum Opinion will be issued separately on this
same date.
United States District Judge
DATE:
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
___________________________________
)
CHRISTOPHER JENKINS, )
)
Plaintiff, )
v. ) Civil Action No. 11-1547 (BAH)
)
ANTONIN SCALIA, )
)
Defendant. )
___________________________________ )
MEMORANDUM OPINION
The plaintiff’s complaint in this case states, in its entirety,:
Stalking, harassment, menacing, Attempted Murder, assault, theft,
[I.D.] theft, slander, attempted vehicular manslaughter, forced
homelessness, cellphone theft, having me followed, sending gang
members after me, attempted murder for hire, malicious practice of
medicine
Compl. For these alleged wrongs, plaintiff demands judgment in the sum of $30 million. Id.
The Court has reviewed plaintiff’s complaint, keeping in mind that complaints filed by
pro se litigants are held to less stringent standards than those applied to formal pleadings drafted
by lawyers. See Haines v. Kerner, 404 U.S. 519, 520 (1972). Even pro se litigants, however,
must comply with the Federal Rules of Civil Procedure. Jarrell v. Tisch, 656 F. Supp. 237, 239
(D.D.C. 1987). Rule 8(a) of the Federal Rules of Civil Procedure requires that a complaint
contain a short and plain statement of the grounds upon which the court’s jurisdiction depends, a
short and plain statement of the claim showing that the pleader is entitled to relief, and a demand
for judgment for the relief the pleader seeks. Fed. R. Civ. P. 8(a); see Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007) (stating that a complaint must contain “‘a short and plain
statement of the claim showing that the pleader is entitled to relief,’ in order to ‘give the
1
defendant fair notice of what the . . . claim is and the grounds upon which it rests’”) (quoting
Conley v. Gibson, 355 U.S. 41, 47 (1957)). The purpose of the minimum standard of Rule 8 is to
give fair notice to the defendants of the claim being asserted, sufficient to prepare a responsive
answer, to prepare an adequate defense and to determine whether the doctrine of res judicata
applies. Brown v. Califano, 75 F.R.D. 497, 498 (D.D.C. 1977).
Plaintiff’s complaint utterly fails to accomplish the modest goals of Rule 8(a). It neither
contains a short and plain statement of the grounds upon which the Court’s jurisdiction depends
nor a claim that plaintiff is entitled to the relief he seeks. The complaint will be dismissed for its
failure to comply with Rule 8(a). An Order consistent with this Memorandum Opinion is issued
separately.
/s/ Beryl A. Howell
DATE: August 30, 2011 BERYL A HOWELL
United States District Judge
2
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Fourth Court of Appeals
San Antonio, Texas
January 23, 2018
No. 04-16-00298-CV
EL CABALLERO RANCH, INC. and Laredo Marine, L.L.C.,
Appellants
v.
GRACE RIVER RANCH, L.L.C.,
Appellees
From the 218th Judicial District Court, La Salle County, Texas
Trial Court No. 13-04-00108-CVL
Honorable Russell Wilson, Judge Presiding
ORDER
On January 9, 2018, Appellant El Caballero Ranch, Inc. filed a notice stating that its
Chapter 11 bankruptcy proceeding has concluded and requesting the appeal be reinstated on the
active docket of the court. No objection or response has been filed.
We therefore order this appeal reinstated on the active docket of the court. We order
appellee’s brief due February 22, 2018.
_________________________________
Luz Elena D. Chapa, Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 23rd day of January, 2018.
___________________________________
KEITH E. HOTTLE,
Clerk of Court
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01-03-2023
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01-31-2018
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